As filed with the Securities and Exchange Commission on April __, 1997
Registration Statement No. 333-22843
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM S-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PREFERRED SECURITIZATION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0753116
(State or other jurisdiction (IRS Employee
of incorporation or organization) Identification Number)
3347 Michelson Drive, Suite 400
Irvine, California 92612
(714) 474-0700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Todd A. Rodriguez
PREFERRED SECURITIZATION CORPORATION
3347 Michelson Drive, Suite 400
Irvine, California 92612
(714) 474-0700
(Address, including zip code, and telephone number,
area code, of agent for service)
Copy to:
Reed D. Auerbach, Esq.
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /x/
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./x/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /x/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /x/
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each class Amount to Proposed maximum offering Proposed maximum Amount of
securities to be registered be registration aggregate aggregate price aggregate offering price registation fee
<S> <C> <C> <C> <C>
Asset Backed Notes $1,000,000 100% $1,000,000 $303.04
(the "Notes") and Asset
Backed Certificates (the
"Certificates" and, together
with the Notes, the
"Securities")
(1) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL __, 1997
PROSPECTUS
Preferred Consumer Loan Trusts
Asset Backed Certificates
Asset Backed Notes
(Issuable in Series)
Preferred Credit Corporation, Seller
Preferred Securitization Corporation, Depositor
Preferred Securitization Corporation (the "Depositor") may offer from time
to time the Asset Backed Notes (the "Notes") and the Asset Backed Certificates
(the "Certificates" and, together with the Notes, the "Securities") described
herein which may be sold from time to time in one or more series (each, a
"Series") in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (each, a "Prospectus
Supplement"). Each Series of Securities may include one or more classes (each, a
"Class") of Notes and/or Certificates. The Certificates will be issued by a
trust to be formed by the Depositor with respect to such Series (each, a
"Trust") pursuant to either a Trust Agreement (each, a "Trust Agreement") to be
entered into between the Depositor and the trustee specified in the related
Prospectus Supplement (the "Trustee") or a Pooling and Servicing Agreement
(each, a "Pooling and Servicing Agreement") among the Depositor, Advanta
Mortgage Corp. USA or such other entity appointed as servicer thereunder (the
"Servicer") and the Trustee. If a Series of Securities includes Notes, such
Notes will be issued and secured pursuant to an Indenture (each, an "Indenture")
to be entered into between any of (i) the Trust, (ii) the Depositor or (iii) a
partnership, corporation or limited liability company formed by the Depositor
solely for the purpose of issuing the Notes of the related Series, as issuer
(the "Issuer") and the Indenture Trustee (the "Indenture Trustee"), in each
case, as specified in the related Prospectus Supplement and will represent
indebtedness of the related Issuer. If with respect to a Series of Notes, the
Issuer is the Depositor, such Notes will have recourse solely to the assets of
the Depositor pledged to secure such Notes under the related Indenture as
specified in the related Prospectus Supplement. The related Prospectus
Supplement will specify which Class or Classes of Notes, if any, and which Class
or Classes of Certificates, if any, of the related Series are being offered
thereby.
(cover continued on next page)
See "RISK FACTORS" on page 19 for certain factors to be considered in
purchasing the Securities.
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER, AND
CERTIFICATES OF A SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED
ISSUER ONLY AND ARE NOT GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, THE SELLER, THE TRUSTEE,
THE
SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS OTHERWISE
SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY
OTHER PERSON OR ENTITY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Securities offered hereby unless accompanied by
a Prospectus Supplement.
The date of the Prospectus is __________ __, 199__
<PAGE>
(cover continued from previous page)
The assets of the Issuer for the related Series (the "Issuer Assets") will
include consumer loan related assets (the "Loan Assets") purchased directly or
indirectly from Preferred Credit Corporation (the "Seller") comprised of one or
more pools of fixed or adjustable rate closed-end no or low equity mortgage
loans (the "Loans") secured by mortgages or deeds of trust, which are generally
subordinate liens on residential one- to four-family properties (the "Mortgaged
Properties"), including townhouses, individual units in condominium and planned
unit developments. The related proceeds of the Loans are generally used to
finance (i) debt consolidation, (ii) property improvements, (iii) the
acquisition of personal property such as home appliances or furnishings, (iv)
the purchase or refinancing of residential one- to four-family properties, and
(v) a combination of debt consolidation, property improvements and other
consumer purposes. The Issuer Assets for a related Series may also include (a)
all monies due under the Loan Assets net, if and as provided in the related
Prospectus Supplement, of certain amounts payable to the Servicer, (b) if
specified in the related Prospectus Supplement, funds on deposit in one or more
pre-funding accounts available to acquire additional Loan Assets during the
period specified in the related Prospectus Supplement and/or capitalized
interest accounts available to fund interest shortfalls arising from the use of
pre-funding accounts and (c) reserve funds, letters of credit, surety bonds,
insurance policies or other forms of credit support as described herein and in
the related Prospectus Supplement. The amount initially deposited in a
pre-funding account for a Series of Securities will not exceed fifty percent of
the aggregate principal amount of such Series of Securities.
Interest on and principal of each Class of Securities of a Series will be
payable on the dates specified in the related Prospectus Supplement, at the
times, at the rates, in the amounts and in the order of priority set forth in
the related Prospectus Supplement.
If a Series includes multiple Classes of Securities, such Classes may vary
with respect to the amount, percentage and timing of distributions of principal,
interest or both and one or more Classes may be subordinated to other Classes
with respect to distributions of principal, interest or both as described herein
and in the related Prospectus Supplement. A Series may include one or more
Classes of Securities entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. If so specified in the related Prospectus Supplement, the Loan Assets
and other related assets of the Issuer may be divided into one or more loan
groups (each, a "Loan Group") and each Class of Securities of the related Series
may have varying rights in one or more of the corresponding Loan Groups, as
specified in the related Prospectus Supplement.
The rate of payment of the aggregate principal balance of each Class of a
Series may depend principally upon the rate of payment (including prepayments)
with respect to the Loans. A rate of prepayment lower or higher than anticipated
will affect the yield on the Securities of a Series in the manner described
herein and in the related Prospectus Supplement. Under certain limited
circumstances described herein and in the related Prospectus Supplement, one or
more Classes of a Series of Securities may be subject to termination or
redemption under the circumstances described herein and in the related
Prospectus Supplement.
If specified in the related Prospectus Supplement, an election may be made
to treat certain assets of the Issuer for a Series as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes. See "FEDERAL
INCOME TAX CONSIDERATIONS."
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described herein and in
the related Prospectus Supplement. See "PLAN OF DISTRIBUTION" herein. There will
have been no public market for any Series of Securities prior to the offering
thereof. There can be no assurance that a secondary market will develop for the
Securities of any Series or, if one does one develop, that such market will
continue. No application will be made to list the Securities on any securities
exchange.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to such Series of
Securities offered thereby (the "Offered Securities"): (i) a description of each
Class of such Offered Securities, including with respect to each such Class the
following, (A) the applicable payment or distribution provisions and priorities,
including the nature and extent of subordination of any Class of Securities of
such Series, (B) the aggregate principal amount, if any, (C) the rate at which
interest accrues from time to time, if at all, or the method of determining such
rate, (D) whether interest will accrue from time to time on its aggregate
principal amount, if any, or on a specified notional amount, if at all, (E)
whether such Class of Securities will be initially issued in definitive or
book-entry form; (ii) information with respect to any other Class of Securities
of the same Series; (iii) the respective dates on which payments or
distributions are to be made and the method of payment or distributions;
(iv)certain information concerning the Loan Assets, the Seller, the Servicer and
the applicable Trustee(s); (v) the terms of any Enhancement with respect to such
Series; (vi)the amount, if any, deposited in the pre-funding account available
to purchase additional Loans, the length of the pre-funding period and the
criteria for determining which additional Loans may become related assets of the
related Issuer; (vii)additional information with respect to the plan of
distribution of such Securities; and (viii)whether a REMIC election will be made
with respect to some or all of the Issuer Assets for such Series.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Issuer for a Series of
Securities are required under the related Agreement to be forwarded to Holders.
Unless otherwise specified in the related Prospectus Supplement, such reports
will not be examined and reported on by an independent public accountant. If so
specified in the related Prospectus Supplement for a Series of Securities, such
Series or one or more Classes of such Series will be issued in book-entry form.
In such event, (i) owners of beneficial interests in such Securities will not be
considered "Holders" under the Agreements and will not receive such reports
directly from the related Issuer; rather, such reports will be furnished to such
owners through the participants and indirect participants of the applicable
book-entry system and (ii) references herein to the rights of "Holders" shall
refer to the rights of such owners as they may be exercised indirectly through
such participants. See "THE AGREEMENTS--Reports to Holders."
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Office located as follows,
Midwest Regional Office, 500 West Madison Street, Suite 1400 Chicago, Illinois
60661-2511; and Northeast Regional Office, Seven World Trade Center, New York,
New York 10048. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding the
registrants that file electronically with the Commission, including the
Depositor. The address of such Internet web site is (http://www.sec.gov).
The Issuer with respect to each Series will be required to file certain
reports with the Commission pursuant to the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositor intends to
cause each Issuer to suspend filing such reports if and when such reports are no
longer required under the Exchange Act.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any related
Prospectus Supplement and, if given or made, such information or representations
must not be relied upon. This Prospectus and any related Prospectus Supplement
do not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Securities offered hereby and thereby nor an offer of
the Securities to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Issuer referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of any offering of the Securities issued
by such Issuer shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for all purposes of this Prospectus to the extent that a statement contained
herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Depositor on behalf of any Issuer will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Depositor
at 3347 Michelson Drive, Suite 400, Irvine, California 92612, Attn.: President
(telephone: (714) 474-0200; facsimile: (714) 474-3872).
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "GLOSSARY OF TERMS."
ISSUER..............................With respect to each Series of Securities,
the "Issuer" shall be any of (i) a Trust
to be formed by the Depositor pursuant to
a Pooling and Servicing Agreement or
Trust Agreement (each, a "Trust"), (ii)
the Depositor or (iii) a partnership,
corporation or limited liability company
formed by the Depositor solely for the
purpose of issuing the Notes of the
related Series. If with respect to a
Series of Notes, the Issuer is the
Depositor, holders of such Notes will
have recourse solely to one or more
segregated pools of assets of the
Depositor that secure such Notes under
the related Indenture as specified in the
related Prospectus Supplement.
SECURITIES OFFERED.....................Asset Backed Certificates (the
"Certificates") and Asset Backed Notes
(the "Notes" and, together with the
Certificates, the "Securities").
Certificates are issuable from time to
time in Series pursuant to a Pooling
and Servicing Agreement or Trust
Agreement. Each Certificate of a
Series will evidence an interest in the
Issuer for such Series, or in one or
more Loan Groups specified in the
related Prospectus Supplement. Notes
are issuable from time to time in
Series pursuant to an Indenture. Each
Series of Securities will consist of
one or more Classes, one or more of
which may be Classes of Compound
Interest Securities, Planned
Amortization Class ("PAC") Securities,
Variable Interest Securities, Zero
Coupon Securities, Principal Only
Securities, Interest Only Securities,
Senior Securities or Subordinate
Securities. Each Class may differ in,
among other things, the amounts
allocated to and the priority of
principal and interest payments, Final
Scheduled Distribution Dates,
Distribution Dates and interest rates.
The Securities of each Class will be
issued in fully registered form in the
denominations specified in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, each Class of Securities
of a Series will be available for
purchase in denominations of $25,000
and integral multiples of $1,000 in
excess thereof. If so specified in the
related Prospectus Supplement, the
Securities or certain Classes of such
Securities offered thereby may be
available in book-entry form only. If
the related Prospectus Supplement
specifies that Classes of Securities are
offered in book- entry form, the Holders
of such Securities will be able to
receive definitive Securities only in
the limited circumstances described
herein and in the related Prospectus
Supplement. See "DESCRIPTION OF THE
SECURITIES--Book-Entry Securities."
Unless otherwise specified in the
related Prospectus Supplement, persons
acquiring beneficial ownership interests
in Securities in book-entry form will
hold their interests in such Securities
through The Depository Trust Company
("DTC") in the United States and Cedel
Bank, societe anonyme ("Cedel") and the
Euroclear System ("Euroclear") in
Europe. See "DESCRIPTION OF THE
SECURITIES--General" and "ANNEX I."
DEPOSITOR..............................Preferred Securitization Corporation (the
"Depositor") a Delaware corporation,
and a wholly-owned, special purpose
subsidiary of Preferred Credit
Corporation. See "THE DEPOSITOR."
SELLER.................................Preferred Credit Corporation (the
"Seller"), a California corporation.
See "THE SELLER."
SERVICER...............................Advanta Mortgage Corp. USA, a Delaware
corporation and an indirect subsidiary
of Advanta Corp., a Delaware corporation
or such other entity specified in the
related Prospectus Supplement (the
"Servicer"). See "THE SERVICER."
INTEREST PAYMENTS......................Interest payments on the Securities of a
Series entitled by their terms to
receive interest will be made on each
Distribution Date, to the extent set
forth in, and at the applicable rate
specified in (or determined in the
manner set forth in), the related
Prospectus Supplement. The interest
rate on Securities of a Series may be
variable or change with changes in the
rates of interest on the related Loans
and/or as prepayments occur with
respect to such Loans. Interest Only
Securities may be assigned a "Notional
Amount" set forth in the related
Prospectus Supplement which is used
solely for convenience in expressing
the calculation of interest and for
certain other purposes and does not
represent the right to receive any
distributions allocable to principal.
Principal Only Securities may not be
entitled to receive any interest
payments or may be entitled to receive
only nominal interest payments.
Interest payable on the Securities of a
Series on a Distribution Date will
include all interest accrued during the
period specified in the related
Prospectus Supplement. See
"DESCRIPTION OF THE SECURITIES--Payments
of Interest."
PRINCIPAL PAYMENTS.....................All payments of principal of a Series of
Securities will be made in an aggregate
amount determined as set forth in the
related Prospectus Supplement and will
be paid at the times and will be
allocated among the Classes of such
Series in the order and amounts, and
will be applied either on a pro rata or
a random lot basis among all Securities
of any such Class, all as specified in
the related Prospectus Supplement. See
"DESCRIPTION OF THE
SECURITIES--Payments of Principal."
FINAL SCHEDULED
DISTRIBUTION DATE
OF THE SECURITIES....................The Final Scheduled
Distribution Date with respect to each
Class of Notes is the date no later than
which principal thereof will be fully
paid and with respect to each Class of
Certificates is the date after which no
Certificates of such Class are expected
to remain outstanding, in each case
calculated on the basis of the
assumptions applicable to such Series
described in the related Prospectus
Supplement. The Final Scheduled
Distribution Date of a Class may equal
the maturity date of the Loan Asset of
the related Issuer (or Loan Group, as
applicable) which has the latest stated
maturity or will be determined as
described herein and in the related
Prospectus Supplement.
The actual final Distribution Date of the
Securities of a Series will depend
primarily upon the rate of payment
(including prepayments, liquidations due
to default, the receipt of proceeds from
casualty insurance policies and
repurchases) of the Loan Assets
supporting the related Series. Unless
otherwise specified in the related
Prospectus Supplement, the actual final
Distribution Date of any Security is
likely to occur earlier and may occur
substantially earlier or may occur later
than its Final Scheduled Distribution
Date as a result of the application of
prepayments to the reduction of the
principal balances of the Securities and
as a result of defaults on the Loan
Assets. The rate of payments on the Loans
supporting a related Series will depend
on a variety of factors, including
certain characteristics of such Loans and
the prevailing level of interest rates
from time to time, as well as on a
variety of economic, demographic, tax,
legal, social and other factors. No
assurance can be given as to the actual
prepayment experience with respect to a
Series. See "RISK FACTORS--Negative
Effects of Prepayment on Average Life"
and "--Yield May Vary" and "DESCRIPTION
OF THE SECURITIES--Weighted Average Life
of the Securities."
SPECIAL REDEMPTION..................... If so specified in the
Prospectus Supplement relating to a
Series of Securities having other than
monthly Distribution Dates, one or more
Classes of Securitie of such Series may
be subject to special redemption, in
whole or in part, on the day specified
in the related Prospectus Supplement (a
"Special Redemption Date") if, as a
consequence of prepayments on the Loans
relating to such Securities or low
yields then available for reinvestment,
the entity specified in the related
Prospectus Supplement determines, based
on assumptions specified in the
applicable Agreement, that the amount
available for the payment of interest
that will have accrued on such
Securities (the "Available Interest
Amount") through the designated interest
accrual date specified in the related
Prospectus Supplement is less than the
amount of interest that will have
accrued on such Securities to such date.
In such event and as further described
in the related Prospectus Supplement,
the Trustee will redeem a principal
amount of outstanding Securities of such
Series as will cause the Available
Interest Amount to equal the amount of
interest that will have accrued through
such designated interest accrual date
for such Series of Securities
outstanding immediately after such
redemption.
OPTIONAL REDEMPTION, PURCHASE OR
TERMINATION............................One or more Classes of Securities of any
Series may be redeemed or repurchased in
whole or in part, at the related
Issuer's, the Holders' of the Residual
Interests, the Depositor's or the
Servicer's option, at such time and under
the circumstances specified in the
related Prospectus Supplement, at the
price set forth therein. If so specified
in the related Prospectus Supplement for
a Series of Securities, the related
Issuer, the Holders of the Residual
Interest, the Depositor, the Servicer, or
such other entity that is specified in
the related Prospectus Supplement, may,
at its option, repurchase all of the
Issuer Assets remaining relating to such
Series on or after any date on which the
aggregate principal balances of the Loans
relating to such Securities is less than
10% (if the Holders of the Residual
Certificates are exercising their option)
or is less than 5% (if the Servicer (or
such other entity, if any, specified in
the related Prospectus Supplement, if the
Servicer fails to exercise its option) is
exercising its option) of the aggregate
Principal Balances of the Loans as of the
related Cut-Off Date (the "Maximum
Collateral Amount"), by purchasing from
the related Trust, on the next succeeding
Distribution Date, all of the property of
such Trust at a price equal to the sum of
(a) the greater of (i) 100% of the
Principal Balance of each outstanding
Loan and each REO Property and (ii) the
fair market value (disregarding accrued
interest) of the Loans and such REO
Properties, determined as the average of
three written bids (copies of which are
to be delivered to the Trustee by the
Servicer and the reasonable cost of which
may be deducted from the final purchase
price) made by nationally-recognized
dealers reasonably acceptable to the
Trustee or such other party as may be
identified in the related Prospectus
Supplement and based on a valuation
process which would be used to value
comparable mortgage loans and REO
properties, plus (b) the greater of (x)
the aggregate amount of accrued and
unpaid interest on the Loans through the
related Collection Period and (y) 30
days' accrued interest thereon computed
at a rate equal to the related Loan Rate,
and (c) in the event the Holders of the
Residual Certificates or such other party
as may be identified in the related
Prospectus Supplement exercise such
option, plus any unpaid and accrued
Servicing Fee or, in the event the
Servicer exercises such option, net of
the Servicing Fee. See "DESCRIPTION OF
THE SECURITIES-Optional Redemption,
Purchase or Termination."
SECURITIES INVOLVE RISKS............. An investment in the Securities of any
Series involves material risks and
should only be considered by investors
which, either alone or together with
their investment advisors, have the
ability to understand such risks. See
"RISK FACTORS" beginning on page 17
herein.
ISSUER ASSETS..........................The assets supporting a Series of
Securities will consist of one or more
of the assets described below, as
described in the related Prospectus
Supplement.
A. LOAN ASSETS......................The Loan Assets will be sold by the Seller
directly or indirectly to the Issuer
without recourse except in the case of
breach of certain limited
representations and warranties.
The Loan Assets for a Series may include
one or more pools of closed- end no or
low equity mortgage loans (the "Loans")
secured by mortgages or deeds of trust,
which are generally subordinate liens,
on residential one- to four-family
properties (the "Mortgage Properties"),
including townhouses and individual
units in condominiums and planned unit
developments. Loans may, as specified in
the related Prospectus Supplement, have
various payment characteristics, and may
accrue interest at a fixed rate or an
adjustable rate. The related proceeds of
the Loans are generally used to finance
(i) debt consolidation, (ii) property
improvements, (iii) the acquisition of
personal property such as home
appliances or furnishings, (iv) the
purchase or refinancing of residential
one- to four-family properties, and (v)
a combination of debt consolidation,
property improvements and other consumer
purposes. To the extent provided in the
related Prospectus Supplement,
additional Loans may be periodically
acquired by the related Issuer using
funds deposited in a Pre-Funding Account
(as described below under "--Pre-Funding
and Capitalized Interest Accounts") for
the benefit of a particular Series, as
described in the related Prospectus
Supplement.
The related Prospectus Supplement will
describe certain characteristics of the
Loans for a Series, including, without
limitation, and to the extent relevant:
(a)the aggregate unpaid principal
balance of the Loans; (b) the range and
weighted average Loan Rate on the Loans
and in the case of adjustable rate
Loans, the range and weighted average of
the Current Loan Rates and the Lifetime
Rate Caps, if any; (c) the range and the
average outstanding principal balance of
the Loans; (d) the weighted average
original and remaining term-to- stated
maturity of the Loans and the range of
original and remaining terms-to-stated
maturity, if applicable; (e) the range
of credit bureau risk scores of the
Loans and the weighted average credit
bureau risk score; (f)the range and
weighted average Combined Loan-to-Value
Ratios or Loan-to-Value Ratios, as
applicable, of the Loans, computed in
the manner described in the related
Prospectus Supplement; (g)the percentage
(by principal balance as of the date
specified in the related Prospectus
Supplement) of Loans that accrue
interest at adjustable or fixed interest
rates; (h)any enhancement relating to
the Loans; (i)the geographic
distribution of the Loans; (j) the use
and type of each Mortgaged Property; (k)
the lien priority of the Loans; and (l)
the delinquency status and year of
origination of the Loans. See
"DESCRIPTION OF THE ISSUER
ASSETS-General."
B. COLLECTION, CERTIFICATE AND
DISTRIBUTION ACCOUNTS............ Unless otherwise
provided in the related Prospectus
Supplement, all payments on or with
respect to the Loan Assets for a Series
will be remitted directly to an account
(the "Collection Account" or the
"Certificate Account") to be established
for such Series with the applicable
Trustee or the Servicer, in the name of
the applicable Trustee. Unless otherwise
provided in the related Prospectus
Supplement, the Trustee shall be required
to apply a portion of the amount in the
Collection Account or the Certificate
Account, together with reinvestment
earnings from eligible investments
specified in the related Prospectus
Supplement, to the payment of
certain amounts payable to the Servicer
under the related Agreement and any other
person specified in the Prospectus
Supplement, and to deposit a portion of
the amount in the Collection Account into
a separate account (the "Distribution
Account") to be established for such
Series, each in the manner and at the
times established in the related
Prospectus Supplement. All amounts
deposited in such Distribution Account
will be available, unless otherwise
specified in the related Prospectus
Supplement, for (i) application to the
payment of principal of and interest on
such Series of Securities on the next
Distribution Date, (ii) the making of
adequate provision for future payments on
certain Classes of Securities and (iii)
any other purpose specified in the
related Prospectus Supplement. After
applying the funds in the Collection
Account or the Certificate Account as
described above, any funds remaining in
the Collection Account or the Certificate
Account may be paid over to the Servicer,
the Depositor, any provider of
Enhancement with respect to such Series
(an "Enhancer") or any other person
entitled thereto in the manner and at the
times established in the related
Prospectus Supplement. See "DESCRIPTION
OF THE ISSUER ASSETS-Collection,
Certificate and Distribution Accounts."
C. PRE-FUNDING AND
CAPITALIZED INTEREST
ACCOUNTS.......................If specified in the related Prospectus
Supplement, the related Issuer will
establish and maintain with the applicable
Trustee for the related Series one or more
segregated trust accounts (each, a "Pre-
Funding Account"). If so specified, on the
closing date for such Series, a portion of
the proceeds of the sale of the Securities
of such Series (such amount, the
"Pre-Funded Amount") will be deposited in
the Pre-Funding Account and may be used to
purchase additional Loan Assets during the
period of time, not to exceed six months,
specified in the related Prospectus
Supplement (the "Pre-Funding Period"). The
Loan Assets to be so purchased will be
required to have certain characteristics
specified in the related Prospectus
Supplement. If any Pre-Funded Amount
remains on deposit in the Pre-Funding
Account at the end of the Pre-Funding
Period, such amount will be applied in the
manner specified in the related Prospectus
Supplement to prepay the Notes and/or the
Certificates of the applicable Series. The
amount initially deposited in a pre-
funding account for a Series of Securities
will not exceed fifty percent of the
aggregate principal amount of such Series
of Securities.
If a Pre-Funding Account is established, one
or more segregated trust accounts (each, a
"Capitalized Interest Account") may be
established and maintained with the
applicable Trustee for the related Series.
On the closing date for such Series, a
portion of the proceeds of the sale of the
Securities of such Series will be
deposited in the Capitalized Interest
Account and used to fund the excess, if
any, of (x) the sum of (i) the amount of
interest accrued on the Securities of such
Series and (ii) if specified in the
related Prospectus Supplement, certain
fees or expenses during the Pre-Funding
Period such as trustee fees and credit
enhancement fees, over (y) the amount of
interest available therefor from the
Issuer Assets of the related Series. Any
amounts on deposit in the Capitalized
Interest Account at the end of the
Pre-Funding Period that are not necessary
for such purposes will be distributed to
the person specified in the related
Prospectus Supplement. See "DESCRIPTION OF
THE ISSUER ASSET--Pre-Funding and
Capitalized Interest Accounts."
D. REVOLVING PERIOD AND
AMORTIZATION PERIOD;
RETAINED INTEREST..............If the related Prospectus
Supplement so provides, there may be a
period commencing on the date of
issuance of a class or classes of Notes
or Certificates of a Series and ending
in the date set forth on the related
Prospectus Supplement (each, a
"Revolving Period") during which no
principal payments will be made to one
or more classes of Notes or
Certificates of the related Series as
are identified in such Prospectus
Supplement. Until the applicable
Revolving Period ends, all collections
of principal otherwise allocated to such
classes of Notes or Certificates may be
(i) utilized by the Issuer during the
Revolving Period to acquire additional
Loans which satisfy the criteria
described under "DESCRIPTION OF THE
ISSUER ASSETS" and the criteria set
forth in the related Prospectus
Supplement, (ii) held in an account and
invested in Eligible Investments for
later distribution to Securityholders,
(iii) applied to those Notes or
Certificates for such Series, if any,
specified in the related Prospectus
Supplement as then are in amortization,
or (iv) otherwise applied as specified
in the related Prospectus Supplement.
The purpose of a Revolving Period for
any Series of Securities is to extend
the maturity of such Securities to a
date which would not otherwise be
possible if the Issuer Assets of the
related Trust were a fixed pool.
An "Amortization Period" is the period
during which principal collections which
were not available for distribution
during the Revolving Period (as they
were applied to one or more of the uses
specified in the preceding paragraph)
become available for distribution to
Holders of Securities. If so specified
in the related Prospectus Supplement,
during an Amortization Period all or a
portion of principal collections on the
Receivables may be applied as specified
above for a Revolving Period and, to the
extent not so applied, will be
distributed to the classes of Notes or
Certificates for such Series specified
in the related Prospectus Supplement as
then being entitled to payments of
principal. In addition, if so specified
in the related Prospectus Supplement,
amounts deposited in certain accounts
for the benefit of one or more classes
of Notes or Certificates for such Series
may be released from time to time or on
a specified date and applied as a
payment of principal on such classes of
Notes or Certificates. The related
Prospectus Supplement will set forth the
circumstances which will result in the
commencement of an Amortization Period.
Any Amortization Period which begins
earlier than anticipated with respect to
a class of Securities upon the
occurrence of such circumstances as will
be described in the related Prospectus
Supplement (any such occurrence, an
"Early Amortization Event") will result
in an acceleration of principal payments
on such class, which will cause such
class to have a shorter weighted average
life than had such Early Amortization
Event not occurred. Such an acceleration
of principal payments may adversely
affect the yield to maturity of the
related Securities.
Each Series of Securities which has a
Revolving Period may also issue to the
Depositor a certificate evidencing an
undivided beneficial interest (a
"Retained Interest") in such Series not
represented by the other Securities
issued by such Issuer. As further
described in the related Prospectus
Supplement, the value of such Retained
Interest will fluctuate as the amount of
Issuer Assets fluctuates and the amount
of Notes and Certificates of the related
Series of Securities outstanding is
reduced.
ENHANCEMENT............................If and to the extent specified
in the related Prospectus Supplement,
enhancement with respect to a Series or
any Class of Securities may include any
one or more of the following: a
financial guaranty insurance policy,
overcollateralization, a letter of
credit, a cash reserve fund, insurance
policies, one or more Classes of
Subordinate Securities, interest rate
swaps, caps, floors and other derivative
products or other forms of credit
enhancement, or any combination thereof
(collectively, "Enhancement") acceptable
to the rating agency or agencies
identified in the related Prospectus
Supplement as rating the related Series
of Securities (collectively, the "Rating
Agency"). The Enhancement with respect
to any Series or any class of Securities
may be structured to provide protection
against delinquencies and/or losses on
the Loan Assets, against changes in
interest rates, or other risks, to the
extent and under the conditions
specified in the related Prospectus
Supplement. Any form of Enhancement will
have certain limitations and exclusions
from coverage thereunder, which will be
described in the related Prospectus
Supplement. Further information
regarding any Enhancer, including
financial information when material,
will be included in the related
Prospectus Supplement. See
"ENHANCEMENT."
With respect to any Series of Securities
including one or more Classes of Notes,
distributions in respect of the
Certificates may be subordinated in
priority of payment to payments on the
Notes, to the extent specified in the
related Prospectus Supplement.
CREDIT QUALITY OF LOANS............. The Loans originated or
purchased by the Seller will have been
made to borrowers that typically have
limited access to traditional mortgage
financing for a variety of reasons, such
as insufficient home equity value, high
levels of debt service-to-income, past
credit experience or a limited credit
history. See "RISK FACTORS--
Underwriting Standards May Affect
Performance" and "THE SELLER." The
Seller has in the past and will in the
future change its underwriting
guidelines and procedures when, in its
business judgment, competition or other
conditions in its market so warrant. As
a result, Loans originated at different
times may reflect different underwriting
guidelines and be of different credit
quality. However, it is anticipated that
any such material differences will be
reflected in the levels of Enhancement
for the related Series of Securities.
Any such material differences in
underwriting standards will be fully
disclosed in the related Prospectus
Supplement.
SERVICING...........................The Servicer will be responsible for
servicing, managing and making
collections on the Loans for a Series.
In addition, the Servicer, if so
specified in the related Prospectus
Supplement, will act as custodian and
will be responsible for maintaining
custody of the Loans and related
documentation on behalf of the Trustee.
Advances with respect to delinquent
payments of principal or interest on a
Loan will be made by the Servicer only
to the extent described in the related
Prospectus Supplement. Such advances
will be intended to provide liquidity
only and, unless otherwise specified in
the related Prospectus Supplement, are
reimbursable to the Servicer from
scheduled payments of principal and
interest, late collections, or from the
proceeds of liquidation of the related
Loans or from other recoveries relating
to such Loans (including any insurance
proceeds or payments from other credit
support). Advances with respect to
Compensating Interest in the cases of
full prepayment of a Loan and with
respect to Mortgaged Property protection
will be made by the Servicer only to
the extent specified in the related
Prospectus Supplement. "Compensating
Interest" is an amount equal to the
difference between (x) 30 days' interest
at the Loan Rate (net of the rate at
which the Servicing Fee is calculated)
on the Principal Balance of such Loan
as of the first day of the related
Collection Period and (y) to the extent
not previously advanced, the interest
paid by the borrower with respect to
such Loan in connection with such
prepayment. The Servicer will not be
required to pay Compensating Interest
with respect to any Collection Period in
an amount in excess of the aggregate
Servicing Fee received by the Servicer
for such Collection Period. See
"SERVICING OF LOAN- -Advances and
Limitations Thereon."
In performing these functions, the Servicer
will make reasonable efforts to collect
all payments required to be made under
the Loans and will be obligated,
consistent with the terms of the related
Agreement for a Series and any applicable
Enhancement, to follow such collection
procedures as it follows with respect to
loans comparable to the Loans and which
are required to generally conform to the
servicing practices of prudent lending
institutions which service loans of the
same type as the Loans for their own
account in the jurisdiction in which such
Loans were originated ("Accepted
Servicing Practices"). Under certain
limited circumstances, the Servicer may
resign or be removed, in which event
either the Trustee or a third-party
servicer will be appointed as successor
servicer. The Servicer will receive a
periodic fee as servicing compensation
(the "Servicing Fee") and may, as
specified herein and in the related
Prospectus Supplement, receive certain
additional compensation. See "SERVICING
OF LOANS--Servicing Compensation and
Payment of Expenses."
FEDERAL INCOME
TAX CONSIDERATIONS
A. REMIC SECURITIES.................If so specified in the related
Prospectus Supplement an election will
be made to treat all or a portion of
the Issuer Assets of a Series as a
"real estate mortgage investment
conduit" (a "REMIC") and Stroock &
Stroock & Lavan LLP, special tax counsel
to the Depositor ("Federal Tax
Counsel"), will deliver its opinion
generally to the effect that the
arrangement by which the Securities are
issued will be treated as a REMIC for
federal income tax purposes. The
Classes of Securities of such Series
will be designated as "regular
interests" or "residual interests" in a
REMIC. Holders of Securities
constituting "regular interests" in a
REMIC must report income with respect
to such Securities on the accrual method
regardless of a Holder's usual method
of accounting. Securities that are
Compound Interest Securities, Zero
Coupon Securities or Interest Only
Securities will, and certain other
Classes of Securities may, be issued
with original issue discount that is not
de minimis. In such cases, the Holder
will be required to include original
issue discount in gross income as it
accrues, which may be prior to the
receipt of cash attributable to such
income. If a Security is issued at a
premium, the Holder may be entitled to
make an election to amortize such
premium on a constant yield method.
A Holder of a residual interest in a REMIC
("Residual Interest") will be required to
include in its income its pro rata share
of the taxable income of the REMIC. In
certain circumstances, the Holder of a
Residual Interest may have REMIC taxable
income or tax liability attributable to
REMIC taxable income for a particular
period in excess of cash distributions
for such period or have an after-tax
return that is less than the after-tax
return on comparable debt instruments. In
addition, a portion (or, in some cases,
all) of the income from a Residual
Interest (i) may not be subject to offset
by losses from other activities or
investments, (ii) for a Holder that is
subject to tax under the Code on
unrelated business taxable income, may be
treated as unrelated business taxable
income and (iii) for a foreign holder,
may not qualify for exemption from or
reduction of withholding. In addition,
(i) Residual Interests are subject to
transfer restrictions and (ii) certain
transfers of Residual Interests will not
be recognized for federal income tax
purposes. See "FEDERAL INCOME TAX
CONSIDERATIONS."
B. NON-REMIC
PASS-THROUGH
SECURITIES...................If so specified in the related Prospectus
Supplement, Federal Tax Counsel will
deliver its opinion generally to the
effect that the Issuer for the related
Series will be classified for federal
income tax purposes as a grantor trust
and will not be classified as an
association taxable as a corporation for
federal income tax purposes. Holders
of Securities of such Series
("Pass-Through Securities") will be
treated as owning directly rights to
receive certain payments of interest or
principal, or both on the Loan Assets
for such Series. All income with
respect to a Stripped Security (as
defined herein) will be accounted for
as original issue discount and, unless
otherwise specified in the related
Prospectus Supplement, will be reported
by the applicable Trustee on an accrual
basis, which may be prior to the
receipt of cash associated with such
income. See "FEDERAL INCOME TAX
CONSIDERATIONS."
C. OWNER TRUST
SECURITIES...................If so specified in the related Prospectus
Supplement, the Issuer for a Series
will be treated as a partnership for
purposes of federal income taxation and
Federal Tax Counsel will deliver its
opinion generally to the effect that
the Issuer will not be an association
(or publicly traded partnership)
taxable as a corporation for federal
income tax purposes. Each Noteholder,
by the acceptance of a Note of such
Series, will agree to treat such Note as
indebtedness, and each
Certificateholder, by the acceptance of
a Certificate of such Series, will
agree to treat the related Issuer as a
partnership in which such
Certificateholder is a partner for
federal income and state tax purposes.
See "FEDERAL INCOME TAX CONSIDERATIONS."
D. CERTIFICATES TREATED AS
DEBT..........................If so specified in the Prospectus
Supplement relating to a Series of
Certificates, a Trust may issue
Certificates that will be characterized
as indebtedness for federal income tax
purposes secured by the related Loans and
Federal Tax Counsel will deliver its
opinion generally to the effect that the
Certificates will be characterized as
indebtedness secured by the Loans for
federal income tax purposes. Each
investor in an interest in the
Certificates of the related Series, by
acceptance of its interest therein, will
agree to treat such Certificates as debt
for federal, state and local income and
franchise tax purposes.
Prior to the issuance of each Series of
Securities, the Company will file a
current report on Form 8-K containing an
opinion of tax counsel (and a related
consent) which covers the tax attributes
of such Series.
ERISA CONSIDERATIONS...................Subject to the considerations discussed
under "ERISA CONSIDERATIONS" herein and
in the related Prospectus Supplement,
the Notes may be eligible for purchase
by employee benefit plans. The related
Prospectus Supplement will provide
further information with respect to the
eligibility of a Class of Certificates
for purchase by employee benefit plans.
A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or the Code should carefully
review with its own legal advisors
whether the purchase or holding of
Securities could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code.
See "ERISA CONSIDERATIONS" herein and in
the related Prospectus Supplement.
LEGAL INVESTMENT.......................Unless otherwise specified in the related
Prospectus Supplement, Securities of each
Series offered by this Prospectus and the
related Prospectus Supplement will not
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Investors whose investment authority is
subject to legal restrictions (such as,
but not limited to, depository
institutions, insurance companies and
pension plans) should consult their own
legal advisors to determine whether and
to what extent the Securities constitute
legal investments
for them. See "LEGAL INVESTMENT."
RATINGS................................It will be a requirement for issuance of
any Series that the Securities offered
by this Prospectus and the related
Prospectus Supplement be rated by at
least one Rating Agency in one of its
four highest applicable rating
categories. The rating or ratings
applicable to Securities of each Series
offered hereby and by the related
Prospectus Supplement will be as set
forth in the related Prospectus
Supplement. A securities rating should
be evaluated independently of similar
ratings on different types of securities.
A securities rating is not
a recommendation to buy, hold or sell
securities and does not address the
effect that the rate of prepayments on
Loans for a Series may have on the
yield to investors in the Securities of
such Series.
There is no assurance that the rating
initially assigned to such Securities
will not be subsequently lowered or
withdrawn by the Rating Agency. In the
event the rating initially assigned to
any Securities is subsequently lowered
for any reason, no person or entity will
be obligated to provide any credit
enhancement in addition to the
Enhancement, if any, specified in the
related Prospectus Supplement. See "RISK
FACTORS--Ratings Are Not
Recommendations."
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
LIMITED LIQUIDITY AND FLUCTUATION IN VALUE FROM MARKET CONDITIONS
Lack of Secondary Market. There will be no market for the Securities of any
Series prior to the issuance thereof, and there can be no assurance that a
secondary market will develop or, if it does develop, that it will provide
Holders with liquidity of investment or will continue for the life of the
Securities of such Series. No application will be made to list the Securities on
any securities exchange.
Book Entry Registration. To the extent specified in the related Prospectus
Supplement, persons acquiring beneficial ownership interests in the Securities
of any Series or Class will hold their Securities through DTC, in the United
States, or Cedel or Euroclear in Europe. Transfers within DTC, Cedel or
Euroclear, as the case may be, will be in accordance with the usual rules and
operating procedures of the relevant system. So long as the Securities are
book-entry Securities, such Securities will be evidenced by one or more
certificates registered in the name of Cede & Co., as the nominee of DTC, or
Citibank N.A. or Morgan Guaranty Trust Company of New York, the relevant
depositaries of Cedel and Euroclear, respectively, and each a participating
member of the DTC. No Securityholder will be entitled to receive a definitive
certificate representing such person's interest, except in the event that
Definitive Securities are issued under the limited circumstances described
herein. See "DESCRIPTION OF THE SECURITIES--Book-Entry Registration". Unless and
until Definitive Securities for such Series are issued, holders of such
Securities will not be recognized by the applicable Trustee as
"Certificateholders," "Noteholders" or Securityholders," as the case may be (as
such terms are used herein or in the related Agreement). Hence, until Definitive
Securities are issued, holders of such Securities will only be able to exercise
the rights of Securityholders indirectly through DTC (if in the United States)
and its participating organization, or Cedel and Euroclear (in Europe) and their
respective participating organizations. See "DESCRIPTION OF THE SECURITIES--Book
Entry Registration."
Since transactions in the Securities can be effected only through DTC,
Cedel, Euroclear, participating organizations, indirect participants and certain
banks, the ability of the beneficial owner thereof to pledge such Securities to
persons or entities that do not participate in the DTC, Cedel or Euroclear
system, or otherwise to take actions in respect of such Securities, may be
limited due to lack of a physical certificate representing such Securities.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding Offered Securities of any Series, including information
regarding the status of the related Loan Assets and any Enhancement for such
Offered Securities, will be the periodic reports to Securityholders to be
delivered pursuant to the related Agreement as described herein under the
heading "THE AGREEMENTS--Reports to Holders." There can be no assurance that any
additional ongoing information regarding the Offered Securities of any Series
will be available through any other source. The limited nature of such
information in respect of a Series of Offered Securities may adversely affect
the liquidity thereof, even if a secondary market for such Offered Securities
does develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as a
secondary market does develop with respect to any Series of Offered Securities
or Class thereof, the market value of such Offered Securities will be affected
by several factors, including the perceived liquidity thereof, the anticipated
cash flow thereon (which may vary widely depending upon the prepayment and
default assumptions applied in respect of the underlying Loan Assets) and
prevailing interest rates. The price payable at any given time in respect of
certain Classes of Offered Securities (in particular, a Class with a relatively
long average life, or a Class of Interest Only Securities or Principal Only
Securities) may be extremely sensitive to small fluctuations in prevailing
interest rates; and the relative change in price for an Offered Security in
response to an upward or downward movement in prevailing interest rates may not
necessarily equal the relative change in price for such Offered Security in
response to an equal but opposite movement in such rates. Accordingly, the sale
of Offered Securities by a Holder in any secondary market that may develop may
be at a discount from the price paid by such Holder. The Depositor is not aware
of any source through which price information about the Offered Securities will
be generally available on an ongoing basis.
Delisting. The Depositor intends to cause each Issuer to suspend filing
reports with the Commission if and when such reports are no longer required
under the Exchange Act. See "AVAILABLE INFORMATION."
ISSUER ASSETS ARE ONLY SOURCE OF REPAYMENT
The Securities of a Series will be payable solely from the related assets
of the Issuer for such Securities. See "THE AGREEMENTS--Assignment of Loan
Assets." Further, unless otherwise stated in the related Prospectus Supplement,
at the times set forth in the related Prospectus Supplement, certain Issuer
Assets and/or any balance remaining in the Collection Account or Distribution
Account immediately after making all payments due on the Securities of such
Series and other payments specified in the related Prospectus Supplement, may be
promptly released or remitted to the Depositor, the Servicer, any Enhancer or
any other person entitled thereto and will no longer be available for making
payments to Holders. Consequently, Holders of Securities of each Series must
rely solely upon payments with respect to the Issuer Assets and the other
related assets available to support a Series of Securities, including, if
applicable, any amounts available pursuant to any Enhancement for such Series,
for the payment of principal of and interest on the Securities of such Series.
Holders of a Series of Notes will be required under the Indenture to
proceed only against the Issuer Assets securing such Series of Notes in the case
of a default with respect to such Notes. There is no assurance that the market
value of the Issuer Assets or any other assets for a Series will at any time be
equal to or greater than the aggregate principal amount of the Securities of
such Series then outstanding, plus accrued interest thereon. Moreover, upon an
event of default under the Indenture for a Series of Notes and a sale of the
related assets of the related Issuer or upon a sale of the assets of a Trust for
a Series of Certificates, the Trustee, the Servicer, the Enhancer, if any, and
any other service provider specified in the related Prospectus Supplement
generally will be entitled to receive the proceeds of any such sale to the
extent of unpaid fees and other amounts owing to such persons under the related
Agreement prior to distributions to Holders of Securities. Upon any such sale,
the proceeds thereof may be insufficient to pay in full the principal of and
interest on the Securities of such Series. See "DESCRIPTION OF THE ISSUER
ASSETS."
UNDERWRITING STANDARDS MAY AFFECT PERFORMANCE
The Seller was incorporated as a California corporation in January, 1992
and has been originating subordinate lien mortgage loans since August 1994.
Accordingly, the Seller currently has insufficient historical delinquency,
bankruptcy, foreclosure or default experience that may be referred to for
purposes of estimating the future delinquency and loss experience of loans
similar to the Loans being sold to the related Issuer. At such time as the
Seller has sufficient historical delinquency, bankruptcy, foreclosure and
default experience, the related Prospectus Supplement for a Series will set
forth such information.
The Seller's underwriting standards generally are less stringent than those
of FNMA or FHLMC and other traditional mortgage lenders with respect to a
borrower's capacity, collateral and in certain other respects. As a result of
this approach to underwriting, the Loans supporting the related Series may
experience higher rates of delinquencies, defaults and foreclosures than loans
underwritten in a more traditional manner.
The Seller considers the underwriting policy under which the Loans are
underwritten to be analogous to credit lending, rather than equity lending,
since its underwriting decisions are based primarily on the borrower's ability
and willingness to repay and only secondarily on the potential value of the
collateral upon foreclosure. Loan decisions are based primarily on an analysis
of the prospective borrower's documented cash flow and credit history and
supplemented by a collateral evaluation (with respect to Loans). This collateral
evaluation generally takes the form of (i) a Uniform Residential Appraisal
Report in compliance with FNMA or FHLMC guidelines, (ii) a Second Mortgage
Property Value Analysis Report, typically referred to as a "drive-by" appraisal,
which consists exclusively of an exterior inspection of the property without
examination of the interior or (iii) a "desk-top" appraisal, which generally
consists of an analysis of historical comparable sale information on similar
type properties through the use of public record information or on-line real
estate sale information services and does not consist of an exterior or interior
inspection of the property. There can be no assurance that the values determined
by appraisers at the time of loan origination will be achieved in the event of
foreclosure sale or that a different appraiser (or an appraisal which included
an interior review) would have arrived at the same opinion of value.
The Seller's underwriting standards allow loans to be approved with
Combined Loan-to-Value Ratios of up to approximately 125%. Because the original
Combined Loan-to-Value Ratios of the Loans may be high relative to that of other
similar subordinate lien mortgage loans, recoveries on defaulted Loans may be
lower than the level of recoveries experienced by such other defaulted mortgage
loans. To the extent that the Loan-to-Value Ratio of any defaulted Loan is
greater than 100% at the time of default, the related Issuer will be in the same
position as other unsecured creditors. See "DESCRIPTION OF THE ISSUER
ASSETS--The Loans."
Generally, the majority of the Loans are subordinate liens. The rights of
the related Issuer (and therefore Securityholders), as mortgagee under a
subordinate mortgage, are subordinate to those of the mortgagee under the senior
mortgage. See "CERTAIN LEGAL ASPECTS OF THE LOANS." Accordingly, there can be no
assurance that amounts recovered through foreclosure proceedings will be
sufficient to repay the Loans.
LIMITATIONS OF CREDIT ENHANCEMENT
Limitations Regarding Types of Losses Covered. The related Prospectus
Supplement for a Series of Securities will describe any Enhancement provided
with respect thereto. Use of Enhancement will be subject to the conditions and
limitations described herein and in the related Prospectus Supplement. Moreover,
such Enhancement may not cover all potential losses or delays; for example,
Enhancement may or may not cover loss by reason of fraud or negligence by a
mortgage loan originator or other parties. Any such losses or delays not covered
by Enhancement may, at least in part, be allocated to, or affect distributions
to, one or more Classes of Offered Securities.
Disproportionate Benefits to Certain Classes and Series. A Series of
Securities may include one or more Classes of Subordinate Securities (which may
include Offered Securities), if provided in the related Prospectus Supplement.
Although subordination is intended to reduce the likelihood of temporary
shortfalls and ultimate losses to holders of the related senior Securities, the
amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more Classes of
Offered Securities of a Series are made in a specified order of priority, any
related Enhancement may be exhausted before the principal of the later paid
Classes of Offered Securities of such Series has been repaid in full. As a
result, the impact of losses and shortfalls experienced with respect to the Loan
Assets may fall primarily upon those Classes of Offered Securities having a
later right of payments. Moreover, if a form of Enhancement covers the Offered
Securities of more than one Series and losses on the related Loan Assets exceed
the amount of such Enhancement, it is possible that the Holders of Offered
Securities of one (or more) such Series will be disproportionately benefited by
such Enhancement to the detriment of the holders of Offered Securities of one
(or more) other such Series.
Limitations Regarding the Amount of Credit Enhancement. The amount of any
applicable Enhancement supporting one or more Classes of Offered Securities,
including the subordination of one or more other Classes of Securities, will be
determined on the basis of criteria established by each Rating Agency rating
such Classes of Securities based on an assumed level of defaults, delinquencies
and losses on the Loan Assets and certain other factors. There can be no
assurance that the default, delinquency and loss experience on such Loan Assets
will not exceed such assumed levels. See "ENHANCEMENT." If the defaults,
delinquencies and losses on such Loan Assets do not exceed such assumed levels,
the holders of one or more Classes of Offered Securities will be required to
bear such additional defaults, delinquencies and losses. Regardless of the form
of Enhancement provided with respect to a Series, the amount of coverage will be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula.
NEGATIVE EFFECT OF PREPAYMENTS ON AVERAGE LIFE
As a result of prepayments on Loan Assets, the amount and timing of
payments or distributions of principal and/or interest on the Offered Securities
of the related Series may be highly unpredictable. Prepayments on the Loan
Assets in any Trust will result in a faster rate of principal payments on one or
more Classes of the related Series of Securities than if payments on such Loan
Assets wee made as scheduled. Thus, the prepayment experience on the Loan Assets
supporting a Series may affect the average life of one or more Classes of
Securities of the related Series, including a Class of Offered Securities. The
rate of principal payments on pools of loans varies among pools and from time to
time is influenced by a variety of economic, demographic, geographic, social,
tax and legal factors. For example, if prevailing interest rates fall
significantly below the interest rates borne by the Loan Assets supporting a
Series, then, subject to the particular terms of the Loan Assets (e.g.,
provisions that prohibit voluntary prepayments during specified periods or
impose penalties in connection therewith) and the ability of borrowers to obtain
new financing, principal prepayments on such Loan Assets are likely to be higher
than if prevailing interest rates remain at or above the rates borne by those
Loan Assets. Conversely, if prevailing interest rates rise significantly above
the interest rates borne by the Loan Assets supporting a Series, then principal
prepayments on such Loan Assets are likely to be lower than if prevailing
interest rates remain at or below the interest rates borne by those Loan Assets.
In addition to fluctuations in prevailing interest rates, the rate of
prepayments on the Loan Assets may be influenced by changes and developments in
the types and structures of loan products being offered to consumers within the
mortgage banking and consumer finance industry and by technological developments
and innovations to the loan underwriting and origination process.
Accordingly, there can be no assurance as to the actual rate of prepayment
on the Loan Assets supporting a Series or that such rate of prepayment will
conform to any model described herein or in any Prospectus Supplement. As a
result, depending on the anticipated rate of prepayment for the Loan Assets
supporting a Series, the retirement of any Class of Securities of the related
Series could occur significantly earlier or later, and the average life thereof
could be significantly shorter or longer, than expected.
In comparison to first lien single family mortgage loans, the Seller is not
aware of any reliable publicly available statistical information regarding the
rates of prepayment of loans such as the Loan Assets that is based upon the
historical loan performance of this segment of the mortgage banking and consumer
finance industry. In fact, this segment of the mortgage banking and consumer
finance industry has undergone significant growth and expansion, including an
increase in new loan originations, as a result of certain social and economic
factors, including recent tax law changes that limit the deductibility of
consumer interest to indebtedness secured by an individual's principal residence
and changes and developments in the types and structures of loan products being
offered to consumers. Therefore, no assurance can be given as to the level of
prepayments that the Loan Assets will experience. In fact, a number of factors
suggest that the prepayment experience of the Loan Assets may be significantly
different from that of any first lien mortgage loans with equivalent interest
rates and maturities.
Addition prepayment, yield and weighted average life considerations with
respect to a Series of Securities will be set forth in the related Prospectus
Supplement.
The extent to which prepayments on the Loan Assets supporting a Series
ultimately affect the average life of any Class of Securities of the related
Series will depend on the terms and provisions of such Securities. A Class of
Securities, including a Class of Offered Securities, may provide that on any
Distribution Date the holders of such Securities are entitled to a pro rata
share of the prepayments on the Loan Assets supporting a Series that are
distributable on such date, to a disproportionately large share (which, in some
cases, may be all) of such prepayments, or to a disproportionately small share
(which, in some cases, may be none) of such prepayments. A Class of Securities
that entitles the holders thereof to a disproportionately large share of the
prepayments on the Loan Assets supporting a Series increases the likelihood of
early retirement of such Class ("Call Risk") if the rate of prepayment is
relatively fast; while a Class of Securities that entitles the holders thereof
to a disproportionately small share of the prepayments on the Loan Assets
supporting a Series increases the likelihood of an extended average life of such
Class ("Extension Risk") if the rate of prepayment is relatively slow. To the
extent described in the related Prospectus Supplement, the respective
entitlement of the various Classes of Securityholders of such Series to receive
payments (and, in particular, prepayments) of principal of the Loan Assets
supporting a Series may vary based on the occurrence of certain events (e.g.,
the retirement of one or more Classes of Securities of such Series) or whether
certain contingencies do or do not occur (e.g. prepayment and default rates with
respect to such Loan Assets).
A Series of Securities may include one or more Classes of scheduled
amortization Securities (each, a "Scheduled Amortization Security"), which will
entitle the holders thereof to receive principal distributions according to a
specified principal payment schedule. Although prepayment risk cannot be
eliminated entirely from any Class of Securities, a Class of Scheduled
Amortization Securities will generally provide a relatively stable cash flow so
long as the actual rate of prepayment on the Loan Assets supporting a Series
remains relatively constant at the rate, or within the range of rates, of
prepayment used to establish a specific principal payment schedule for such
Securities. Prepayment risk with respect to a given pool of Loan Assets does not
disappear, however, and the stability afforded to Scheduled Amortization
Securities comes at the expense of one or more companion Classes of the same
Series (each, a "Companion Class"), any of which Companion Classes may also be a
Class of Offered Securities. In general, and as more specifically described in
the related Prospectus Supplement, a Companion Class may entitle the holders
thereof to a disproportionately large share of prepayments on the Loan Assets
supporting a Series when the rate of prepayment is relatively fast, and/or may
entitle the holders thereof to a disproportionately small share of prepayments
on the Loan Assets supporting a Series when the rate of prepayment is relatively
slow. As and to the extent described in the related Prospectus Supplement, a
Companion Class absorbs some (but not all) of the Call Risk and/or Extension
Risk that would otherwise belong to the related Scheduled Amortization
Securities if all payments of principal of the Loan Assets supporting a Series
were allocated on a pro rata basis.
RISKS OF NON-PRIME LENDING INDUSTRY
The non-prime lending industry is a relatively new, rapidly expanding and
highly competitive industry. the ability to securitize Loans comparable to the
loans has made financing available to non-prime lenders at attractive rates and
has helped to reduce barriers to entry in the field. There is competitive
pressure in the industry to originate and securitize additional product so as to
increase gains on sale and earnings. Such competition puts pressure on the
interest rates and the credit quality of such loans and increases the costs of
acquiring this product. See "--Underwriting Standards May Affect Performance."
The growth of the non-prime industry has increased the awareness of
credit-impaired borrowers of the availability of financing from alternative
sources, which may have the effect of increasing refinancing activity in better
economic times. However, in difficult economic times the performance of this
product may be more adversely affected than conventional prime loans. In such
circumstances borrowers of non-prime loans, who have borrowed against all the
equity in their homes, are not likely to have any additional resources against
which they can borrow, and are more likely to default on their obligations. The
non-prime lending industry is subject to greater regulatory and legal scrutiny.
see "certain legal aspects of loans."
The increased competition in the non-prime lending industry may increase
the costs to the Seller to originate Loans. In the event that a transaction
includes a Pre-Funding Account, to the extent the Seller is unable to originate
sufficient Loans satisfying the eligibility criteria for such Series prior to
the end of the Funding Period, the related Securityholders may receive a
prepayment of principal. In addition, the increased ability of credit-impaired
borrowers to refinance their Loans may effect the yield on the Securities.
Finally, a higher default rate in tougher economic times may also affect the
yield on the Securities. See "Yield and Prepayment Considerations."
YIELD MAY VARY
The yield to maturity experienced by a Holder of Securities may be affected
by the rate of payment of principal of the Loans. The timing of principal
payments of the Securities of a Series will be affected by a number of factors,
including the following: (i) the extent of prepayments of the Loans, which
prepayments may be influenced by a variety of factors; (ii) the manner of
allocating principal payments among the Classes of Securities of a Series as
specified in the related Prospectus Supplement; and (iii) the exercise by the
party entitled thereto of any right of optional termination. See "DESCRIPTION OF
THE SECURITIES--Weighted Average Life of Securities." Prepayments may also
result from repurchases of Loans, due to material breaches of the Seller's or
the Depositor's warranties.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate. See "DESCRIPTION OF THE SECURITIES--Payments of
Interest."
CERTAIN FACTORS AFFECTING DELINQUENCIES, FORECLOSURES AND LOSSES ON LOAN
ASSETS
General. The payment performance of the Offered Securities of any Series
will be directly related to the payment performance of the Loan Assets
supporting a Series. Set forth below is a discussion of certain factors that
will affect the full and timely payment of the Loan Assets supporting a Series.
Geographic Concentration. Certain geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of Loan Assets in
such a region may present risk considerations in addition to those generally
present for similar mortgage-backed or asset-backed securities without such
concentration.
Decline in Value of a Loan Asset. An investment in Securities secured by or
evidencing an interest in a pool of Loans may be adversely affected by, among
other things, a decline in one-to-four family residential property values. No
assurance can be given that values of the Mortgaged Properties have remained or
will remain at the levels existing on the dates of origination of the related
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Loans in a
particular pool, and any other financing on the Mortgaged Properties, become
equal to or greater than the value of the Mortgaged Properties, the actual rates
of delinquencies, defaults and losses could be higher than those now generally
experienced with respect to similar types of loans within the mortgage lending
industry. To the extent that such losses are not covered by applicable insurance
policies, if any, or by any Enhancement as described in the related Prospectus
Supplement, holders of Securities secured by or evidencing interests in such
Loans will bear all risk of loss resulting from defaults by borrowers and will
have to look primarily to the value of the related Mortgaged Properties for
recovery of the outstanding principal and unpaid interest of the defaulted
Loans. See "DESCRIPTION OF THE ISSUER ASSETS--LOANS."
An investment in Securities secured by or evidencing interests in Loans may
be affected by, among other things, a downturn in regional or local economic
conditions. These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of Loans. To the extent that losses on Loans are not covered by
applicable insurance policies, if any, or by any Enhancement, holders of the
Securities secured by or evidencing interests in such Loans will bear all risk
of loss resulting from default by borrowers and will have to look primarily to
the value of the underlying asset, if any, for recovery of the outstanding
principal and unpaid interest of the defaulted Loans. See "DESCRIPTION OF THE
ISSUER ASSETS."
Limitations on Realizations of Junior Liens. The primary risk with respect
to defaulted Loans secured by junior liens is the possibility that adequate
funds will not be received in connection with a foreclosure of the related
Mortgaged Property to satisfy fully both the related senior lien(s) and the Loan
and that other insurance providing for reimbursement for losses from such
default is not available. The claims of the related senior lienholder(s) will be
satisfied in full out of proceeds of the liquidation of the Mortgaged Property,
if such proceeds are sufficient, before the related Issuer, as the junior
lienholder, receives any payments in respect of the defaulted Loan. If the
Servicer or a subservicer, if any, were to foreclose on any junior lien Loan, if
would do so subject to any related senior lien(s). In order for a junior lien
Loan to be paid in full at such sale, a bidder at the foreclosure sale of such
Loan would have to both bid an amount sufficient to pay off all sums due under
the Loan and the senior lien(s) or purchase the Mortgaged Property subject to
the senior lien(s). If proceeds from a foreclosure and liquidation of the
related Mortgage Property are insufficient to satisfy the costs of foreclosure
and liquidation and the amounts owed under the loans secured by the senior
lien(s) and the junior lien Loan in the aggregate, the Issuer, as the junior
lienholder, will bear (i) the risk of delay in distributions while a deficiency
judgment (which may not be available in certain jurisdictions) against the
borrower is obtained and realized and (ii) the risk of loss if the deficiency
judgment is not obtained or realized. Any such delays or losses will be borne by
the Securityholders of a Series to the extent that such delays or losses are not
otherwise covered by amounts available from any Enhancement provided for the
related Securities, as specified in the related Prospectus Supplement. See
"CERTAIN LEGAL ASPECTS OF THE LOANS."
PRE-FUNDING AND SUBSEQUENT LOANS MAY ADVERSELY AFFECT INVESTMENT
If the assets of an Issuer includes a Pre-Funding Account and the principal
balance of additional Loans delivered to the Issuer during the Pre-Funding
Period is less than the original Pre-Funded Amount, the Holders of the
Securities of the related Series will receive a prepayment of principal as and
to the extent described in the related Prospectus Supplement. Any such principal
prepayment may adversely affect the yield to maturity of the applicable
Securities. Since prevailing interest rates are subject to fluctuation, there
can be no assurance that investors will be able to reinvest such a prepayment at
yields equaling or exceeding the yields on the related Securities. It is
possible that the yield on any such reinvestment will be lower, and may be
significantly lower, than the yield on the related Securities.
Each susequent Loan Asset must satisfy the eligibility criteria specified
in the related Prospectus Supplement and related Agreements. Such eligibility
criteria will be determined in consultation with each Rating Agency (and/or any
Enhancer) prior to the issuance of the related Series and are designed to ensure
that if such subsequent Loan Assets were included as part of the initial Loan
Assets, the credit quality of such assets would be consistent with the initial
rating of each Class of Securities of such Series. The Seller will certify to
the Trustee that all conditions precedent to the transfer of the subsequent Loan
Assets, including the satisfaction of the eligibility criteria to the Issuer,
have been satisfied. It is a condition to the transfer of any subsequent Loan
Assets to the Issuer that each Rating Agency, after receiving prior notice of
the proposed transfer of the subsequent Loan Assets to the Issuer, shall not
have advised the Seller or the Trustee or any Enhancer that the conveyance of
such subsequent Loan Assets will result in a qualification, modification or
withdrawal of its then current rating of any Class of Notes or Certificates of
such Series. Following the transfer of subsequent Loan Assets to the Issuer, the
aggregate characteristics of the Loan Assets then held by the Issuer may vary
from those of the initial Loan Assets of such Issuer. As a result, the
subsequent Loan Assets may adversely affect the performance of the related
Securities. See "DESCRIPTION OF THE ISSUER ASSETS--Pre-Funding and Capitalized
Interest Accounts."
The ability of an Issuer to invest in subsequent Loans during the related
Pre-Funding Period will be dependent on the ability of the Seller to originate
or acquire Loans that satisfy the requirements for transfer to the Issuer
specified in the related Prospectus Supplement. The ability of the Seller to
originate or acquire such Loans will be affected by its own limited operating
history and competition in the industry as well as a variety of social and
economic factors, including the prevailing level of market interest rates,
unemployment levels and consumer perceptions of general economic conditions.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONDITIONS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of
clean-up. In several states, such a lien has priority over the lien of an
existing mortgage or owner's interest against such property. In addition, under
the laws of some states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be
liable, as an "owner" or "operator," for costs of addressing releases or
threatened releases of hazardous substances that require remedy at a property,
if agents or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was caused by a prior owner. A lender also risks such liability
on foreclosure of the Mortgaged Property.
CONSUMER PROTECTION LAWS MAY AFFECT LOANS
Applicable state laws generally regulate interest rates and other charges
and require certain disclosures. In addition, other state laws, public policy
and general principles of equity relating to the protection of consumers, unfair
and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Loans. In California, for example,
a mortgage lender is subject to the California Fair Debt Collection Practices
Act which regulates practices used to effect collection on consumer loans. See
"Certain Legal Aspects of the Loans." Depending on the provisions of the
applicable law and the specific facts and circumstances involved, violations of
these laws, policies and principles may limit the ability of the Servicer to
collect all or part of the principal of or interest on the Loans, may entitle
the borrower to a refund of amounts previously paid and, in addition, could
subject the owner of the Loan to damages and administrative enforcement.
The Loans are also subject to Federal laws, including:
(i) the federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
borrowers regarding the terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of
age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit;
(iii) the Americans with Disabilities Act, which, among other
things, prohibits discrimination on the basis of disability in the full
and equal enjoyment of the goods, services, facilities, privileges,
advantages or accommodations of any place of public accommodation; and
(iv) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit
experience.
Violations of certain provisions of these Federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Loans and in addition could subject the Issuer to damages and
administrative enforcement. The Loans may be subject to the Home Ownership and
Equity Protection Act of 1994 (the "Act") which amended the Truth in Lending Act
as it applies to mortgages subject to the Act. The Act requires certain
additional disclosures, specifies the timing of such disclosures and limits or
prohibits inclusion of certain provisions in mortgages subject to the Act. The
Act also provides that any purchaser or assignee of a mortgage covered by the
Act is subject to all of the claims and defenses which the borrower could assert
against the original lender. The maximum damages that may be recovered under the
Act from an assignee is the remaining amount of indebtedness plus the total
amount paid by the borrower in connection with the Loan. If the Issuer owns
Loans subject to the Act, it will be subject to all of the claims and defenses
which the borrower could assert against the Seller. Any violation of the Act
which would result in such liability would be a breach of the Seller's
representations and warranties, and the Seller would be obligated to cure,
repurchase or, if permitted by the Agreement, substitute for the Loan in
question. See "CERTAIN LEGAL ASPECTS OF THE LOANS."
INSOLVENCY OF DEPOSITOR MAY CAUSE LOSSES
The Depositor intends that any transfer of the Loan Assets to a Trust will
constitute a sale, and the Depositor and the Trust will agree to treat each such
transfer as a sale. In the event of the insolvency of the Depositor, the trustee
in bankruptcy or the Depositor, as debtor-in-possession, may attempt to
recharacterize such a sale as a loan by the Trust to the Depositor secured by
the pledge of the related Loan Assets. If such an attempt were to be successful,
Holders of Securities could receive a prepayment of all or part of their
Securities. Any such prepayment would adversely affect the yield on such
Securities and could result in a loss. Even if such an attempt were to be
unsuccessful, Holders of Securities could experience delays in distributions
which would adversely affect the yield on the related Series of Securities.
RISKS RELATING TO INDEXED SECURITIES
An investment in Securities indexed, as to principal, premium and/or
interest, to one or more values of currencies (including exchange rates and swap
indices between currencies), commodities, interest rates or other indices
entails significant risks that are not associated with similar investments in a
conventional fixed-rate debt security. If the interest rate of such a Security
is so indexed, it may result in an interest rate that is less than that payable
on a conventional fixed-rate debt security issued at the same time, including
the possibility that no interest will be paid, and, if the principal amount of
such a Security is so indexed, the principal amount payable on the related Final
Scheduled Distribution Date may be less than the original purchase price of such
Security if allowed pursuant to the terms of such Security, including the
possibility that no principal will be paid. The secondary market for such
Securities will be affected by a number of factors, independent of the
characteristics of the Loan Assets, structure of the cash flows and the value of
the applicable currency, commodity, interest rate or other index, including the
volatility of the applicable currency, commodity, interest rate or other index,
the time remaining to the maturity of such Securities, the amount outstanding of
such Securities and market interest rates. The value of the applicable currency,
commodity, interest rate or other index depends on a number of interrelated
factors, including economic, financial and political events. Additionally, if
the formula used to determine the principal amount, premium, if any, or interest
payable with respect to such Securities contains a multiple or leverage factor,
the effect of any change in the applicable currency, commodity, interest rate or
other index may be increased. The historical experience of the relevant
currencies, commodities, interest rates or other indices should not be taken as
an indication of future performance of such currencies, commodities, interest
rates or other indices during the term of any Security. The credit ratings
assigned to any Series or Class of Securities, in no way, are reflective of the
potential impact of the factors discussed above, or any other factors, on the
market value of the Securities. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in such Securities and the suitability of such Securities in light of
their particular circumstances.
Ratings Are Not Recommendations
Any rating assigned by a Rating Agency to a Class of Offered Securities
will reflect only its assessment of the likelihood that holders of such Offered
Securities will receive payments or distributions to which such Securityholders
are entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the Loan Assets
supporting a Series will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional redemption or termination of the Securities. Furthermore, such
rating will not address the possibility that prepayment of the Loan Assets at a
higher or lower rate than anticipated by an investor may cause such investor to
experience a lower than anticipated yield or that an investor that purchases an
Offered Security at a significant premium might fail to recover its initial
investment under certain prepayment scenarios. Hence, a rating assigned by a
Rating Agency does not guarantee or ensure the realization of any anticipated
yield on a Class of Offered Securities.
The amount, type and nature of Enhancement, if any, provided with respect
to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating a Class of Securities of such Series.
Those criteria are sometimes based upon an actuarial analysis of the behavior of
similar types of loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the date derived from a large pool of similar
types of loans will accurately predict the delinquency, default or loss
experience of any particular pool of Loan Assets. In other cases, such criteria
may be based upon determination of the values of the Mortgaged Properties or
other properties, if any, that provide security for the Loan Assets. However, no
assurance can be given that those values will not decline in the future. As a
result, the Enhancement required in respect of the Offered Securities of any
Series may be insufficient to fully protect the holders thereof from losses on
the related Loan Assets. See "-- Limitations of Credit Enhancement" and
"ENHANCEMENT."
THE SELLER
General
Preferred Credit Corporation (the "Seller") is a California corporation
with its principal offices located in Irvine, California. The Seller has 5
offices located in California along with offices located in Aurora, Colorado,
Phoenix, Arizona, Lake Oswego, Oregon, Boca Raton, Florida and employs in excess
of 200 people. Founded in 1989 as a sole proprietorship mortgage broker, it was
subsequently incorporated in January 1992 and began originating subordinate
mortgage loans in 1994. The Seller originates both first and subordinate lien
mortgage loans secured by one- to four-family residences. The Seller is approved
as a non-supervised lender by the U.S. Department of Housing and Urban
Development ("HUD"). Additionally, the Seller is licensed by the State of
California as a residential mortgage lender and is licensed or otherwise
permitted to lend in excess of 40 other states. As of December 31, 1996, the
Seller had over $126 million in assets.
Underwriting Standards
Each prospective mortgagor completes a mortgage loan application that
includes information with respect to the applicant's liabilities, income, credit
history, employment history and personal information. The application is subject
to a direct credit investigation by the Seller or the Seller's approved
correspondent prior to the extension of credit. The Seller's underwriting
investigation generally includes (i) verification of employment, which normally
includes, for salaried borrowers, two of the most recent consecutive pay stubs
showing year-to-date earnings and the previous year's W-2 form and for
self-employed borrowers, a minimum of two years of tax returns or other written
or telephone verification with employers, (ii) verifying ownership of the
property and any senior mortgage balance, (iii) verifying payment history of the
senior lien, which may be obtained from credit bureau information or in writing
or by telephone from the holder of any senior lien, and (iv) obtaining and
reviewing an independent credit bureau report from one of three national credit
repositories, TRW, TransUnion and Equifax. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions or judgments.
In evaluating the credit quality of borrowers, the Seller utilizes credit
bureau risk scores (the "Credit Bureau Risk Score"), a statistical ranking of
likely future credit performance developed by Fair, Isaac & Company ("Fair,
Isaac") and the three national credit repositories--Equifax, TransUnion and TRW.
The Credit Bureau Risk Scores available from the three national credit
repositories are calculated by the assignment of weightings to the most
predictive data collected by the credit repositories and range from the 400s to
the 800s. Such Credit Bureau Risk Scores have been calibrated to indicate the
same level of credit risk regardless of which credit repository is used. Such
Credit Bureau Risk Scores are based solely on the information at the particular
credit repository. The Credit Bureau Risk Score is obtained from one of the
three national credit repositories stated above and is used by the Seller to
provide a means of analysis to assist in underwriting to estimate the
probability that the proposed mortgage loan will be paid in accordance with its
terms, however, the final decision whether to approve a mortgage loan rests with
the Seller.
The Maximum Loan Amount ("MLA") a borrower can obtain is generally
determined by a combination of considerations, including the Credit Bureau Risk
Score of the primary wage earner and the combined debt-to-income ratio (the
"DTI") of joint borrowers. Provided a mortgage loan generally meets the Seller's
other underwriting guidelines, borrowers with applicable Credit Bureau Risk
Scores and DTIs may generally be granted Maximum Loan Amounts of up to $65,000
and a DTI of up to 50%. Exceptions to these guidelines, including exceptions for
Maximum Loan Amounts greater than $65,000, Credit Bureau Risk Scores below 620
and DTI's above 50%, may be approved at the Seller's discretion.
The Seller generally requires one of the following to be obtained for each
mortgage loan: (i) a Uniform Residential Appraisal Report in compliance with
FNMA or FHLMC guidelines, (ii) a Second Mortgage Property Value Analysis Report,
typically referred to as a "Drive-By Appraisal Report" which consists
exclusively of an exterior inspection of the property without examination of
interior, or (iii) a comparable sale analysis report referred to as a "Desk-Top
Appraisal Report" which generally consists of an analysis of historical
comparable sale information on similar type properties through the use of public
record information or other on-line real estate sale information services and
does not consist of an exterior or interior inspection of the property. All
appraisals are analyzed on an "as is" valuation. Substantially all of the
appraisals on the mortgage loans are drive-by appraisals and such appraisals are
only considered to a limited extent by the Seller in its mortgage loan
underwriting decisions.
Origination Process
The Seller originates its mortgage loans through retail, wholesale and
correspondent channels. Retail loans are generated through the Seller's own
retail divisions using advertising, direct mail and telemarketing. Wholesale
loans (funded by the Seller) and correspondent loans (funded by unaffiliated
third parties) are generated through approved mortgage originators including
mortgage brokers, credit unions, banks and other approved financial
institutions.
As of April 10, 1997, the Seller operated nine retail offices in five
states. As of April 10, 1997 approximately 65% of the Seller's mortgage loans
are funded by it directly; the remainder are purchased from correspondent
originators ("Correspondents").
As of April 10, 1997, the Seller works with 118 Correspondents located in
23 states. Approximately half of such Correspondents are located in the State of
California. While the Seller has entered into an Agreement for Purchase and Sale
of Loans (a "Correspondent Agreement") with each Correspondent, which
Correspondent Agreement sets forth the terms covering any purchase of mortgage
loans by the Seller from such Correspondent, no Correspondent has any obligation
to sell to the Seller mortgage loans thereunder. The Correspondent Agreement
contains representations and warranties covering each mortgage loan sold to the
Seller, including a representation that such loans have been underwritten in
accordance with the Seller's standards; however the Seller reunderwrites each
mortgage loan before acquiring it, whether in an individual or a bulk
transaction.
In order to qualify as a Correspondent, unaffiliated third parties are
required to (i) meet and maintain certain net worth and other financial
standards, (ii) demonstrate experience in originating residential mortgage
loans, (iii) meet and maintain certain operational standards, (iv) evaluate each
loan offered to the Seller for consistency with the Seller's underwriting
guidelines and (v) utilize the services of qualified appraisers. The Seller and
the Correspondents use a standard HUD loan application form when gathering
information from potential borrowers.
THE SERVICER
Advanta Mortgage Corp. USA ("Advanta") or such other servicer specified in
the related Prospectus Supplement (the "Servicer") will act as servicer for the
Loans pursuant to the related Agreement. Advanta is an indirect subsidiary of
Advanta Corp., a Delaware corporation ("Advanta Parent"), a publicly- traded
company based in Horsham, Pennsylvania with assets as of December 31, 1996 of
approximately $5.6 billion. Advanta Parent, through its subsidiaries (including
the Servicer) managed assets (including mortgage loans) in excess of $19.2
billion as of December 31, 1996.
As of December 31, 1996, the Servicer and its subsidiaries were servicing
approximately 43,300 Loans in the "Owned and Managed Servicing Portfolio"
representing an aggregate outstanding principal balance of approximately $2.6
billion, and approximately 62,800 mortgage loans in the "Third-Party Servicing
Portfolio" representing an aggregate outstanding principal balance of
approximately $3.7 billion.
On March 17, 1997, Advanta Parent issued a press release (the "Press
Release"), announcing that it expects to report 1997 results well below previous
expectations. The Press Release stated that for the first quarter of 1997,
Advanta Parent currently expects to report a loss in the area of $20 million
compared to earnings of $41 million in the first quarter of 1996. The losses are
attributed to increases in consumer bankruptcies and chargeoffs and lower
receivables balances than originally anticipated in its credit card business.
Advanta Parent has retained BT Wolfensohn, a division of the Bankers Trust New
York Corporation, to explore all strategic alternatives that build upon the
historic strength and success of the company as a whole and of its business
units, including the Servicer, with the aim of maximizing the company's value
for its shareholders and other constituents.
Advanta's "Owned and Managed Servicing Portfolio" consists of Advanta's
servicing portfolio of fixed and variable rate mortgage loans excluding certain
loans serviced by Advanta that were not originated or purchased and
reunderwritten by Advanta of any affiliate thereof. Advanta's "Third-Party
Servicing Portfolio" consists of mortgage loans being serviced for third parties
on a contract servicing basis. Historical loss and delinquency data of the
Servicer's "Owned and Managed Servicing Portfolio" have not been included herein
because loans similar to the mortgage loans originated by the Seller do not
represent a significant portion of such portfolio. Historical loss and
delinquency data of the Servicer's "Third-Party Servicing Portfolio" have not
been included herein because such information is not available.
In addition to the rights of the Trustee with respect to the Servicer, an
Enhancer may have certain rights, as described in the related Agreement, with
respect to the removal or resignation of the Servicer, the ability of the
Servicer to assign any of its obligations under the related Agreement and the
appointment of a successor Servicer.
The Securities of any Series will not represent an interest in or
obligation of, nor are the Loans guaranteed by the Servicer or Advanta Parent,
nor will they be insured or guaranteed by the Federal Deposit Insurance
Corporation (the "FDIC") or any other governmental agency or instrumentality.
THE DEPOSITOR
The Depositor was incorporated in the state of Delaware on March 3, 1997,
and is a wholly-owned subsidiary of Preferred Credit Corporation. The
Depositor's principal executive offices are located at 3347 Michelson Drive,
Suite 400, Irvine, California 92612. Its telephone number is (714) 474-0700.
The Depositor will not engage in any activities other than to authorize,
issue, sell, deliver, purchase and invest in (and enter into agreements in
connection with), and/or to engage in the establishment of one or more trusts
which will issue and sell, bonds, notes, debt or equity securities, obligations
and other securities and instruments ("Depositor Securities") collateralized or
otherwise secured or backed by, or otherwise representing an interest in, among
other things, receivables or pass-through certificates, or participations or
certificates of participation or beneficial ownership in one or more pools of
receivables, and the proceeds of the foregoing, that arise in connection with
loans secured by certain first or junior mortgages on real estate or
manufactured housing and any and all other commercial transactions and
commercial, sovereign, student or consumer loans or indebtedness and, in
connection therewith or otherwise, purchasing, acquiring, owning, holding,
transferring, conveying, servicing, selling, pledging, assigning, financing and
otherwise dealing with such receivables, pass-through certificates, or
participations or certificates of participation or beneficial ownership. Article
Third of the Depositor's Certificate of Incorporation limits the Depositor's
activities to the above activities and certain related activities, such as
credit enhancement with respect to such Depositor Securities, and to any
activities incidental to and necessary or convenient for the accomplishment of
such purposes.
The Depositor may act as Issuer of Notes of a Series or may sell or assign
its beneficial ownership interest in consumer loan related assets, in whole or
in part, to another entity which may be a partnership, corporation or limited
liability company formed by the Depositor solely for the purpose of issuing the
Notes of the related Series, formed by the Depositor solely for the purpose of
acting as the Issuer for a Series of Notes at or prior to the time of the
issuance of such Notes. The organizational documents for such other entity will
be filed with the Commission on a Form 8-K.
DESCRIPTION OF THE SECURITIES
General
Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Issuer and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to either a Pooling and Servicing Agreement (each, a "Pooling
and Servicing Agreement") among the Depositor, the Servicer and the Trustee or a
Trust Agreement (each a "Trust Agreement") among the Depositor and the Trustee.
A form of Pooling and Servicing Agreement and a form of Trust Agreement have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. A Series may consist of both Notes and Certificates. Unless
otherwise specified in the related Prospectus Supplement, each Class of
Securities of a Series will be available for purchase in denominations of
$25,000 and integral multiples of $1,000 in excess thereof. The Seller may agree
to reimburse the Depositor for certain fees and expenses of the Depositor
incurred in connection with the offering of the Securities.
The following summaries describe certain provisions in the Agreements
common to each Series of Securities. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreements and the Prospectus Supplement relating to each
Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
Each Series of Securities will consist of one or more Classes of
Securities, one or more of which may be Compound Interest Securities, Variable
Interest Securities, PAC Securities, Zero Coupon Securities, Principal Only
Securities or Interest Only Securities (each of which is generally described in
the "GLOSSARY OF TERMS"). A Series may also include one or more Classes of
Subordinate Securities. The Securities of each Series will be issued only in
fully registered form, without coupons, in the authorized denominations for each
Class specified in the related Prospectus Supplement. Upon satisfaction of the
conditions, if any, applicable to a Class of a Series, as described in the
related Prospectus Supplement, the transfer of the Securities may be registered
and the Securities may be exchanged at the office of the Trustee specified in
the Prospectus Supplement without the payment of any service charge other than
any tax or governmental charge payable in connection with such registration of
transfer or exchange. If specified in the related Prospectus Supplement, one or
more Classes of a Series may be available in book-entry form only.
Unless otherwise provided in the related Prospectus Supplement, payments of
principal of and interest on a Series of Securities will be made on the
Distribution Dates specified in the Prospectus Supplement relating to such
Series (which may be different for each Class or for the payment of principal
and interest) by check mailed to Holders of such Series, registered as such at
the close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer
(which, unless otherwise specified in the related Prospectus Supplement, shall
be at the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by the
Trustee, or a paying agent on behalf of the Trustee, as specified in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, all payments with respect to the Loan Assets for a Series, together
with reinvestment income thereon, amounts withdrawn from any Reserve Fund, and
amounts available pursuant to any other Enhancement will be deposited directly
into the Collection Account or the Certificate Account. If provided in the
related Prospectus Supplement, such amounts may be net of certain amounts
payable to the related Servicer and any other person specified in the Prospectus
Supplement. Such amounts thereafter may be deposited into the Distribution
Account and will be available to make payments on the Securities of such Series
on the next applicable Distribution Date. See "THE ISSUER--Collection and
Distribution Accounts."
Book-Entry Securities
If specified in the related Prospectus Supplement, one or more Classes of
Securities may be issued in book-entry form) (the "Book-Entry Securities").
Persons acquiring beneficial ownership interests in the Book-Entry Securities
("Owners") will hold their Securities through the Depository Trust Company
("DTC") in the United States, or CEDEL Bank societe anonyme ("CEDEL") or the
Euroclear System ("Euroclear") (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Securities will be issued in one or more certificates
which equal the aggregate principal balance of the applicable Class or Classes
of Securities and will initially be registered in the name of Cede & Co., the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank N.A. ("Citibank") will act as depositary for
CEDEL and The Chase Manhattan Bank ("Chase") will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "Euroclear Depositaries"). Except as described below, no person
acquiring a Book-Entry Security will be entitled to receive a physical
certificate representing such Security (a "Definitive Security"). Unless and
until Definitive Securities are issued, it is anticipated that the only
"Certificateholder" or Noteholder, as applicable, will be Cede & Co., as nominee
of DTC. Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Owner's ownership of a Book-Entry Security will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the beneficial
owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such Book-Entry Security will be recorded on the records of DTC (or
of a participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC participant and on the records of
CEDEL or Euroclear, as appropriate).
Owners will receive all distributions of principal of, and interest on, the
Book-Entry Securities from the Trustee through DTC and DTC participants. While
the Book-Entry Securities are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
the Securities and is required to receive and transmit distributions of
principal of, and interest on, the Securities. Participants and indirect
participants with whom Certificate Owners have accounts with respect to
Securities are similarly required to make book- entry transfers and receive and
transmit such distributions on behalf of their respective Owners. Accordingly,
although Owners will not possess certificates, the Rules provide a mechanism by
which Owners will receive distributions and will be able to transfer their
interest.
Owners will not receive or be entitled to receive certificates representing
their respective interests in the Securities, except under the limited
circumstances described below. Unless and until Definitive Securities are
issued, Owners who are not Participants may transfer ownership of Securities
only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer Securities, by book-entry
transfer, through DTC for the account of the purchasers of such Securities,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Securities will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payments to the Owners that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the Owners that it
represents.
Under a book-entry format, Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede. Distributions with respect to Securities held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by the Relevant Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Because DTC can only act on behalf of Financial Intermediaries, the
ability of an Owner to pledge Book-Entry Securities to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Securities, may be limited due to the lack of
physical certificates for such Book-Entry Securities. In addition, issuance of
the Book-Entry Securities in book-entry form may reduce the liquidity of such
Securities in the secondary market since certain potential investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates.
Monthly and annual reports on the applicable Issuer will be provided to
Cede, as nominee of DTC, and may be made available by Cede to Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Securities of such Owners are credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Securities under the Agreement only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Securities are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Securities. CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Holder under the Agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Securities which conflict with actions taken
with respect to other Securities.
Definitive Securities will be issued to Owners, or their nominees, rather
than to DTC, only if (a) DTC or the Seller advises the Trustee in writing that
DTC is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry
Securities and the Seller or the Trustee is unable to locate a qualified
successor, (b) the Seller, at its sole option, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Default (as
defined herein), Owners owning a majority in principal amount of the applicable
Securities advise the Trustee and DTC through the Financial Intermediaries and
the DTC participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all applicable
Owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Certificateholders or Noteholders, as applicable, under the Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
Neither the Seller, the Servicer, the Depositor nor the Trustee will have
any responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book- Entry Securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Payments of Interest
The Securities of each Class by their terms entitled to receive interest
will bear interest (calculated, unless otherwise specified in the related
Prospectus Supplement, on the basis of a 360 day year of twelve 30-day months)
from the date and at the rate per annum specified, or calculated in the method
described, in the related Prospectus Supplement. Interest on such Securities of
a Series will be payable on the Distribution Date specified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement, the
Distribution Date for the payment of interest of a Class may be different from,
or occur more or less frequently than, the Distribution Date for the payment of
principal of such Class. The rate of interest on Securities of a Series may be
variable or may change with changes in the annual percentage rates of the Loans
owned by the related Issuer and/or as prepayments occur with respect to such
Loans. Principal Only Securities may not be entitled to receive any interest
distributions or may be entitled to receive only nominal interest distributions.
Any interest on Zero Coupon Securities that is not paid on the related
Distribution Date will accrue and be added to the principal thereof on such
Distribution Date.
Interest payable on the Securities on a Distribution Date will include all
interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
Payments of Principal
On each Distribution Date for a Series, principal payments will be made to
the Holders of the Securities of such Series on which principal is then payable,
to the extent set forth in the related Prospectus Supplement. Such payments will
be made in an aggregate amount determined as specified in the related Prospectus
Supplement and will be allocated among the respective Classes of a Series in the
manner, at the times and in the priority (which may, in certain cases, include
allocation by random lot) set forth in the related Prospectus Supplement. The
Holders of one or more Classes of Securities may have the right to request that
principal distributions allocable to such Holder's Class of Securities be
distributed to such Holder. If the requests of Holders exceed the amount of
principal to be distributed, the requests generally will be filled in the order
in which they were received. If the amount of principal to be distributed
exceeds the amount of requests, the Trustee will select random lots of $1,000
each to receive such principal distribution. Thus, some Holders of the
applicable Class of Securities may receive no principal distributions or a
disproportionate amount of such principal distributions. If so specified in the
related Prospectus Supplement, the Distribution Date for the payment of
principal of a Class may be different from, or occur more or less frequently
than, the Distribution Date for the payment of interest for such Class.
Final Scheduled Distribution Date
The Final Scheduled Distribution Date with respect to each Class of Notes
is the date no later than which the principal thereof will be fully paid and
with respect to each Class of a Series of Certificates will be the date on which
the entire aggregate principal balance of such Class is expected to be reduced
to zero, in each case calculated on the basis of the assumptions applicable to
such Series described in the related Prospectus Supplement. The Final Scheduled
Distribution Date for each Class of a Series will be specified in the related
Prospectus Supplement. Since payments on the Loan Assets will be used to make
distributions in reduction of the outstanding principal amount of the
Securities, it is likely that the actual final Distribution Date of any such
Class will occur earlier, and may occur substantially earlier, than its Final
Scheduled Distribution Date. Furthermore, with respect to a Series of
Certificates, unless otherwise specified in the related Prospectus Supplement,
as a result of delinquencies, defaults and liquidations of the Loan Assets
supporting the related Series, the actual final Distribution Date of any
Certificate may occur later than its Final Scheduled Distribution Date. No
assurance can be given as to the actual prepayment experience with respect to a
Series. See "--Weighted Average Life of the Securities" below.
Special Redemption
If so specified in the Prospectus Supplement relating to a Series of
Securities having other than monthly Distribution Dates, one or more Classes of
Securities of such Series may be subject to special redemption, in whole or in
part, on the day specified in the related Prospectus Supplement (a "Special
Redemption Date") if, as a consequence of prepayments on the Loans relating to
such Securities or low yields then available for reinvestment, the entity
specified in the related Prospectus Supplement determines, based on assumptions
specified in the applicable Agreement, that the amount available for the payment
of interest that will have accrued on such Securities (the "Available Interest
Amount") through the designated interest accrual date specified in the related
Prospectus Supplement is less than the amount of interest that will have accrued
on such Securities to such date. In such event and as further described in the
related Prospectus Supplement, the Trustee will redeem a principal amount of
outstanding Securities of such Series as will cause the Available Interest
Amount to equal the amount of interest that will have accrued through such
designated interest accrual date for such Series of Securities outstanding
immediately after such redemption.
Optional Redemption, Purchase or Termination
The related Issuer, the Holders of the Residual Interest, the Depositor or
the Servicer may, at its option, redeem, in whole or in part, one or more
Classes of Notes or purchase one or more Classes of Certificates of any Series,
on any Distribution Date under the circumstances, if any, specified in the
Prospectus Supplement relating to such Series. Alternatively, if so specified in
the related Prospectus Supplement for a Series of Certificates, the related
Issuer, the Holders of the Residual Interest, the Depositor, the Servicer, or
another entity designated in the related Prospectus Supplement may, at its
option, repurchase all of the Issuer Assets remaining relating to such Series on
or after any date on which the aggregate principal balances of the Loans
relating to such Securities is less than 10% (if the Holders of the Residual
Certificates are exercising their option) or is less than 5% (if the Servicer
(or such other entity, if any, specified in the related Prospectus Supplement,
if the Servicer fails to exercise its option) is exercising its option) of the
aggregate Principal Balances of the Loans as of the related Cut-Off Date (the
"Maximum Collateral Amount"), by purchasing from the related Trust, on the next
succeeding Distribution Date, all of the property of such Trust at a price equal
to the sum of (a) the greater of (i) 100% of the Principal Balance of each
outstanding Loan and each REO Property and (ii) the fair market value
(disregarding accrued interest) of the Loans and such REO Properties, determined
as the average of three written bids (copies of which are to be delivered to the
Trustee by the Servicer and the reasonable cost of which may be deducted from
the final purchase price) made by nationally-recognized dealers reasonably
acceptable to the Trustee or such other party as may be identified in the
related Prospectus Supplement and based on a valuation process which would be
used to value comparable mortgage loans and REO properties, plus (b) the greater
of (x) the aggregate amount of accrued and unpaid interest on the Loans through
the related Collection Period and (y) 30 days' accrued interest thereon computed
at a rate equal to the related Loan Rate, and (c) in the event the Holders of
the Residual Certificates or such other party as may be identified in the
related Prospectus Supplement exercise such option, plus any unpaid and accrued
Servicing Fee or, in the event the Servicer exercises such option, net of the
Servicing Fee. Notice of such redemption, purchase or termination must be given
by the Depositor or the Trustee prior to the related date. In such event, the
Securities or the related Series will experience a prepayment redemption,
purchase or repurchase price will be set forth in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, in the event that
a REMIC election has been made, the Trustee shall receive a satisfactory opinion
of counsel that the optional redemption, purchase or termination will be
conducted so as to constitute a "qualified liquidation" under Section 860F of
the Code.
In addition, the Prospectus Supplement may provide other circumstances
under which Holders of Securities of a Series could be fully paid significantly
earlier than would otherwise be the case if payments or distributions were
solely based on the activity of the related Loan Assets.
Weighted Average Life of the Securities
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of such
security will be repaid to the investor. Unless otherwise specified in the
related Prospectus Supplement, the weighted average life of the Securities of a
Class will be influenced by the rate at which the amount financed under the
Loans of the related Issuer for a Series is paid, which may be in the form of
scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to a
prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the Loans
of the related Issuer are made at rates corresponding to various percentages of
the prepayment standard or model specified in such Prospectus Supplement.
There is, however, no assurance that prepayment of the Loans of the related
Issuer will conform to any level of any prepayment standard or model specified
in the related Prospectus Supplement. The rate of principal prepayments on pools
of loans may be influenced by a variety of factors, including job related
factors such as transfers, layoffs or promotions and personal factors such as
divorce, disability or prolonged illness. Economic conditions, either generally
or within a particular geographic area or industry, also may affect the rate of
principal prepayments. Demographic and social factors may influence the rate of
principal prepayments in that some borrowers have greater financial flexibility
to move or refinance than do other borrowers. The deductibility of mortgage
interest payments, servicing decisions and other factors also affect the rate of
principal prepayments. As a result, there can be no assurance as to the rate or
timing of principal prepayments of the Loans either from time to time or over
the lives of such Loans.
The rate of prepayments of conventional housing loans and other receivables
has fluctuated significantly in recent years. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Loans for a
Series, such loans are likely to prepay at rates higher than if prevailing
interest rates remain at or above the interest rates borne by such loans. In
this regard, it should be noted that the Loans for a Series may have different
interest rates. In addition, the weighted average life of the Securities may be
affected by the varying maturities of the Loans. If any Loans for a Series have
actual terms-to-stated maturity of less than those assumed in calculating the
Final Scheduled Distribution Date of the related Securities, one or more Classes
of the Series may be fully paid prior to their respective Final Scheduled
Distribution Date, even in the absence of prepayments and a reinvestment return
higher than the Assumed Reinvestment Rate.
DESCRIPTION OF THE ISSUER ASSETS
General
The Issuer Assets for a related Series may be composed of (i) the Loan
Assets, (ii) all monies due under the Loan Assets net, if and as provided in the
related Prospectus Supplement, of certain amounts payable to the Servicer, (b)
if specified in the related Prospectus Supplement, funds on deposit in one or
more pre-funding accounts available to acquire additional Loan Assets during the
period specified in the related Prospectus Supplement and/or capitalized
interest accounts available to fund interest shortfalls arising from the use of
pre-funding accounts and (iii) reserve funds, letters of credit, surety bonds,
insurance policies or other forms of credit support as described herein and in
the related Prospectus Supplement.
The Securities will be non-recourse obligations of the related Issuer.
The assets of the Issuer specified in the related Prospectus Supplement for a
Series of Securities, unless otherwise specified in the related Prospectus
Supplement, will serve as collateral only for that Series of Securities. Holders
of a Series of Notes may only proceed against such collateral securing such
Series of Notes in the case of a default with respect to such Series of Notes
and may not proceed against any assets of the related Issuer not pledged to
secure such Notes.
The Loan Assets for a Series will be sold directly or indirectly by the
Seller to the Issuer or purchased directly or indirectly by the Issuer in the
open market or inly negotiated transactions, which may include transactions with
affiliates. Loans relating to a Series will be serviced by the Servicer pursuant
to a Pooling and Servicing Agreement, with respect to a Series consisting solely
of Certificates or a Sale and Servicing Agreement (each, a "Sale and Servicing
Agreement") among the Seller, the Issuer and the Servicer, with respect to a
Series that consists of Notes and Certificates.
As used herein, "Agreement" means, with respect to a Series that only
includes Certificates, the Pooling and Servicing Agreement, and with respect to
a Series that includes Notes, the Indenture, the Trust Agreement and the Sale
and Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a "Trust Agreement") between the Depositor and the trustee of
such Trust Fund (each, a "Trustee") specified in the related Prospectus
Supplement.
With respect to each Trust, prior to the initial offering of the
related Series of Securities, the Trust will have no assets or liabilities. No
Trust is expected to engage in any activities other than acquiring, managing and
holding the related Loan Assets and other assets contemplated herein and in the
related Prospectus Supplement and the proceeds thereof, issuing Securities and
making payments and distributions thereon and certain related activities. No
Trust is expected to have any source of capital other than its assets and any
related Enhancement. With respect to a Series of Notes issued by the Depositor,
as Issuer, the Notes will be secured by a pool of assets pledged to the
Indenture Trustee of such Series. The Depositor's activities are limited as
specified in its Certificate of Incorporation. See "The Depositor."
An Agreement may provide that additional Loans may be acquired by the
Issuer if such Loans were originated or acquired by the Seller in the ordinary
course of its business, the inclusion of such Loans will maintain or increase
the level of overcollateralization and the inclusion of such Loans will not
result in the withdrawal or downgrading of the ratings then assigned to the
Securities of the related Series. In addition, an Agreement may provide that
Loans may be removed from an Issuer from time to time if the actual level of
overcollateralization exceeds the amount of overcollateralization required to be
maintained and such removal will not result in the withdrawal or downgrading of
the ratings then assigned to the Securities of the related Series. See
"--Pre-Funding and Capitalized Interest Accounts."
The Loans
The Loan Assets for a Series will include consumer loan related assets
(the "Loan Assets") purchased directly or indirectly from Preferred Credit
Corporation (the "Seller"), and will be comprised of one or more pools of fixed
or adjustable rate closed-end no or low equity mortgage loans (the "Loans"),
secured by mortgages or deeds of trust, which are generally subordinate liens on
residential one- to four- family properties (the "Mortgaged Properties"),
including townhouses, individual units in condominium and planned unit
developments. Each Loan is evidenced by a mortgage note (each, a "Mortgage
Note"). The related proceeds of the Loans are generally used to finance (i) debt
consolidation, (ii) property improvements, (iii) the acquisition of personal
property such as home appliances or furnishings, (iv) the purchase or
refinancing of residential one- to four-family properties, and (v) a combination
of debt consolidation, property improvements and other consumer purposes.
Since the Mortgage Loans are generally subordinate liens which are
subordinate to the rights of the mortgagee under the senior mortgage or
mortgages encumbering the related Mortgaged Property ("Senior Liens"), the
proceeds from any foreclosure, liquidation, insurance or condemnation
proceedings will be available to satisfy the outstanding balance of such
subordinate mortgage only to the extent that the claims of the mortgagees under
such Senior Liens have been satisfied in full, including any related foreclosure
costs. In addition, a subordinate mortgagee may not foreclose on the Mortgaged
Property securing a subordinate mortgage unless it forecloses subject to the
Senior Liens, in which case it must either pay the entire amount due on the
Senior Liens to the mortgagees thereof at or prior to the foreclosure sale or
undertake the obligation to make payments on the Senior Liens in the event the
mortgagor is in default thereunder. The Issuer will not have any source of funds
to satisfy the Senior Liens or make payments due to the mortgagees thereof.
Each of the Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of The Loans." The monthly payments for each Loan are due on the
dates of the month specified in the related Mortgage Note (each a "Due Date").
Each Loan requires the related Mortgagor to make current principal and interest
payments during the life of the Loan. Based on information supplied by the
mortgagors in connection with their loan applications at origination, the
Mortgaged Properties will be owner occupied primary residences.
Unless otherwise described in the related Prospectus Supplement, the
full principal amount of a Loan is advanced at origination of the loan and
generally is repayable in equal (or substantially equal) installments of an
amount sufficient to fully amortize such loan at its stated maturity. As more
fully described in the related Prospectus Supplement, interest on each Loan is
calculated on the basis of the outstanding principal balance of such loan
multiplied by the Loan Rate thereon and further multiplied by a fraction, the
numerator of which is the number of days in the period elapsed since the
preceding payment of interest was made and the denominator is the number of days
in the annual period for which interest accrues on such loan. Unless otherwise
described in the related Prospectus Supplement the original terms to stated
maturity of Loans will not exceed 240 months. Under certain circumstances, a
borrower may choose an interest only payment option and is obligated to pay only
the amount of interest which accrues on the loan during the billing cycle. An
interest only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the loan.
The initial Combined Loan-to-Value Ratio of a Loan is computed in the
manner described in the related Prospectus Supplement, taking into account the
amounts of the related senior mortgage loans. The selection criteria which will
apply with respect to the Loans, including, but not limited to, the Combined
Loan-to-Value Ratios or Loan-to-Value Ratios, as applicable, original terms to
maturity and delinquency information, will be specified in the related
Prospectus Supplement.
The related Prospectus Supplement for each Series will set forth with
respect to the Loans as of a date specified in such Prospectus Supplement, among
other things, and to the extent relevant: (a) the aggregate unpaid principal
balance of the Loans (or the aggregate unpaid principal balance included in the
assets supporting such Series); (b) the range and weighted average Loan Rate on
the Loans, and, in the case of adjustable rate Loans, the range and weighted
average of the current Loan Rates and the Lifetime Rate Caps, if any; (c) the
range and average outstanding principal balance of the Loans; (d) the weighted
average original and remaining term-to-stated maturity of the Loans and the
range of original and remaining terms-to-stated maturity, if applicable; (e) the
range of credit bureau risk scores of the Loans and the weighted average credit
bureau risk score; (f) the range and weighted average of Combined Loan-to-Value
Ratios or Loan-to-Value Ratios for the Loans, as applicable, computed in the
manner described in the related Prospectus Supplement; (g) the percentage (by
outstanding principal balance as of the Cut-off Date) of Loans that accrue
interest at adjustable or fixed interest rates; (h) any enhancement relating to
the Loans; (i) the geographic distribution of the Loans; (j) the use and type of
each Mortgaged Property; (k) the lien priority of the Loans; and (l) the
delinquency status and year of origination of the Loans. The related Prospectus
Supplement will also specify any other limitations on the types or
characteristics of Loans for a Series.
If information of the nature described above respecting the Loans is
not known to the Depositor at the time the Securities are initially offered,
approximate or more general information of the nature described above will be
provided in the Prospectus Supplement, and the information which otherwise would
have been set forth in the Prospectus Supplement will be set forth in a Current
Report on Form 8-K to be filed with the Commission within 15 days after the
initial issuance of such Securities.
Collection, Certificate and Distribution Accounts
A separate Collection Account or Certificate Account will be
established by the applicable Trustee or the Servicer, in the name of the
Trustee, for each Series of Securities for receipt of the amount of cash, if
any, specified in the related Prospectus Supplement to be initially deposited
therein by the Depositor, all amounts received on or with respect to the Loan
Assets and, unless otherwise specified in the related Prospectus Supplement,
income earned thereon. Certain amounts on deposit in such Collection Account and
certain amounts available pursuant to any Enhancement, as provided in the
related Prospectus Supplement, will be deposited in a related Distribution
Account, which will also be established by the Trustee for each such Series of
Securities, for distribution to the related Holders. Unless otherwise specified
in the related Prospectus Supplement, the Trustee will invest the funds in the
Collection, Certificate and Distribution Accounts in Eligible Investments
maturing, with certain exceptions, not later, in the case of funds in the
Collection Account, than the day preceding the date such funds are due to be
deposited in the Distribution Account or otherwise distributed and, in the case
of funds in the Distribution Account, than the day preceding the next
Distribution Date for the related Series of Securities. See "--Eligible
Investments" below.
Notwithstanding any of the foregoing, amounts may be deposited and
withdrawn pursuant to any Deposit Agreement or Minimum Principal Payment
Agreement as specified in the related Prospectus Supplement.
Pre-Funding and Capitalized Interest Accounts
If specified in the related Prospectus Supplement, the assets of the
selected Issuer will include one or more segregated trust accounts (each, a
"Pre-Funding Account") established and maintained with the Trustee for the
related Series. If so specified, on the closing date for such Series, a portion
of the proceeds of the sale of the Securities of such Series not to exceed fifty
percent of the aggregate principal amount of such Series (such amount, the
"Pre-Funded Amount") will be deposited in the Pre-Funding Account and may be
used to purchase additional Loan Assets during the period of time specified in
the related Prospectus Supplement (the "Pre-Funding Period"). Pending the
purchase of such additional Loan Assets, funds deposited in the Pre-Funding
Account will be invested in Eligible Investments. If any Pre-Funded Amount
remains on deposit in the Pre-Funding Account at the end of the Pre-Funding
Period, such amount will be applied in the manner specified in the related
Prospectus Supplement to prepay the Notes and/or the Certificates of the
applicable Series. Any such prepayment will shorten the weighted average life of
such Notes and/or Certificates, and may adversely affect the related
Securityholder's yield to maturity on such Securities. In addition, since
prevailing interest rates are subject to fluctuation, there can be no assurance
that investors will be able to reinvest any such prepayment at yields equaling
or exceeding the yield on the related Securities. It is possible that the yield
on any such reinvestment will be lower, and may be significantly lower, than the
yield on the related Securities.
Each additional Loan Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Agreements. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or any Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Loan Assets were included as part of
the initial Loan Assets, the credit quality of such assets would be consistent
with the initial rating of the Securities of such Series. The eligibility
criteria will apply to the pool of Loan Assets, including the subsequent Loan
Assets, and will include a minimum weighted average interest rate, and may
require the opposed of Enhancement for such Series a maximum weighted average
remaining term to maturity and may require the approval of any Enhancer for such
Series. Depending on the composition of the original Loan Assets and the type of
Enhancement, additional eligibility criteria such as a minimum interest rate, a
maximum principal balance, a limitation on geographic concentration. The Seller
will certify to the Trustee that all conditions precedent to the transfer of the
additional Loan Assets, including the satisfaction of the eligibility criteria
to the Issuer, have been satisfied. It is a condition to the transfer of any
additional Loan Assets to the Issuer that each Rating Agency, after receiving
prior notice of the proposed transfer of the additional Loan Assets to the
Issuer shall not have advised the Seller, the Depositor or the Trustee or any
Enhancer that the conveyance of such additional Loan Assets will result in a
qualification, modification or withdrawal of its then current rating of any
Class of Notes or Certificates of such Series. Following the transfer of
additional Loan Assets to the Issuer, the aggregate characteristics of the Loan
Assets then owned by the Issuer may vary from those of the initial Loan Assets
of such Issuer. As a result, the additional Loan Assets may adversely affect the
performance of the related Securities.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a "Capitalized Interest Account") may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest available
therefor from the Loan Assets of the Issuer. If so specified in the related
Prospectus Supplement, amounts on deposit in the Capitalized Interest Account
may be released to the Depositor prior to the end of the Pre-Funding Period
subject to the satisfaction of certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized Interest Account at the
end of the Pre-Funding Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus Supplement.
Revolving Period and Amortization Period; Retained Interest
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a class or classes of Notes or
Certificates of a Series and ending in the date set forth on the related
Prospectus Supplement (each, a "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related Series as are identified in such Prospectus Supplement. Until the
applicable Revolving Period ends, all collections of principal otherwise
allocated to such classes of Notes or Certificates may be (i) utilized by the
Issuer during the Revolving Period to acquire additional Loans which satisfy the
criteria specified above and the criteria set forth in the related Prospectus
Supplement, (ii) held in an account and invested in Eligible Investments for
later distribution to Securityholders, (iii) applied to those Notes or
Certificates for such Series, if any, specified in the related Prospectus
Supplement as then are in amortization, or (iv) otherwise applied as specified
in the related Prospectus Supplement. The purpose of a Revolving Period for any
Series of Securities is to extend the maturity of such Securities to a date
which would not otherwise be possible if the Issuer Assets of the related Trust
was a fixed pool.
An "Amortization Period" is the period during which principal collections
which were not available for distribution during the Revolving Period (as they
were applied to one or more of the uses specified in the preceding paragraph)
become available for distribution to Holders of a Series. If so specified in the
related Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Receivables may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
classes of Notes or Certificates for such Series specified in the related
Prospectus Supplement as then being entitled to payments of principal. In
addition, if so specified in the related Prospectus Supplement, amounts
deposited in certain accounts for the benefit of one or more classes of Notes or
Certificates for such Series may be released from time to time or on a specified
date and applied as a payment of principal on such classes of Notes or
Certificates. The related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period. Any
Amortization Period which begins earlier than anticipated with respect to a
class of Securities upon the occurrence of such circumstances as will be
described in the related Prospectus Supplement (any such occurrence, an "Early
Amortization Event") will result in an acceleration of principal payments on
such class, which will cause such class to have a shorter weighted average life
than had such Early Amortization Event not occurred. Such an acceleration of
principal payments may adversely affect the yield to maturity of the related
Securities.
Each Series which has a Revolving Period may also issue to the
Depositor a certificate evidencing an undivided beneficial interest (a "Retained
Interest") in such Series not represented by the other Securities issued by such
Issuer. As further described in the related Prospectus Supplement, the value of
such Retained Interest will fluctuate as the amount of Issuer Assets fluctuates
and the amount of Notes and Certificates of the related Series of Securities
outstanding is reduced.
ELIGIBLE INVESTMENTS
Each Agreement generally will define Eligible Investments to include
the following:
(i) direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof, provided that such obligations
are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of the
party agreeing to repurchase such obligations are at the time rated by
each Rating Agency in its highest short-term rating category;
(iii) certificates of deposit, time deposits and bankers'
acceptances of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal and/or state
banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date
of acquisition thereof have been rated by each Rating Agency in its
highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more
than 90 days) of any corporation incorporated under the laws of the
United States or any state thereof which on the date of acquisition has
been rated by each Rating Agency in their highest short-term rating
categories;
(v) short-term investment funds ("STIFS") sponsored by any
trust company or national banking association incorporated under the
laws of the United States or any state thereof which on the date of
acquisition has been rated by each Rating Agency in their respective
highest rating category of long-term unsecured debt; and
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time as
the interest is held in such fund has a rating of "Aaa" by Moody's
Investors Service, Inc., and either "AAAm" or "AAAm-G" by Standard &
Poor's Rating Group, a division of the McGraw-Hill Companies, Inc.;
provided that no instrument described above may evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
To the extent any such investment would require registration of the
Issuer as an investment company, such investment will not constitute an Eligible
Investment.
ENHANCEMENT
The amounts and types of credit enhancement ("Enhancement")
arrangements and the provider thereof (the "Enhancer"), if applicable, with
respect to a Series or any Class of Securities will be set forth in the related
Prospectus Supplement. If specified in the applicable Prospectus Supplement,
Enhancement for any Series of Securities may cover one or more Classes of Notes
or Certificates, and accordingly may be exhausted for the benefit of a
particular Class of Notes or Certificates and thereafter be unavailable to such
other Classes of Notes or Certificates. Further information regarding any
provider of credit enhancement, including financial information when material,
will be included in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement,
Enhancement may include one or more of the following or any combination thereof:
Financial Guaranty Insurance Policy which will be issued by a monoline
insurance company and which, subject to the terms of such policy, will guarantee
timely payment of interest on, and ultimate (as opposed to timely) payment of
principal of, the applicable Class or Classes of Securities;
Overcollateralization which will equal the excess of the aggregate
principal balance of the Loan Assets over the aggregate principal balance of the
Securities. Overcollateralization may take the form of the initial or subsequent
deposit of Loan Assets to create such excess or may build over time from the
application of certain excess cash amounts generated by the Loan Assets to
accelerate the amortization of the applicable Class or Classes of Securities;
Letter of Credit which will be issued by a bank or other financial
institution in a maximum amount which may be permanently reduced as draws are
made or may be replenished as previous draws are repaid from certain excess cash
amounts generated by the Loan Assets. Draws may be made to cover shortfalls
generally in collections, with respect to particular types of shortfalls such as
those due to particular types of losses or with respect to specific situations
such as shortfalls in amounts necessary to pay current interest;
Cash Reserve Fund which may be partially or fully funded on the date of
issuance or may be funded over time from certain excess cash amounts generated
by the Loan Assets. Withdrawals may be made in circumstances similar to those
for which draws may be made on a letter of credit;
Insurance Policies which may insure a portion of the Loans against
credit losses, bankruptcy losses, fraud losses or special hazard losses not
covered by typical homeowners insurance policies;
Subordinate Securities which will be subordinated in the right to
reserve distributions to one or more other Classes of Securities of the same
Series, some or all of which may themselves be subordinated to other Classes or
such Series. Subordination may be with respect to distributions of interest,
principal or both. In addition, all or portions of certain types of losses on
the Loan Assets may be allocated to one or more Classes of the Subordinate
Securities prior to the allocation thereof to other Classes of Subordinate
Certificates and/or the Senior Securities of the applicable Series; or
Derivative Products which may include a swap to convert floating or
fixed rate payments, as applicable, on the Loan Assets into fixed or floating
rate payments, as applicable, on the Securities or a cap or floor agreement
intended to provide protection against changes in floating rates of interest
payable on the Loan Assets and/or the Securities. Any such derivative product
will constitute or will be structured so as to be an insurance policy or an
exempt security.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. The Enhancement for a Class of Securities generally will
not provide protection against all risks of loss and may not guarantee repayment
of the entire principal and interest thereon. If losses occur which exceed the
amount covered by any Enhancement or which are not covered by any Enhancement,
Securityholders will bear their allocable share of deficiencies. In addition, if
a form of Enhancement covers more than one Class of Securities of a Series,
Securityholders of any such Class will be subject to the risk that such
Enhancement will be exhausted by the claims of Securityholders of other Classes.
SERVICING OF LOANS
GENERAL
The Servicer will service the Loans comprising the Loan Assets
supporting a Series pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as the case may be, with respect to such Series
of Securities.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Servicer will be obligated under the related Agreement to service
and administer the Loans on behalf of the Issuer, solely in the best interests
of and for the benefit of the Securityholders and the Enhancer, if any, in
accordance with the terms of the related Agreement, and will have full power and
authority to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable in accordance with the
terms of the related Agreement.
The Servicer may perform any of its obligations under the related
Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Servicer will remain liable for its servicing
duties and obligations under the related Agreement as if the Servicer alone were
servicing the Loans.
The Servicer will make reasonable efforts to collect all payments
required to be made under the Loans and will be obligated, consistent with the
terms of the related Agreement for a Series and any applicable Enhancement, to
follow such collection procedures as it follows with respect to loans comparable
to the Loans and which are required to generally conform to the servicing
practices of prudent lending institutions which service loans of the same type
as the Loans for their own account in the jurisdiction in which such Loans were
originated ("Accepted Servicing Practices"). Pursuant to the related Agreement,
the Servicer will be required to make reasonable efforts to collect all payments
called for under the terms of the related Loan. Nonetheless, the Servicer, in
determining the type of action that is reasonable to pursue may consider, among
other things, the unpaid principal balance of a Loan against the estimated cost
of collection or foreclosure action, the unpaid balance of the related prior
mortgage, if any, the condition and estimated market value ("as is" and "if
repaired"), the estimated marketability of the related Mortgaged Property and
the borrower's ability to repay. Consistent with the above, the Servicer will be
permitted, in its discretion, to (i) waive any late payment charge, or other
charge in connection with any Loan and (ii) to the extent provided in the
related Agreement, arrange with an obligor a schedule running for no more than
180 days after the Due Date of any installment due under the related Loan, for
the liquidation of delinquent items.
If specified in the related Prospectus Supplement, the Servicer, to the
extent permitted by law, will establish and maintain escrow or impound accounts
("Escrow Accounts") with respect to Loans in which payments by obligors to pay
taxes, assessments, mortgage and hazard insurance premiums, and other comparable
items will be deposited. Loans may not require such payments under the loan
related documents, in which case the Servicer would not be required to establish
any Escrow Account with respect to such Loans. Withdrawals from the Escrow
Accounts are to be made to effect timely payment of taxes, assessments and
mortgage and hazard insurance, to refund to obligors amounts determined to be
overages, to pay interest to obligors on balances in the Escrow Account to the
extent required by law, to repair or otherwise protect the property securing the
related Loan and to clear and terminate such Escrow Account. The Servicer will
be responsible for the administration of the Escrow Accounts and generally will
make advances to such accounts when a deficiency exists therein.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT OR THE
CERTIFICATE ACCOUNT
Unless otherwise specified in the related Prospectus Supplement, the
Trustee or the Servicer will establish a separate account (the "Collection
Account" or the "Certificate Account") in the name of the Trustee. Unless
otherwise indicated in the related Prospectus Supplement, the Collection Account
and/or Certificate Account will be an account maintained (i) at a depository
institution, the long-term unsecured debt obligations of which at the time of
any deposit therein are rated by each Rating Agency rating the Securities of
such Series at levels satisfactory to each Rating Agency and the Enhancer, if
any, or (ii) in an account or accounts the deposits in which are insured to the
maximum extent available by the Federal Deposit Insurance Corporation ("FDIC")
or which are secured in a manner meeting requirements established by each Rating
Agency and the Enhancer, if any.
Unless otherwise specified in the related Prospectus Supplement, the
funds held in the Collection Account or the Certificate Account may be invested,
pending remittance to the applicable Trustee, in Eligible Investments. If so
specified in the related Prospectus Supplement, the Servicer will be entitled to
receive as additional compensation any interest or other income earned on funds
in the Collection Account or the Certificate Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Depositor, the Trustee or the Seller, as appropriate, will deposit
into the Collection Account for each Series on the Closing Date any amounts
representing Scheduled Payments due after the related Cut-off Date but received
by the Servicer on or before the Closing Date, and thereafter, within two
business days after the date of receipt thereof, the following payments and
collections received or made by it (other than, unless otherwise provided in the
related Prospectus Supplement, in respect of principal of and interest on the
related Loan Assets due on or before such Cut-off Date):
(i) All payments on account of principal, including prepayments,
on such Loan Assets;
(ii) All payments on account of interest on such Loan Assets
after deducting therefrom, at the discretion of the Servicer but only
to the extent of the amount permitted to be withdrawn or withheld from
the Collection Account in accordance with the related Agreement, the
Servicing Fee in respect of such Loan Assets;
(iii) All amounts received by the Servicer in connection with the
liquidation of Loan Assets or property acquired in respect thereof,
whether through foreclosure sale, repossession or otherwise, including
payments in connection with such Loan Assets received from the
obligor, other than amounts required to be paid or refunded to the
obligor pursuant to the terms of the applicable loan documents or
otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in
the discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Collection Account in accordance
with the related Agreement, the Servicing Fee, if any, in respect of
the related Loan Asset;
(iv) All proceeds under any title insurance, hazard insurance or
other insurance policy covering any such Loan Asset, other than
proceeds to be applied to the restoration or repair of the related
Property or released to the obligor in accordance with the related
Agreement;
(v) All amounts required to be deposited therein from any
applicable Reserve Fund for such Series pursuant to the related
Agreement;
(vi) All Advances made by the Servicer required pursuant to the
related Agreement; and
(vii) All repurchase prices of any such Loan Assets repurchased
by the Depositor, the Servicer or the Seller pursuant to the related
Agreement.
Unless otherwise specified in the related Prospectus Supplemen t, the
Servicer is permitted, from time to time, to make with drawals from the
Collection Account for each Series for the follo wing purposes:
(i) to reimburse itself for Advances for such Series made by it
pursuant to the related Agreement; the Servicer's right to reimburse
itself is limited to amounts received on or in respect of particular
Loans (including, for this purpose, Liquidation Proceeds and amounts
representing proceeds of insurance policies covering the related
Property) which represent late recoveries of Scheduled Payments
respecting which any such Advance was made;
(ii) to the extent provided in the related Agreement, to
reimburse itself for any Advances for such Series that the Servicer
determines in good faith it will be unable to recover from amounts
representing late recoveries of Scheduled Payments respecting which
such Advance was made or from Liquidation Proceeds or the proceeds of
insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for
liquidation expenses and for amounts expended by it in good faith in
connection with the restoration of damaged Property and, in the event
deposited in the Collection Account and not previously withheld, and
to the extent that Liquidation Proceeds after such reimbursement
exceed the outstanding principal balance of the related Loan, together
with accrued and unpaid interest thereon to the Due Date for such Loan
next succeeding the date of its receipt of such Liquidation Proceeds,
to pay to itself out of such excess the amount of any unpaid Servicing
Fee and any assumption fees, late payment charges, or other charges on
the related Loan;
(iv) in the event it has elected not to pay itself the Servicing
Fee out of the interest component of any Scheduled Payment, late
payment or other recovery with respect to a particular Loan prior to
the deposit of such Scheduled Payment, late payment or recovery into
the Collection Account, to pay to itself the Servicing Fee, as
adjusted pursuant to the related Agreement, from any such Scheduled
Payment, late payment or such other recovery, to the extent permitted
by the related Agreement;
(v) to reimburse itself for expenses incurred by and recoverable
by or reimbursable to it pursuant to the related Agreement;
(vi) to pay to the applicable person with respect to each Loan
Asset or REO Property acquired in respect thereof that has been
repurchased or removed from the assets supporting a Series by the
Depositor, the Servicer or the Seller pursuant to the related
Agreement, all amounts received thereon and not distributed as of the
date on which the related repurchase price was determined;
(vii) to make payments to the applicable Trustee of such Series
for deposit into the Distribution Account, if any, or for remittance
to the Holders of such Series in the amounts and in the manner
provided for in the related Agreement; and
(viii) to clear and terminate the Collection Account pursuant to
the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
ADVANCES AND LIMITATIONS THEREON
The related Prospectus Supplement will describe the circumstances, if
any, under which the Servicer will make Advances with respect to delinquent
payments on Loans. If specified in the related Prospectus Supplement, the
Servicer will be obligated to make Advances, and such obligation may be limited
in amount, or may not be activated until a certain portion of a specified
Reserve Fund is depleted. Advances are intended to provide liquidity and, except
to the extent specified in the related Prospectus Supplement, not to guarantee
or insure against losses. Accordingly, any funds advanced are recoverable by the
Servicer out of amounts received on particular Loans which represent late
recoveries of principal or interest, proceeds of insurance policies or
Liquidation Proceeds respecting which any such Advance was made. If an Advance
is made and subsequently determined to be nonrecoverable from late collections,
proceeds of insurance policies, or Liquidation Proceeds from the related Loan,
the Servicer may be entitled to reimbursement from other funds in the Collection
Account or Distribution Account, as the case may be, or from a specified Reserve
Fund as applicable, to the extent specified in the related Prospectus
Supplement. Advances with respect to Compensating Interest in the cases of full
prepayment of a Loan and with respect to Mortgage Property protection will be
made by the Servicer only to the extent specified in the related Prospectus
Supplement. "Compensating Interest" is an amount equal to the difference between
(x) 30 days' interest at the Loan Rate (net of the rate at which the Servicing
Fee is calculated) on the Principal Balance of such Loan as of the first day of
the related Collection Period and (y) to the extent not previously advanced, the
interest paid by the borrower with respect to such Loan in connection with such
prepayment. The Servicer will not be required to pay Compensating Interest with
respect to any Collection Period in an amount in excess of the aggregate
Servicing Fee received by the Servicer for such Collection Period.
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
Standard Hazard Insurance; Flood Insurance. Except as otherwise
specified in the related Prospectus Supplement, the Servicer will be required to
maintain or to cause the obligor on each Loan to maintain a standard hazard
insurance policy providing coverage of the standard form of fire insurance with
extended coverage for certain other hazards as is customary in the state in
which the related Property is located. The standard hazard insurance policies
will provide for coverage at least equal to the applicable state standard form
of fire insurance policy with extended coverage for property of the type
securing the related Loans.
In general, the standard form of fire and extended coverage policy will
cover physical damage to or destruction of, the related Property caused by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion,
subject to the conditions and exclusions particularized in each policy. Because
the standard hazard insurance policies relating to the Loans will be
underwritten by different hazard insurers and will cover Mortgaged Properties
located in various states, such policies will not contain identical terms and
conditions. The basic terms, however, generally will be determined by state law
and generally will be similar. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides
and mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all inclusive. Uninsured risks not covered by a special hazard insurance policy
or other form of Enhancement will adversely affect distributions to Holders.
When a Mortgaged Property is located in a flood area identified by HUD pursuant
to the Flood Disaster Protection Act of 1973, as amended, the Servicer will be
required to cause flood insurance to be maintained with respect to such
Property, to the extent available.
The standard hazard insurance policies covering Mortgaged Properties
typically will contain a "coinsurance" clause which, in effect, will require the
insured at all times to carry hazard insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the Property, including
the improvements on any Property, in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified percentage,
such clause will provide that the hazard insurer's liability in the event of
partial loss will not exceed the greater of (i) the actual cash value (the
replacement cost less physical depreciation) of the Property, including the
improvements, if any, damaged or destroyed or (ii) such proportion of the loss,
without deduction for depreciation, as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such Property and
improvements. Since the amount of hazard insurance to be maintained on the
improvements securing the Loans declines as the principal balances owing thereon
decrease, and since the value of the Mortgaged Properties will fluctuate in
value over time, the effect of this requirement in the event of partial loss may
be that hazard insurance proceeds will be insufficient to restore fully the
damage to the affected Property.
Unless otherwise specified in the related Prospectus Supplement,
coverage will be in an amount at least equal to the greater of (i) the amount
necessary to avoid the enforcement of any co-insurance clause contained in the
policy or (ii) the outstanding principal balance of the related Loan. Unless
otherwise specified in the related Prospectus Supplement, the Servicer will also
maintain on REO Property that secured a defaulted Loan and that has been
acquired upon foreclosure, deed in lieu of foreclosure, or repossession, a
standard hazard insurance policy in an amount that is at least equal to the
maximum insurable value of such REO Property. No earthquake or other additional
insurance will be required of any obligor or will be maintained on REO Property
acquired in respect of a defaulted Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and shall require such
additional insurance.
Any amounts collected by the Servicer under any such policies of
insurance (other than amounts to be applied to the restoration or repair of the
Property, released to the obligor in accordance with normal servicing procedures
or used to reimburse the Servicer for amounts to which it is entitled to
reimbursement) will be deposited in the Collection Account. In the event that
the Servicer obtains and maintains a blanket policy insuring against hazard
losses on all of the Loans, written by an insurer then acceptable to each Rating
Agency which assigns a rating to such Series, it will conclusively be deemed to
have satisfied its obligations to cause to be maintained a standard hazard
insurance policy for each Loan or related REO Property. This blanket policy may
contain a deductible clause, in which case the Servicer will be required, in the
event that there has been a loss that would have been covered by such policy
absent such deductible clause, to deposit in the Collection Account the amount
not otherwise payable under the blanket policy because of the application of
such deductible clause.
REALIZATION UPON DEFAULTED LOANS
In an effort to collect upon delinquent Loans, the Servicer will
attempt to contact the borrower to determine both ability and intent to pay. In
accordance with the policies and procedures of the Servicer and in accordance
with Accepted Servicing Practices and the REMIC Provisions, if applicable,
appropriate action may be taken at the discretion of the Servicer, including but
not limited to, extended payment arrangements, forbearances and referral for
legal actions.
The holder of the Subordinate Certificates may have the right to
repurchase (up to 10% of the Maximum Collateral Amount) from the related Trust
any Charged-Off Loan (or any Loan which will imminently become a Charged-Off
Loan) by depositing an amount equal to the principal balance of such Loan,
together with accrued interest thereon and any unreimbursed advances thereon, in
the account identified in the related Prospectus Supplement.
Except as described below and in the related Prospectus Supplement, the
Servicer may foreclose upon or otherwise comparably convert the ownership of the
Mortgaged Properties securing the related Loans as come into and continue in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Servicer will be required to follow such procedures as it follows with
respect to comparable loans serviced by it. However, the Servicer will not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of the Property unless it determines that (i) such restoration
or foreclosure will increase the Liquidation Proceeds in respect of the related
Loan available to the Holders after reimbursement to itself for such expenses in
accordance with the related Agreement and (ii) such expenses will be recoverable
by it either through Liquidation Proceeds or the proceeds of insurance. While
the holder of a Property acquired through foreclosure can often maximize its
recovery by providing financing to a new purchaser, the Issuer, if applicable,
will have no ability to do so and neither the Servicer nor the Depositor will be
required to do so.
The Servicer will be permitted to foreclosure against the Mortgaged
Property securing a defaulted Loan either by foreclosure, by sale or by strict
foreclosure, and in the event a deficiency judgment is available against the
Mortgagor or any other person, may proceed for the deficiency.
In the event that an Issuer for which a REMIC election has been made
acquires any Mortgaged Property as aforesaid or otherwise in connection with a
default or imminent default on a Loan, such Mortgaged Property will be required
to be disposed of by or on behalf of the Issuer within two years after its
acquisition by the Issuer unless (a) the Trustee and the Enhancer, if any, shall
have received an opinion of counsel to the effect that the holding by the Issuer
of such Mortgaged Property subsequent to two years after its acquisition (and
specifying the period beyond such two-year period for which the Mortgaged
Property may be held) will not cause the Issuer to be subject to the tax on
prohibited transactions imposed by the Code Section 860F(a)(1), otherwise
subject the Issuer to tax or cause the Issuer to fail to qualify as a REMIC at
any time that any related Securities are outstanding, or (b) the Trustee (at the
Servicer's expense) or the Servicer shall have applied for, prior to the
expiration of such two-year period, an extension of such two-year period in the
manner contemplated by Code Section 856(e)(3), in which case the two-year period
shall be extended by the applicable period. The Servicer will also be required
to ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Issuer of any income from non-permitted assets as described in Code Section
860F(a)(2)(B), and that the Issuer does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property.
If the Servicer is aware that any Mortgaged Property may contain
hazardous wastes, the Servicer may not institute a foreclosure proceeding or
accept a deed in lieu of foreclosure without first obtaining the prior consent
of the Enhancer for a Series, if any, and will not cause an Issuer to acquire
title to such Mortgaged Property if such acquisition is not, in the reasonable
opinion of the Servicer commercially reasonable.
In lieu of foreclosing upon any defaulted Loan, the Servicer may, in
its discretion, permit the assumption of such Loan if, in the Servicer's
reasonable judgment, such default is unlikely to be cured. In connection with
any such assumption, the Loan Rate of the related Mortgage Note and the payment
terms will not be permitted to be changed. Any fee collected by the Servicer for
entering into an assumption agreement will be retained by the Servicer as
servicing compensation.
The Servicer may arrange with the obligor on a defaulted Loan a
modification of such Loan (a "Modification") to the extent provided in the
related Prospectus Supplement. Such Modifications may only be entered into if
they meet the underwriting policies and procedures employed by the Servicer in
servicing receivables for its own account and meet the other conditions set
forth in the related Prospectus Supplement.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement for a
Series, when any Property is about to be conveyed by the obligor, the Servicer
will, to the extent it has knowledge of such prospective conveyance and prior to
the time of the consummation of such conveyance, will have the option to
exercise its rights to accelerate the maturity of the related Loan under the
applicable "due-on-sale" clause, if any, unless it reasonably believes that such
clause is not enforceable under applicable law or if the enforcement of such
clause would result in loss of coverage under any primary mortgage insurance
policy. In such event, the Servicer is authorized to accept from or enter into
an assumption agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable under the
Loan and pursuant to which the original obligor is released from liability and
such person is substituted as the obligor and becomes liable under the Loan. Any
fee collected in connection with an assumption will be retained by the Servicer
as additional servicing compensation. The terms of a Loan may not be changed in
connection with an assumption except to the extent specified in the related
Prospectus Supplement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to a periodic fee as servicing
compensation (the "Servicing Fee") in an amount to be determined as specified in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, the Servicer may
be entitled to servicing compensation in the form of assumption and other
administrative fees, release fees, bad check charges, any other
servicing-relating fees or excess proceeds following disposition of Property in
connection with defaulted Loans.
Except to the extent specified in the related Prospectus Supplement,
the Servicer will pay certain expenses incurred in connection with the servicing
of the Loans, including, without limitation, the payment of the fees and
expenses of the Trustee and independent accountants, payment of insurance policy
premiums and the cost of credit support, if any, and payment of expenses
incurred in preparation of reports to Holders.
When an obligor makes a principal prepayment in full between Due Dates
on the related Loan, the obligor will generally be required to pay interest on
the amount prepaid only to the date of prepayment. If and to the extent provided
in the related Prospectus Supplement in order that one or more Classes of the
Holders of a Series will not be adversely affected by any resulting shortfall in
interest, the amount of the Servicing Fee may be reduced to the extent necessary
to include in the Servicer's remittance to the Trustee for deposit into the
Distribution Account an amount equal to one month's interest on the related Loan
(less the Servicing Fee). If the aggregate amount of such shortfalls in a month
exceeds the Servicing Fee for such month, a shortfall to Holders may occur.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be entitled to reimbursement for certain expenses incurred by it
in connection with the liquidation of defaulted Loans. The related Holders will
suffer no loss by reason of such expenses to the extent expenses are covered
under related insurance policies or from excess Liquidation Proceeds. If claims
are either not made or paid under the applicable insurance policies or if
coverage thereunder has been exhausted, the related Holders will suffer a loss
to the extent that Liquidation Proceeds, after reimbursement of the Servicer's
expenses, are less than the outstanding principal balance of and unpaid interest
on the related Loan which would be distributable to Holders. In addition, the
Servicer will be entitled to reimbursement of expenditures incurred by it in
connection with the restoration of property securing a defaulted Loan, such
right of reimbursement being prior to the rights of the Holders to receive any
related proceeds of insurance policies, Liquidation Proceeds or amounts derived
from other Enhancement. The Servicer is generally also entitled to reimbursement
from the Collection Account for Advances as described under "--Advances and
Limitations Thereon."
Unless otherwise specified in the related Prospectus Supplement, the
rights of the Servicer to receive funds from the Collection Account for a
Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, are not subordinate to the
rights of Holders of such Series.
EVIDENCE AS TO COMPLIANCE
The applicable Agreement for each Series will provide that each year, a
firm of independent public accountants will furnish a statement to the Trustee
to the effect that such firm has examined certain documents and records relating
to the servicing of the Loans by the Servicer and that, on the basis of such
examination, such firm is of the opinion that the servicing has been conducted
in compliance with such Agreement, except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are set forth in
such statement.
The applicable Agreement for each Series will also provide for delivery
to the Trustee for such Series of an annual statement signed by an officer of
the Servicer to the effect that the Servicer has fulfilled its obligations under
such Agreement throughout the preceding calendar year.
CERTAIN MATTERS REGARDING THE SERVICER
If an Event of Default occurs under a Servicing Agreement, the Servicer
may be replaced by the Trustee or a successor Servicer. Unless otherwise
specified in the related Prospectus Supplement, such Events of Default and the
rights of the applicable Trustee upon such a default under the Agreement for the
related Series will be substantially similar to those described under "The
Agreements--Events of Default; Rights Upon Events of Default--Sale and Servicing
Agreement; Pooling and Servicing Agreement."
The Servicer will not have the right to assign its rights and delegate
its duties and obligations under the related Agreement for each Series unless
the successor Servicer accepting such assignment or delegation (i) services
similar loans in the ordinary course of its business, (ii) is reasonably
satisfactory to the Trustee for the related Series, (iii) has a net worth of not
less than the amount specified in the related Prospectus Supplement, (iv) would
not cause any Rating Agency's rating of the Securities for such Series in effect
immediately prior to such assignment, sale or transfer to be qualified,
downgraded or withdrawn as a result of such assignment, sale or transfer and (v)
executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
Servicer of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Servicer under the related
Agreement from and after the date of such agreement. No such assignment will
become effective until the Trustee or a successor Servicer has assumed the
servicer's obligations and duties under the related Agreement. To the extent
that the Servicer transfers its obligations to a wholly-owned subsidiary or
affiliate, such subsidiary or affiliate need not satisfy the criteria set forth
above; however, in such instance, the assigning Servicer will remain liable for
the servicing obligations under the related Agreement. Any entity into which the
Servicer is merged or consolidated or any successor corporation resulting from
any merger, conversion or consolidation will succeed to the Servicer's
obligations under the related Agreement provided that such successor or
surviving entity meets the requirements for a successor Servicer set forth
above.
Each Agreement will provide that neither the Servicer, nor any
director, officer, employee or agent of the Servicer, will be under any
liability to the related Issuer, the Depositor or the Holders for any action
taken or for failing to take any action in good faith pursuant to the related
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any breach of warranty or
representations made under such Agreement or the failure to perform its
obligations in compliance with any standard of care set forth in such Agreement,
or liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties thereunder. Each Agreement
will further provide that the Servicer and any director, officer, employee or
agent of the Servicer is entitled to indemnification from the related Issuer,
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the Securities,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of duties thereunder or
by reason of reckless disregard of obligations and duties thereunder. In
addition, the related Agreement will provide that the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under such Agreement which, in its
opinion, may involve it in any expense or liability. The Servicer may, in its
discretion, undertake any such action which it may deem necessary or desirable
with respect to the related Agreement and the rights and duties of the parties
thereto and the interests of the Holders thereunder. In such event the legal
expenses and costs of such action and any liability resulting therefrom may be
expenses, costs, and liabilities of the Issuer, and the Servicer may be entitled
to be reimbursed therefor out of the Collection Account.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the related Agreements.
ASSIGNMENT OF LOAN ASSETS
General. At the time of issuance of the Securities of a Series, the
Seller will directly or indirectly transfer, convey and assign to the Issuer all
right, title and interest of the Seller in the Loan Assets and other property to
be transferred to the Issuer for a Series. Such assignment will include all
principal and interest due on or with respect to the Loan Assets after the
Cut-off Date specified in the related Prospectus Supplement (except for any
Retained Interests). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
Assignment of Loans. Unless otherwise specified in the related
Prospectus Supplement, the Depositor will, as to each Loan, deliver or cause to
be delivered to the applicable Trustee, or, as specified in the related
Prospectus Supplement a custodian on behalf of the Trustee (the "Custodian"),
the Mortgage Note endorsed without recourse to the order of the Trustee or in
blank, the original Mortgage with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in which
case a copy of such Mortgage will be delivered, together with a certificate that
the original of such Mortgage was delivered to such recording office) and an
assignment of the Mortgage in recordable form. The Trustee, or, if so specified
in the related Prospectus Supplement, the Custodian, will hold such documents in
trust for the benefit of the Holders.
With respect to Loans, if so specified in the related Prospectus
Supplement, the Depositor will, at the time of issuance of the Securities, cause
assignments to the Trustee of the Mortgages relating to the Loans for a Series
to be recorded in the appropriate public office for real property records,
except in states where, in the opinion of counsel acceptable to the Trustee,
such recording is not required to protect the Trustee's interest in the related
Loans. If specified in the related Prospectus Supplement, the Depositor will
cause such assignments to be so recorded within the time after issuance of the
Securities as is specified in the related Prospectus Supplement, in which event,
the Agreement may, as specified in the related Prospectus Supplement, require
the Depositor to repurchase from the Trustee any Loan the related Mortgage of
which is not recorded within such time, at the price described below with
respect to repurchases by reason of defective documentation. Unless otherwise
provided in the related Prospectus Supplement, the enforcement of the repurchase
obligation would constitute the sole remedy available to the Holders or the
Trustee for the failure of a Mortgage to be recorded.
Each Loan will be identified in a schedule appearing as an exhibit to
the related Agreement (the "Loan Schedule"). Such Loan Schedule will specify
with respect to each Loan: the original principal amount and unpaid principal
balance as of the Cut-off Date; the current interest rate; the current Scheduled
Payment of principal and interest; the maturity date, if any, of the related
Mortgage Note; if the Loan is an adjustable rate Loan, the Lifetime Rate Cap, if
any, and the current index.
Repurchase and Substitution of Non-Conforming Loan Assets. Unless
otherwise provided in the related Prospectus Supplement, if any document in the
file relating to the Loan Assets delivered by the Depositor to the Trustee (or
Custodian) is found by the Trustee within [30] days of the execution of the
related Agreement (or promptly after the Trustee's receipt of any document
permitted to be delivered after the Closing Date) to be defective in any
material respect and the Depositor or Seller does not cure such defect within
[60] days, or within such other period specified in the related Prospectus
Supplement, the Depositor or Seller will, not later than [60] days or within
such other period specified in the related Prospectus Supplement, after the
Trustee's notice to the Depositor or the Seller, as the case may be, of the
defect, repurchase the related Loan Asset or any property acquired in respect
thereof from the Trustee at a price equal to, unless otherwise specified in the
related Prospectus Supplement, (a) the lesser of (i) the outstanding principal
balance of such Loan Asset and (ii) the Issuer's federal income tax basis in the
Loan Asset and (b) accrued and unpaid interest to the date of the next scheduled
payment on such Loan Asset at the rate set forth in the related Agreement,
provided, however, the purchase price shall not be limited in (i) above to the
Issuer's federal income tax basis if the repurchase at a price equal to the
outstanding principal balance of such Loan Asset will not result in any
prohibited transaction tax under Section 860F(a) of the Code.
If provided in the related Prospectus Supplement, the Depositor or
Seller, as the case may be, may, rather than repurchase the Loan Asset as
described above, remove such Loan Asset from the Issuer (the "Deleted Loan
Asset") and substitute in its place one or more other Loan Assets (each, a
"Qualifying Substitute Loan Asset") provided, however, that (i) with respect to
a pool of assets of an Issuer for which no REMIC election is made, such
substitution must be effected within 120 days of the date of initial issuance of
the Securities and (ii) with respect to a pool of assets of an Issuer for which
a REMIC election is made, after a specified time period, the Trustee must have
received a satisfactory opinion of counsel that such substitution will not cause
the Issuer to lose its status as a REMIC or otherwise subject the Issuer to a
prohibited transaction tax.
Unless otherwise specified in the related Prospectus Supplement, any
Qualifying Substitute Loan Asset will have, on the date of substitution, (i) an
outstanding principal balance, after deduction of all Scheduled Payments due in
the month of substitution, not in excess of the outstanding principal balance of
the Deleted Loan Asset (the amount of any shortfall to be deposited to the
Collection Account in the month of substitution for distribution to Holders),
(ii) an interest rate not less than (and not more than 2% greater than) the
interest rate of the Deleted Loan Asset, (iii) a remaining term-to-stated
maturity not greater than (and not more than two years less than) that of the
Deleted Loan Asset, and will comply with all of the representations and
warranties set forth in the applicable Agreement as of the date of substitution.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the sole
remedies available to the Holders or the Trustee for a material defect in a
document for a Loan Asset.
The Depositor or another entity will make representations and
warranties with respect to Loan Assets for a Series. If the Depositor or such
entity cannot cure a breach of any such representations and warranties in all
material respects within the time period specified in the related Prospectus
Supplement after notification by the Trustee of such breach, and if such breach
is of a nature that materially and adversely affects the value of such Loan
Asset, the Depositor or such entity is obligated to repurchase the affected Loan
Asset or, if provided in the related Prospectus Supplement, provide a Qualifying
Substitute Loan Asset therefor, subject to the same conditions and limitations
on purchases and substitutions as described above.
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Agreement for such
Series to institute any proceeding with respect to such Agreement, unless such
Holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Securities evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
REPORTS TO HOLDERS
The Trustee or other entity specified in the related Prospectus
Supplement will prepare and forward to each Holder on each Distribution Date, or
as soon thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
(i) the amount of principal distributed to Holders of the related
Securities and the outstanding principal balance of such Securities
following such distribution;
(ii) the amount of interest distributed to Holders of the related
Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included in
such distribution, (b) any remaining overdue accrued interest with
respect to such Securities or (c) any current shortfall in amounts to
be distributed as accrued interest to Holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining overdue
principal amounts with respect to such Securities, (c) any current
shortfall in receipt of scheduled principal payments on the related
Loan Assets or (d) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding principal balances of such
Securities;
(v) the amount received under any related Enhancement, and the
remaining amount available under such Enhancement;
(vi) the number and aggregate principal balance of Loans that
were delinquent (a) one monthly payment, (b) two monthly payments and
(c) three or more monthly payments, as of the end of the prior
collection period;
(vii) the number and aggregate principal balance of Loans in
foreclosure, as of the end of the prior collection period;
(viii) the aggregate principal balance of Loans which became REO
during the prior collection period;
(ix) the book value of any REO Property acquired by the related
Issuer;
(x) the amount of losses realized during the prior collection
period;
(xi) the aggregate principal balance of Loans repurchased during
the prior collection period;
(xii) the amount of the Servicing Fee for the prior collection
period;
(xiii) during the Pre-Funding Period, the remaining Pre-Funded
Amount and the portion of the Pre-Funding Amount used to acquire
additional Loan Assets since the preceding Distribution Date;
(xiv) during the Pre-Funding Period, the amount remaining in the
Capitalized Interest Account; and
(xv) such other information as specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related Prospectus
Supplement, will furnish to each Holder of record at any time during such
calendar year (a) the aggregate of amounts reported pursuant to (i), (ii), and
(iv)(d) above for such calendar year and (b) such information specified in the
related Agreement to enable Holders to prepare their tax returns including,
without limitation, the amount of original issue discount accrued on the
Securities, if applicable. Information in the Distribution Date and annual
statements provided to the Holders will not have been examined and reported upon
by an independent public accountant. However, the Servicer will provide to the
Trustee a report by independent public accountants with respect to the
Servicer's servicing of the Loans. See "Servicing of Loans--Evidence as to
Compliance" herein.
If so specified in the Prospectus Supplement for a Series of
Securities, such Series or one or more Classes of such Series will be issued in
book-entry form. In such event, owners of beneficial interests in such
Securities will not be considered Holders and will not receive such reports
directly from the Trustee. The Trustee will forward such reports only to the
entity or its nominee which is the registered holder of the global certificate
which evidences such book-entry securities. Beneficial owners will receive such
reports from the participants and indirect participants of the applicable
book-entry system in accordance with the practices and procedures of such
entities.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Sale and Servicing Agreement; Pooling and Servicing Agreement. Unless
otherwise specified in the related Prospectus Supplement, Events of Default
under the Pooling and Servicing Agreement or Sale and Servicing Agreement, as
the case may be for each Series of Securities relating to Loans include (i) any
failure by the Servicer to deposit amounts in the Collection Account,
Certificate Account and Distribution Account to enable the Trustee to distribute
to Holders of such Series any required payment, which failure continues
unremedied for the number of days specified in the related Prospectus Supplement
after the giving of written notice of such failure to the Servicer by the
Trustee for such Series, or after discovery by such servicer, (ii) any failure
by the Servicer duly to observe or perform in any material respect any other of
its covenants or agreements in the applicable Agreement which continues
unremedied for the number of days specified in the related Prospectus Supplement
after the giving of written notice of such failure to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Holders of such Series
evidencing not less than 25% of the aggregate voting rights of the Securities
for such Series, and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
So long as an Event of Default remains unremedied under the applicable
Agreement for a Series of Securities relating to the servicing of Loans, unless
otherwise specified in the related Prospectus Supplement, the Trustee for such
Series or Holders of Notes of such Series evidencing not less than 25% of the
principal amount of such Notes outstanding of the Securities for such Series may
terminate all of the rights and obligations of the Servicer as servicer under
the applicable Agreement (other than its right to recovery of other expenses and
amounts advanced pursuant to the terms of such Agreement which rights the
Servicer will retain under all circumstances), whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Agreement and will be entitled to reasonable servicing compensation
not to exceed the applicable servicing fee, together with other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in such Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth of at least
$15,000,000 to act as successor Servicer under the provisions of the applicable
Agreement. The successor Servicer would be entitled to reasonable servicing
compensation in an amount not to exceed the Servicing Fee as set forth in the
related Prospectus Supplement, together with the other servicing compensation in
the form of assumption fees, late payment charges or otherwise, as provided in
such Agreement.
During the continuance of any Event of Default of a Servicer under an
Agreement for a Series of Securities, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Holders of such Series, and, unless
otherwise specified in the related Prospectus Supplement, Holders of Securities
evidencing not less than 51% of the aggregate voting rights of the Securities
for such Series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Holders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
therein or thereby. The Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the nonassenting Holders.
Indenture. Unless otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default for five (5) days or more in the payment of any interest
on any Note of such Series; (ii) a default in the payment of principal of any
installment of the principal of any Note when the same becomes due and payable;
(iii) failure to perform any other covenant of the Depositor or the Issuer in
the Indenture which continues for a period of ninety (90) days after notice
thereof is given in accordance with the procedures described in the related
Prospectus Supplement; (iv) any representation or warranty made by the Depositor
or the Issuer in the Indenture or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or affecting such
Series having been incorrect in a material respect as of the time made, and such
breach is not cured within thirty (30) days after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement;
(v) certain events of bankruptcy, insolvency, receivership or liquidation of the
Depositor or the Issuer; or (vi) any other Event of Default provided with
respect to Notes of that Series. However, the amount of principal required to be
paid to Noteholders of such Series under the related Indenture will generally be
limited to amounts available to be deposited in the applicable Note Distribution
Account. Therefore, unless otherwise specified in the related Prospectus
Supplement, the failure to pay principal on a class of Notes generally will not
result in the occurrence of an Event of Default until the Final Scheduled
Distribution Date for such Class of Notes.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series are Zero
Coupon Securities, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the Holders of a
majority in aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, unless (a) the Holders of 100% of the then aggregate outstanding amount of
the Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the Indenture
for the benefit of the Noteholders after the occurrence of such an Event of
Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the Holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of Notes of such Series, unless such Holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the Holders of a majority of the
then aggregate outstanding amount of the Notes of such Series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes of such Series, and the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor or the Servicer. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Issuer relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents will have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee will continue to be responsible for its duties and obligations under
the Agreement.
DUTIES OF THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any Loan Asset or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the Holders
or the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the Holders in an
Event of Default. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the Agreement, or in the exercise of any of its rights or powers, if it
has reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) if the Trustee ceases to be eligible to continue as such
under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
Holders of Securities evidencing over 50% of the aggregate voting rights of the
Securities in the Issuer upon written notice to the Trustee and to the
Depositor. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
AMENDMENT OF AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Agreement
for each Series of Securities may be amended by the Depositor, the Seller, the
Servicer, and the Trustee with respect to such Series, without notice to or
consent of the Holders (i) to cure any ambiguity, (ii) to correct any defective
provisions or to correct or supplement any provision therein, (iii) to add to
the duties of the Depositor, the Issuer or Servicer, (iv) to add any other
provisions with respect to matters or questions arising under such Agreement or
related Enhancement, (v) to add or amend any provisions of such Agreement as
required by a Rating Agency in order to maintain or improve the rating of the
Securities (it being understood that none of the Depositor, the Seller, the
Servicer or Trustee is obligated to maintain or improve such rating), or (vi) to
comply with any requirements imposed by the Code; provided that any such
amendment except pursuant to clause (vi) above will not adversely affect in any
material respect the interests of any Holders of such Series, as evidenced by an
opinion of counsel. Any such amendment except pursuant to clause (vi) of the
preceding sentence shall be deemed not to adversely affect in any material
respect the interests of any Holder if the Trustee receives written confirmation
from each Rating Agency rating such Securities that such amendment will not
cause such Rating Agency to reduce the then current rating thereof. Unless
otherwise specified in the Prospectus Supplement, the Agreement for each Series
may also be amended by the Trustee, the Servicer, if applicable, and the
Depositor with respect to such Series with the consent of the Holders possessing
not less than 662/3% of the aggregate outstanding principal amount of the
Securities of such Series or, if only certain Classes of such Series are
affected by such amendment, 662/3% of the aggregate outstanding principal amount
of the Securities of each Class of such Series affected thereby, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or modifying in any manner the rights of Holders of
such Series; provided, however, that no such amendment may (a) reduce the amount
or delay the timing of payments on any Security without the consent of the
Holder of such Security; or (b) reduce the aforesaid percentage of the aggregate
outstanding principal amount of Securities of each Class, the Holders of which
are required to consent to any such amendment or (c) if specified in the related
Prospectus Supplement, adversely affect the interests of the Enhancer, without,
in the case of clauses (a) and (b), the consent of the Holders of 100% of the
aggregate outstanding principal amount of each Class of Securities affected
thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series. Unless
otherwise provided in the related Prospectus Supplement, no Holder of Securities
of a Series, solely by virtue of such Holder's status as a Holder, will have any
right under the applicable Agreement for such Series to institute any proceeding
with respect to such Agreement, unless such Holder previously has given to the
Trustee for such Series written notice of default and unless the Holders of
Securities evidencing not less than 51% of the aggregate voting rights of the
Securities for such Series have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity, and the Trustee for 60 days has neglected
or refused to institute any such proceeding.
LIST OF HOLDERS
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the Agreement, which request is accompanied by a copy of the communication which
such Holders propose to transmit, the Trustee will afford such Holders access
during business hours to the most recent list of Holders of that Series held by
the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Holders.
BOOK-ENTRY SECURITIES
If specified in the Prospectus Supplement for a Series of Securities,
such Series or one or more Classes of such Series may be issued in book-entry
form. In such event, beneficial owners of such Securities will not be considered
"Holders" under the Agreements and may exercise the rights of Holders only
indirectly through the participants in the applicable book-entry system.
REMIC ADMINISTRATOR
For any Series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the Issuer may be performed by a REMIC administrator, who may be an
affiliate of the Depositor.
TERMINATION
Pooling and Servicing Agreement; Trust Agreement. The obligations
created by the Pooling and Servicing Agreement or Trust Agreement for a Series
will terminate upon the distribution to Holders of all amounts distributable to
them pursuant to such Agreement after the earlier of (i) the later of (a) the
final payment or other liquidation of the last Loan Asset remaining in the
assets for such Series and (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure or repossession in respect of any
Loan Asset or (ii) the repurchase, as described below, by the Servicer, the
Issuer, the Holders of the Residual Interest, the Depositor or other entity
specified in the related Prospectus Supplement from the Trustee for such Series
of all Issuer Assets and other property at that time subject to such Agreement.
The Agreement for each Series permits, but does not require, the Servicer or
other entity specified in the related Prospectus Supplement to purchase from the
Issuer for such Series all remaining Loan Assets at a price equal to, unless
otherwise specified in the related Prospectus Supplement, 100% of the aggregate
Principal Balance of such Loan Assets plus, with respect to any property
acquired in respect of a Loan Asset, if any, the outstanding Principal Balance
of the related Loan Asset at the time of foreclosure, less, in either case,
related unreimbursed Advances (in the case of the Loan Assets, only to the
extent not already reflected in the computation of the aggregate Principal
Balance of such Loan Assets) and unreimbursed expenses (that are reimbursable
pursuant to the terms of the related Agreement) plus, in either case, accrued
interest thereon at the weighted average rate on the related Loan Assets through
the last day of the Due Period in which such repurchase occurs; provided,
however, that if an election is made for treatment as a REMIC under the Code,
the repurchase price may equal the greater of (a) 100% of the aggregate
Principal Balance of such Loan Assets, plus accrued interest thereon at the
applicable net rates on the Loan Assets through the last day of the month of
such repurchase and (b) the aggregate fair market value of such Loan Assets plus
the fair market value of any property acquired in respect of a Loan Asset and
remaining in the assets for such Series. The exercise of such right will effect
early retirement of the Securities of such Series, but such entity's right to so
purchase is subject to the aggregate Principal Balance of the Loan Assets at the
time of repurchase being less than a fixed percentage, to be set forth in the
related Prospectus Supplement, of the aggregate Principal Balance of the Loan
Assets as of the date specified in the related Prospectus Supplement. In no
event, however, will the trust created by the Agreement continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
identified therein. For each Series, the Servicer or the Trustee, as applicable,
will give written notice of termination of the Agreement to each Holder, and the
final distribution will be made only upon surrender and cancellation of the
Securities at an office or agency specified in the notice of termination. If so
provided in the related Prospectus Supplement for a Series, the Depositor or
another entity may effect an optional termination of the Issuer under the
circumstances described in such Prospectus Supplement. See "Description of The
Securities--Optional Redemption, Purchase or Termination."
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series, the
related Issuer will be discharged from any and all obligations in respect of the
Notes of such Series (except for certain obligations relating to temporary Notes
and exchange of Notes, to register the transfer of or exchange Notes of such
Series, to replace stolen, lost or mutilated Notes of such Series, to maintain
paying agencies and to hold monies for payment in trust) upon the deposit with
the Trustee, in trust, of money and/or direct obligations of or obligations
guaranteed by the United States of America which, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans and consumer loans which are general in nature. Because certain
of such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete nor reflect
the laws of any particular state, nor encompass the laws of all states in which
the properties securing the Loans are situated.
MORTGAGES
The Loans for a Series will be secured by either mortgages or deeds of
trust or deeds to secure debt (such Loans are hereinafter referred to in this
section as "mortgage loans"), depending upon the prevailing practice in the
state in which the property subject to a mortgage loan is located. In
California, for example, Loans are secured by deeds of trust. The filing of a
mortgage, deed of trust or deed to secure debt creates a lien or title interest
upon the real property covered by such instrument and represents the security
for the repayment of an obligation that is customarily evidenced by a promissory
note. Such liens are not prior to the lien for real estate taxes and assessments
or other charges imposed under governmental police powers and may also be
subject to other liens pursuant to the laws of the jurisdiction in which the
Mortgaged Property is located. Priority with respect to such instruments depends
on their terms, the knowledge of the parties to the mortgage and generally on
the order of recording with the applicable state, county or municipal office.
There are two parties to a mortgage, the mortgagor, who is the borrower/property
owner or the land trustee (as described below), and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a
note or bond and the mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower/property owner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. A deed of trust transaction normally has
three parties: the trustor, who is the borrower/property owner; the beneficiary,
who is the lender; and the trustee, a third-party grantee. Under a deed of
trust, the trustor grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
FORECLOSURE ON MORTGAGES
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, pursuant to a power of sale provided in
the mortgage. Foreclosure of a mortgage by advertisement is essentially similar
to foreclosure of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
nonjudicial trustee's sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property upon any default by the borrower
under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an interest in the real property, including any subordinate lienholders.
The trustor, borrower, or any person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender. If the
deed of trust is not reinstated, a notice of sale must be posted in a public
place and, in most states, published for a specified period of time in one or
more newspapers. In addition, some state laws require that a copy of the notice
of sale be posted on the property, recorded and sent to all parties having an
interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers. A
foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring up to
several years to complete. Generally, a mortgagor is bound by the terms of the
related mortgage note and the mortgage as made and cannot be relieved from his
default if the mortgagee has exercised his rights in a commercially reasonable
manner. However, since a foreclosure action historically was equitable in
nature, the court may exercise equitable powers to relieve a mortgagor of a
default and deny the mortgagee foreclosure on proof that either the mortgagor's
default was neither willful nor in bad faith or the mortgagee's action
established a waiver, fraud, bad faith, or oppressive or unconscionable conduct
such as to warrant a court of equity to refuse affirmative relief to the
mortgagee. Under certain circumstances a court of equity may relieve the
mortgagor from an entirely technical default where such default was not willful.
Moreover, a non-collusive, regularly conducted foreclosure sale may be
challenged as a fraudulent conveyance, regardless of the parties' intent, if a
court determines that the sale was for less than fair consideration and such
sale occurred while the mortgagor was insolvent and within one year (or within
the state statute of limitations if the trustee in bankruptcy elects to proceed
under state fraudulent conveyance law) of the filing of bankruptcy. Similarly, a
suit against the debtor on the related mortgage note may take several years and,
generally, is a remedy alternative to foreclosure, the mortgagee being precluded
from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for an amount which may be equal to the unpaid
principal amount of the mortgage note secured by the mortgage or deed of trust
plus accrued and unpaid interest and the expenses of foreclosure, in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such a judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance, paying taxes and making such repairs at
its own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Any loss may be reduced by the
receipt of any mortgage guaranty insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the trustor or mortgagor and foreclosed junior lienors are given
a statutory period in which to redeem the property from the foreclosure sale.
The right of redemption should be distinguished from the equity of redemption,
which is a non-statutory right that must be exercised prior to the foreclosure
sale. In some states, redemption may occur only upon payment of the entire
principal balance of the loan, accrued interest and expenses of foreclosure. In
other states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The exercise
of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to foreclosure
or sale under a deed of trust. Consequently the practical effect of a right of
redemption is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run. In some states, such as
California, there is no right to redeem property after a trustee's sale under a
deed of trust.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES
The mortgage loans comprising or underlying the Primary Assets of a
Series will be secured by mortgages or deeds of trust which may be second or
more junior mortgages to other mortgages held by other lenders or institutional
investors. The rights of the Issuer (and therefore the Holders), as mortgagee
under a junior mortgage, are subordinate to those of the mortgagee under the
senior mortgage, including the prior rights of the senior mortgagee to receive
hazard insurance and condemnation proceeds and to cause the property securing
the mortgage loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
and the standard form of deed of trust used by most institutional lenders in
California confer on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with condemnation proceedings, and to apply such proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgagee may determine; provided, however, that the beneficiary is
prohibited (under California law) from applying insurance and condemnation
proceeds to the indebtedness secured by the deed of trust unless the
beneficiary's security interest has been impaired by the casualty or
condemnation, and, if such security interest has been impaired, permits such
proceeds to be so applied only to the extent of such impairment. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders (and by most institutional lenders in
California) obligates the mortgagor or trustee to pay before delinquency all
taxes and assessments on the property and, when due, all encumbrances, charges
and liens on the property which appear prior to the mortgage or deed of trust,
to provide and maintain fire and hazard insurance on the property, to maintain
and repair the property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to affect the property
or the rights of the mortgagee under the mortgage. Upon a failure of the
mortgagor or trustee to perform any of these obligations, the mortgagee or
beneficiary is given the right under certain mortgages and deeds of trust to
perform the obligation itself, at its election, with the mortgagor or trustee
agreeing to reimburse the mortgagee or beneficiary for any sums expended by the
mortgagee or beneficiary on behalf of the mortgagor or trustee. All sums so
expended by the mortgagee or beneficiary become part of the indebtedness secured
by the mortgage or deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states, including California, have imposed statutory
prohibitions which limit the remedies of a beneficiary under a deed of trust or
a mortgagee under a mortgage. In some states, including California, statutes
limit the right of the beneficiary or mortgagee to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal in
most cases to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. Other statutes
require the beneficiary or mortgagee to exhaust the security afforded under a
deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt
before bringing a personal action against the borrower. In certain other states,
the lender has the option of bringing a personal action against the borrower on
the debt without first exhausting such security; however, in some of these
states, the lender, following judgment on such personal action, may be deemed to
have elected a remedy and may be precluded from exercising remedies with respect
to the security. Consequently, the practical effect of the election requirement,
when applicable, is that lenders will usually proceed first against the security
rather than bringing a personal action against the borrower. Finally, other
statutory provisions limit any deficiency judgment against the former borrower
following a foreclosure sale to the excess of the outstanding debt over the fair
market value of the property at the time of the public sale. The purpose of
these statutes is generally to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
Federal Soldiers' and Sailors' Relief Act of 1940, and state laws affording
relief to debtors, may interfere with or affect the ability of the secured
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, with respect to federal bankruptcy law, the filing of a petition acts
as a stay against the enforcement of remedies for collection of a debt.
Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through a Chapter 13 Bankruptcy Code rehabilitative plan to cure a monetary
default with respect to a loan on a debtor's residence by paying arrearages
within a reasonable time period and reinstating the original loan payment
schedule even though the lender accelerated the loan and the lender has taken
all steps to realize upon his security (provided no sale of the property has yet
occurred) prior to the filing of the debtor's Chapter 13 petition. Some courts
with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a loan
default by permitting the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan may be modified if the borrower has filed a
petition under Chapter 13. These courts have suggested that such modifications
may include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Federal bankruptcy law and limited case law
indicate that the foregoing modifications could not be applied to the terms of a
loan secured by property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of the
security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may
be subordinated to bankruptcy court-approved financing. The bankruptcy court
can, in effect, invalidate due-on-sale clauses through confirmed Chapter 11
plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted Loan. In addition, substantive requirements are imposed
upon lenders in connection with the origination and the servicing of mortgage
loans by numerous federal and some state consumer protection laws. The laws
include the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act
and related statutes and regulations. These federal laws impose specific
statutory liabilities upon lenders who originate loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
DUE-ON-SALE CLAUSES IN LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of the
loan if the borrower sells or transfers, whether voluntarily or involuntarily,
all or part of the real property securing the loan without the lender's prior
written consent. The enforceability of these clauses has been the subject of
legislation or litigation in many states, and in some cases, typically involving
single family residential mortgage transactions, their enforceability has been
limited or denied. In any event, the Garn-St. Germain Depository Institutions
Act of 1982 (the "Garn-St. Germain Act") preempts state constitutional,
statutory and case law that prohibits the enforcement of due-on-sale clauses and
permits lenders to enforce these clauses in accordance with their terms, subject
to certain exceptions. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the "window period" under the
Garn-St. Germain Act which ended in all cases not later than October 15, 1982,
and (ii) originated by lenders other than national banks, federal savings
institutions and federal credit unions. FHLMC has taken the position in its
published mortgage servicing standards that, out of a total of eleven "window
period states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due- on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St. Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments are
not timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations, upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts, including California courts, have invoked general equitable principles.
The equitable principles are generally designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, including cases in California, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other cases,
courts have limited the right of a lender to realize upon his security if the
default under the security agreement is not monetary, such as the borrower's
failure to adequately maintain the property or the borrower's execution of
secondary financing affecting the property. Finally, some courts have been faced
with the issue of whether or not federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
security agreements receive notices in addition to the statutorily-prescribed
minimums. For the most part, these cases have upheld the notice provisions as
being reasonable or have found that, in cases involving the sale by a trustee
under a deed of trust or by a mortgagee under a mortgage having a power of sale,
there is insufficient state action to afford constitutional protections to the
borrower.
Most conventional single-family mortgage loans may be prepaid in full
or in part without penalty. The regulations of the Office of Thrift Supervision
(the "OTS") prohibit the imposition of a prepayment penalty or equivalent fee
for or in connection with the acceleration of a loan by exercise of a
due-on-sale clause. A mortgagee to whom a prepayment in full has been tendered
may be compelled to give either a release of the mortgage or an instrument
assigning the existing mortgage. The absence of a restraint on prepayment,
particularly with respect to mortgage loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements of such
mortgage loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage loans made during the first
three months of 1980. The OTS, as successor to the Federal Home Loan Bank Board,
is authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. Title V authorized any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state law, or by
certifying that the voters of such state have voted in favor of any provision,
constitutional or otherwise, which expressly rejects an application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V.
ENVIRONMENTAL LEGISLATION
A federal statute, the Comprehensive Environmental Response,
Compensation, and Liability Act, and a growing number of state laws impose a
statutory lien for associated costs on property that is the subject of a cleanup
action on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien generally will have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens, including the lien of a deed of trust. The
priority of the environmental lien under federal law depends on the time of
perfection of the federal lien compared to the time of perfection of any
competing liens under applicable state law. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party that takes a deed in lieu of foreclosure or acquires a property at
a foreclosure sale may be liable for the costs of cleaning up a contaminated
site. Although such costs could be substantial, they would probably not be
imposed on a secured lender (such as the related Issuer) if it promptly marketed
the foreclosed property for resale. In the event that the related Issuer
acquired title to a property securing a Loan and cleanup costs were incurred in
respect of the property, the Holders of the Securities might incur a delay in
the payment if such costs were required to be paid by such Issuer.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum, on obligations (including Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors and if, in the opinion of the court,
the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a Loan
included in the assets of the Issuer for a Series is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, none of the Issuer, the
Servicer, the Depositor nor the Trustee will be required to advance such
amounts, and any loss in respect thereof may reduce the amounts available to be
paid to the Holders of the Securities of such Series. Unless otherwise specified
in the related Prospectus Supplement, any shortfalls in interest collections on
Loans, included in the assets of the Issuer for a Series resulting from
application of the Soldiers' and Sailors' Civil Relief Act of 1940 will be
allocated to each Class of Securities of such Series that is entitled to receive
interest in respect of such Loans in proportion to the interest that each such
Class of Securities would have otherwise been entitled to receive in respect of
such Loans had such interest shortfall not occurred.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds
from the sale of each Series of Securities for one or more of the following
purposes: (i) to purchase the related Loan Assets, (ii) to repay indebtedness
which has been incurred to obtain funds to acquire such Loan Assets, (iii) to
establish any Reserve Funds described in the related Prospectus Supplement and
(iv) to pay costs of structuring and issuing such Securities, including the
costs of obtaining Enhancement, if any. If so specified in the related
Prospectus Supplement, the purchase of the Loan Assets for a Series may be
effected by an exchange of Securities with the Seller of such Loan Assets.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Stroock & Stroock & Lavan LLP, special tax counsel to
the Depositor ("Federal Tax Counsel"), the following summarizes the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily upon
investors who will hold Securities as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the of the Internal
Revenue Code of 1986, as amended (the "Code"), but much of the discussion is
applicable to other investors as well. Because tax consequences may vary based
on the status or tax attributes of the owner of a Security, prospective
investors are advised to consult their own tax advisers concerning the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Securities. For purposes of this tax discussion (except
with respect to information reporting, or where the context indicates
otherwise), any reference to the "Holder" means the beneficial owner of a
Security.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness for
federal income tax purposes; (ii) an election is made to treat certain assets of
a particular Series of Securities as a real estate mortgage investment conduit
("REMIC") under the Code; (iii) the Securities represent an ownership interest
for federal income tax purposes in some or all of the assets owned by the Issuer
for a Series; or (iv) for federal income tax purposes the Issuer relating to a
particular Series of Certificates is classified as a partnership. The Prospectus
Supplement for each Series of Securities will specify how the Securities will be
treated for federal income tax purposes and will discuss whether a REMIC
election, if any, will be made with respect to such Series.
TAXATION OF DEBT SECURITIES (INCLUDING REGULAR INTEREST
SECURITIES)
Interest and Acquisition Discount. Securities representing regular
interest in a REMIC ("Regular Interest Securities") are generally taxable to
Holders in the same manner as evidences of indebtedness issued by the REMIC.
Stated interest on the Regular Interest Securities will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Holder's normal accounting method. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be includible
in income by Holders thereof in accordance with their usual methods of
accounting. Securities characterized as debt for federal income tax purposes and
Regular Interest Securities will be referred to hereinafter collectively as
"Debt Securities." For Certificates treated as debt for federal income tax
purposes, see "Certain Certificates Treated as Indebtedness."
Debt Securities that are Compound Interest Securities will, and certain
of the other Debt Securities may, be issued with "original issue discount"
("OID"). The following discussion is based in part on the rules governing OID
which are set forth in Sections 1271-1275 of the Code and the Treasury
regulations issued thereunder (the "OID Regulations"). A Holder should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A Holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a prescribed method which takes into account an
economic accrual of the discount. In general, OID must be included in income in
advance of the receipt of the cash representing that income. The amount of OID
on a Debt Security will be considered to be zero if it is less than a de minimis
amount determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the Closing Date, the issue price for such class will be treated as
the fair market value of such class on the Closing Date. The stated redemption
price at maturity of a Debt Security includes the original principal amount of
the Debt Security, but generally will not include distributions of interest if
such distributions constitute "qualified stated interest."
Under the OID Regulations, interest payments will not be qualified
stated interest unless the interest payments are "unconditionally payable." The
OID Regulations state that interest is unconditionally payable if reasonable
legal remedies exist to compel timely payment, or the debt instrument otherwise
provides terms and conditions that make the likelihood of late payment (other
than late payment that occurs within a reasonable grace period) or nonpayment of
interest a remote contingency, as defined in the OID Regulations. It is unclear
whether the terms and conditions of the loans underlying the Debt Securities or
the terms and conditions of the Debt Securities are considered when determining
the likelihood of late payment or nonpayment is a remote contingency.
Accordingly, Federal Tax Counsel is unable to opine whether interest on the Debt
Securities will constitute qualified stated interest. Any terms and conditions
that do not reflect arm's length dealing or that the holder does not intend to
enforce are not considered.
Certain Debt Securities will provide for distributions of interest
based on a period that is the same length as the interval between Distribution
Dates but ends prior to each Distribution Date. Any interest that accrues prior
to the Closing Date may be treated under the OID Regulations either (i) as part
of the issue price and the stated redemption price at maturity of the Debt
Securities or (ii) as not included in the issue price or stated redemption
price. The OID Regulations provide a special application of the de minimis rule
for debt instruments with long first accrual periods where the interest payable
for the first period is at a rate which is effectively less than that which
applies in all other periods. In such cases, for the sole purpose of determining
whether original issue discount is de minimis, the OID Regulations provide that
the stated redemption price is equal to the instrument's issue price plus the
greater of the amount of foregone interest or the excess (if any) of the
instrument's stated principal amount over its issue price.
Under the de minimis rule, OID on a Debt Security will be considered to
be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Security multiplied by the weighted average maturity of the
Debt Security. For this purpose, the weighted average maturity of the Debt
Security is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the Debt
Security and the denominator of which is the stated redemption price at maturity
of the Debt Security. Holders generally must report de minimis OID pro rata as
principal payments are received, and such income will be capital gain if the
Debt Security is held as a capital asset. However, accrual method Holders may
elect to accrue all de minimis OID as well as market discount under a constant
interest method. See "--Election to Treat All Interest as Original Issue
Discount"
The Holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such original issue discount. The
amount of OID includible in income by a Holder will be computed by allocating to
each day during a taxable year a pro rata portion of the original issue discount
that accrued during the relevant accrual period. In the case of a Debt Security
that is not a Regular Interest Security and the principal payments on which are
not subject to acceleration resulting from prepayments on the Loans, the amount
of OID includible in income of a Holder for an accrual period (generally the
period over which interest accrues on the debt instrument) will equal the
product of the yield to maturity of the Debt Security and the adjusted issue
price of the Debt Security, reduced by any payments of qualified stated
interest. The adjusted issue price is the sum of its issue price plus prior
accruals of OID, reduced by the total payments made with respect to such Debt
Security in all prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a Holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method is
to increase the portions of OID required to be included in income by a Holder to
take into account prepayments with respect to the Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of OID required to be included in income by a Holder of a
Pay-Through Security to take into account prepayments with respect to the Loans
at a rate that is slower than the Prepayment Assumption. Although OID will be
reported to Holders of Pay-Through Securities based on the Prepayment
Assumption, no representation is made to Holders that Loans will be prepaid at
that rate or at any other rate.
The Depositor may adjust the accrual of OID on a Class of Regular
Interest Securities (or other regular interests in a REMIC) in a manner that it
believes to be appropriate, to take account of realized losses on the Loans.
Because the OID Regulations do not provide for such adjustments, Federal Tax
Counsel is unable to opine on the propriety of making such adjustments to the
accrual of OID. If the Internal Revenue Service were to require that OID be
accrued without such adjustments, the rate of accrual of OID for a Class of
Regular Interest Securities could increase.
Certain classes of Regular Interest Securities may represent more than
one class of REMIC regular interests. Unless the applicable Prospectus
Supplement specifies otherwise, the Trustee intends, based on the OID
Regulations, to calculate OID on such Securities as if, solely for the purposes
of computing OID, the separate regular interests were a single debt instrument.
A subsequent Holder of a Debt Security will also be required to include
OID in gross income, but such a Holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial Holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to
report income with respect to the related Regular Interest Securities under an
accrual method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Loans, except possibly to the
extent that it can be established that such amounts are uncollectible. As a
result, the amount of income (including OID) reported by a Holder of such a
Security in any period could significantly exceed the amount of cash distributed
to such Holder in that period. The Holder will eventually be allowed a loss (or
will be allowed to report a lesser amount of income) to the extent that the
aggregate amount of distributions on the Securities is reduced as a result of a
Loan default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, Federal Tax Counsel is unable to opine as
to the timing and character of such losses or reductions in income and Holders
of Securities should consult their own tax advisors on this point.
Interest-Only Debt Securities. The Issuer intends to report income from
interest-only classes of Debt Securities to the Internal Revenue Service and to
Holders of interest-only Debt Securities based on the assumption that the stated
redemption price at maturity is equal to the sum of all payments determined
under the applicable prepayment assumption. As a result, such interest-only Debt
Securities will be treated as having original issue discount.
Variable Rate Debt Securities. Under the OID Regulations, Debt
Securities paying interest at a variable rate (a "Variable Rate Debt Security")
are subject to special rules. A Variable Rate Debt Security will qualify as a
"variable rate debt instrument" if (i) its issue price does not exceed the total
noncontingent principal payments due under the Variable Rate Debt Security by
more than a specified de minimis amount; (ii) it provides for stated interest,
paid or compounded at least annually, at (a) one or more qualified floating
rates, (b) a single fixed rate and one or more qualified floating rates, (c) a
single objective rate or (d) a single fixed rate and a single objective rate
that is a qualified inverse floating rate; and (iii) it does not provide for any
principal payments that are contingent, as defined in the OID Regulations,
except as provided in (i) above. Although Federal Tax Counsel is unable to opine
on the matter, because the OID Regulations relating to contingent payment debt
instruments do not apply to REMIC regular interests, principal payments on
Regular Interest Securities should not be considered contingent for this
purpose.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Security is denominated. A multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate for purposes
of the OID Regulations. However, a variable rate equal to (i) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (ii) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID Regulations. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Rate Debt Security will be
treated as a single qualified floating rate (a "Presumed Single Qualified
Floating Rate"). Two or more qualified floating rates with values within 25
basis points of each other as determined on the Variable Rate Debt Security's
issue date will be conclusively presumed to be a Presumed Single Qualified
Floating Rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a cap or floor, will not be a qualified floating rate
for purposes of the OID Regulations unless the restriction is fixed throughout
the term of the Variable Rate Debt Security or the restriction will not
significantly affect the yield of the Variable Rate Debt Security.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information. The OID Regulations also
provide that other variable rates may be treated as objective rates if so
designated by the Internal Revenue Service in the future. Although Federal Tax
Counsel is unable to opine on the matter, an interest rate on a REMIC regular
interest that is the weighted average of the interest rates on some or all of
the qualified mortgages held by the REMIC should constitute an objective rate.
Despite the foregoing, a variable rate of interest on a Variable Rate Debt
Security will not constitute an objective rate if it is reasonably expected that
the average value of such rate during the first half of the Variable Rate Debt
Security's term will be either significantly less than or significantly greater
than the average value of the rate during the final half of the Variable Rate
Debt Security's term. Further, an objective rate does not include a rate that is
based on information that is in the control of or unique to the circumstances of
the issuer or a party related to the issuer. An objective rate will qualify as a
"qualified inverse floating rate" if such rate is equal to a fixed rate minus a
qualified floating rate and variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the qualified floating rate. The
OID Regulations also provide that if a Variable Rate Debt Security provides for
stated interest at a fixed rate for an initial period of less than one year
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Rate Debt Security's
issue date is intended to approximate the fixed rate, then the fixed rate and
the variable rate together will constitute either a single qualified floating
rate or objective rate, as the case may be (a "Presumed Single Variable Rate").
If the value of the variable rate and the initial fixed rate are within 25 basis
points of each other as determined on the Variable Rate Debt Security's issue
date, the variable rate will be conclusively presumed to approximate the fixed
rate.
For Variable Rate Debt Securities that qualify as a "variable rate
debt instrument" under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a "Single Variable Rate Debt Security"), original issue discount is computed as
described above based on the following: (i) stated interest on the Single
Variable Rate Debt Security which is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually will constitute
qualified stated interest; (ii) by assuming that the variable rate on the Single
Variable Debt Security is a fixed rate equal to: (a) in the case of a Single
Variable Rate Debt Security with a qualified floating rate or a qualified
inverse floating rate, the value of, as of the issue date, of the qualified
floating rate or the qualified inverse floating rate or (b) in the case of a
Single Variable Rate Debt Security with an objective rate (other than a
qualified inverse floating rate), a fixed rate which reflects the reasonably
expected yield for such Single Variable Debt Security; and (iii) the qualified
stated interest allocable to an accrual period is increased (or decreased) if
the interest actually paid during an accrual period exceeds (or is less than)
the interest assumed to be paid under the assumed fixed rate described in (ii)
above.
In general, any Variable Rate Debt Security other than a Single
Variable Rate Debt Security (a "Multiple Variable Rate Debt Security") that
qualifies as a "variable rate debt instrument" will be converted into an
"equivalent" fixed rate debt instrument for purposes of determining the amount
and accrual of original issue discount and qualified stated interest on the
Multiple Variable Rate Debt Security. The OID Regulations generally require that
such a Multiple Variable Rate Debt Security be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Multiple
Variable Rate Debt Security with a fixed rate equal to the value of the
qualified floating rate or qualified inverse floating rate, as the case may be,
as of the Multiple Variable Rate Debt Security's issue date. Any objective rate
(other than a qualified inverse floating rate) provided for under the terms of
the Multiple Variable Rate Debt Security is converted into a fixed rate that
reflects the yield that is reasonably expected for the Multiple Variable Rate
Debt Security. In the case of a Multiple Variable Rate Debt Security that
qualifies as a "variable rate debt instrument" and provides for stated interest
at a fixed rate in addition to either one or more qualified floating rates or a
qualified inverse floating rate, the fixed rate is initially converted into a
qualified floating rate (or a qualified inverse floating rate, if the Multiple
Variable Rate Debt Security provides for a qualified inverse floating rate).
Under such circumstances, the qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the Multiple Variable Rate Debt Security as of the Multiple Variable
Rate Debt Security's issue date is approximately the same as the fair market
value of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the fixed
rate. Subsequent to converting the fixed rate into either a qualified floating
rate or a qualified inverse floating rate, the Multiple Variable Rate Debt
Security is then converted into an "equivalent" fixed rate debt instrument in
the manner described above.
Once the Multiple Variable Rate Debt Security is converted into an
"equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the OID
rules to the "equivalent" fixed rate debt instrument in the manner described
above. A Holder of the Multiple Variable Rate Debt Security will account for
such OID and qualified stated interest as if the Holder held the "equivalent"
fixed rate debt instrument. Each accrual period, appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate Debt Security during the
accrual period.
If a Variable Rate Debt Security does not qualify as a "variable rate
debt instrument" under the OID Regulations, then the Variable Rate Debt Security
would be treated as a contingent payment debt obligation. It is not clear under
current law and Federal Tax Counsel is unable to opine how a Variable Rate Debt
Security that is a Pay-Through Security (including Regular Interest Securities)
would be taxed if such Debt Security were treated as a contingent payment debt
obligation since the OID Regulations relating to contingent payment debt
instruments do not apply to Pay-Through Securities.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt
Security with more than a prescribed de minimis amount of "market discount"
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Debt Securities (or in the case of a Pass-Through Security, as set forth below,
the Loans underlying such Security) not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the case
of Debt Securities (or, in the case of a Pass-Through Security, as described
below, the Loans underlying such Security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the
Loans), the excess of interest paid or accrued to purchase or carry a Debt
Security (or, in the case of a Pass-Through Security, as described below, the
underlying Loans) with market discount over interest received on such Debt
Security is allowed as a current deduction only to the extent such excess is
greater than the market discount that accrued during the taxable year in which
such interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition, or repayment of the Debt Security
(or in the case of a Pass-Through Security, an underlying Loan). A Holder may
elect to include market discount in income currently as it accrues, on all
market discount obligations acquired by such Holder during the taxable year such
election is made and thereafter, in which case the interest deferral rule will
not apply.
Premium. A Holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, although Federal Tax Counsel is
unable to opine as to the matter, it appears that the accrual of premium on a
Class of Pay-Through Securities will be calculated using the prepayment
assumption used in pricing such Class. If a Holder makes an election to amortize
premium on a Debt Security, such election will apply to all taxable debt
instruments (including all REMIC regular interests and all pass-through
certificates representing ownership interests in a trust holding debt
obligations) held by the Holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such Holder, and will be irrevocable without the consent of the Internal Revenue
Service. Purchasers who pay a premium for the Securities should consult their
tax advisers regarding the election to amortize premium and the method to be
employed.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the Holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such Holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a Holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
Sale or Exchange. A Holder's tax basis in its Debt Security generally
is the price such Holder pays for a Debt Security, plus amounts of OID or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Debt Security, measured by
the difference between the amount realized and the Debt Security's basis as so
adjusted, will generally be capital gain or loss, assuming that the Debt
Security is held as a capital asset. In the case of a Debt Security held by a
bank, thrift, or similar institution described in Section 582 of the Code,
however, gain or loss realized on the sale or exchange of a Debt Security will
be taxable as ordinary income or loss. In addition, gain from the disposition of
a Regular Interest Security that might otherwise be capital gain will be treated
as ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the Holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of such Holder' s holding period, over the amount of ordinary income
actually recognized by the Holder with respect to such Regular Interest
Security. In addition, gain on the sale of a Debt Security purchased at a market
discount would be taxable as ordinary income in an amount not exceeding the
market discount that accrued while the Security was held by the Seller, reduced
by any market discount includable in income under the rules described above
under "Market Discount." Currently, the maximum tax rate on ordinary income for
individual taxpayers is 39.6% and the maximum tax rate on long-term capital
gains for such taxpayers is 28%. The maximum tax rate on both ordinary income
and long-term capital gains of corporate taxpayers is 35%.
TAXATION OF THE REMIC AND ITS HOLDERS
General. If a REMIC election is made with respect to a Series of
Securities, then Federal Tax Counsel will deliver its opinion generally to the
effect that the arrangement by which the Securities of that Series are issued
will be treated as a REMIC as long as all of the provisions of the applicable
Agreement are complied with and the statutory and regulatory requirements are
satisfied. Securities will be designated as "Regular Interests" or "Residual
Interests" in a REMIC, as specified in the related Prospectus Supplement.
Status of Regular Interest Securities. Regular Interest Securities and
Securities representing a residual interest in a REMIC (both types of securities
collectively referred to as "REMIC Securities") will be "real estate assets" for
purposes of Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code (assets qualifying under one or both of those
sections, applying each section separately, "qualifying assets") to the extent
that the REMIC's assets are qualifying assets. However, if at least 95 percent
of the REMIC's assets are qualifying assets, then 100 percent of the REMIC
Securities will be qualifying assets. Similarly, income on the REMIC Securities
will be treated as "interest on obligations secured by mortgages on real
property" within the meaning of Section 856(c)(3)(B) of the Code, subject to the
limitations of the preceding two sentences. In addition to Loans, the REMIC's
assets will include payments on Loans held pending distribution to Holders of
REMIC Securities, amounts in reserve accounts (if any), other credit
enhancements (if any) and possibly buydown funds. The Loans generally will be
qualifying assets under both of the foregoing sections of the Code. However,
Loans that are not secured by residential real property or real property used
primarily for church purposes may not constitute qualifying assets under Section
7701(a)(19)(C)(v) of the Code. In addition, to the extent that the principal
amount of a Loan exceeds the value of the property securing the Loan, it is
unclear and Federal Tax Counsel is unable to opine whether the Loans will be
qualifying assets. The regulations under Sections 860A through 860G of the Code
(the "REMIC Regulations") treat credit enhancements as part of the mortgage or
pool of mortgages to which they relate, and therefore credit enhancements
generally should be qualifying assets. Regulations issued in conjunction with
the REMIC Regulations provide that amounts paid on Loans and held pending
distribution to Holders of Regular Interest Securities ("cash flow investments")
will be treated as qualifying assets. It is unclear and Federal Tax Counsel is
unable to opine whether reserve funds or buydown funds would also constitute
qualifying assets under either of those provisions.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the Holders of the Regular Interest Securities and the
Holders of the Residual Interest Securities on a daily basis in proportion to
the relative amounts of income accruing to each Holder on that day. In the case
of a Holder who is an individual or a "pass-through interest Holder" (including
certain pass-through entities but not including real estate investment trusts),
such expenses will be deductible only to the extent that such expenses, plus
other "miscellaneous itemized deductions" of the Holder, exceed 2% of such
Holder's adjusted gross income and such Holder may not be able to deduct such
fees and expenses to any extent in computing such Holder's alternative minimum
tax liability. In addition, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount ($100,000 (or $50,000 in the case of a married
individual filing separately), adjusted for inflation since 1990) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The reduction or disallowance of this deduction
may have a significant impact on the yield of the Security to such a Holder. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
which is structured with the principal purpose of avoiding the single class
REMIC rules. Unless otherwise stated in the applicable Prospectus Supplement,
the expenses of the REMIC will be allocated to Holders of the related Residual
Interest Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the Holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Tiered REMIC Structures. For certain Series of Securities, two or more
separate elections may be made to treat designated portions of the related
Issuer as REMICs ("Tiered REMICs") for federal income tax purposes. With respect
to any such Series of Securities, Federal Tax Counsel will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the Tiered REMICs will each qualify as
a REMIC and the REMIC Securities issued by the Tiered REMICs, respectively, will
be considered to evidence ownership of regular interests or residual interests
in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Securities will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC
is determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (ii) deductions, including stated interest and
OID accrued on Regular Interest Securities, amortization of any premium with
respect to Loans, and servicing fees and other expenses of the REMIC. A Holder
of a Residual Interest Security that is an individual or a "pass-through
interest Holder" (including certain pass-through entities, but not including
real estate investment trusts) will be unable to deduct servicing fees payable
on the Loans or other administrative expenses of the REMIC for a given taxable
year, to the extent that such expenses, when aggregated with such Holder's other
miscellaneous itemized deductions for that year, do not exceed two percent of
such Holder's adjusted gross income and such Holder may not be able to deduct
such fees and expenses to any extent in computing such holders alternative
minimum tax liability.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the aggregate
fair market value of the regular interests and the residual interests on the
Startup Day (generally, the day that the interests are issued). Such aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated
on or after March 2, 1984. Subject to possible application of the de minimis
rules, the method of accrual by the REMIC of OID income on such loans will be
equivalent to the method under which Holders of Pay-Through Securities accrue
OID (i.e., under the constant yield method taking into account the Prepayment
Assumption). The REMIC will deduct OID on the Regular Interest Securities in the
same manner that the Holders of the Regular Interest Securities include such
discount in income, but without regard to the de minimis rules. See "Taxation of
Debt Securities (Including Regular Interest Securities)" above. However, a REMIC
that acquires loans at a market discount must include such market discount in
income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (presumably taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding recovery
of premium attributable to loans originated on or before such date and Federal
Tax Counsel is unable to opine on the matter, it is possible that such premium
may be recovered in proportion to payments of loan principal.
Prohibited Transactions; Contributions Tax; Tax on Net Income from
Foreclosure Property. The REMIC will be subject to a 100% tax on any net income
derived from a "prohibited transaction." For this purpose, net income will be
calculated without taking into account any losses from prohibited transactions
or any deductions attributable to any prohibited transaction that resulted in a
loss. In general, prohibited transactions include: (i) subject to limited
exceptions, the sale or other disposition of any qualified mortgage transferred
to the REMIC; (ii) subject to a limited exception, the sale or other disposition
of a cash flow investment; (iii) the receipt of any income from assets not
permitted to be held by the REMIC pursuant to the Code; or (iv) the receipt of
any fees or other compensation for services rendered by the REMIC. It is
anticipated that a REMIC will not engage in any prohibited transactions in which
it would recognize a material amount of net income. Subject to a number of
exceptions, a tax is imposed at the rate of 100% on amounts contributed to a
REMIC after the Startup Day. The Holders of Residual Interest Securities will
generally be responsible for the payment of any such taxes imposed on the REMIC.
To the extent not paid by such Holders or otherwise, however, such taxes will be
paid out of the assets of the Issuer and will be allocated pro rata to all
outstanding Classes of Securities of such REMIC. In addition, a REMIC is subject
to a tax (deductible from its income) on any "net income from foreclosure
property" (determined in accordance with Section 857(b)(4)(B) of the Code as if
the REMIC were a REIT).
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a residual interest (a "Residual
Interest Security") will take into account the "daily portion" of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such Holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the Holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The Holder of a Residual Interest Security must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or loss.
The reporting of taxable income without corresponding distributions could occur,
for example, in certain REMIC issues in which the Loans held by the REMIC were
issued or acquired at a discount, since mortgage prepayments cause recognition
of discount income, while the corresponding portion of the prepayment could be
used in whole or in part to make principal payments on REMIC Regular Interests
issued without any discount or at an insubstantial discount. (If this occurs, it
is likely that cash distributions will exceed taxable income in later years.)
Taxable income may also be greater in earlier years of certain REMIC issues as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal on REMIC Regular Interest Securities, will typically
increase over time as lower yielding Securities are paid, whereas interest
income with respect to loans will generally remain constant over time as a
percentage of loan principal.
In any event, because the Holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder
may take into account currently is limited to the Holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Security will initially equal such Holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the Holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
Holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income generated by the same REMIC. The ability of Holders of
Residual Interest Securities to deduct net losses may be subject to additional
limitations under the Code, as to which such Holders should consult their tax
advisers.
Distributions. Distributions on a Residual Interest Security (whether
at their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a Holder of a Residual
Interest Security. If the amount of such payment exceeds a Holder's adjusted
basis in the Residual Interest Security, however, the Holder will recognize gain
(treated as gain from the sale of the Residual Interest Security) to the extent
of such excess.
Sale or Exchange. A Holder of a Residual Interest Security will
recognize gain or loss on the sale or exchange of a Residual Interest Security
equal to the difference, if any, between the amount realized and such Holder's
adjusted basis in the Residual Interest Security at the time of such sale or
exchange. Except to the extent provided in regulations, which have not yet been
issued, any loss upon disposition of a Residual Interest Security will be
disallowed if the selling Holder acquires any residual interest in a REMIC or
similar mortgage pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a Holder
of a Residual Interest Security consisting of "excess inclusion" income may not
be offset by other deductions or losses, including net operating losses, on such
Holder's federal income tax return. Further, if the Holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Holder's excess inclusion income will
be treated as unrelated business taxable income of such Holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common Issuer, or certain cooperatives were to
own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as "portfolio
interest" and is subject to certain additional limitations. See "Tax Treatment
of Foreign Investors."
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period allocable
to a Residual Interest Security, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup Date
multiplied by (ii) the adjusted issue price of such Residual Interest Security
at the beginning of such quarterly period. The adjusted issue price of a
Residual Interest Security at the beginning of each calendar quarter will equal
its issue price (calculated in a manner analogous to the determination of the
issue price of a Regular Interest Security), increased by the aggregate of the
daily accruals for prior calendar quarters, and decreased (but not below zero)
by the amount of loss allocated to a Holder and the amount of distributions made
on the Residual Interest Security before the beginning of the quarter. The
long-term federal rate, which is announced monthly by the Treasury Department,
is an interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Provisions governing the relationship between excess inclusions and the
alternative minimum tax provide that (i) the alternative minimum taxable income
of a taxpayer is based on the taxpayer's regular taxable income computed without
regard to the rule that taxable income cannot be less than the amount of excess
inclusions, (ii) the alternative minimum taxable income of a taxpayer for a
taxable year cannot be less than the amount of excess inclusions for that year,
and (iii) the amount of any alternative minimum tax net operating loss is
computed without regard to any excess inclusions. While these provisions are
generally effective for tax years beginning after December 31, 1986, a taxpayer
may elect to apply them only with respect to tax years beginning after August
20, 1996.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded. See "--Restrictions on
Ownership and Transfer of Residual Interest Securities" and "Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities.
As a condition to qualification as a REMIC, reasonable arrangements must be made
to prevent the ownership of a REMIC residual interest by any "Disqualified
Organization." Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt generally from tax (other than certain farmers'
cooperatives), unless such entity is not subject to tax on its unrelated
business income. Accordingly, the applicable Pooling and Servicing Agreement
will prohibit Disqualified Organizations from owning a Residual Interest
Security. In addition, no transfer of a Residual Interest Security will be
permitted unless the proposed transferee shall have furnished to the Trustee an
affidavit representing and warranting that it is neither a Disqualified
Organization nor an agent or nominee acing on behalf of a Disqualified
Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a substantial
tax will be imposed on the transferor of such Residual Interest Security at the
time of the transfer. In addition, if a Disqualified Organization holds an
interest in a pass- through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any person
holding as nominee an interest in a pass-through entity), that owns a Residual
Interest Security, the pass-through entity will be required to pay an annual tax
on its allocable share of the excess inclusion income of the REMIC.
The REMIC Regulations provide that a transfer of a "noneconomic
residual interest" will be disregarded for all federal income tax purposes
unless impeding the assessment or collection of tax was not a significant
purpose of the transfer. A residual interest will be treated as a "noneconomic
residual interest" unless, at the time of the transfer (1) the present value of
the expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of Residual
Interest Security by or to foreign transferees. See "Tax Treatment to Foreign
Investors."
Mark to Market Rules. Code Section 475 generally requires that
securities dealers include securities in inventory at their fair market value,
recognizing gain or loss as if the securities were sold at the end of each tax
year. Treasury regulations provide that for purposes of this mark to market
requirement, a REMIC residual certificate acquired on or after January 4, 1995
is not treated as a security and thus may not be marked to market.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in a
unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As specified in the Prospectus Supplement for a Series of
Securities, if a REMIC or partnership election is not made and the Certificates
are not treated as debt for federal income tax purposes, Federal Tax Counsel
will deliver its opinion generally to the effect that the Issuer relating to the
Series of Securities will be classified for federal income tax purposes as a
grantor trust under Subpart E, Part I of Subchapter J of the Code and not as an
association taxable as a corporation (the Securities of such Series,
"Pass-Through Securities"). Accordingly, each Holder of a Pass-Through Security
is treated for federal income tax purposes as the owner of an undivided interest
in the assets owned by the Issuer. As further described below, each Holder of a
Pass-Through Security therefore must report on its federal income tax
return the gross income from the portion of the assets that is allocable to
such Pass-Through Security and may deduct the portion of the expenses incurred
or accrued by the Issuer that is allocable to such Pass- Through Security, at
the same time and to the same extent as such items would be reported by such
Holder if it had purchased and held directly such interest in such assets and
received or accrued directly its share of the payments with respect to such
assets and incurred or accrued directly its share of expenses incurred or
accrued by the Issuer with respect to such assets when those amounts are
received, incurred or accrued by the Issuer.
A Holder of a Pass-Through Security that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the Holder's other miscellaneous itemized deductions
exceeds two percent of such Holder's adjusted gross income. Moreover, a Holder
of a Pass-Through Security that is not a corporation cannot deduct such expenses
for purposes of the alternative minimum tax (if applicable). An individual's
deductions may also be limited by Code Section 68 if the individual's adjusted
gross income exceeds certain limits. Such deductions will include servicing,
guarantee and administrative fees paid to the servicer of the Loans. As a
result, individuals, estates, or trusts holding Pass-Through Securities may have
taxable income in excess of the cash received.
Status of the Pass-Through Securities. The Pass-Through Securities will
be "real estate assets" for purposes of Section 856(c)(5)(A) of the Code and
"loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code (assets qualifying under one or both of
those sections, applying each section separately, "qualifying assets") to the
extent that the related assets of the Issuer of a Series are qualifying assets.
It is unclear and Federal Tax Counsel is unable to opine whether the
Pass-Through Securities will be qualifying assets under any of the foregoing
sections of the Code to the extent that the related assets of the Issuer of a
Series include buydown funds, reserve funds, or payments on mortgages held
pending distribution to Certificateholders. Further, the Pass-Through Securities
may not be "real estate assets" to the extent loans held by the trust are not
secured by real property, and may not be "loans . . . secured by an interest in
real property" to the extent loans held by the trust are not secured by
residential real property or real property used primarily for church purposes.
In addition, to the extent that the principal amount of a loan exceeds the value
of the property securing the loan, it is unclear and Federal Tax Counsel is
unable to opine whether the loans will be qualifying assets.
Taxation of Pass-Through Securities Under Stripped Bond Rules. The
federal income tax treatment of the Pass-Through Securities will depend on
whether they are subject to the rules of section 1286 of the Code (the "stripped
bond rules"). The Pass-Through Securities will be subject to those rules if
stripped interest-only Certificates are issued. In addition, whether or not
stripped interest-only Certificates are issued, the Internal Revenue Service may
contend that the stripped bond rules apply on the ground that the Servicer's
servicing fee, or other amounts, if any, paid to (or retained by) the Servicer
or its affiliates, as specified in the applicable Prospectus Supplement,
represent greater than an arm's length consideration for servicing the Loans and
should be characterized for federal income tax purposes as an ownership interest
in the Loans. The Internal Revenue Service has taken the position in Revenue
Ruling 91-46 that a retained interest in excess of reasonable compensation for
servicing is treated as a "stripped coupon" under the rules of Code Section
1286.
If interest retained for the Servicer's servicing fee or other interest
is treated as a "stripped coupon," the Pass-Through Securities will either be
subject to the OID rules or the market discount rules. A Holder of a
Pass-Through Security representing an interest in Loans will account for any
discount on the Pass- Through Security as market discount rather than OID if
either (i) the amount of OID with respect to the Pass-Through Security was
treated as zero under the OID de minimis rule when the Pass-Through Security was
stripped or (ii) no more than 100 basis points (including any amount of
servicing in excess of reasonable servicing) is stripped off from the Loans. If
neither of the above exceptions applies, the OID rules will apply to the
Pass-Through Securities.
If the OID rules apply, the Holder of a Pass-Through Security (whether
a cash or accrual method taxpayer) will be required to report interest income
from the Pass-Through Security in each taxable year equal to the income that
accrues on the Pass-Through Security in that year calculated under a constant
yield method based on the yield of the Pass-Through Security (or, possibly, the
yield of each Mortgage underlying such Pass-Through Security) to such Holder.
Such yield would be computed at the rate (assuming monthly compounding) that, if
used in discounting the Holder's share of the payments on the Mortgages, would
cause the present value of those payments to equal the price at which the Holder
purchased the Pass-Through Security. With respect to certain categories of debt
instruments, Section 1272(a)(6) of the Code requires that OID be accrued based
on a prepayment assumption determined in a manner prescribed by forthcoming
regulations. It is unclear whether such regulations would apply this rule to the
Pass-Through Securities, whether Section 1272(a)(6) might apply to the
Pass-Through Securities in the absence of such regulations, or whether the
Internal Revenue Service could require use of a reasonable prepayment assumption
based on other tax law principles and Federal Tax Counsel is unable to opine
with respect to this issue. If required to report interest income on the
Pass-Through Securities to the Internal Revenue Service under the stripped bond
rules, it is anticipated that the Trustee will calculate the yield of the
Pass-Through Securities based on a representative initial offering price of the
Pass-Through Securities and a reasonable assumed rate of prepayment of the Loans
(although such yield may differ from the yield to any particular Holder that
would be used in calculating the interest income of such Holder). The Prospectus
Supplement for each series of Pass-Through Securities will describe the
prepayment assumption that will be used for this purpose, but no representation
is made that the Loans will prepay at that rate or at any other rate.
In the case of a Pass-Through Security acquired at a price equal to the
principal amount of the Loans allocable to the Pass-Through Security, the use of
a reasonable prepayment assumption would not have any significant effect on the
yield used in calculating accruals of interest income. In the case, however, of
a Pass-Through Security acquired at a discount or premium (that is, at a price
less than or greater than such principal amount, respectively), the use of a
reasonable prepayment assumption would increase or decrease such yield, and thus
accelerate or decelerate the reporting of interest income, respectively.
If a Loan is prepaid in full, the Holder of a Pass-Through Security
acquired at a discount or premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Loan that is allocable to the Pass-Through Security and the portion of
the adjusted basis of the Pass-Through Security (see "Sales of Pass-Through
Securities" below) that is allocable to the Loan. The method of allocating such
basis among the Loans may differ depending on whether a reasonable prepayment
assumption is used in calculating the yield of the Pass-Through Securities for
purposes of accruing OID. It is not clear and Federal Tax Counsel is unable to
opine as to whether any other adjustments would be required to reflect
differences between the prepayment rate that was assumed in calculating yield
and the actual rate of prepayments.
Pass-Through Securities of certain series ("Variable Rate Pass-Through
Securities") may provide for a Pass-Through Rate based on the weighted average
of the interest rates of the Loans held by the Issuer, which interest rates may
be fixed or variable. In the case of a Variable Rate Pass-Through Security that
is subject to the OID rules, the daily portions of OID generally will be
calculated under the principles discussed in "--Taxation of Debt Securities
(Including Regular Interest Securities)--Variable Rate Debt Securities."
Taxation of Pass-Through Securities If Stripped Bond Rules Do Not
Apply. If the stripped bond rules do not apply to a Pass-Through Security, then
the Holder will be required to include in income its share of the interest
payments on the Mortgages in accordance with its tax accounting method. In
addition, if the Holder purchased the Pass-Through Security at a discount or
premium, the Holder will be required to account for such discount or premium in
the manner described below. The treatment of any discount will depend on whether
the discount is OID as defined in the Code and, in the case of discount other
than OID, whether such other discount exceeds a de minimis amount. In the case
of OID, the Holder (whether a cash or accrual method taxpayer) will be required
to report as additional interest income in each month the portion of such
discount that accrues in that month, calculated based on a constant yield
method. In general it is not anticipated that the amount of OID to be accrued in
each month, if any, will be significant relative to the interest paid currently
on the Mortgages. However, OID could arise with respect to a Loan ("ARM") that
provides for interest at a rate equal to the sum of an index of market interest
rates and a fixed number. The OID for ARMs generally will be determined under
the principles discussed in "Taxation of Debt Securities (Including Regular
Interest Securities)--Variable Rate Debt Securities."
If discount other than OID exceeds a de minimis amount (described
below), the Holder will also generally be required to include in income in each
month the amount of such discount accrued through such month and not previously
included in income, but limited, with respect to the portion of such discount
allocable to any Loan, to the amount of principal on such Loan received by the
Issuer in that month. Because the Loans may provide for monthly principal
payments, such discount may be required to be included in income at a rate that
is not significantly slower than the rate at which such discount accrues (and
therefore at a rate not significantly slower than the rate at which such
discount would be included in income if it were OID). The Holder may elect to
accrue such discount under a constant yield method based on the yield of the
Pass-Through Security to such Holder (or possibly based on the yields of each
Loan). In the absence of such an election, it may be necessary to accrue such
discount under a more rapid straight-line method. Under the de minimis rule,
market discount with respect to a Pass-Through Security will be considered to be
zero if it is less than the product of (i) 0.25% of the principal amount of the
Loans allocable to the Pass-Through Security and (ii) the weighted average life
(in complete years) of the Loans remaining at the time of purchase of the
Pass-Through Security.
If a Holder purchases a Pass-Through Security at a premium, such Holder
may elect under Section 171 of the Code to amortize the portion of such premium
that is allocable to a Loan under a constant yield method based on the yield of
the Loan to such Holder, provided that such Loan was originated after September
27, 1985. Premium allocable to a Loan originated on or before that date should
be allocated among the principal payments on the Loan and allowed as an ordinary
deduction as principal payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or
premium would be made based on the scheduled payments on the Loans or taking
account of a reasonable prepayment assumption, and Federal Tax Counsel is unable
to opine on this issue.
If a Loan is prepaid in full, the Holder of a Pass-Through Security
acquired at a discount or premium will recognize ordinary income or loss equal
to the difference between the portion of the prepaid principal amount of the
Loan that is allocable to the Pass-Through Security and the portion of the
adjusted basis of the Pass-Through Security (see "Sales of Pass-Through
Securities" below) that is allocable to the Loan. The method of allocating such
basis among the Loans may differ depending on whether a reasonable prepayment
assumption is used in calculating the yield of the Pass-Through Securities for
purposes of accruing OID. Although Federal Tax Counsel is unable to opine on the
matter, other adjustments might be required to reflect differences between the
prepayment rate that was assumed in accounting for discount or premium and the
actual rate of prepayments.
MISCELLANEOUS TAX ASPECTS
Backup Withholding A Holder, other than a Holder of a Residual Interest
Security, may, under certain circumstances, be subject to "backup withholding"
at a rate of 31% with respect to distributions or the proceeds of a sale of
certificates to or through brokers that represent interest or original issue
discount on the Securities. This withholding generally applies if the Holder of
a Security (i) fails to furnish the Trustee with its taxpayer identification
number ("TIN"); (ii) furnishes the Trustee an incorrect TIN; (iii) fails to
report properly interest, dividends or other "reportable payments" as defined in
the Code; or (iv) under certain circumstances, fails to provide the Trustee or
such Holder's securities broker with a certified statement, signed under penalty
of perjury, that the TIN provided is its correct number and that the Holder is
not subject to backup withholding. Backup withholding will not apply, however,
with respect to certain payments made to Holders, including payments to certain
exempt recipients (such as exempt organizations) and to certain Nonresidents (as
defined below). Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the Holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Issuers which are
treated as partnerships for federal income tax purposes and with respect to
Certificates treated as debt for federal income tax purposes, unless interest
(including OID) paid on a Security (other than a Residual Interest Security) is
considered to be "effectively connected" with a trade or business conducted in
the United States by a nonresident alien individual, foreign partnership,
foreign corporation, foreign estate, or foreign trust ("foreign investors"),
such interest will normally qualify as portfolio interest (except where (i) the
recipient is a Holder, directly or by attribution, of 10% or more of the capital
or profits interest in the issuer, or (ii) the recipient is a controlled foreign
corporation to which the issuer is a related person) and will be exempt from
federal income tax. See "--Tax Consequences to Holders of the Certificates
Issued by a Partnership--Tax Consequences to Foreign Certificateholders" and
"--Certain Certificates Treated as Indebtedness--Foreign Investors." Upon
receipt of appropriate ownership statements, the issuer normally will be
relieved of obligations to withhold tax from such interest payments. These
provisions supersede the generally applicable provisions of United States law
that would otherwise require the issuer to withhold at a 30% rate (unless such
rate were reduced or eliminated by an applicable tax treaty) on, among other
things, interest and other fixed or determinable, annual or periodic income paid
to nonresidents. Holders of Pass-Through Securities however, may be subject to
withholding to the extent that the Loans were originated on or before July 18,
1984.
Interest and OID of Holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder and the Holders timely provide an IRS Form 4224. They
will, however, generally be subject to the regular United States income tax.
Payments to Holders of Residual Interest Securities who are foreign
investors will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax as
"portfolio interest." It is clear that, to the extent that a payment represents
a portion of REMIC taxable income that constitutes excess inclusion income, a
Holder of a Residual Interest Security will not be entitled to an exemption from
or reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a nonresident will be disregarded for all federal tax purposes. A Residual
Interest Security has tax avoidance potential unless, at the time of the
transfer the transferor reasonably expects that the REMIC will distribute to the
transferee residual interest Holder amounts that will equal at least 30% of each
excess inclusion, and that such amounts will be distributed at or after the time
at which the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a foreign investor transfers a
Residual Interest Security to a United States person, and if the transfer has
the effect of allowing the transferor to avoid tax on accrued excess inclusions,
then the transfer is disregarded and the transferor continues to be treated as
the owner of the Residual Interest Security for purposes of the withholding tax
provisions of the Code. See "Taxation of Holders of Residual Interest
Securities--Excess Inclusions."
Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
Security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (ii) in the case of an individual foreign person, the foreign person
is not present in the United States for 183 days or more in the taxable year.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion for an Issuer which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Issuer will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the assumption
that the terms of the Trust Agreement and related documents will be complied
with, and on counsel's conclusion the nature of the income of the Issuer will
exempt it from the rule that certain publicly traded partnerships are taxable as
corporations or such rule is otherwise inapplicable to the Issuer, so that the
Issuer will not be characterized as a publicly traded partnership taxable as a
corporation.
If the Issuer were taxable as a corporation for federal income tax
purposes, the Issuer would be subject to corporate income tax on its taxable
income. The Issuer's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Issuer. In additions, all distributions to
the Certificateholders would be taxable as dividends.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
Treatment of the Notes as Indebtedness. The Issuer will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Depositor that in its
opinion the Notes will be classified as debt for federal income tax purposes.
Consequently, Holders of Notes will be subject to taxation as described in
"Taxation of Debt Securities (Including Regular Interest Securities)" above for
Debt Securities which are not Regular Interest Securities.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for federal income tax purposes, the Notes
might be treated as equity interests in the Issuer. If so treated, the Issuer
might be taxable as a corporation with the adverse consequences described above
(and the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, the Issuer might be treated as a publicly traded partnership that
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
Holders. For example, income to foreign Holders generally would be subject to
U.S. federal income tax and U.S. federal income tax return filing and
withholding requirements, and individual Holders might be subject to certain
limitations on their ability to deduct their share of the Issuer's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A
PARTNERSHIP
Treatment of the Issuer as a Partnership. In the case of an Issuer
intended to qualify as a partnership for federal income tax purposes, the Issuer
and the Transferor will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Issuer as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the Issuer, the partners of the partnership being the Certificateholders, and
the Notes, if any, being debt of the partnership. However, the proper
characterization of the arrangement involving the Issuer, the Certificates, the
Notes, the Issuer and the Servicer is not clear because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Issuer. Generally, provided the
Certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to Certificateholders as
compared to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Issuer will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such Holder's allocated share of income, gains,
losses, deductions and credits of the Issuer. The Issuer's income will consist
primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Loans. The Issuer's deductions will consist
primarily of interest and OID accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Issuer for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass-Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Issuer income attributable to discount on the Loans that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the
Issuer of premium on Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Issuer will be allocated to the Depositor. Based on the economic arrangement of
the parties, this approach for allocating Issuer income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Issuer might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis Holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Issuer income even if they have not received cash from the Issuer to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Issuer.
If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
Holder under the Code.
An individual taxpayer's share of expenses of the Issuer (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such Holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such Holder over the life of
the Issuer.
The Issuer intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Loan, the Issuer
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued
with OID and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Issuer for the Loans may be greater or less than the
remaining principal balance of the Loans at the time of purchase. If so, the
Loan will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Issuer will make this calculation on an aggregate basis,
but might be required to recompute it on a Loan by Loan basis.)
If the Issuer acquires the Loans at a market discount or premium, the
Issuer will elect to include any such discount in income currently as it accrues
over the life of the Loans or to offset any such premium against interest income
on the Loans. As indicated above, a portion of such market discount income or
premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Issuer will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Issuer are sold or exchanged within a
12-month period. If such a termination occurs, the Issuer will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Issuer as a new partnership. Proposed
Treasury regulations would provide that if a termination occurs, the partnership
will be considered to transfer its assets and liabilities to a new partnership
in exchange for interests in that new partnership, which it would then be
treated as transferring to its partners. The Issuer will not comply with certain
technical requirements that might apply when such a constructive termination
occurs. As a result, the Issuer may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those requirements.
Furthermore, the Issuer might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
Holder's cost increased by the Holder's share of Issuer income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the Holder's share of the
Notes and other liabilities of the Issuer. A Holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Holder's
share of unrecognized accrued market discount on the Loans would generally be
treated as ordinary income to the Holder and would give rise to special tax
reporting requirements. The Issuer does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Issuer will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Depositors and Transferees. In general, the
Issuer's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a Holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and Federal Tax Counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Issuer might be
reallocated among the Certificateholders. The Issuer's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Issuer's assets will not be adjusted to reflect that higher
(or lower) basis unless the Issuer were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Issuer currently does not intend to make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Issuer income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Issuer. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Issuer will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Issuer and will report each Certificateholder's allocable share of items of
Issuer income and expense to Holders and the IRS on Schedule K-1. The Issuer
will provide the Schedule K-1 information to nominees that fail to provide the
Issuer with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, Holders must file tax returns that are consistent with
the information return filed by the Issuer or be subject to penalties unless the
Holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Issuer
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Issuer information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Issuer. The information referred to above for any
calendar year must be furnished to the Issuer on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Issuer
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Issuer. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Issuer.
Tax Consequences to Foreign Certificateholders. It is not clear and
Federal Tax Counsel is unable to opine whether the Issuer would be considered to
be engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to non-U.S. persons because there is no clear
authority dealing with that issue under facts substantially similar to those
described herein. Although it is not expected that the Issuer would be engaged
in a trade or business in the United States for such purposes, the Issuer will
withhold as if it were so engaged in order to protect the Issuer from possible
adverse consequences of a failure to withhold. The Issuer expects to withhold on
the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for foreign
Holders that are taxable as corporations and 39.6% for all other foreign
Holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Issuer to change its withholding
procedures.
If the trust is engaged in a U.S. trade or business, each foreign
Holder might be required to file a U.S. individual or corporate income tax
return (including, in the case of a corporation, the branch profits tax) on its
share of the Issuer's income. A foreign Holder generally would be entitled to
file with the IRS a claim for refund with respect to taxes withheld by the
Issuer taking the position that no taxes were due because the Issuer was not
engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Issuer, and for that reason or because of
the nature of the assets of the Issuer probably will not be considered
"portfolio interest." As a result, even if the Issuer was not considered to be
engaged in a U.S. trade or business, Certificateholders will be subject to
United States federal income tax which must be withheld at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. A foreign Holder would
be entitled to claim a refund for such withheld tax, taking the position that
the interest was portfolio interest and therefore not subject to U.S. tax.
However, the IRS may disagree and no assurance can be given as to the
appropriate amount of tax liability. As a result, each potential foreign
Certificateholder should consult its tax advisor as to whether an interest in a
Certificate is an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the Holder is an exempt recipient under
applicable provisions of the Code.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
With respect to Certificates which are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that based upon its analysis of the factors discussed below, that for federal
income tax purposes the Certificates will be characterized as indebtedness that
is secured by the Loans. Opinions of counsel are not binding on the Internal
Revenue Service (the "IRS"), however, and there can be no assurance that the IRS
could not successfully challenge this conclusion.
The Depositor will express in the Trust Agreement its intent that the
Certificates be indebtedness secured by the Loans for federal, state and local
income or franchise tax purposes. The Depositor, by entering into the Trust
Agreement, has agreed and each Certificateholder, by the acceptance of a
Certificate, will agree to treat the Certificates as indebtedness for federal,
state and local income or franchise tax purposes. However, because different
criteria are used to determine the non-tax accounting characterization of the
transactions contemplated by the Trust Agreement, the Depositor expects to treat
such transaction, for regulatory and financial accounting purposes, as a
transfer of an ownership interest in the Loans and not as a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers, as
well as the IRS, to treat a transaction in accordance with its economic
substance, as determined under federal income tax law, notwithstanding that the
participants characterize the transaction differently for non- tax purposes. In
some instances, however, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Federal Tax Counsel believes that the
rationale of those cases will not apply to the issuance of the Certificates.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value and has assumed the risk of loss if the property decreases in value. Based
upon its analysis of such factors, Federal Tax Counsel will conclude that the
Certificateholders are not the owners of the Loans for federal income tax
purposes. As a result, Federal Tax Counsel will opine with respect to
Certificates which are intended to be treated as indebtedness, that such
Certificates will properly be characterized for federal income tax purposes as
indebtedness. Contrary characterizations that could be asserted by the IRS are
described below under "--Possible Characterization of the Transaction as a
Partnership or as an Association Taxable as a Corporation."
Certificateholders as the Holders of debt instruments for federal tax
purposes will be taxed in the manner described above in "--Taxation of Debt
Securities (Including Regular Interest Securities)" for Debt Securities which
are not Regular Interest Securities.
Possible Characterization of the Transaction as a Partnership or as
Association Taxable as a Corporation. As stated above, the opinion of Federal
Tax Counsel with respect to the Certificates will not be binding on the courts
or the IRS, and no assurance can be given that the characterization of the
Certificates as debt would prevail. It is possible that the IRS would assert
that, for purposes of the Code, the transaction described herein constitutes a
transfer of the Loans (or an interest therein) to the Certificateholders and
that the proper classification of the legal relationship between the Depositor
and the Certificateholders resulting from the transaction is that of a
partnership, a publicly traded partnership taxed as a corporation, or an
association taxable as a corporation. Since Federal Tax Counsel will advise that
the Certificates will be treated as indebtedness for federal income tax
purposes, the Depositor generally will not attempt to comply with the federal
income tax reporting requirements that would apply if Certificates were treated
as interests in a partnership, a publicly traded partnership taxable as a
corporation or a corporation.
If a partnership were deemed to be created between the Depositor and
the Certificateholders, the partnership itself would not be subject to federal
income tax (unless it were to be characterized as a publicly traded partnership
taxable as a corporation); rather, the partners of such partnership, including
the Certificateholders, would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deduction of a
Certificateholder could differ if the Certificates were held to constitute
partnership interests, rather than indebtedness. Moreover, an individual's share
of expenses of the partnership would be miscellaneous itemized deductions that,
in the aggregate, are allowed as deductions only to the extent they exceed two
percent of the individual's adjusted gross income, and would be subject to
reduction under Section 68 of the Code if the individual's adjusted gross income
exceeded certain limits. As a result, the individual might be taxed on a greater
amount of income than would be the case if the Certificates were treated as a
debt instrument. Finally, all or a portion of any taxable income allocated to a
Certificateholder that is a pension, profit-sharing or employee benefit plan, or
other tax-exempt entity may, under certain circumstances constitute "unrelated
business taxable income" which generally would be taxable to the holder under
the Code.
If it were determined that the transaction created an entity classified
as an association or as a publicly traded partnership taxable as a corporation,
the Issuer would be subject to federal income tax at corporate income tax rates
on the income it derives from the Loans, which would reduce the amounts
available for distribution to the Certificateholders. Such classification may
also have adverse state and local tax consequences that would reduce amounts
available for distribution to Certificateholders. Moreover, distributions on the
Certificates would most likely not be deductible in computing the entity's
taxable income, and cash distributions to the Certificateholders generally would
be treated as dividends for tax purposes to the extent of such entity's earnings
and profits.
Foreign Investors. If the IRS were to successfully contend that the
Certificates are interests in a partnership and if such partnership were
considered to be engaged in a trade or business in the United States, the
partnership would be subject to a withholding tax on distributions to (or, at
its election, income allocable to) a foreign investor; and such Holder would be
credited for his or her share of the withholding tax paid by the partnership. In
such case, the Holder generally would be subject to United States federal income
tax at regular federal income tax rates, and possibly a branch profits tax in
the case of a corporate Holder.
Alternatively, although there may be arguments to the contrary, if such
a partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Certificates is not otherwise
effectively connected with the conduct of a trade or business in the United
States by the foreign investor, the foreign investor would be subject to United
States federal income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the Holder's distributive share of the partnership's
interest income. See "Tax Consequences to Holders of the Certificates Issued by
a Partnership--Tax Consequences to Foreign Certificateholders" for a more
detailed discussion of the tax consequences of an equity investment in a
partnership by a foreign investor.
If the Issuer were taxable as a corporation, distributions to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced or eliminated by
an applicable income tax treaty.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"FEDERAL INCOME TAX CONSIDERATIONS," potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in the
Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code impose certain restrictions on employee benefit plans
subject to ERISA and on plans and other arrangements subject to Section 4975 of
the Code and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such plans or arrangements. Certain
employee benefit plans, such as governmental plans and church plans (if no
election has been made under Section 410(d) of the Code), are not subject to the
restrictions of ERISA, and assets of such plans may be invested in the
Securities without regard to the ERISA considerations described below, subject
to other applicable federal and state law. However, any such governmental or
church plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
A fiduciary of an employee benefit plan subject to Title I of ERISA
should consider the fiduciary standards under ERISA in the context of the plan's
particular circumstances before authorizing an investment of a portion of such
plan's assets in the Securities. Accordingly, among other factors, such
fiduciary should consider (i) whether the investment is for the exclusive
benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the diversification requirements of Section 404 of ERISA;
(iii) whether the investment is in accordance with the documents and instruments
governing the plan and (iv) whether the investment is prudent, considering the
nature of the investment. Fiduciaries of such plans also should consider ERISA's
prohibition on improper delegation of control over, or responsibility for, plan
assets.
In addition, fiduciaries of employee benefit plans subject to Title I
of ERISA, as well as certain plans or other retirement arrangements not subject
to ERISA but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or partners)
or any entity, including an insurance company general account whose underlying
assets include plan assets by reason of a plan or account investing in such
entity (collectively, "Plan(s)"), should consult with their legal counsel to
determine whether an investment in the Securities will cause the assets of the
Issuer to be considered plan assets pursuant to the plan asset regulations set
forth at 29 CFR Section 2510.3-101 (the "Regulation"), thereby subjecting the
Plan to the prohibited transaction rules with respect to the Issuer and the
Trustee, or any entities providing services with respect to the operation of the
Trust, to the fiduciary investment standards of ERISA, or cause the excise tax
provisions of Section 4975 of the Code to apply to the Issuer, unless a
statutory or regulatory exception or an administrative exemption granted by the
Department of Labor ("DOL") applies to the purchase, sale, transfer or holding
of the Securities.
The Regulation contains rules for determining what constitutes the
assets of a Plan. The Regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an investment in an "equity
interest" will be deemed for purposes of ERISA to be assets of the Plan unless
certain exceptions apply.
Under the terms of the Regulation, the Issuer may be deemed to hold
plan assets by reason of a Plan's investment in a Security; such plan assets
would include an undivided interest in the Loan Assets and any other assets held
by the Issuer. In such an event, persons providing services with respect to the
operation of the Issuer may be parties in interest, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA and of Section 4975 of the Code,
with respect to transactions involving such assets unless such transactions are
subject to a statutory or regulatory exception or an administrative exemption.
One such exception applies if the interest described is treated as
indebtedness under applicable local law and which has no substantial equity
features. Generally, a profits interest in a partnership, an undivided ownership
interest in property and a beneficial ownership interest in a trust are deemed
to be "equity interests" under the final regulation. If Notes of a particular
Series were deemed to be indebtedness under applicable local law without any
substantial equity features, an investing Plan's assets would include such
Notes, but not, by reason of such purchase, the underlying assets of the Issuer.
However, without regard to whether the Notes are treated as an equity interest
for such purposes, the purchase, holding or transfer of Notes by or on behalf of
a Plan could be considered a prohibited transaction if the Depositor or the
Trustee or any of their respective affiliates is, or becomes, a party in
interest or disqualified person with respect to such Plan.
Another such exception applies if the class of equity interests in
question is: (i)"widely held" (held by 100 or more investors who are independent
of the Depositor and each other); (ii)freely transferable; and (iii) sold as
part of an offering pursuant to (A) an effective registration statement under
the Securities Act of 1933, and then subsequently registered under the
Securities Exchange Act of 1934 or (B) an effective registration statement under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered
Securities"). In addition, the regulation provides that if at all times more
than 75% of the value of all classes of equity interests in the Depositor or the
Issuer are held by investors other than benefit plan investors (which is defined
as including both Plans and government plans), the investing Plan's assets will
not include any of the underlying assets of the Depositor or the Issuer.
The DOL has granted to certain underwriters and/or placement agents
individual prohibited transaction exemptions which may be applicable to avoid
certain of the prohibited transactions rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
exemption which may be applicable to the Certificates.
In addition, one or more other prohibited transaction exemptions issued
by the DOL may be available to a Plan investing in Securities, depending in part
upon the type of Plan fiduciary making the decision to acquire the Securities
and the circumstances under which such decision is made, including but not
limited to: DOL Prohibited Transaction Exemption ("PTE") 84-14 (involving
transactions determined by "qualified professional asset managers"); PTE 91-38
(involving bank collective investment funds); PTE 90-1 (involving insurance
company pooled separate accounts); PTE 95-60 (involving insurance company
general accounts) and PTE 96-23 (involving transactions determined by "in-house
asset managers"). However, even if the conditions specified in any of these
exemptions are met, the scope of the relief provided might or might not cover
all acts which might be construed as prohibited transactions.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, and the potential consequences to
their specific circumstances, prior to making an investment in the Securities.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage-related securities" within the meaning
of SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for them.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Issuer, the Depositor will agree
to sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Depositor, the principal amount of each Class of Securities of the related
Series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all of the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the Depositor will
indemnify underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Under each Underwriting Agreement, the closing of the sale of any Class
of Securities subject thereto will be conditioned on the closing of the sale of
all other such Classes.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Securities will be passed upon for
the Depositor by Stroock & Stroock & Lavan LLP, New York, New York.
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, any globally offered series of
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against- payment basis
through the respective Depositories of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their Participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their Participants through their respective
Depositories, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices specified by the Underwriters. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global securities
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Depositor and Cedel or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depository, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of the actual number of days
in such accrual period and year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depository of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance the
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depository for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Depositor and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depository, as appropriate, to deliver
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last interest payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel
Participant or Euroclear Participant.
Certain U.S. Federal Withholding Taxes and Documentation Requirements
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owners take one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W- 8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non- U.S. Persons that are beneficial owners of Global
Securities residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholder or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Securities or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary of documentation requirements
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
<PAGE>
GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in a "Supplemental Glossary"
in the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. The definitions may vary
from those in the related Agreement for a Series and the related Agreement for a
Series generally provides a more complete definition of certain of the terms.
Reference should be made to the related Agreement for a Series for a more
complete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date specified in the related Prospectus
Supplement.
"Advance" means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Loan, and for any other purposes
specified in the related Prospectus Supplement.
"Agreement" means, with respect to a Series consisting solely of
Certificates, the Pooling and Servicing Agreement, and, with respect to a Series
containing Notes, the Indenture, the Trust Agreement and the Sale and Servicing
Agreement, as the context requires.
"Appraised Value" means, with respect to property securing a Loan, the
lesser of the appraised value determined in an appraisal obtained at origination
of the Loan or sales price of such property at such time.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Available Distribution Amount" means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other fund
or account) eligible for distribution to Holders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States
Code 101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the State of New York or California
or in the state or states in which the corporate trust office of the Trustee are
located, is neither a legal holiday nor a day on which banking institutions are
authorized or obligated by law, regulations or executive order to be closed.
"Certificate" means the Asset Backed Certificates.
"Charged-Off Loan" means any Loan with respect to which the earliest of
the following has occurred: (a) the date on which any payment due or portion
thereof with respect to a Loan which has become Delinquent for a period of 180
days on a consecutive basis (irrespective of grace periods), (b) the time at
which a Loan becomes a Liquidated Loan or (c) the date on which the holder of
the Subordinate Certificates of the applicable Series repurchases such Loan as
described under "SERVICING OF LOANS Realization Upon Defaulted Loans".
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities of such Series
are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Loan Assets.
"Combined Loan-to-Value Ratio" means, with respect to a Loan, the ratio
determined as set forth in the related Prospectus Supplement taking into account
the amounts of any related senior mortgage loans on the related Mortgaged
Property.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which
all or a portion of the interest accrued thereon is added to the principal
balance of such Security on each Distribution Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on the
Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
"Deferred Interest" means the excess of the interest accrued on the
outstanding principal balance of a Loan during a specified period over the
amount of interest required to be paid by an obligor on such Loan on the related
Due Date.
"Delinquent" means, with respect to a Loan, that a payment due thereon
is not made by the close of business on the date of each month specified in the
related Mortgage Note.
"Deposit Agreement" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
"Depositor" means Preferred Securitization Corporation.
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account
established in the name of the applicable Trustee for the deposit of remittances
received from the Servicer with respect to the Loan Assets.
"Distribution Date" means, with respect to a Series or Class of
Securities, each date specified as a distribution date for such Series or Class
in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Loan Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"Enhancement" means the enhancement for a Series, if any,
specified in the related Prospectus Supplement.
"Enhancer" means the provider of the Enhancement for a
Series specified in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Loan, into which payments by borrowers to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items required to be
paid to the mortgagee are deposited.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of
Notes of a Series, the date no later than which principal thereof will be fully
paid and with respect to a Class of Certificates of a Series, the date after
which no Certificates of such Class will remain outstanding, in each case based
on the assumptions set forth in the related Prospectus Supplement.
"FNMA" means the Federal National Mortgage Association.
"Holder" means the person or entity in whose name a Security is
registered.
"HUD" means the United States Department of Housing and Urban
Development.
"Indenture" means the indenture relating to a Series of Notes between
the Issuer and the Trustee.
"Insurance Policies" means certain mortgage insurance, hazard insurance
and other insurance policies required to be maintained with respect to Loans.
"Insurance Proceeds" means amount paid by the insurer under any of the
Insurance Policies covering any Loan or Mortgaged Property.
"Interest Only Securities" means a Class of Securities entitled solely
or primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
"IRS" means the Internal Revenue Service.
"Issuer" means, with respect to any Series of Securities, and as
specified in the related Prospectus Supplement either (i) the Depositor or (ii)
the trust formed pursuant to the related Pooling and Servicing Agreement or
Trust Agreement.
"Lifetime Rate Cap" means the lifetime limit if any, on the Loan Rate
during the life of each adjustable rate Loan.
"Liquidated Loan" means any Loan as to which the Servicer, in its
reasonable, good faith judgment in accordance with accepted servicing practices,
has determined that all amounts which will be recovered with respect to such
Loan have been so recovered (exclusive of any possibility of a deficiency
judgment).
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Loan, net of liquidation expenses.
"Loan" means a closed-end loan secured by a Mortgaged Property.
"Loan Group" means, with respect to the Loan Assets and other assets
comprising the Issuer of a Series, a group of such Loan Assets and other assets
having the characteristics described in the related Prospectus Supplement.
"Loan Rate" means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rate borne by a Loan.
"Loan-to-Value Ratio" means, with respect to a Loan, the ratio
determined as set forth in the related Prospectus Supplement.
"Minimum Principal Payment Agreement" means a minimum principal payment
agreement with an entity meeting the criteria of the Rating Agencies.
"Minimum Rate" means the lifetime minimum Loan Rate during the life of
each adjustable rate Loan.
"Modification" means a change in any term of a Loan.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"1986 Act" means the Tax Reform Act of 1986.
"Notes" means the Asset Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"PAC" ("Planned Amortization Class Securities") means a Class of
Securities of a Series on which payments of principal are made in accordance
with a schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
"Pass-Through Security" means a security representing an undivided
beneficial interest in a pool of assets, including the right to receive a
portion of all principal and interest payments relating to those assets.
"Pay Through Security" means Regular Interest Securities and certain
Debt Securities that are subject to acceleration due to prepayment on the
underlying Loan Assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Depositor, the Servicer
and the Trustee.
"Principal Balance" means, with respect to a Loan Asset and as of a
Distribution Date, initially the outstanding principal balance of such Loan
Asset as of the Cut-Off Date or the related Subsequent Cut-Off Date, as
applicable, and thereafter, as of any Distribution Date such balance as of the
last day of the Collection Period related to such Distribution Date after giving
effect to Principal Prepayments received and payments of principal collected
during such Collection Period and any Curtailments applied by the Servicer in
reduction of the unpaid principal balance of such Loan Asset as of such Due
Date; once a Loan Asset becomes a Charged-off Loan, its Principal Balance, for
purposes of the Trust Fund, will thereafter be considered to be zero.
"Principal Only Securities" means a Class of Securities entitled solely
or primarily to distributions of principal and identified as such in the
Prospectus Supplement.
"Property" means a Mortgaged Property securing a Loan.
"Qualified Insurer" means a mortgage guarantee or insurance company
duly qualified as such under the laws of the states in which the Mortgaged
Properties are located duly authorized and licensed in such states to transact
the applicable insurance business and to write the insurance provided.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Securities upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the
related Prospectus Supplement for a Series for which a REMIC election is made,
to serve as administrator of the Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the
foregoing may be in effect from time to time.
"REO Property" means real property which secured a defaulted Loan,
beneficial ownership of which has been acquired upon foreclosure, deed in lieu
of foreclosure, repossession or otherwise.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the related Agreement.
"Residual Interest" means a residual interest in a REMIC.
"Retained Interest" means, with respect to a Loan Asset, the amount or
percentage specified in the related Prospectus Supplement which is not included
in the Issuer for the related Series.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the borrower on a Loan Asset.
"Securities" means the Notes or the Certificates.
"Seller" means Preferred Credit Corporation
"Senior Securities" means a Class of Securities as to which the
holders' rights to receive distributions of principal and interest are senior to
the rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Senior Securityholder" means a holder of a Senior Security.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicer" means, with respect to a Series, Advanta Mortgage Corp. USA
or the Person if any, designated in the related Prospectus Supplement to service
Loans for that Series, or the successors or assigns of such Person.
"Stripped Securities" means Pass-Through Securities representing
interests in Loan Assets with respect to which all or a portion of the principal
payments have been separated from all or a portion of the interest payments.
"Subordinate Securityholder" means a Holder of a Subordinate Security.
"Subordinated Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
"Trustee" means the trustee under the applicable Agreement and its
successors.
"UCC" means the Uniform Commercial Code.
"Variable Interest Security" means a Security on which interest
accrues at a rate that is adjusted, based upon a predetermined index, at fixed
periodic intervals, all as set forth in the related Prospectus Supplement.
"Zero Coupon Security" means a Security entitled to receive payments of
principal only.
<PAGE>
======================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representations must not
be relied upon. This Prospectus Supplement and the Prospectus do not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby, nor an offer of such securities in any state or jurisdiction in
which, or to any person to whom, such offer would be unlawful. The delivery of
this Prospectus Supplement or the Prospectus at any time does not imply that the
information contained herein or therein is correct as of any time subsequent to
its date.
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary of Terms................................. S-
Risk Factors......................................S-
Description of the Loans..........................S-
Prepayment and Yield
Considerations....................................S-
Description of the
Certificates......................................S-
[The Policy and the
Certificate Insurer]..............................S-
Use of Proceeds...................................S-
Federal Income Tax
Considerations....................................S-
ERISA Considerations .............................S-
Underwriting......................................S-
Report of Experts.................................S-
Ratings...........................................S-
Legal Matters ....................................S-
Prospectus
Prospectus Supplement..............................3
Reports to Holders.................................3
Available Information..............................3
Incorporation of Certain
Documents by Reference.............................4
Summary of Terms...................................5
Risk Factors......................................17
The Seller........................................27
The Servicer .....................................28
The Depositor.....................................29
Description of the Securities.....................30
Description of the Issuer
Assets............................................38
Enhancement.......................................44
Servicing of Loans................................45
The Agreements....................................54
Certain Legal Aspects of
Loans.............................................64
Use of Proceeds...................................70
Federal Income Tax
Considerations....................................71
State Tax Considerations..........................94
ERISA Considerations..............................94
Legal Investment..................................96
Plan of Distribution..............................96
Legal Matters.....................................97
Annex I...........................................98
Glossary of Terms..............................102
======================================================
<PAGE>
$----------------
PREFERRED SECURITIZATION
CORPORATION,
Depositor
PREFERRED CREDIT
CORPORATION,
Seller
PREFERRED CONSUMER
LOAN TRUSTS
ASSET BACKED SECURITIES,
Series 199_ -__
-----------
- ---------------------------
PROSPECTUS SUPPLEMENT
- ---------------------------
------------------
_____ __, 199_
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
The following table sets forth the estimated expenses to be
incurred in connection with the offering of the Securities, other than
underwriting discounts and commissions:
SEC Registration Fee..........................$ 303.04
Trustee's Fees and Expenses...................*
Printing and Engraving........................*
Legal Fees and Expenses.......................*
Blue Sky Fees.................................*
Accounting Fees and Expenses..................*
Rating Agency Fees............................*
Miscellaneous.................................*__________
Total...........................................................$ *
- ------------------------------
* To be completed by amendment.
Item 15. Indemnification of Directors and Officers.
Article TWELFTH of the Certificate of Incorporation of the
Depositor provides for the indemnification of any person who is or was an
officer or director of the Issuer with respect to actions taken or omitted by
such person in any capacity in which such person serves or served the Issuer, to
the full extent authorized or permitted by Section 145 of the Delaware General
Corporation Law. Reference is made to the Certificate of Incorporation filed as
an exhibit to this Registration Statement for the complete text of Article
TWELFTH of the Certificate of Incorporation. The Registrant's parent has
liability insurance for the officers and directors of the Registrant.
Item 16. Exhibits.
(a) Financial Statements:
None.
(b) Exhibits:
***1.1 --Form of Underwriting Agreement.
**3.1 --Certificate of Incorporation of Preferred
Securitization Corporation.
**3.2 --By-Laws of Preferred Securitization Corporation.
***4.1 --Form of Indenture.
***4.2 --Form of Pooling and Servicing Agreement.
***4.3 --Form of Purchase and Sale Agreement.
***4.4 --Form of Trust Agreement.
***4.5 --Form of Administration Agreement.
*5.1 --Opinion of Stroock & Stroock & Lavan LLP
with respect to the securities being registered.
*8.1 --Opinion of Stroock & Stroock & Lavan LLP with
respect to tax matters (included as part of
Exhibit 5.1).
***10.1 --Form of Sale and Servicing Agreement.
*23.1 --Consent of Stroock & Stroock & Lavan
LLP(included as part of Exhibit 5.1).
**24.1 --Powers of Attorney of Directors and
Officers of Issuer.
*25.1 --Statement of Eligibility and Qualification of
Trustee (Form T-1).
***99.1 --Form of Prospectus Supplement
- ---------------------
* To be filed by amendment
** Previously filed
*** Filed herewith
Item 17. Undertakings.
(a) As to Rule 415.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) As to documents subsequently filed that are incorporated by
reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed a new registration statement relating to
the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) As to indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) As to qualification of trust indentures under the Trust
Indenture Act of 1939.
The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on the 29th day of
April, 1997.
PREFERRED SECURITIZATION CORPORATION
By: /s/ Todd A. Rodriguez
Name: Todd A. Rodriguez
Title: President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on April 29, 1997.
Signature Title
/s/Todd A. Rodriguez President, Chief
Todd A. Rodriguez Executive Officer and
Director (Principal
Financial Officer)
/s/ * Executive Vice
Walter F. Villaume President and
Treasurer and Director
(Principal Accounting
Officer)
*By: /s/ Todd A. Rodriguez
Todd A. Rodriguez
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
No. No.
***1.1 Form of Underwriting Agreement............................
**3.1 Certificate of Incorporation of Preferred
Securitization Corporation...........................
**3.2 By-Laws of Preferred Securitization
Corporation...............................................
***4.1 Form of Indenture......................................
***4.2 Form of Pooling and Servicing Agreement
***4.3 -- Form of Purchase and Sale Agreement....................
***4.4 -- Form of Trust Agreement................................
***4.5 -- Form of Administration Agreement.......................
*5.1 -- Opinion of Stroock & Stroock & Lavan LLP
with respect to the securities being
registered...........................................
*8.1 -- Opinion of Stroock & Stroock & Lavan LLP
with respect to tax matters (included
as part of Exhibit 5.1)..............................
***10.1 -- Form of Sale and Servicing Agreement...................
*23.1 -- Consent of Stroock & Stroock & Lavan LLP
(included as part of Exhibit 5.1)....................
**24.1 -- Powers of Attorney of Directors and
Officers of Issuer...................................
*25.1 -- Statement of Eligibility and Qualification
of Trustee (Form T-1)................................
***99.1 -- Form of Prospectus Supplement
-------------------
* To be filed by amendment
** Previously filed
*** Filed herewith
EXHIBIT 1.1
PREFERRED CREDIT OWNER TRUSTS
ASSET-BACKED SECURITIES
(Issuable in Series)
UNDERWRITING AGREEMENT
[NAME AND ADDRESS [DATE]
OF UNDERWRITER(S)]
Ladies and Gentlemen:
Preferred Securitization Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Company"), proposes to
cause Preferred Credit Owner Trusts (each, a "Trust") to offer for sale from
time to time its Asset-Backed Securities evidencing interests in pools of
certain contracts and mortgage loans (the "Securities"). The Securities may be
issued in various series, and within each series, in one or more classes, in one
or more offerings on terms determined at the time of sale (each such series, a
"Series" and each such class, a "Class"). Each Trust may issue one or more
classes of Asset-Backed Notes (the "Notes") pursuant to an Indenture to be dated
as of the respective cut-off date (each, a "Cut-off Date") as supplemented by
one or more supplements to such Indenture (such Indenture, as supplemented, the
"Indenture") between the owner trustee named therein (the "Owner Trustee") and
the indenture trustee named therein (the "Indenture Trustee"). Simultaneously
with the issuance of the Notes, the Trust may issue Asset-Backed Certificates
(the "Certificates"), each representing a fractional undivided ownership
interest in the related Trust, pursuant to a separate Trust Agreement (each, a
"Trust Agreement") to be dated as of the respective Cut-off Date among the
Company or one of its affiliates, (Preferred Mortgage SPC Funding Corp.) and the
Owner Trustee.
The assets of each Trust will consist primarily of a pool of fixed- or
adjustable-rate, fully-amortizing property improvement and/or debt consolidation
loans, and the related notes and mortgages (collectively, the "Mortgage Loans")
having the original terms to maturity and interest rate types specified in the
related Terms Agreement referred to hereinbelow.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned thereto in the related sale and servicing agreement to be
dated as of the applicable Cut-off Date (the "Sale and Servicing Agreement"),
among the Company as depositor (the "Depositor"), the related Trust, Preferred
Credit Corporation, as transferor (the ATransferor@), and Advanta Mortgage Corp.
U.S.A. as the servicer, (the AServicer@), or, if not defined therein, in the
respective Indenture or Trust Agreement.
If and to the extent specified in the related Sale and Servicing
Agreement, in addition to the Mortgage Loans conveyed to the Trust on the
Closing Date (such Mortgage Loans so conveyed to the Trust at such time, the
"Initial Mortgage Loans"), the Depositor shall be obligated to convey to the
Trust, from time to time during the period commencing after the Closing Date and
ending at the expiration of the period specified in such Sale and Servicing
Agreement (each, a "Pre-Funding Period") (the date of any such conveyance, a
"Subsequent Transfer Date"), additional Mortgage Loans (any such additional
Mortgage Loans so conveyed to the Trust through the Pre-Funding Period, the
"Subsequent Mortgage Loans").
The Securities may have the benefit of one or more insurance policies
(each, a "Policy") issued by the insurer named therein (the "Insurer") pursuant
to an indemnity and insurance agreement among the Depositor, the Owner Trustee,
the Indenture Trustee, the Servicer and the Insurer (the "Insurance Agreement").
Underwritten offerings of Securities may be made through you or
through an underwriting syndicate managed by you. The Company proposes to sell
one or more Series of the Securities to you and to each of the other several
underwriters, if any, participating in an underwriting syndicate managed by you.
Whenever the Company determines to make an offering of Securities
(each, an "Offering") pursuant to this Agreement through you, it will enter into
an agreement (the "Terms Agreement") providing for the sale of specified Classes
of Offered Securities (as defined below) to, and the purchase and public
offering thereof by, you and such other underwriters, if any, selected by you as
have authorized you to enter into such Terms Agreement on their behalf (the
underwriters designated in any such Terms Agreement being referred to herein as
"Underwriters," which term shall include you whether acting alone in the sale of
any Offered Securities of any series or as a member of an underwriting
syndicate). Each such Offering which the Company elects to make pursuant to this
Agreement shall be governed by this Agreement, as supplemented by the related
Terms Agreement, and this Agreement and such Terms Agreement shall inure to the
benefit of and be binding upon each underwriter participating in the offering of
such Offered Securities. Each Terms Agreement, which shall be substantially in
the form of Exhibit A hereto, shall specify, among other things, the Classes of
Securities to be purchased by the Underwriters (the "Offered Securities"),
whether such Offered Securities constitute Notes or Certificates, the principal
balance or balances of the Offered Securities, each subject to any stated
variance, the names of the Underwriters participating in such offering (subject
to substitution as provided in Section 13 hereof) and the price or prices at
which such Offered Securities are to be purchased by the Underwriters from the
Company.
1. Representations and Warranties. (a) The Company and the Transferor
represent and warrant to and agree with the Underwriters, as of the date of the
related Terms Agreement, that:
(i) The registration statement specified in the related Terms
Agreement, on Form S-3, including a prospectus, has been filed with
the Securities and Exchange Commission (the "Commission") for the
registration under the Securities Act of 1933, as amended (the "Act"),
of asset-backed securities issuable in series, which registration
statement has been declared effective by the Commission. Such
registration statement, as amended to the date of the related Terms
Agreement, including any documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act which were filed under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
on or before the effective date of the Registration Statement, is
hereinafter called the "Registration Statement," and such prospectus,
as such prospectus is supplemented by a prospectus supplement relating
to the Offered Securities of the related Series, each in the form
first filed via EDGAR by a financial printer or another person
designated by the Company (the "Financial Printer") after the date of
the related Terms Agreement pursuant to Rule 424(b) under the Act,
including any documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Act which were filed under the Exchange
Act on or before the date of such Prospectus Supplement (other than
any such incorporated documents that relate to Collateral Term Sheets
(as defined herein)) (such prospectus supplement, including such
incorporated documents (other than those that relate to Collateral
Term Sheets), in the form first filed after the date of the related
Terms Agreement pursuant to Rule 424(b) is hereinafter called the
"Prospectus Supplement"), is hereinafter called the "Final
Prospectus". Any preliminary prospectus, including any preliminary
prospectus supplement which, as completed, is proposed to be used in
connection with the sale of a Series of Offered Securities and any
prospectus filed with the Commission pursuant to Rule 424(a) of the
Act is hereinafter referred to as a "Preliminary Prospectus." Any
reference herein to the terms "amend," "amendment" or "supplement"
with respect to the Registration Statement, the Preliminary
Prospectus, the Final Prospectus or the Prospectus Supplement shall be
deemed to refer to and include the filing of any document under the
Exchange Act after the effective date of the Registration Statement or
the issue date of the Preliminary Prospectus, the Final Prospectus or
Prospectus Supplement, as the case may be, deemed to be incorporated
therein by reference pursuant to Item 12 of Form S-3 under the Act.
(ii) The related Registration Statement, at the time it became
effective, and the prospectus contained therein, and any amendments
thereof and supplements thereto filed prior to the date of the related
Terms Agreement, conformed in all material respects to the
requirements of the Act and the rules and regulations of the
Commission thereunder; on the date of the related Terms Agreement and
on each Closing Date (as defined in Section 3 below), the related
Registration Statement and the related Final Prospectus, and any
amendments thereof and supplements thereto, will conform in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder; such Registration Statement,
at the time it became effective, did not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; such Final Prospectus, on the date of any filing pursuant
to Rule 424(b) and on each Closing Date, will not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading; and the Form
8-K relating to any Subsequent Mortgage Loans, on the date of any
filing thereof, will not include any untrue statement of a material
fact or omit to state any information which such Final Prospectus
states will be included in such Form 8-K; provided, however, that the
Company makes no representations or warranties as to the information
contained in or omitted from (A) such Registration Statement or such
Final Prospectus (or any supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Underwriters specifically for use in the preparation
thereof or (B) any Current Report (as defined in Section 5(b) below),
or in any amendment thereof or supplement thereto, incorporated by
reference in such Registration Statement or such Final Prospectus (or
any amendment thereof or supplement thereto).
(iii) The Securities of the related Series will conform to the
description thereof contained in the related Final Prospectus; and
will each on the related Closing Date be duly and validly authorized,
and, when validly executed, countersigned, issued and delivered in
accordance with the related Indenture or Trust Agreement, as
applicable, and sold to you as provided herein and in the related
Terms Agreement, will each be validly issued and outstanding and
entitled to the benefits of such Indenture or Trust Agreement, as
applicable, and, if applicable, the related Policy.
(iv) Neither the issuance nor sale of the Securities of the
related Series nor the consummation of any other of the transactions
herein contemplated, nor the fulfillment of the terms hereof or of the
related Terms Agreement, will conflict with any statute, order or
regulation applicable to the Company of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Company or with any organizational document of the Company or any
instrument or any agreement under which the Company is bound or to
which it is a party.
(v) This Agreement and the related Terms Agreement have been duly
authorized, executed and delivered by the Company.
(vi) At or prior to the related Closing Date, the Trust will have
entered into the related Indenture, Trust Agreement and any Insurance
Agreement and, assuming the due authorization, execution and delivery
thereof by the other parties thereto, such Indenture, such Trust
Agreement and such Insurance Agreement (on such Closing Date) will
constitute the valid and binding agreement of the Trust enforceable in
accordance with its terms, subject as to enforceability, to
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights and to general principles of equity (regardless of
whether the enforceability of such Indenture, such Trust Agreement or
such Insurance Agreement is considered in a proceeding in equity or at
law).
(vii) At or prior to the related Closing Date, the Company will
have entered into the related Sale and Servicing Agreement and,
assuming the due authorization, execution and delivery thereof by the
other parties thereto, such Sale and Servicing Agreement (on such
Closing Date) will constitute the valid and binding agreement of the
Company enforceable in accordance with its terms, subject as to
enforceability, to bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights and to general principles of
equity (regardless of whether the enforceability of such Sale and
Servicing Agreement is considered in a proceeding in equity or at
law).
(viii) If applicable, the related Policy, when delivered, will
constitute the legal, valid and bind obligation of the Insurer,
enforceable in accordance with its terms.
(ix) Any funds or accounts established from time to time with
respect to a Series of Securities in accordance with the related
Indenture, Trust Agreement or Sale and Servicing Agreement will have
been properly funded at the Closing Date by the deposit by the
Depositor of the requisite cash therein, in the manner specified by
such Indenture, Trust Agreement or Sale and Servicing Agreement.
(x) The related Trust will have a valid and perfected first
priority security interest in, on the Closing Date, and on any
Subsequent Transfer Date, the Mortgage Loans and any funds or accounts
to be deposited or established with the Indenture Trustee for the
benefit and security of the holders of the related Notes (and in any
cash deposited therein), subject to no prior lien, mortgage, pledge,
charge, security interest, adverse claim or other encumbrance.
(xi) Neither the Depositor, the Transferor, the Trust nor any
funds or accounts established thereunder is an "investment company"
(as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) or is under the "control" (as such term is defined in the
1940 Act) of an "investment company" that is registered or required to
be registered under, or is otherwise subject to the provisions of, the
1940 Act.
2. Purchase and Sale. Subject to the execution of the Terms Agreement
for a particular Offering and subject to the terms and conditions and in
reliance upon the representations and warranties set forth in this Agreement and
such Terms Agreement, the Company agrees to sell to each Underwriter, severally
and not jointly, and each Underwriter, severally and not jointly, agrees to
purchase from the Company, the respective original principal amounts of the
related Offered Securities set forth in the related Terms Agreement opposite the
name of such Underwriter, plus any additional original principal amount of
Offered Securities which such Underwriter may be obligated to purchase pursuant
to Section 13 hereof, at the purchase price therefor set forth in such Terms
Agreement (the "Purchase Price").
The parties hereto agree that settlement for all securities sold
pursuant to this Agreement shall take place on the terms set forth herein and
not as set forth in Rule 15c6-1(a) under the Exchange Act.
3. Delivery and Payment. Delivery of and payment for the Offered
Securities of a Series shall be made at the offices of Stroock & Stroock & Lavan
LLP, 180 Maiden Lane, New York, New York 10038 at 10:00 a.m. New York City time,
on the Closing Date specified in the related Terms Agreement, which date and
time may be postponed by agreement between the Underwriters and the Company
(such date and time being herein called the "Closing Date"). Delivery of such
Offered Securities shall be made to the Underwriters against payment by the
Underwriters of the Purchase Price thereof to or upon the order of the Company
by wire transfer in federal or other immediately available funds. Unless
delivery is made through the facilities of The Depository Trust Company, the
Offered Securities shall be registered in such names and in such authorized
denominations as the Underwriters may request not less than two full business
days in advance of each Closing Date.
The Company agrees to notify the Underwriters at least two business
days before each Closing Date of the exact principal balance evidenced by the
Offered Securities and to have such Offered Securities available for inspection,
checking and packaging in New York, New York, no later than 12:00 noon on the
business day prior to such Closing Date.
4. Offering by the Underwriters. It is understood that the
Underwriters propose to offer the Offered Securities of the related Series for
sale to the public as set forth in the related Final Prospectus.
5. Agreements. The Company and the Transferor agree with the
Underwriters that:
(a) The Company will cause that each of the Preliminary
Prospectus and the Final Prospectus as supplemented by a Prospectus
Supplement relating to the Offered Securities to be filed pursuant to
Rule 424 under the Act and will promptly advise the Underwriters when
such Preliminary Prospectus and such Final Prospectus as so
supplemented has been so filed, and prior to the termination of the
Certificate Offering to which such Preliminary Prospectus and Final
Prospectus relates also will promptly advise the Underwriters (i) when
any amendment to the related Registration Statement specifically
relating to such Offered Securities shall have become effective or any
further supplement to such Preliminary Prospectus or such Final
Prospectus has been filed, (ii) of any request by the Commission for
any amendment of such Registration Statement, Preliminary Prospectus
or Final Prospectus or for any additional information, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement or the institution or
threatening of any proceeding for that purpose and (iv) of the receipt
by the Company of any written notification with respect to the
suspension of the qualification of such Offered Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will not file any amendment of the
related Registration Statement or supplement to the related
Preliminary Prospectus or Final Prospectus (other than any amendment
or supplement specifically relating to one or more Series of
asset-backed securities other than the Series that includes the
related Offered Securities) unless (i) the Company has given
reasonable notice of its intention to file any such amendment or
supplement, (ii) the Company has furnished the Underwriters with a
copy for their review within a reasonable time prior to filing, and
(iii) the Underwriters do not reasonably object to the filing of such
amendment or supplement. The Company will use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain
as soon as possible the withdrawal thereof.
(b) The Company will cause any Computational Materials and any
Structural Term Sheets (each as defined in Section 8 below) with
respect to the Offered Securities of a Series that are delivered by an
Underwriter to the Company pursuant to Section 8 to be filed with the
Commission on a Current Report on Form 8-K (a "Current Report")
pursuant to Rule 13a-11 under the Exchange Act in accordance with
Section 10 on the business day immediately following the date on which
the related Terms Agreement is executed and delivered. The Company
will cause any Collateral Term Sheet (as defined in Section 9 below)
with respect to the Offered Securities of a Series that is delivered
by the Underwriters to the Company in accordance with the provisions
of Section 9 to be filed with the Commission on a Current Report
pursuant to Rule 13a-11 under the Exchange Act in accordance with
Section 10 on the business day immediately following the day on which
such Collateral Term Sheet is delivered to counsel for the Company by
the Underwriters prior to 10:30 a.m. New York time In addition, if at
any time prior to the availability of the related Prospectus
Supplement, the Underwriters have delivered to any prospective
investor a subsequent Collateral Term Sheet that reflects, in the
reasonable judgment of the Underwriters and the Company, a material
change in the characteristics of the Mortgage Loans for the related
Series from those on which a Collateral Term Sheet with respect to the
related Series previously filed with the Commission was based, the
Company will cause any such Collateral Term Sheet that is delivered by
the Underwriters to the Company in accordance with the provisions of
Section 9 hereof to be filed with the Commission on a Current Report
in accordance with Section 10. Each such Current Report shall be
incorporated by reference in the related Final Prospectus and the
related Registration Statement.
(c) If, at any time when a prospectus relating to the Offered
Securities of a Series is required to be delivered under the Act, any
event occurs as a result of which the related Final Prospectus as then
amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in light of the circumstances under which they were
made not misleading, or if it shall be necessary at any time to amend
or supplement the related Final Prospectus to comply with the Act or
the rules thereunder, the Company promptly will prepare and file with
the Commission, subject to paragraph (a) of this Section 5, an
amendment or supplement which will correct such statement or omission
or an amendment which will effect such compliance; provided, however,
that the Company will not be required to file any such amendment or
supplement with respect to any Computational Materials, Structural
Term Sheets or Collateral Term Sheets incorporated by reference in the
Final Prospectus other than any amendments or supplements of such
Computational Materials or Structural Term Sheets that are furnished
to the Company by the Underwriters pursuant to Section 8(e) hereof or
any amendments or supplements of such Collateral Term Sheets that are
furnished to the Company by the Underwriters pursuant to Section 9(d)
hereof which are required to be filed in accordance therewith.
(d) The Company will furnish to the Underwriters and counsel for
the Underwriters, without charge, and, so long as delivery of a
prospectus by the Underwriters or a dealer may be required by the Act,
as many copies of the related Preliminary Prospectus and the related
Final Prospectus and any supplements thereto (other than exhibits to
the related Current Report) as the Underwriters may reasonably
request.
(e) The Company will furnish such information, execute such
instruments and take such actions as may be reasonably requested by
the Underwriters to qualify the Offered Securities of a Series for
sale under the laws of such jurisdictions as the Underwriters may
designate, to maintain such qualifications in effect so long as
required for the distribution of such Offered Securities and to
determine the legality of such Offered Securities for purchase by
investors; provided, however, that the Company shall not be required
to qualify to do business in any jurisdiction where it is not
qualified on the date of the related Terms Agreement or to take any
action which would subject it to general or unlimited service of
process or corporate or franchise taxation as a foreign corporation in
any jurisdiction in which it is not, on the date of the related Terms
Agreement, subject to such service of process.
(f) So long as the Offered Securities of a Series are
outstanding, the Company will furnish to the Underwriters copies of
the annual independent public accountants' servicing report furnished
to the Indenture Trustee pursuant to the related Sale and Servicing
Agreement.
(g) Whether or not the transactions contemplated hereby and by
the related Terms Agreement shall be consummated, the Company shall be
responsible for the payment of any costs and expenses for which
details are submitted, in connection with the performance of its
obligations under this Agreement and the related Terms Agreement,
including, without limitation, (a) the cost and expenses of printing
or otherwise reproducing the related Registration Statement, the
related Preliminary Prospectus, the related Final Prospectus, this
Agreement, the related Terms Agreement, the related Sale and Servicing
Agreement, the related Trust Agreement, the related Indenture and the
Offered Securities, and (b) the cost of delivering the related Offered
Securities to the office of the Underwriters, insured to the
satisfaction of the Underwriters, (c) the fees and disbursements of
the Transferor's and the Servicer's counsel and accountants, (d) the
qualification of the Securities under state securities or blue sky
laws, including filing fees and the fees and disbursements of counsel
for you in connection therewith and in connection with the preparation
of any blue sky survey and legal investment survey, (e) the printing,
word processing and duplicating expenses and supervision related to
preparation of and delivery to the Underwriter of copies of any
document contemplated hereunder and any blue sky survey and legal
investment survey, (f) the fees of rating agencies, (g) the fees and
expenses, if any, incurred in connection with the listing of the
Offered Securities on any national securities exchange, (h) the fees,
if any, of the National Association of Securities Dealers, Inc., and
the fees and expenses of counsel for you in connection with any
required written submission to or appearance before such entity, (i)
the fees and expenses of the Indenture Trustee, the Owner Trustee, any
custodian, the backup servicer and the Insurer, and their respective
counsel, (j) the fees and expenses of your counsel up to $_________
per Certificate Offering, (k) the cost of the accountant's comfort
letter relating to the related Properties, and (l) any such other
related expenses not specified above; provided that, except as
provided in this Section 5(g), the Underwriters shall pay their own
costs and expenses, including the costs and expenses of their counsel,
any transfer taxes on any series of Offered Securities which they may
sell and the expenses of advertising any offering of the Offered
Securities made by the Underwriters, and the Underwriters shall pay
the cost of any accountant's comfort letters relating to any
Computational Materials.
6. Conditions to the Obligations of the Underwriters. The obligations
of the Underwriters to purchase the Offered Securities of any Series shall be
subject to the accuracy in all material respects of the representations and
warranties on the part of the Company contained in this Agreement, as
supplemented by the related Terms Agreement, as of the respective dates thereof
and the related Closing Date, to the accuracy of the statements of the Company
made in any applicable officers' certificates pursuant to the provisions hereof,
to the performance by the Company of its obligations under this Agreement and
such Terms Agreement and to the following additional conditions applicable to
the related Offering:
(a) No stop order suspending the effectiveness of the related
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or threatened.
(b) Stroock & Stroock & Lavan LLP, counsel for the Company, shall
have furnished to the Underwriters an opinion, dated the related
Closing Date, to the effect that:
(i) this Agreement and the related Terms Agreement have been
duly executed and delivered by the Company;
(ii) the related Sale and Servicing Agreement has been duly
executed and delivered by the Company and is a legal, valid and
binding agreement of the Company enforceable against the Company
in accordance with its terms;
(iii) each of the related Indenture, Trust Agreement and any
Insurance Agreement has been duly executed and delivered by the
Trust and is a legal, valid and binding agreement of the Trust
enforceable against the Trust in accordance with its terms;
(iv) the Notes, when duly executed and delivered by the
Owner Trustee and when authenticated by the Indenture Trustee in
accordance with the related Indenture, will be validly issued and
outstanding and entitled to the benefits of such Indenture;
(v) the Certificates, when duly executed and delivered by
the Owner Trustee in accordance with the related Trust Agreement,
will be validly issued and outstanding and entitled to the
benefits of such Trust Agreement;
(vi) the related Trust Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended, (the
"Trust Indenture Act") and the Trust created thereunder is not
required to be registered under the 1940Act;
(vii) the Indenture has been duly qualified under the Trust
Indenture Act;
(viii) such counsel confirms that the related Registration
Statement is effective under the Act and, to the best of such
counsel's knowledge, no stop order with respect thereto has been
issued, and no proceeding for that purpose has been instituted or
threatened by the Commission under the Act; such Registration
Statement (except the financial statements and schedules and
other financial and statistical data included therein and the
documents incorporated by reference therein), at the time it
became effective and the related Final Prospectus (except the
financial statements and schedules and the other financial and
statistical data included therein, the documents incorporated by
reference therein and the information included in the first
sentence of the last paragraph on the cover page, the information
under the heading "Underwriting" therein insofar as such
information relates to the offer and sale of the Securities by
the Underwriters, as of the date of the Prospectus Supplement,
conformed in all material respects to the requirements of the Act
and the rules and regulations thereunder; and no information has
come to the attention of such counsel that causes it to believe
that (A) such Registration Statement (except the financial
statements and schedules and the other financial and statistical
data included therein and the documents incorporated by reference
therein) at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) such Final Prospectus or any
amendment or supplement thereto (except the financial statements
and schedules and the other financial and statistical data
included therein, the documents incorporated by reference therein
and the information included in the first sentence of the last
paragraph on the cover page, the information under the heading
"Underwriting" therein insofar as such information relates to the
offer and sale of the Securities by the Underwriters), as of the
date of the Prospectus Supplement or at the related Closing Date,
contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ix) the statements set forth under the headings
"Description of the Transfer and Servicing Agreements" and
"Description of the Offered Securities" in the related Final
Prospectus, insofar as such statements purport to summarize
certain provisions of the related Trust Agreement, the related
Indenture, the related Sale and Servicing Agreement" and the
related Offered Securities, provide a fair summary of such
provisions;
(x) the statements set forth in the related Final Prospectus
under the headings "Certain Legal Aspects of the Loan Assets",
"Certain Federal Income Tax Consequences" (insofar as they relate
specifically to the purchase, ownership and disposition of the
related Offered Securities) and "ERISA Considerations" (insofar
as they relate specifically to the purchase, ownership and
disposition of such Offered Securities), to the extent that they
constitute matters of law or legal conclusions, provide a fair
summary of such law or conclusions;
(xi) the statements set forth in the related Final
Prospectus under the heading "Certain Federal Income Tax
Consequences" and in the related Prospectus Supplement under the
heading "Summary of Terms -- Tax Status", to the extent such
statements relate to federal income tax consequences, accurately
describe the material federal income tax consequences to holders
of the Securities.
Such opinion may express its reliance as to factual matters on the
representations and warranties made by, and on certificates or other documents
furnished by, officers of the parties to this Agreement, the related Terms
Agreement, the related Sale and Servicing Agreement, the related Indenture, the
related Trust Agreement or any related Insurance Agreement. Such opinion may
assume the due authorization, execution and delivery of the instruments and
documents referred to therein by the parties thereto other than the Company.
Such opinion may be qualified, insofar as it concerns the enforceability of the
documents referred to therein, to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights in general and by general equity
principles (regardless of whether such enforcement is considered in a proceeding
in equity or at law). Such opinion may be further qualified as expressing no
opinion as to (x) the statements in the related Final Prospectus under the
heading "Certain Legal Aspects of the Loan Assets" except insofar as such
statements relate to the laws of the State of New York and the laws of the
United States, and (y) the statements in such Final Prospectus under the
headings "ERISA Considerations" and "Certain Federal Income Tax Consequences"
except insofar as such statements relate to the laws of the United States.
(c) Walter Villaume, as General Counsel for the Company and the
Transferor, shall have furnished to the Underwriters an opinion, dated
the related Closing Date, to the effect that:
(i) Each of the Company and the Transferor have been duly
incorporated and each is validly existing as a corporation in
good standing in the jurisdiction of its organization with
corporate power to own its properties, to conduct its business as
described in the related Final Prospectus and to enter into and
perform its obligations under this Agreement, the related Terms
Agreement, the related Sale and Servicing Agreement, the related
Indenture, the related Trust Agreement, the related Insurance
Agreement and the Securities of the related Series, as
applicable;
(ii) The Company has full power and authority to deposit the
related Mortgage Loans as contemplated herein and in the related
Trust Agreement and the Servicer has full power and authority to
transfer and service the related Mortgage Loans as contemplated
in the related Sale and Servicing Agreement;
(iii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation by (a) the Company of the transactions contemplated
herein and in the related Sale and Servicing Agreement, Trust
Agreement and Indenture (b) by the Transferor of the transactions
contemplated in the related Sale and Servicing Agreement, except
such as may be required under the blue sky laws of any
jurisdiction and such other approvals as have been obtained;
(iv) Neither the issuance of the Securities of the related
Series nor delivery of the related Offered Securities, nor the
consummation of any other of the transactions contemplated in
this Agreement, the related Terms Agreement, the related Sale and
Servicing Agreement, the related Trust Agreement, the related
Indenture or the related Insurance Agreement, nor the fulfillment
of the terms of the related Securities, the related Sale and
Servicing Agreement, the related Indenture, the related Trust
Agreement, this Agreement, the related Terms Agreement or the
related Insurance Agreement, as applicable, will conflict with or
violate any term or provision of the articles of incorporation or
by-laws of the Company or the Transferor, as applicable or any
statute, order or regulation applicable to the Company of any
court, regulatory body, administrative agency or governmental
body having jurisdiction over the Company or the Transferor and
will not conflict with, result in a breach or violation or the
acceleration of or constitute a default under the terms of any
indenture or other agreement or instrument known to such counsel
to which the Company or the Transferor is a party or by which it
is bound; and
(v) There are no actions, proceedings or investigations
pending or, to the best knowledge of such counsel, threatened
before any court, administrative agency or other tribunal (i)
asserting the invalidity of this Agreement, the related Terms
Agreement, the related Sale and Servicing Agreement, the related
Trust Agreement, the related Indenture, the related Insurance
Agreement or the related Securities,(ii) seeking to prevent the
issuance of the Securities of the related Series or the
consummation by the Company or the Transferor, as applicable, of
any of the transactions contemplated by this Agreement, such
Terms Agreement, such Sale and Servicing Agreement, such
Indenture, such Trust Agreement or such Insurance Agreement, or
(iii) which might materially and adversely affect the performance
by the Company or the Transferor, as applicable, of its
obligations under, or the validity or enforceability of, this
Agreement, such Terms Agreement, such Sale and Servicing
Agreement, such Indenture, such Trust Agreement, such Insurance
Agreement or the related Securities. In rendering their opinion
such counsel may rely as to matters of fact, to the extent deemed
proper and as stated therein, on certificates of responsible
officers of the Company, the Transferor or public officials.
(d) The Underwriters shall have received from [ ], counsel for
the Underwriters, such opinion or opinions, dated the related Closing
Date, with respect to the issuance and sale of the Securities of the
related Series, the related Registration Statement, the related Final
Prospectus and such other related matters in form and substance that
is customary and reasonably acceptable to the Underwriters, and the
Company shall have furnished to such counsel such documents as the
Underwriters may reasonably request for the purpose of enabling them
to pass upon such matters.
(e) The Company shall have furnished to the Underwriters a
certificate of the Company, signed by the President or any Vice
President dated the related Closing Date, to the effect that the
signers of such certificate have carefully examined the related
Registration Statement (excluding any Current Reports and any other
documents incorporated by reference therein), the related Final
Prospectus, the Form 8-K relating to the Subsequent Mortgage Loans,
this Agreement and the related Terms Agreement and that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on
and as of the related Closing Date with the same effect as if
made on such Closing Date, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date;
(ii) no stop order suspending the effectiveness of such
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to their knowledge,
threatened; and
(iii) nothing has come to their attention that would lead
them to believe that such Registration Statement (excluding any
Current Report) contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, that
the related Final Prospectus (excluding the related Current
Report) contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or that
the Form 8-K relating to the Subsequent Mortgage Loans includes
any untrue statement of a material fact or omits to state any
information which the Final Prospectus states will be included in
such Form 8-K.
(f) Counsel for the Indenture Trustee shall have furnished to the
Underwriters an opinion, dated the related Closing Date, in form and
substance that is customary and reasonably acceptable to the
Underwriters regarding certain matters relating to the Indenture
Trustee.
(g) Counsel for the Owner Trustee shall have furnished to the
Underwriters an opinion, dated the related Closing Date, in form and
substance that is customary and reasonably acceptable to the
Underwriters regarding certain matters relating to the Owner Trustee.
In addition, such counsel shall furnish to the Underwriters such
opinions as to the treatment of the Trust Fund for purposes of state tax law
where the Owner Trustee maintains possession of the assets of the Trust Fund as
are customary and reasonably satisfactory to the Underwriters.
(h) KPMG Peat Marwick shall have furnished to the Underwriters
one or more letters in form and substance that is customary and
reasonably satisfactory to the Underwriters, to the effect that they
have performed certain specified procedures requested by the
Underwriters with respect to certain information relating to the
Offered Securities and certain matters relating to the Company.
(i) The Policy relating to the Offered Securities of the related
Series, if any, shall have been duly executed and issued prior to the
Closing Date, in form and substance that is customary and reasonably
satisfactory to the Underwriters, and shall conform in all respects to
the description thereof in the Prospectus.
(j) If applicable, counsel for the Insurer shall have furnished
to the Underwriters an opinion, dated the related Closing Date, in
form and substance that is customary and reasonably acceptable to the
Underwriters regarding to certain matters relating to the Insurer.
In rendering his opinion such counsel may rely as to matters of fact,
to the extent deemed proper and as stated therein, on certificates of
responsible officers of the Insurer or public officials.
(k) The Owner Trustee shall have received from the Depositor all
funds required to be delivered by the Depositor to be deposited in any
account required to be established in accordance with the related
Trust Agreement.
(l) The Offered Securities of the related Series shall have
received the ratings specified in the related Terms Agreement (the
"Required Ratings").
(m) On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (i) any intended or
possible downgrading or (ii) any review or possible changes in rating
the direction of which has not been indicated, in the rating accorded
and originally requested by the Company relating to any previously
issued asset-backed securities of the Company by any "nationally
recognized statistical rating organization" (as such terms is defined
for purposes of the Exchange Act).
(n) On or prior to the Closing Date, there has been no
downgrading, not has any notice been given of (i) any intended or
possible downgrading or (ii) any review or possible changes in rating
the direction of which has not been indicated, in the rating accorded
the Insurer's claims paying ability by any "nationally recognized
statistical rating organization" (as such terms is defined for
purposes of the Exchange Act).
(o) Subsequent to the date of the related Terms Agreement, there
shall not have been any change, or any development involving a
prospective change, in or affecting the business or properties of (i)
the Company, its parent company or any of its subsidiaries, (ii) the
Transferor or (iii) the Insurer which the Underwriters conclude in
their reasonable judgment, after consultation with the Company,
materially impairs the investment quality of the Offered Securities of
the related Series so as to make it impractical or inadvisable to
proceed with the public offering or the delivery of such Offered
Securities as contemplated by the related Final Prospectus.
(p) Prior to the related Closing Date, the Company shall have
furnished to the Underwriters such further information, certificates
and documents as the Underwriters may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects with respect to the particular Offered
Securities of a Series when and as provided in this Agreement and the related
Terms Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement and the related Terms Agreement shall not be in all
material respects reasonably satisfactory in form and substance to the
Underwriters and their counsel, this Agreement (with respect to the related
Offered Securities) and the related Terms Agreement and all obligations of the
Underwriters hereunder (with respect to the related Offered Securities) and
thereunder may be canceled at, or at any time prior to, the related Closing Date
by the Underwriters. Notice of such cancellation shall be given to the Company
in writing, or by telephone or telegraph confirmed in writing.
7. Indemnification and Contribution. (a) The Company and the
Transferor, jointly and severally, agree to indemnify and hold harmless each
Underwriter, each Underwriter's respective officers and directors and each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act, or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement relating to the Offered Securities of the applicable
Series as it became effective or in any amendment or supplement thereof, or in
such Registration Statement, in the related Preliminary Prospectus or the
related Final Prospectus, or in any amendment thereof, or in the Form 8-K
referred to in such Final Prospectus or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company and the Transferor will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein (A) in reliance upon and in conformity with written
information furnished to the Company as herein stated by or on behalf of any
Underwriter through you specifically for use in connection with the preparation
thereof or (B) in any Computational Materials or ABS Term Sheets furnished to
prospective investors by the Underwriters or any Current Report or any amendment
or supplement thereof, except to the extent that any untrue statement or alleged
untrue statement therein or omission therefrom results directly from an error (a
"Mortgage Pool Error") in the information concerning the characteristics of the
Mortgage Loans furnished by the Company to any Underwriter in writing or by
electronic transmission that was used in the preparation of either (x) any
Computational Materials or ABS Term Sheets (or amendments or supplements
thereof) included in such Current Report (or amendment or supplement thereof) or
(y) any written or electronic materials furnished to prospective investors on
which the Computational Materials (or amendments or supplements) were based.
(b) Each Underwriter agrees, severally, and not jointly, to indemnify
and hold harmless the Transferor and the Company, each of its directors, each of
its officers who signs the Registration Statement relating to the Offered
Securities of the applicable Series, and each person who controls the Transferor
or the Company within the meaning of the Act or the Exchange Act to the same
extent as the foregoing indemnities from the Company to each Underwriter, but
only with reference to (A) written information furnished to the Company by or on
behalf of such Underwriter through you specifically for use in the preparation
of the documents referred to in the foregoing indemnity with respect to the
related Series, or (B) any Computational Materials or ABS Term Sheets (or
amendments or supplements thereof) delivered to prospective investors by such
Underwriter, including any Computational Materials or ABS Term Sheets that are
furnished to the Company by such Underwriter pursuant to Section 8 and
incorporated by reference in such Registration Statement, the related
Preliminary Prospectus or the related Final Prospectus or any amendment or
supplement thereof (except that no such indemnity shall be available for any
losses, claims, damages or liabilities, or actions in respect thereof, resulting
from any Mortgage Pool Error, other than a Corrected Mortgage Pool Error);
provided, however, that in no event shall an Underwriter be liable to the
Transferor or Company under this paragraph (b) with respect to the material
described in clause (B) in an amount in excess of the fees received by such
Underwriter in connection with the offering of the related series of Offered
Securities.
(c) Promptly after receipt by an indemnified party under Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 7, notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify such indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 7. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party or parties of the commencement
thereof, the indemnifying party or parties will be entitled to participate
therein, and to the extent that they may elect by written notice delivered to an
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel satisfactory to
such indemnified party; provided, however, that if the defendants in any such
action include both an indemnified party and an indemnifying party and such
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to an indemnifying party, such indemnified
party or parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from an
indemnifying party or parties to such indemnified party of their election so to
assume the defense of such action and approval by such indemnified party of
counsel, such indemnifying party or parties will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) such indemnified party shall have employed separate counsel
in connection with the assertion of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party or parties shall not be liable for the expenses of more than
one separate counsel approved by the indemnified party or parties in the case of
subparagraph (a) or (b), representing the indemnified parties under subparagraph
(a) or (b), who are parties to such action), (ii) the indemnifying party or
parties shall not have employed counsel satisfactory to the indemnified party or
parties to represent such indemnified party or parties within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party or
parties have authorized the employment of counsel for an indemnified party at
the expense of the indemnifying parties; and except that, if clause (i) or (iii)
is applicable, such liability shall be only in respect of the counsel referred
to in such clause (i) or (iii).
(d) If the indemnification provided for in paragraph (a) or (b) of
this Section 7 is due in accordance with its terms but is for any reason held by
a court to be unavailable from the Company, the Transferor or any Underwriter,
on grounds of policy or otherwise, or if an indemnified party failed to give
notice under paragraph (c) of this Section 7 in respect of a claim otherwise
subject to indemnification in accordance with paragraph (a) or (b) of this
Section 7, the Company, the Transferor and each Underwriter shall contribute to
the aggregate losses, claims, damages and liabilities (including legal and other
expenses reasonably incurred in connection with investigating or defending same)
to which the Company, the Transferor and such Underwriter may be subject in such
proportion so that such Underwriter is responsible for that portion represented
by the difference between the portion of the proceeds to the Company in respect
of the Offered Securities underwritten by such Underwriter for the related
Series and the portion of the total proceeds received by such Underwriter from
the sale of such Offered Securities (the "Underwriting Discount"), and the
Company and the Transferor are responsible for the balance; provided, however,
that in no case shall any such Underwriter be responsible under this
subparagraph for any amount in excess of such Underwriting Discount applicable
to the Offered Securities purchased by such Underwriter pursuant to this
Agreement and the related Terms Agreement. Notwithstanding anything to the
contrary in this Section 7(d), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act shall have
the same rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to the immediately preceding sentence of this
paragraph (d).
(e) If the indemnification provided for in paragraph (a) or (b) of
this Section 7 is due in accordance with its terms but is for any reason held by
a court to be unavailable from the Company, the Transferor or any Underwriter,
on grounds of policy or otherwise, or if an indemnified party failed to give
notice under paragraph (c) of this Section 7 in respect of a claim otherwise
subject to indemnification in accordance with paragraph (a) or (b) of this
Section 7, the Company, the Transferor and each Underwriter shall contribute to
the aggregate losses, claims, damages and liabilities (including legal and other
expenses reasonably incurred in connection with investigating or defending same)
to which the Company, the Transferor and such Underwriter may be subject in such
proportion so that such Underwriter is responsible for that portion represented
by the difference between the portion of the proceeds to the Company in respect
of the Offered Securities underwritten by such Underwriter for the related
Series and the portion of the total proceeds received by such Underwriter from
the sale of such Offered Securities (the "Underwriting Discount"), and the
Company and the Transferor are responsible for the balance; provided, however,
that in no case shall any such Underwriter be responsible under this
subparagraph for any amount in excess of such Underwriting Discount applicable
to the Offered Securities purchased by such Underwriter pursuant to this
Agreement and the related Terms Agreement. Notwithstanding anything to the
contrary in this Section 7(e), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act shall have
the same rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to the immediately preceding sentence of this
paragraph (e).
8. Computational Materials and Structural Term Sheets. (a) In
accordance with Section 10, the Underwriters shall deliver to the Company one
complete copy of all materials provided by the Underwriters to prospective
investors in such Offered Securities which constitute (i) "Computational
Materials" within the meaning of the no-action letter dated May 20, 1994 issued
by the Division of Corporation Finance of the Commission to Kidder, Peabody
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and Kidder
Structured Asset Corporation and the no-action letter dated May 27, 1994 issued
by the Division of Corporation Finance of the Commission to the Public
Securities Association (together, the "Kidder Letters") and the filing of such
material is a condition of the relief granted in such letter (such materials
being the "Computational Materials"), and (ii) "Structural Term Sheets" within
the meaning of the no-action letter dated February 17, 1995 issued by the
Division of Corporation Finance of the Commission to the Public Securities
Association (the "PSA Letter") and the filing of such material is a condition of
the relief granted in such letter (such materials being the "Structural Term
Sheets"). Each delivery of Computational Materials and Structural Term Sheets to
the Company pursuant to this paragraph (a) shall be effected in accordance with
Section 10.
(b) Each Underwriter represents and warrants to and agrees with the
Company, as of the date of the related Terms Agreement and as of the Closing
Date, that:
(i) the Computational Materials furnished to the Company by such
Underwriter pursuant to Section 8(a) constitute (either in original,
aggregated or consolidated form) all of the materials furnished to
prospective investors by such Underwriter prior to the time of
delivery thereof to the Company that are required to be filed with the
Commission with respect to the related Offered Securities in
accordance with the Kidder Letters, and such Computational Materials
comply with the requirements of the Kidder Letters;
(ii) the Structural Term Sheets furnished to the Company by such
Underwriter pursuant to Section 8(a) constitute all of the materials
furnished to prospective investors by such Underwriter prior to the
time of delivery thereof to the Company that are required to be filed
with the Commission as "Structural Term Sheets" with respect to the
related Offered Securities in accordance with the PSA Letter, and such
Structural Term Sheets comply with the requirements of the PSA Letter;
and
(iii) on the date any such Computational Materials or Structural
Term Sheets with respect to such Offered Securities (or any written or
electronic materials furnished to prospective investors on which the
Computational Materials are based) were last furnished to each
prospective investor by such Underwriter and on the date of delivery
thereof to the Company pursuant to Section 8(a) and on the related
Closing Date, such Computational Materials (or such other materials)
or Structural Term Sheets did not and will not include any untrue
statement of a material fact or, when read in conjunction with the
Final Prospectus and Prospectus Supplement, omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
Notwithstanding the foregoing, each Underwriter makes no
representation or warranty as to whether any Computational Materials or
Structural Term Sheets (or any written or electronic materials on which the
Computational Materials are based) included or will include any untrue statement
resulting directly from any Mortgage Pool Error.
(c) If, at any time when a prospectus relating to the Offered
Securities of a Series is required to be delivered under the Act, it shall be
necessary to amend or supplement the related Final Prospectus as a result of an
untrue statement of a material fact contained in any Computational Materials or
Structural Term Sheets provided by any Underwriter pursuant to this Section 8 or
the omission to state therein a material fact required, when considered in
conjunction with the related Final Prospectus and Prospectus Supplement, to be
stated therein or necessary to make the statements therein, when read in
conjunction with the related Final Prospectus and Prospectus Supplement, not
misleading, or if it shall be necessary to amend or supplement any Current
Report relating to any Computational Materials or Structural Term Sheets to
comply with the Act or the rules thereunder, such Underwriter promptly will
prepare and furnish to the Company for filing with the Commission an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Each Underwriter represents and warrants to
the Company, as of the date of delivery by it of such amendment or supplement to
the Company, that such amendment or supplement will not include any untrue
statement of a material fact or, when read in conjunction with the related Final
Prospectus and Prospectus Supplement, omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, each such Underwriter makes no representation or warranty as
to whether any such amendment or supplement will include any untrue statement
resulting directly from any Mortgage Pool Error.
9. Collateral Term Sheets. (a) Prior to the delivery of any
"Collateral Term Sheet" within the meaning of the PSA Letter, the filing of
which material is a condition of the relief granted in such letter (such
material being the "Collateral Term Sheets"), to a prospective investor in the
Offered Securities, the Underwriters shall notify the Company and its counsel by
telephone of their intention to deliver such materials and the approximate date
on which the first such delivery of such materials is expected to occur. Not
later than 10:30 a.m., New York time, on the business day immediately following
the date on which any Collateral Term Sheet was first delivered to a prospective
investor in the Offered Securities, the Underwriters shall deliver to the
Company one complete copy of all materials provided by the Underwriters to
prospective investors in such Offered Securities which constitute "Collateral
Term Sheets." Each delivery of a Collateral Term Sheet to the Company pursuant
to this paragraph (a) shall be effected in accordance with Section 10.
(Collateral Term Sheets and Structural Term Sheets are, together, referred to
herein as "ABS Term Sheets.") At the time of each such delivery, the Underwriter
making such delivery shall indicate in writing that the materials being
delivered constitute Collateral Term Sheets, and, if there has been any prior
such delivery with respect to the related Series, shall indicate whether such
materials differ in any material respect from any Collateral Term Sheets
previously delivered to the Company with respect to such Series pursuant to this
Section 9(a) as a result of the occurrence of a material change in the
characteristics of the related Mortgage Loans.
(b) Each Underwriter represents and warrants to and agrees with the
Company as of the date of the related Terms Agreement and as of the Closing
Date, that:
(i) The Collateral Term Sheets furnished to the Company by such
Underwriter pursuant to Section 9(a) constitute all of the materials
furnished to prospective investors by such Underwriter prior to time
of delivery thereof to the Company that are required to be filed with
the Commission as "Collateral Term Sheets" with respect to the related
Offered Securities in accordance with the PSA Letter, and such
Collateral Term Sheets comply with the requirements of the PSA Letter;
and
(ii) On the date any such Collateral Term Sheets with respect to
such Offered Securities were last furnished to each prospective
investor by such Underwriter and on the date of delivery thereof to
the Company pursuant to Section 9(a) and on the related Closing Date,
such Collateral Term Sheets did not and will not include any untrue
statement of a material fact or, when read in conjunction with the
Final Prospectus and Prospectus Supplement, omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
Notwithstanding the foregoing, each Underwriter makes no
representation or warranty as to whether any Collateral Term Sheet included or
will include any untrue statement or material omission resulting directly from
any Mortgage Pool Error.
(c) If, at any time when a prospectus relating to the Offered
Securities of a Series is required to be delivered under the Act, it shall be
necessary to amend or supplement the related Final Prospectus as a result of an
untrue statement of a material fact contained in any Collateral Term Sheets
provided by any Underwriter pursuant to this Section 9 or the omission to state
therein a material fact required, when considered in conjunction with the
related Final Prospectus and Prospectus Supplement, to be stated therein or
necessary to make the statements therein, when read in conjunction with the
related Final Prospectus and Prospectus Supplement, not misleading, or if it
shall be necessary to amend or supplement any Current Report relating to any
Collateral Term Sheets to comply with the Act or the rules thereunder, such
Underwriter promptly will prepare and furnish to the Company for filing with the
Commission an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. Each Underwriter
represents and warrants to the Company, as of the date of delivery of such
amendment or supplement to the Company, that such amendment or supplement will
not include any untrue statement of a material fact or, when read in conjunction
with the related Final Prospectus and Prospectus Supplement, omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, each such Underwriter makes no
representation or warranty as to whether any such amendment or supplement will
include any untrue statement resulting directly from any Mortgage Pool Error.
10. Delivery and Filing of Current Reports, Collateral Term Sheets,
Structural Term Sheets.
(a) Any Current Report, Collateral Term Sheet or Structural Term
Sheet that is required to be delivered by the Underwriter to the
Company hereunder shall be effected by the delivery of four copies to
counsel for the Company and one copy in computer readable format to
the Financial Printer on or prior to 10:30 a.m. on the date so
specified herein.
(b) The Company shall cause the Financial Printer to file with
the Commission any such Current Report, Collateral Term Sheet or
Structural Term Sheet within one business day immediately following
the delivery thereof pursuant to the preceding subsection. The Company
shall use its best efforts to cause any such Current Report,
Collateral Term Sheet or Structural Term Sheet to be so filed prior to
2:00 p.m., New York time, on such business day and will promptly
advise the Underwriters of such filing.
11. Termination. This Agreement (with respect to a particular
Certificate Offering) and the related Terms Agreement shall be subject to
termination in the absolute discretion of the Underwriters, by notice given to
the Company prior to delivery of and payment for the related Offered Securities,
if prior to the related Closing Date (i) trading in securities generally on the
New York Stock Exchange shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York shall have been
declared by either federal or New York State authorities, or (iii) there shall
have occurred any outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the United
States is such as to make it, in the reasonable judgment of the Underwriters,
impracticable to market such Offered Securities.
12. Representations and Indemnities to Survive Delivery. The
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement and the related Terms Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Underwriters
or the Company or any of the officers, directors of controlling persons referred
to in Section 7 hereof, and will survive delivery of and payment for the related
Offered Securities. The provisions of Section 7 hereof shall survive the
termination or cancellation of this Agreement and the related Terms Agreement.
13. Default by One or More of the Underwriters. If one or more of the
Underwriters shall fail on the Closing Date to purchase the Offered Securities
which it or they are obligated to purchase hereunder and under the applicable
Terms Agreement (the "Defaulted Securities"), you shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth and under the applicable Terms Agreement. If, however,
you have not completed such arrangements within such 24-hour period, then:
(a) if the aggregate original Certificate Principal Balance of
Defaulted Securities does not exceed 10% of the aggregate original
Certificate Principal Balance of the Offered Securities to be
purchased pursuant to such Terms Agreement, the non-defaulting
Underwriters named in such Terms Agreement shall be obligated to
purchase the full amount thereof in the proportions that their
respective underwriting obligations thereunder bear to the
underwriting obligations of all non-defaulting Underwriters; and
(b) if the aggregate original Certificate Principal Balance of
Defaulted Securities exceeds 10% of the aggregate original Certificate
Principal Balance of the Offered Securities to be purchased pursuant
to such Terms Agreement, the applicable Terms Agreement shall
terminate without any liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section 13 and nothing in this
Agreement shall relieve any defaulting Underwriter from liability in respect of
its default.
In the event of any such default which does not result in a
termination of this Agreement or such applicable Terms Agreement, either you or
the Company shall have the right to postpone the Closing Date for a period of
time not exceeding seven days in order to effect any required changes in the
Registration Statement or in any other documents or arrangements.
14. Successors. This Agreement and the related Terms Agreement will
inure to the benefit of and be binding upon the parties hereto and thereto and
their respective successors and the officers, directors and controlling persons
referred to in Section 7 hereof, and their successors and assigns, and no other
person will have any right or obligation hereunder or thereunder. No purchaser
of any Offered Certificate from the Underwriters shall be deemed a successor or
assign by reason of such purchase.
15. APPLICABLE LAW. THIS AGREEMENT AND THE RELATED TERMS AGREEMENT
WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
16. Miscellaneous. This Agreement, as supplemented by the related
Terms Agreement, supersedes all prior and contemporaneous agreements and
understandings relating to the subject matter hereof. This Agreement and the
related Terms Agreement or any term of each may not be changed, waived,
discharged or terminated except by an affirmative written agreement made by the
party against whom enforcement of the change, waiver, discharge or termination
is sought. The headings in this Agreement and the related Terms Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof or thereof.
17. Notices. All communications by one party hereunder to all other
parties hereunder will be in writing and effective only on receipt by such other
parties, and will be delivered as follows: (A) to the Underwriters at the
addresses first above written; (B) to the Company at 3347 Michelson Drive, Suite
400, Irvine, California 92612, Attention: Todd A. Rodriguez; and (C) to the
Transferor at 3347 Michelson Drive, Suite 300, Irvine, California 92612,
Attention: Todd A. Rodriguez.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Company and the Underwriters.
Very truly yours,
PREFERRED SECURITIZATION CORPORATION
By:..___________________________________
Todd A. Rodriguez
President
PREFERRED CREDIT CORPORATION
By: ___________________________________
Todd A. Rodriguez
Chief Executive Officer
ACKNOWLEDGED BY:
[------------------------------------]
By: ___________________________________
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
[NAME OF UNDERWRITER(S)]
By: _______________________________
Name: _____________________________
Title: _____________________________
<PAGE>
EXHIBIT A
PREFERRED CREDIT OWNER TRUST 199_-_
ASSET-BACKED SECURITIES
TERMS AGREEMENT
(to Underwriting Agreement,
dated ______________, 199__
among the Company, the Transferor and the Underwriters)
Preferred Securitization Corporation [DATE]
3347 Michelson Drive, Suite 400
Irvine, California 92612
Attention: Todd A. Rodriguez
Preferred Credit Corporation
3347 Michelson Drive, Suite 400
Irvine, California 92612
Attention: Todd A. Rodriguez
Each of ____________________ ("____________________") and
_____________________ ("__________________," each an "Underwriter" and
collectively the "Underwriters") agrees, severally and not jointly, subject to
the terms and provisions herein and of the captioned Underwriting Agreement (the
"Underwriting Agreement"), to purchase such Classes of Series ____-__ Securities
specified opposite its name in Section 2(a) hereof (the "Offered Securities").
This letter supplements and modifies the Underwriting Agreement solely as it
relates to the purchase and sale of the Offered Securities described below. The
Series ____- __ Securities are registered with the Securities and Exchange
Commission by means of an effective Registration Statement (No. _____).
Capitalized terms used and not defined herein have the meanings given them in
the Underwriting Agreement.
Section 1. The Mortgage Pool: The Series _____-__ Securities shall
evidence the entire beneficial ownership interest in a pool (the "Mortgage Loan
Pool") of loans (the "Mortgage Loans") having the characteristics described in
the Prospectus Supplement dated the date hereof.
Section 2. The Securities: The Offered Securities shall be issued as
follows:
(a) Classes: The Offered Securities shall be issued with the following
Class designations, interest rates and principal balances, subject in the
aggregate to the variance referred to in the Final Prospectus:
Principal Interest Class Purchase
Class Balance Rate Price Percentage
Each of the Underwriters agrees, severally and not jointly, subject to
the terms and provisions herein and of the captioned Underwriting Agreement, to
purchase the principal balances of the Classes of Series ____-__ Securities
specified opposite its name below.
Class UNDERWRITER #1 UNDERWRITER #2
(b) The Offered Securities shall have such other characteristics as
described in the related Final Prospectus.
Section 3. Purchase Price: The Purchase Price for each Class of the
Offered Securities shall be the Class Purchase Price Percentage therefor (as set
forth in Section 2(a) above) of the initial Class Principal Balance thereof plus
accrued interest at the applicable interest rate per annum of each such Class
from and including the Cut-off Date up to, but not including, _____________ (the
"Closing Date").
Section 4. Required Ratings: The Offered Securities shall have
received Required Ratings of at least [ ] from [ ].
Section 5. Insurer:
Section 6. Location of Closing:
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Underwriters and the Company.
Very truly yours,
[UNDERWRITER]
as Representative of the several
Underwriters
By: _________________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
PREFERRED CREDIT CORPORATION
By: __________________________
Name:
Title:
PREFERRED SECURITIZATION CORPORATION
By: __________________________
Name:
Title:
ACKNOWLEDGED BY:
By: __________________________
Name:
Title:
EXHIBIT 4.1
INDENTURE
between
[PREFERRED CREDIT OWNER TRUST 199_-_,]
as Issuer
and
[BANKERS TRUST COMPANY,]
as Indenture Trustee
Dated as of [ ]
[PREFERRED CREDIT OWNER TRUST 199_-_]
Asset Backed Securities, Series 199_-_
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE.................2
SECTION 1.1. Definitions...........................................2
SECTION 1.2. Incorporation by Reference of Trust Indenture Act....12
SECTION 1.3. Rules of Construction................................13
ARTICLE II. THE NOTES.................................................13
SECTION 2.1. Form................................................13
SECTION 2.2. Execution, Authentication, Delivery and Dating......14
SECTION 2.3. Registration; Registration of Transfer and
Exchange.........................................15
SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes..........16
SECTION 2.5. Persons Deemed Owner................................17
SECTION 2.6. Payment of Principal and Interest; Defaulted
Interest.........................................17
SECTION 2.7. Cancellation........................................18
SECTION 2.8. Authentication of Notes.............................19
SECTION 2.9. Release of Collateral...............................21
SECTION 2.10. Book-Entry Notes.....................................22
SECTION 2.11. Notices to Clearing Agency...........................23
SECTION 2.12. Definitive Notes.....................................23
SECTION 2.13. Tax Treatment.......................................24
ARTICLE III COVENANTS................................................24
SECTION 3.1. Payment of Principal and Interest...................24
SECTION 3.2. Maintenance of Office or Agency.....................25
SECTION 3.3. Money for Payments To Be Held in Trust..............25
SECTION 3.4. Existence...........................................27
SECTION 3.5. Protection of Indenture Trust Estate................27
SECTION 3.6. Annual Opinions as to Indenture Trust Estate........28
SECTION 3.7. Performance of Obligations; Servicing of Home
Loans............................................28
SECTION 3.8 Negative Covenants..................................31
SECTION 3.9. Annual Statement as to Compliance...................32
SECTION 3.10. Covenants of the Issuer..............................32
SECTION 3.11. Servicer's Obligations..............................33
SECTION 3.12. Restricted Payments.................................33
SECTION 3.13. Treatment of Notes as Debt for Tax Purposes.........33
SECTION 3.14. Notice of Events of Default.........................33
SECTION 3.15. Further Instruments and Acts........................33
ARTICLE IV SATISFACTION AND DISCHARGE.................................33
SECTION 4.1. Satisfaction and Discharge of Indenture............34
SECTION 4.2. Application of Trust Money.........................35
SECTION 4.3. Repayment of Moneys Held by Paying Agent...........35
ARTICLE V REMEDIES....................................................36
SECTION 5.1. Events of Default..................................36
SECTION 5.2. Acceleration of Maturity; Rescission and
Annulment.........................................37
SECTION 5.3 Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee.................38
SECTION 5.4. Remedies; Priorities...............................41
SECTION 5.5. Optional Preservation of the Indenture Trust
Estate...........................................43
SECTION 5.6. Limitation of Suits................................43
SECTION 5.7. Unconditional Rights of Noteholders To
Receive Principal and Interest...................44
SECTION 5.8. Restoration of Rights and Remedies.................45
SECTION 5.9. Rights and Remedies Cumulative.....................45
SECTION 5.10. Delay or Omission Not a Waiver......................45
SECTION 5.11. Control by Noteholders..............................45
SECTION 5.12. Waiver of Past Defaults.............................46
SECTION 5.13. Undertaking for Costs...............................46
SECTION 5.14. Waiver of Stay or Extension Laws....................47
SECTION 5.15. Action on Notes.....................................47
SECTION 5.16. Performance and Enforcement of Certain
Obligations.......................................47
ARTICLE VI. THE INDENTURE TRUSTEE.....................................48
SECTION 6.1. Duties of Indenture Trustee.........................48
SECTION 6.2. Rights of Indenture Trustee.........................50
SECTION 6.3. Individual Rights of Indenture Trustee..............50
SECTION 6.4. Indenture Trustee's Disclaimer......................51
SECTION 6.5. Notice of Defaults..................................51
SECTION 6.6. Reports by Indenture Trustee to Holders.............51
SECTION 6.7. Compensation and Indemnity..........................51
SECTION 6.8. Replacement of Indenture Trustee....................52
SECTION 6.9. Successor Indenture Trustee by Merger...............53
SECTION 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee..................................53
SECTION 6.11. Preferential Collection of Claims Against Issuer.....55
ARTICLE VII. NOTEHOLDERS' LISTS AND REPORTS...........................55
SECTION 7.1. Issuer To Furnish Indenture Trustee Names and
Addresses of Noteholders..........................55
SECTION 7.2. Preservation of Information; Communications
to Noteholders....................................55
SECTION 7.3. Reports by Issuer...................................56
SECTION 7.4. Reports by Indenture Trustee........................57
ARTICLE VIII. ACCOUNTS, DISBURSEMENTS AND RELEASES....................57
SECTION 8.1. Collection of Money.................................57
SECTION 8.2. Trust Accounts; Distributions.......................58
SECTION 8.3. General Provisions Regarding Accounts...............61
SECTION 8.4. Servicer's Monthly Statements.......................61
SECTION 8.5. Release of Indenture Trust Estate...................62
SECTION 8.6. Opinion of Counsel..................................62
ARTICLE IX............................................................63
SECTION 9.1. Supplemental Indentures Without Consent of
Noteholders.......................................63
SECTION 9.2. Supplemental Indentures with Consent of
Noteholders.......................................64
SECTION 9.3. Execution of Supplemental Indentures................66
SECTION 9.4. Effect of Supplemental Indenture....................66
SECTION 9.5. Conformity with Trust Indenture Act.................66
SECTION 9.6. Reference in Notes to Supplemental Indentures.......66
SECTION 9.7. Amendments to Trust Agreement.......................66
ARTICLE X. REDEMPTION OF NOTES.......................................67
SECTION 10.1. Redemption..........................................67
SECTION 10.2. Form of Redemption Notice...........................68
SECTION 10.3. Notes Payable on Redemption Date; Provision
for Payment of Indenture Trustee and Securities
Insurer...........................................69
ARTICLE XI. MISCELLANEOUS...........................................69
SECTION 11.1. Compliance Certificates and Opinions, etc...........69
SECTION 11.2. Form of Documents Delivered to Indenture
Trustee...........................................71
SECTION 11.3. Acts of Noteholders.................................72
SECTION 11.4. Notices, etc., to Indenture Trustee, Issuer,
Rating Agencies and Securities Insurer............72
SECTION 11.5. Notices to Noteholders; Waiver......................73
SECTION 11.6. [RESERVED].........................................74
SECTION 11.7. Conflict with Trust Indenture Act...................74
SECTION 11.8. Effect of Headings and Table of Contents............74
SECTION 11.9. Successors and Assigns..............................74
SECTION 11.10. Separability........................................74
SECTION 11.11. Benefits of Indenture..............................74
SECTION 11.12. Legal Holidays......................................74
SECTION 11.13. GOVERNING LAW.......................................75
SECTION 11.14. Counterparts........................................75
SECTION 11.15. Recording of Indenture..............................75
SECTION 11.16. Trust Obligation....................................75
SECTION 11.17. No Petition.........................................75
SECTION 11.18. Inspection..........................................76
SECTION 11.19. Grant of Noteholder Rights to Securities
Insurer..........................................76
SECTION 11.20. Third Party Beneficiary.............................76
SECTION 11.21. Suspension and Termination of Securities
Insurer's Rights...................................................76
<PAGE>
TABLE OF CONTENTS
PAGE
EXHIBITS
SCHEDULE A - Schedule of Home Loans
EXHIBIT A-1 - Form of Class A-1 Note
EXHIBIT A-2 - Form of Class A-2 Note
EXHIBIT A-3 - Form of Class A-3 Note
EXHIBIT A-4 - Form of Class A-4 Note
EXHIBIT A-5 - Form of Class A-5 Note
EXHIBIT A-6 - Form of Class A-6 Note
EXHIBIT A-7 - Form of Class A-7 Note
EXHIBIT A-8 - Form of Class A-8 Note
<PAGE>
INDENTURE dated as of ________________ between PREFERRED CREDIT OWNER TRUST
199_-_, a Delaware business trust (the "Issuer"), and [BANKERS TRUST COMPANY,] a
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 ___% Asset
Backed Notes (the "Class A-1 Notes"), Class A-2 ___% Asset Backed Notes (the
"Class A-2 Notes"), Class A-3 ____% Asset Backed Notes (the "Class A-3 Notes"),
Class A-4 ____% Asset Backed Notes (the "Class A-4 Notes"), Class A-5 7.25%
Asset Backed Notes (the "Class A-5 Notes"), Class A-6 7.60% Asset Backed Notes
(the "Class A-6 Notes"), Class A-7 ____% Asset Backed Notes (the "Class A-7
Notes") and Class A-8 ____% Asset Backed Notes (the "Class A-8 Notes") and,
together with the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A- 4 Notes, the Class A-5 Notes, the Class A-6, the Class A-7 Notes and
the Class A-8 Notes,] the "Notes"):
GRANTING CLAUSE
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 Transferor and/or the Seller to repurchase Home Loans from the Issuer
under certain circumstances described therein); and (iii) all present and future
claims, demands, causes of action and choses 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 (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 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 Irvine, California. 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 in [Irvine, California.]
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. (a) Definitions. Except as otherwise specified herein or as
the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.3(a).
"Administration Agreement" means the Administration Agreement dated as of
_________________, among the Administrator, the Issuer and the Indenture
Trustee.
"Administrator" means [Bankers Trust Company,] 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 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).
"Available Collection Amount" means, an amount equal to the sum of: (i) all
amounts received on the Home Loans or required to be paid by the Servicer, the
Transferor or the Seller during the related Due Period (exclusive of amounts not
required to be deposited in the Collection Account and amounts permitted to be
withdrawn by the Indenture Trustee from the Collection Account pursuant to
Section 5.01(d) of the Sale and Servicing Agreement) as reduced by any portion
thereof that may not be withdrawn therefrom pursuant to an order of a United
States bankruptcy court of competent jurisdiction imposing a stay pursuant to
Section 362 of the United States Bankruptcy Code; (ii) in the case of a
Distribution Date relating to a Due Period that occurs prior to the end of the
Funding Period, an amount from the Capitalized Interest Account sufficient to
fund any shortfall in the Interest Distribution Amount attributable to the
amounts in the Pre-Funding Account; (iii) in the case of the Pre-Funding
Termination Distribution Date, amounts, if any, remaining in the Pre-Funding
Account at the end of the Funding Period (net of reinvestment income, which
shall be transferred to the Capitalized Interest Account); (iv) with respect to
the final Distribution Date or an early retirement of the Offered Securities
pursuant to Section 11.02 of the Sale and Servicing Agreement, the Termination
Price, and (v) any and all income or gain from investments in the Collection
Account.
"Basic Documents" means the Certificate of Trust, the Trust Agreement, this
Indenture, the Sale and Servicing Agreement, the Loan Sale Agreement, the
Administration Agreement, the Insurance Agreement, the Custodial Agreement, the
Note Depository Agreement, the Certificate Depository Agreement and other
documents and certificates delivered in connection therewith.
"Book-Entry Notes" means a beneficial interest in the [Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the Class A-5 Notes,
the Class A-6 Notes, the Class A-7 Notes and the Class A-8 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] or the corporate trust office of
the Indenture Trustee is located are authorized or obligated by law or executive
order to be closed.
"Certificate Depository Agreement" has the meaning specified in Section 1.1
of the Trust Agreement.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Class A-1 Final Scheduled Distribution Date" means the Distribution Date
occurring in ___________.
"Class A-1 Interest Rate" means ________% per annum (computed on the basis
of a 360-day year consisting of twelve 30-day months).
"Class A-1 Notes" means the Class A-1 ____% Asset Backed Notes,
substantially in the form of Exhibit A-1.]
"Class A-2 Final Scheduled Distribution Date" means the Distribution Date
occurring in __________.
"Class A-2 Interest Rate" means ____% per annum (computed on the basis of a
360-day year consisting of twelve 30-day months).
"Class A-2 Notes" means the Class A-2 ____% Asset Backed Notes,
substantially in the form of Exhibit A-.]
"Class A-3 Final Scheduled Distribution Date" means the Distribution Date
occurring in ______________.
"Class A-3 Interest Rate" means ____% per annum (computed on the basis of a
360 day year consisting of twelve 30-day months).
"Class A-3 Notes" means the Class A-3 ____% Asset Backed Notes,
substantially in the form of Exhibit A-3.
"Class A-4 Final Scheduled Distribution Date" means the Distribution Date
occurring in _______________.
"Class A-4 Interest Rate" means ____% per annum (computed on the basis of a
360 day year consisting of twelve 30-day months).
"Class A-4 Notes" means the Class A-4 ____% Asset Backed Notes,
substantially in the form of Exhibit A-4.]
"Class A-5 Final Scheduled Distribution Date" means the Distribution Date
occurring in ____________.
"Class A-5 Interest Rate" means ___% per annum (computed on the basis of a
360 day year consisting of twelve 30-day months).
"Class A-5 Notes" means the Class A-5 ___% Asset Backed Notes,
substantially in the form of Exhibit A-5.
"Class A-6 Final Scheduled Distribution Date" means the Distribution Date
occurring in ______________.
"Class A-6 Interest Rate" means ____% per annum (computed on the basis of a
360 day year consisting of twelve 30-day months).
"Class A-6 Notes" means the Class A-6 ____% Asset Backed Notes,
substantially in the form of Exhibit A-6.
"Class A-7 Final Scheduled Distribution Date" means the Distribution Date
occurring in _______________.
"Class A-7 Interest Rate" means ____% per annum (computed on the basis of a
360 day year consisting of twelve 30-day months).
"Class A-7 Notes" means the Class A-7 ____% Asset Backed Notes,
substantially in the form of Exhibit A-7.
"Class A-8 Final Scheduled Distribution Date" means the Distribution Date
occurring in ____________.
"Class A-8 Interest Rate" means ____% per annum (computed on the basis of a
360 day year consisting of twelve 30-day months).
["Class A-8 Notes" means the Class A-8 8.00% Asset Backed Notes,
substantially in the form of Exhibit A-8.]
"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 __________________.
"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.
"Company" means PREFERRED CREDIT CORPORATION, a California 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
3 Park Plaza, 16th Floor, Irvine, California 92614, 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.
"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 [ ].
"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 a Class of Notes
the respective Class A-1 Final Scheduled Distribution Date, Class A-2 Final
Scheduled Distribution Date, Class A-3 Final Scheduled Distribution Date, Class
A-4 Final Scheduled Distribution Date, Class A-5 Final Scheduled Distribution
Date, Class A-6 Final Scheduled Distribution Date, Class A-7 Final Scheduled
Distribution Date, or Class A-8 Final Scheduled Distribution Date.
"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 [Bankers Trust Company,] 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
the Noteholders' Interest Distributable Amount for each Class of Notes and the
Certificateholders' Interest Distributable Amount for such Distribution Date.
"Interest Rate" means the Class A-1 Interest Rate, the Class A-2 Interest
Rate, the Class A-3 Interest Rate, the Class A-4 Interest Rate, the Class A-5
Interest Rate, the Class A-6 Interest Rate, the Class A-7 Interest Rate or the
Class A-8 Interest Rate, as applicable.
"Issuer" means [PREFERRED CREDIT OWNER TRUST 199_-_] 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, a Class
A- 4 Note, a Class A-5 Note, a Class A-6 Note, a Class A-7 Note or a Class A-8
Note, as applicable.
"Note Depository Agreement" means the agreement dated __________________,
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 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); and
(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.
"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 a Distribution Date.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, 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 Date" means in the case of a redemption of the Notes pursuant
to Section 10.1 or a payment to Noteholders pursuant to Section 10.4, the
Distribution Date specified by the Servicer or the Issuer pursuant to Section
10.1 or 10.4, as applicable.
"Redemption Price" means in the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the unpaid principal amount of the Notes
redeemed plus accrued and unpaid interest thereon at the respective Interest
Rates for each Class of Notes being so redeemed to but excluding the Redemption
Date, plus any unpaid Trust Fees and Expenses and all other amounts owed to the
[Securities Insurer] pursuant to the Insurance Agreement.
"Registered Holder" means the Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
"Regular Principal Distribution Amount" means, on each Distribution Date,
an amount equal to the lesser of:
(A) the sum of the aggregate Class Principal Balance of the Notes
and the Certificate Principal Balance of the Certificates immediately
prior to such Distribution Date; and
(B) the greater of (1) the sum of (i) each scheduled payment of
principal collected by the Servicer in the related Due Period, (ii)
all partial and full principal prepayments applied by the Servicer
during such related Due Period, (iii) the principal portion of all Net
Liquidation Proceeds, Insurance Proceeds and Released Mortgaged
Property Proceeds received during the related Due Period, (iv) (a)
that portion of the purchase price of any repurchased Home Loan which
represents principal and (b) the principal portion of any Substitution
Adjustments required to be deposited in the Collection Account as of
the related Determination Date, (v) the amount of any Net Loan Losses
equal to the amount on deposit in the Reserve Account until such
amount is reduced to zero, and (vi) if the Overcollateralization
Amount is zero, the amount of any Net Loan Losses minus the sum of (a)
the amount included in clause (v) above for such Distribution Date and
(b) the amount of Net Loan Losses allocated to reduce the
Overcollateralization Amount to zero on such Distribution Date
pursuant to Section 5.09 of the Sale & Servicing Agreement, and (2)
the amount by which (i) the aggregate principal balance of the Offered
Securities as of the preceding Distribution Date (after giving effect
to all payments of principal on such preceding Distribution Date)
exceeds (ii) the Pool Principal Balance plus funds on deposit in the
Pre-Funding Account, each as of the immediately preceding
Determination Date; provided, however, that if such Distribution Date
is an Overcollateralization Stepdown Date, then with respect to the
distribution of principal to the Noteholders and Certificateholders
the foregoing amount in each case, will be reduced (but not less than
zero) by the Overcollateralization Reduction Amount, if any, for such
Distribution Date.
"Reserve Account" means, the account established and maintained pursuant to
Section 5.07 of the Sale and Servicing Agreement.
"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 [ ], among the Issuer, Preferred Securitization Corporation, as Seller,
and, Advanta Mortgage Corp. USA, as Servicer, and the Indenture Trustee, as
Indenture Trustee and [Co-Owner Trustee.]
"Schedule of Home Loans" means the listing of the Home Loans set forth in
Schedule A, as supplemented as of each Subsequent Transfer Date and as of any
date on which a Deleted Home Loan has been repurchased from the Trust or
substituted with a Qualified 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 Preferred Securitization Corporation, in its capacity
as seller under the Sale and Servicing Agreement, and its successor in interest.
"Servicer" shall mean Advanta Mortgage Corp. USA 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 or
the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.7(e).
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform 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.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act. Whenever
this 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.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any other
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.
SECTION 1.3. Rules of Construction. 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.
ARTICLE II.
THE NOTES
SECTION 2.1.Form. The Notes shall be designated as the ["PREFERRED CREDIT
OWNER TRUST 199_-_ Asset Backed Notes, Series 199_-_".] The Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the Class A- 5 Notes,
the Class A-6 Notes, the Class A-7 Notes and the Class A-8 Notes, in each case
together with the Indenture Trustee's certificate of authentication, shall be in
substantially the form set forth in Exhibit A-1, Exhibit A-2, Exhibit A-3,
Exhibit A-4, Exhibit A-5, Exhibit A-6, Exhibit A-7 and Exhibit A-8,
respectively, 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 set forth in Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4, Exhibit
A-5, Exhibit A-6, Exhibit A-7 and Exhibit A-8 are part of the terms of this
Indenture.
SECTION 2.2. Execution, Authentication, Delivery and Dating. The Notes
shall 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, the
Indenture Trustee shall authenticate and deliver Class A-1 Notes for original
issue in an aggregate principal amount of [$_________,] Class A-2 Notes for
original issue in an aggregate principal amount of [$_________,] Class A-3 Notes
for original issue in an aggregate principal amount of [$_________,] Class A-4
Notes for original issue in an aggregate principal amount of [$_________,] Class
A-5 Notes for original issue in an aggregate principal amount of [$_________,]
Class A-6 Notes for original issue in an aggregate principal amount of
[$_________] and Class A-7 Notes for original issue in an aggregate principal
amount of [$_________] and Class A-8 Notes for original issue in an aggregate
principal amount of [$_________.] The aggregate principal amount of Class A-1
Notes, Class A-2 Notes, Class A- 3 Notes, Class A-4 Notes, Class A-5 Notes,
Class A-6 Notes, Class A-7 Notes and Class A-8 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 [ ]. 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 $100,000 and
integral multiples of $1,000 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.
SECTION 2.3. Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to 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 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 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.
SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated 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 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 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 Redemption 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.
SECTION 2.5. Persons Deemed Owner. Prior to due presentment for
registration 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.
SECTION 2.6. Payment of Principal and Interest; Defaulted Interest.
(a) The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class A-5 Notes, the Class A-6 Notes, the Class A-7 Notes
and the Class A-8 Notes shall accrue interest at the Class A-1 Interest Rate,
the Class A-2 Interest Rate, the Class A-3 Interest Rate, the Class A-4 Interest
Rate, the Class A-5 Interest Rate, the Class A-6 Interest Rate, the Class A-7
Interest Rate and the Class A-8 Interest Rate, respectively, as set forth in
Exhibits A-1, A-2, A-3, A-4, A-5, A-6, A-7 and A-8, respectively, and such
interest shall be payable on each Distribution Date as specified therein,
subject to Section 3.1. Any installment of interest or 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 2.12, with respect to Notes registered on
the Record Date in the name of the 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 Final Scheduled Distribution Date for
such Class of Notes (and except for the Redemption Price for any Note called for
redemption pursuant to Section 10.1), which shall be payable as provided below.
The funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.3.
(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
A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4, Exhibit A-5, Exhibit A-6, Exhibit
A-7 and Exhibit A-8. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes of a Class of Notes shall be due and payable, if not
previously paid, on the earlier of (i) the respective Final Scheduled
Distribution Date of such Class, (ii) the Redemption 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 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.
SECTION 2.7. Cancellation. All Notes surrendered for payment, registration
of 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.
SECTION 2.8. Authentication of Notes. The Notes may be authenticated by the
Indenture Trustee, upon 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 Collateral constituting the Indenture 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
Indenture Trust Estate to the Trustee as security for the Notes and
the Owner Trustee has taken all necessary action under the Trust
Agreement to Grant the Indenture 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 Indenture
Trust Estate to the Indenture Trustee, creates a valid security
interest in the Indenture 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 Indenture 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 Indenture 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, an Affiliate of the Issuer, or a
"securities intermediary," as defined in Section 8.102 of the UCC, an
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:
(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 Indenture 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.
(f) A fair value certificate from an Independent Person.
SECTION 2.9. Release of Collateral. (a) Subject to subsections (b) and (c)
hereof and Section 11.1 and the terms of the Basic 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 (i) after a payment by the Transferor or the
Issuer of the Purchase Price of the Home Loan, (ii) after a Qualified Substitute
Home Loan is substituted for such Home Loan and payment of the Substitution
Adjustment, if any, (iii) after liquidation of the Home Loan in accordance with
Section 4.02 of the Sale and Servicing Agreement and the deposit of all
Recoveries thereon in the Collection Account, or (iv) upon the termination of a
Home Loan (due to, among other causes, a prepayment in full of the Home Loan and
sale or other disposition of the related Mortgaged Property), if the Issuer
delivers to the Indenture Trustee [and the Securities Insurer] an Issuer Request
(A) identifying the Home Loan and the related Mortgaged Property to be released,
(B) requesting the release thereof, (C) setting forth the amount deposited in
the Collection Account with respect thereto, and (D) certifying that the amount
deposited in the Collection Account (x) equals the Purchase Price of the Home
Loan, in the event a Home Loan and the related Mortgaged Property are being
released from the lien of this Indenture pursuant to item (i) above, (y) equals
the Substitution Adjustment related to the Qualified Substitute Home Loan and
the Deleted Home Loan released from the lien of the Indenture pursuant to item
(ii) above, or (z) equals the entire amount of Recoveries received with respect
to such Home Loan and the related Mortgaged Property in the event of a release
from the lien of this Indenture pursuant to items (iii) or (iv) above.
(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 7.02 of
the Sale and Servicing Agreement upon compliance by the 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.
SECTION 2.10.Book-Entry Notes. The Notes, upon original issuance, will be
issued in the form of typewritten Notes representing the Book-Entry Notes, to be
delivered to The Depository Trust Company, the initial Clearing Agency, 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. Unless
and until definitive, fully registered Notes (the "Definitive Notes") have been
issued to such Note Owners pursuant to Section 2.12:
(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 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.
SECTION 2.11. Notices to Clearing Agency. Whenever a notice or other
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
communications specified herein to be given to Holders of the Notes to the
Clearing Agency, and shall have no obligation to such Note Owners.
SECTION 2.12. Definitive Notes. If (i) the Administrator advises the
Indenture 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.
SECTION 2.13. Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Indenture 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 federal, state and local income,
single business and franchise tax purposes as indebtedness of the Issuer.
ARTICLE III.
COVENANTS
SECTION 3.1. Payment of Principal and Interest. The Issuer will duly and
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, subject to and in accordance
with Section 8.2(c), the Issuer will cause to be distributed all amounts on
deposit in the Note Distribution Account on a Distribution Date deposited
therein pursuant to the Sale and Servicing Agreement (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, (iv) for the benefit of the Class A-4
Notes, to the Class A-4 Noteholders, (v) for the benefit of the Class A-5 Notes,
to the Class A-5 Noteholders, (vi) for the benefit of the Class A-6 Notes, to
the Class A-6 Noteholders, (vii) for the benefit of the Class A-7 Notes, to the
A-7 Noteholders, and (viii) for the benefit of the Class A-8 Notes, to the Class
A-8 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 Indenture 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.
SECTION 3.2. Maintenance of Office or Agency. The Issuer will or will cause
the Administrator to maintain in the Borough of Manhattan, The City of New York,
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 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.
SECTION 3.3. Money for Payments To Be Held in Trust. As provided in Section
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 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.
On or before the third Business Day preceding each Distribution Date and
Redemption Date, the Indenture Trustee shall deposit or cause to be deposited in
the Note Distribution Account an aggregate sum sufficient to pay the amounts due
on such Distribution Date or Redemption Date under the Notes, such sum to be
held in trust for the benefit of the Persons entitled thereto, and (unless the
Paying Agent is the Indenture Trustee) shall promptly notify the Indenture
Trustee of its action or failure so to act.
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).
SECTION 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, the Collateral and each other
instrument or agreement included in the Indenture 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.
SECTION 3.5. Protection of Indenture 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 Indenture 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 Collateral; or
(v) preserve and defend title to the Indenture Trust Estate and
the rights of the Indenture Trustee, the Noteholders and the
[Securities Insurer] in such Indenture 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.
SECTION 3.6. Annual Opinions as to Indenture Trust Estate. On or before
April 15th in each calendar year, beginning in [199_,] 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 April 15th of the following calendar year.
SECTION 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 Indenture 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 Basic Documents and in the
instruments and agreements included in the Indenture 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] 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 Servicer of the Servicer's rights and powers pursuant to Section 10.01 of
the Sale and Servicing Agreement, the Issuer, upon the prior written consent of
or upon the direction of the [Securities Insurer], shall appoint a successor
servicer (the "Successor Servicer"), and such Successor Servicer shall accept
its appointment by a written assumption in a form acceptable to the Indenture
Trustee. In the event that a Successor Servicer has not been appointed and
accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer. The Indenture Trustee may resign as the
Servicer by giving written notice of such resignation to the Issuer and in such
event will be released from such duties and obligations, such release not to be
effective until the date a new servicer enters into a servicing agreement with
the Issuer as provided below. Upon delivery of any such notice to the Issuer,
the Issuer shall obtain a new servicer as the Successor Servicer under the Sale
and Servicing Agreement.
Any Successor Servicer other than the Indenture Trustee shall (i) satisfy the
criteria specified in Section 9.04(b) of the Sale and Servicing Agreement and
(ii) enter into a servicing agreement with the Issuer having substantially the
same provisions as the provisions of the Sale and Servicing Agreement applicable
to the Servicer. If within 30 days after the delivery of the notice referred to
above, the Issuer shall not have obtained such a new servicer, the Indenture
Trustee may appoint, or may petition a court of competent jurisdiction to
appoint, a Successor Servicer. In connection with any such appointment, the
Indenture Trustee may make such arrangements for the compensation of such
successor as it and such successor shall agree, subject to the limitations set
forth below and in the Sale and Servicing Agreement, and in accordance with
Section 10.02 of the Sale and Servicing Agreement, the Issuer shall enter into
an agreement with such successor for the servicing of the Home Loans (such
agreement to be in form and substance satisfactory to the Indenture Trustee [and
the Securities Insurer]). If the Indenture Trustee shall succeed to the
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 Servicer and the servicing of the
Home Loans. In case the Indenture Trustee shall become successor Servicer under
the Sale and Servicing Agreement, the Indenture Trustee shall be entitled to
appoint as 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 Servicer.
(f) Upon any termination of the Servicer's rights and powers pursuant to
the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture
Trustee [and the Securities Insurer]. As soon as a successor Servicer is
appointed and approved by the [Securities Insurer], the Issuer shall notify the
Indenture Trustee of such appointment, specifying in such notice the name and
address of such successor Servicer.
(g) 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 Collateral
(except to the extent otherwise provided in the Sale and Servicing Agreement) or
the Basic Documents, or waive timely performance or observance by the 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.
SECTION 3.8. Negative Covenants. So long as any Notes are Outstanding, the
Issuer shall not:
(i) except as expressly permitted by this Indenture, the Loan
Sale 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 Indenture 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 Indenture
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
Indenture 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 Indenture 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.
SECTION 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 199_), 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.
SECTION 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. 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.
SECTION 3.11. Servicer's Obligations. The Issuer shall cause the Servicer
to comply with Sections 5.01, 6.01, 7.07 and Article IX of the Sale and
Servicing Agreement.
SECTION 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 Basic Documents.
SECTION 3.13. Treatment of Notes as Debt for Tax Purposes.
The Issuer shall, and shall cause the Administrator to, treat the Notes as
indebtedness for all federal and state tax purposes.
SECTION 3.14. Notice of Events of Default. The Issuer shall give the
Indenture Trustee, [the Securities Insurer] and the Rating Agencies prompt
written notice of each Event of Default hereunder, each default on the part of
the Servicer or the Seller of its obligations under the Sale and Servicing
Agreement and each default on the part of the Transferor or the Seller of its
obligations under the Loan Sale Agreement.
SECTION 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.
ARTICLE IV.
SATISFACTION AND DISCHARGE
SECTION 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 at the
Class A-8 Final Scheduled
Distribution Date within one year, 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 Final Scheduled
Distribution Date of such Class of
Notes or Redemption 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.
SECTION 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.
SECTION 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.
ARTICLE V.
REMEDIES
SECTION 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 Indenture 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 Indenture
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 Indenture 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 and the [Securities
Insurer,] 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.
SECTION 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:
a. 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
b. 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.
SECTION 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 Indenture 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.
SECTION 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 Indenture 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 Indenture 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
Indenture 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 Indenture 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
Indenture 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: to [the Securities Insurer] for the
Guaranty Insurance Premium then due and unpaid;]
THIRD: to the Servicer for the Servicing Fee
then due and unpaid;
FOURTH: to the Custodian for the Custodian Fee
then due and unpaid;
FIFTH: to 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);
SIXTH: to Holders of the Class A-1 Notes for
amounts due and unpaid on the Class A-1 Notes for
principal, pro rata, according to the amounts due and
payable on the Class A-1 Notes for principal, until
the Outstanding Amount of the Class A-1 Notes is
reduced to zero;
SEVENTH: to Holders of the Class A-2 Notes for
amounts due and unpaid on the Class A-2 Notes for
principal, pro rata, according to the amounts due
and payable on the Class A-2 Notes for principal,
until the Outstanding Amount of the Class A-2 Notes
is reduced to zero;
EIGHTH: to Holders of the Class A-3 Notes for
amounts due and unpaid on the Class A-3 Notes for
principal, pro rata, according to the amounts due and
payable on the Class A-3 Notes for principal, until
the Outstanding Amount of the Class A-3 Notes is
reduced to zero;
NINTH: to Holders of the Class A-4 Notes for
amounts due and unpaid on the Class A-4 Notes for
principal, pro rata, according to the amounts due and
payable on the Class A-4 Notes for principal, until
the Outstanding Amount of the Class A-4 Notes is
reduced to zero;
TENTH: to Holders of the Class A-5 Notes for
amounts due and unpaid on the Class A-5 Notes for
principal, pro rata, according to the amounts due and
payable on the Class A-5 Notes for principal, until
the Outstanding Amount of the Class A-5 Notes is
reduced to zero;
ELEVENTH: to Holders of the Class A-6 Notes for
amounts due and unpaid on the Class A-6 Notes for
principal, pro rata, according to the amounts due
and payable on the Class A-6 Notes for principal,
until the Outstanding Amount of the Class A-6 Notes
is reduced to zero;
TWELFTH: to Holders of the Class A-7 Notes for
amounts due and unpaid on the Class A-7 Notes for
principal, pro rata, according to the amounts due
and payable on the Class A-7 Notes for principal,
until the Outstanding Amount of the Class A-7 Notes
is reduced to zero;
THIRTEENTH: to Holders of the Class A-8 Notes
for amounts due and unpaid on the Class A-8 Notes
for principal, pro rata, according to the amounts
due and payable on the Class A-8 Notes for principal,
until the Outstanding Amount of the Class A-8 Notes
is reduced to zero;
FOURTEENTH: to the Owner Trustee or Co-Owner
Trustee, as applicable, for amounts required to be
distributed to the Certificateholders pursuant to
the Trust Agreement;
[FIFTEENTH: to [the Securities Insurer] for any
amounts then due and payable under the Insurance
Agreement;]
SIXTEENTH: to the Servicer for any amounts then
due and payable as the Servicing Advance
Reimbursement Amount under the Sale and Servicing
Agreement; and
SEVENTEENTH: 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.
SECTION 5.5. Optional Preservation of the Indenture 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 Indenture 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 Indenture Trust Estate. In determining whether to
maintain possession of the Indenture 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 Indenture Trust Estate for such
purpose.
SECTION 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.
SECTION 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
respective Final Scheduled Distribution Date thereof expressed in such Note or
in this Indenture (or, in the case of redemption, on or after the Redemption
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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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 Indenture Trust Estate shall be by
Holders of Notes representing not less than 100% of the Outstanding Amount of
the Note;
(c) if the conditions set forth in Section 5.5 have been satisfied and the
Indenture Trustee elects to retain the Indenture 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 Indenture 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.
SECTION 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.
SECTION 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 Redemption Date).
SECTION 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.
SECTION 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 Indenture 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).
SECTION 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, 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 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 Loan Sale
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 Servicer thereunder and the institution of legal or administrative
actions or proceedings to compel or secure performance by the Seller or the
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 Servicer
under or in connection with the Sale and Servicing Agreement, or against the
Seller under or in connection with the Loan Sale Agreement, including the right
or power to take any action to compel or secure performance or observance by the
Seller 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 Loan Sale
Agreement, as the case may be, and any right of the Issuer to take such action
shall be suspended.
ARTICLE VI.
THE INDENTURE TRUSTEE
SECTION 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 Indenture Trust Estate pursuant to Section 6.7.
(h) 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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 notice of the
Default within 90 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.
SECTION 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.
SECTION 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 8.2(c) hereof
(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 Servicer to indemnify the Indenture 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.
SECTION 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.
SECTION 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.
SECTION 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 Indenture 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 Indenture 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
Indenture 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.
SECTION 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 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.
SECTION 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.
ARTICLE VII.
NOTEHOLDERS' LISTS AND REPORTS
SECTION 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.
SECTION 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).
SECTION 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.
SECTION 7.4. Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each [February 1] beginning with [February 1,
1997,] 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.
ARTICLE VIII.
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 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
Indenture 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.]
SECTION 8.2. Trust Accounts; Distributions.
(a) On or prior to the Closing Date, the Issuer shall cause the Servicer to
establish and maintain, 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 Servicer's Monthly Remittance Report.
(b) On or before the third Business Day prior to each Distribution Date,
the Indenture Trustee shall withdraw from the Collection Account, the
Pre-Funding Account, the Capitalized Interest Account and the Reserve Account,
as applicable, the Available Collection Amount and the Reserve Account
Withdrawal Amount, if any, with respect to the preceding Due Period pursuant to
Section 5.01(b)(2) 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 Redemption Date, to the extent funds are
available in the Note Distribution Account, the Indenture Trustee shall make the
following distributions from the amounts on deposit in the Note Distribution
Account in the following order of priority (except as otherwise provided in
Section 5.4(b)):
(i) (A) to the Servicer, an amount equal to the Servicing
Compensation (net of any amounts retained prior to deposit into the
Collection Account pursuant to Section 5.01(b)(1) of the Sale and
Servicing Agreement) and all unpaid Servicing Compensation from prior
due periods, (B) to the [Securities Insurer], an amount equal to the
Guaranty Insurance Premium and all unpaid Guaranty Insurance Premiums
from prior Due Periods, (C) to the Indenture Trustee, an amount equal
to the Indenture Trustee Fee and all unpaid Indenture Trustee Fees
from prior Due Periods, (D) to the Owner Trustee, an amount equal to
the Owner Trustee Fee and all unpaid Owner Trustee Fees from prior Due
Periods, and (E) to the Custodian, an amount equal to the Custodian
Fee and all unpaid Custodian Fees from prior Due Periods;
(ii) only to the extent of funds withdrawn from the Pre- Funding
Account and deposited in the Note Distribution Account by the
Indenture Trustee pursuant to Section 5.03(c) of the Sale and
Servicing Agreement (net of any amount deposited in the Certificate
Distribution Account from the Note Distribution Account for
distribution to Certificateholders pursuant to Subsection 5.01(c)(ii)
of the Sale and Servicing Agreement), pro rata, to the Holders of the
Class A-1 Notes, the Holders of the Class A-2 Notes, the Holders of
the Class A-3 Notes, the Holders of the Class A-4 Notes, the Holders
of the Class A-5 Notes, the Holders of the Class A-6 Notes, the
Holders of the Class A-7 Notes and the Holders of the Class A-8 Notes
based on the Class Principal Balance of each such Class, in each case
to reduce the Class Principal Balance of each such Class; provided
that if the amount of such funds equals or is less than $50,000, then
such amount shall be distributed sequentially to the Holders of each
Class of Notes, in ascending order of their respective Class
designations, to reduce the respective Class Principal Balances
thereof;
(iii) to the Holders of each Class of the Notes, the Noteholders'
Interest Distributable Amount for such Distribution Date; provided,
that if there are not sufficient funds in the Note Distribution
Account to pay the entire amount of accrued and unpaid interest then
due on the Notes, the amount in the Note Distribution Account shall be
applied to the payment of such interest on the Notes pro rata on the
basis of the total such interest due on the Notes;
(iv) to the Holders of the Class A-1 Notes, the Noteholders'
Principal Distributable Amount until the Outstanding Amount of the
Class A-1 Notes is reduced to zero;
(v) to the Holders of the Class A-2 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clause (iv) above until the Outstanding Amount of the
Class A-2 Notes is reduced to zero;
(vi) to the Holders of the Class A-3 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clauses (iv) and (v) above until the Outstanding Amount of
the Class A-3 Notes is reduced to zero;
(vii) to the Holders of the Class A-4 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clauses (iv) through (vi) above until the Outstanding
Amount of the Class A-4 Notes is reduced to zero;
(viii) to the Holders of the Class A-5 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clauses (iv) through (vii) above until the Outstanding
Amount of the Class A-5 Notes is reduced to zero;
(ix) to the Holders of the Class A-6 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clauses (iv) through (viii) above until the Outstanding
Amount of the Class A-6 Notes is reduced to zero;
(x) to the Holders of the Class A-7 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clauses (iv) through (ix) above until the Outstanding
Amount of the Class A-7 Notes is reduced to zero; and
(xi) to the Holders of the Class A-8 Notes, the remaining
Noteholders' Principal Distributable Amount after distributions
pursuant to clauses (iv) through (x) above until the Outstanding
Amount of the Class A-8 Notes is reduced to zero.
(d) On each Distribution Date and each Redemption Date, to the extent of
the interest of the Indenture Trustee in the Certificate Distribution Account
(as described in Section 5.08(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 Section 5.06(c) 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 Guaranteed
Payment received from the Security Insurer in the Note Distribution Account for
the portion of the Guaranteed Payment payable on the related Class of Notes or
in the Certificate Distribution Account for the portion of the Guaranteed
Payment payable on the related Certificate. 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 and the portion of the Regular Distribution Amount payable on the related
Class of Note to the Holders of such Class of Note and payable on the related
Certificate to such Certificateholders 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.
SECTION 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 the Affiliated Holder 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. The Issuer 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, the Issuer
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
Eligible 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) the Issuer 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 Indenture 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
Eligible Investments.
SECTION 8.4. Servicer's Monthly Statements.
On each Distribution Date, the Indenture Trustee shall deliver the
Servicer's Monthly Statement (as defined in the Sale and Servicing Agreement)
with respect to such Distribution Date to the [DTC,] the Rating Agencies,[ and
the Securities Insurer].
SECTION 8.5. Release of Indenture 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
5.06(c) of the Sale and Servicing Agreement, (ii) the Servicer pursuant to
Section 8.2(c)(i)(A) hereof, (iii) the [Securities Insurer] pursuant to Section
8.2(c)(i)(B) hereof, the Indenture Trustee pursuant to Section 8.2(c)(i)(C)
hereof, the Owner Trustee pursuant to Section 8.2(c)(i)(D) hereof, and the
Custodian pursuant to Section 8.2(c)(i)(E) hereof have been paid, release any
remaining portion of the Indenture 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.
SECTION 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 Indenture 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.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
SECTION 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.
SECTION 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, 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 Holder of each
Outstanding Note affected thereby and the [Securities Insurer] if 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 Indenture 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 Redemption 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
Indenture 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 Basic 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 Indenture 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
ARTICLE X.
REDEMPTION OF NOTES
SECTION 10.1. Redemption.
(a) The Affiliated Holder may, at its option, effect an early redemption of
the Notes on or after any Distribution Date on which the Pool Principal Balance
declines to 15% or less of the Pool Principal Balance of the Initial Home Loans
and Subsequent Home Loans conveyed to the Trust as of their respective Cut-Off
Dates. The Affiliated Holder shall effect such early redemption by directing the
Indenture Trustee to sell all of the Home Loans to a person that is not an
Affiliate of the Affiliated Holder, the Seller, or the Servicer at a price not
less than the Redemption Price. In addition, the Affiliated Holder may, at its
option, 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 of the Initial Home Loans and Subsequent Home Loan conveyed to
the Trust as of their respective Cut-Off Dates. In connection with any such
optional termination, to the extent that sufficient proceeds are not available
from the sale of the Home Loans or the termination of the Trust, the Affiliated
Holder will pay the outstanding fees and expenses, if any, of the Indenture
Trustee, the Issuer, [the Securities Insurer], the Custodian, and the Servicer.
[In addition, subject to Section 11.19, on any date on or after which (i)
____% or more (based on Net Loan Losses) of the Home Loans have become Defaulted
Home Loans on a cumulative basis and (ii) the Overcollateralization Amount has
been reduced to zero or an amount less than zero, then the [Securities Insurer]
may, at its option, effect an early retirement of the Securities and termination
of this Agreement.]
Any such redemption by the Affiliated Holder [or the Securities Insurer, as
applicable,] shall be accomplished by the Affiliated Holder [or the Securities
Insurer, as applicable,] depositing or causing to be deposited into the
Collection Account by 10:00 A.M. New York City time on the third Business Day
prior to the Redemption Date the amount of the Redemption Price. On the same day
that the Redemption Price is deposited into the Collection Account, the
Redemption Price and any amounts then on deposit in the Collection Account
(other than any amounts not required to have been deposited therein pursuant to
Section 5.01(b)(1) of the Sale and Servicing Agreement) shall be transferred to
the Note Distribution Account for distribution to the Noteholders on the
Redemption Date; and any amounts received with respect to the Home Loans and
Foreclosure Properties subsequent to such transfer shall belong to the Servicer
[or the Securities Insurer], as applicable. For purposes of calculating the
Required Distribution Amount for the Redemption Date, amounts transferred to the
Note Distribution Account pursuant to the immediately preceding sentence on the
Determination Date immediately preceding such final Distribution Date shall in
all cases be deemed to have been received during the related Due Period, and
such transfer shall be made pursuant to Section 5.01(c) of the Sale and
Servicing Agreement.
The Servicer or the Issuer shall furnish the Rating Agencies and the
[Securities Insurer] notice of any such redemption in accordance with Section
10.2.
SECTION 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 Redemption Date to
each Holder of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Holder's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption 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.
SECTION 10.3. Notes Payable on Redemption 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 Redemption 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
Redemption Date.]
ARTICLE XI.
MISCELLANEOUS
SECTION 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 Outstanding Amount 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 Outstanding Amount 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, other than property as
contemplated by clause (v) below 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 (iii) above
and this clause (iv), equals 10% or more of the Outstanding Amount 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 Outstanding Amount of the Notes.
SECTION 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
Servicer, the Seller, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
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.
SECTION 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.
SECTION 11.4. Notices, etc., to Indenture Trustee, Issuer, Rating Agencies
[and Securities Insurer]. 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: [Preferred Credit Owner Trust
199__-_], in care of [Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: __________________,] 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.
SECTION 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.
SECTION 11.6. [RESERVED].
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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 Indenture 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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, the Servicer, the
Affiliated Holder or the Issuer, or join in any institution against the Seller,
the Servicer, the Affiliated Holder 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 Basic Documents.
SECTION 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.
SECTION 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 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.
SECTION 11.20. 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 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,
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 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 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.
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.
[PREFERRED CREDIT OWNER TRUST
199_-_]
By: [Wilmington Trust Company]
not in its individual
capacity but
solely as Owner Trustee
By: ---------------------------
Name: [------------------]
Title: [------------------]
[BANKERS TRUST COMPANY,]
as Indenture Trustee
By:
----------------------------------------
Name:
Title:
<PAGE>
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 [PREFERRED CREDIT OWNER TRUST 199_-_,] 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 ____ day of _________, 1997.
------------------------------
Notary Public in and for the
State of
New York
(Seal)
My commission expires:
- ------------------
<PAGE>
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 [BANKERS TRUST
COMPANY,] 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 ____ day of _________, 1997.
-----------------------------
Notary Public in and for the
State of
New York
(Seal)
My commission expires:
- ------------------
<PAGE>
SCHEDULE A
(To be Provided at the Closing and Supplemented on each Subsequent Transfer
Date on which Subsequent [Home] Loans are transferred to the Trust)
Available upon request to the Indenture Trustee
<PAGE>
EXHIBIT A-1
(FORM OF CLASS A-1 NOTE)
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF
THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE
FACE HEREOF.
$------------
No. ____ CUSIP NO. [ ]
[PREFERRED CREDIT OWNER TRUST 199_-_]
CLASS A-1 ____% ASSET BACKED NOTES
[PREFERRED CREDIT OWNER TRUST 199_-_,] a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of ___________________________ DOLLARS and
NO/100 CENTS ($__________) payable on each Distribution Date in an amount equal
to the result obtained by multiplying (i) a fraction the numerator of which is
$[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$__________ by (ii) the aggregate amount, if any, payable from the Distribution
Account in respect of principal on the Class A-1 Notes pursuant to Section
8.2(c)(iv) of the Indenture dated as of _________________, between the Issuer
and [Bankers Trust Company,] a national banking association, as Indenture
Trustee (the "Indenture Trustee"); provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the earlier of (i) the
Distribution Date occurring in ____ ____ (the "Class A-1 Final Scheduled
Distribution Date"), (ii) the Redemption Date, if any, pursuant to Section
10.1(a) of the Indenture 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. Capitalized terms used but not defined herein are
defined in Article I of the Indenture, which also contains rules as to
construction that shall be applicable herein.
The Issuer will pay interest on this Note at the rate per annum shown above
on each Distribution Date until the principal of this Note is paid or made
available for payment in full, on the principal amount of this Note outstanding
on the preceding Distribution Date (after giving effect to all payments of
principal made on the preceding Distribution Date). Interest on this Note will
accrue for each Distribution Date during the calendar month preceding such
Distribution Date (each, a "Due Period"). Interest will be computed on the basis
of a 360-day year of twelve 30-day months. Such principal of and interest on
this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note shall
not be entitled to any benefit under the Indenture referred to on the reverse
hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date:
PREFERRED CREDIT OWNER TRUST
199_-_
By: [Wilmington Trust Company,]
not in its individual
capacity but
solely as Owner Trustee
under the
Trust Agreement,
By:
---------------------------
Authorized Signatory
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes
designated above and referred to in the within-mentioned Indenture.
Date:
[BANKERS TRUST COMPANY,]
not in its individual capacity but
solely as Indenture Trustee,
By:
------------------------------
Authorized Signatory
<PAGE>
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-1 ____% Asset Backed Notes (herein called the "Class
A-1 Notes"), all issued under the Indenture, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Holders of the Notes. The Class A-1 Notes are subject to all
terms of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes,
the Class A-5 Notes, the Class A-6 Notes, the Class A-7 Notes and the Class A-8
Notes (collectively, the "Notes") are and will be equally and ratably secured by
the collateral pledged as security therefor as provided in the Indenture.
Principal of the Class A-1 Notes will be payable on each Distribution Date
in an amount described on the face hereof. "Distribution Date" means the 20th
day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing [ .]
As described above, the entire unpaid principal amount of this Note shall
be due and payable on the earlier of the Class A-1 Final Scheduled Distribution
Date and the Redemption Date, if any, pursuant to Section 10.1(a) of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable on the date on which an Event of Default
shall have occurred and be continuing and the Indenture Trustee, at the
direction or upon the prior written consent of the [Securities Insurer] or the
Holders of the 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 of the Indenture. All principal payments on
the Class A-1 Notes shall be made pro rata to the Class A-1 Noteholders entitled
thereto.
[MBIA Insurance Corporation,] as the [Securities Insurer], has issued a
Guaranty Policy in the name of the Indenture Trustee for the benefit of the Note
Owners, which policy guarantees payments on each Distribution Date to the
Indenture Trustee for the benefit of the Note Owners of the related Noteholders'
Distributable Amount then payable on the Notes. Unless a Securities Insurer
Default shall be continuing, the [Securities Insurer] shall be deemed to be the
Holder of 100% of each Class of the outstanding Notes for the purpose of
exercising the rights, including voting rights, of the Holders of each Class of
the Notes under the Indenture. In addition, on each Distribution Date, after the
Note Owners 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.]
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes 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. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the Indenture Trustee's
principal Corporate Trust Office or at the office of the Indenture Trustee's
agent appointed for such purposes located in The City of New York.
As provided in the Indenture and the Sale and Servicing Agreement, the
Class A-1 Notes may be redeemed (a) in whole, but not in part, at the option of
the Affiliated Holder, on any Distribution Date on and after the date on which
the Pool Balance is less than or equal to 15% of the Pool Principal Balance of
the Initial Home Loans and the Subsequent Home Loans conveyed to the Trust as of
the respective Cut-off Dates and (b) in part on the Distribution Date on which
the Funding Period ends (or on the Distribution Date immediately following the
last day of the Funding Period, if the Funding Period does not end on a
Distribution Date), in the manner and to the extent described in the Indenture
and the Sale and Servicing Agreement in the event that any amount remains on
deposit in the Pre-Funding Account after giving effect to the purchase of all
Subsequent Home Loans, including any such purchase on such Redemption Date.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof 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 Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that 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
the Indenture or any certificate or other writing delivered in connection
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 or employee 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 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.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees by accepting
the benefits of the Indenture that such Noteholder or Note Owner will not at any
time institute against the Seller or the Issuer, or join in any institution
against the Seller or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with the
intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
This Note and the 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 and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of the Issuer in its individual capacity,
the Owner Trustee in its individual capacity, any owner of a beneficial interest
in the Issuer, or any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on this Note or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in the
Indenture. The Holder of this Note by its acceptance hereof agrees that, except
as expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number
of assignee:
- ------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
- ---------------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints , attorney, to transfer said Note on the books kept for
registration thereof, with full power of substitution in the premises.
Dated: _______________*/
Signature Guaranteed:
_____________________*/
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in 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 Securities Exchange Act of 1934, as amended.
Exhibit 4.2
POOLING AND SERVICING AGREEMENT
Dated as of _______, 1997
by and among
Preferred Securitization Corporation
(Depositor)
Preferred Credit Corporation
(Seller)
Advanta Mortgage Corp. USA
(Servicer)
and
[Bankers Trust Company]
(Trustee)
Preferred Credit Asset-Backed Certificates,
Series 199_-_
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Definitions...............................................1
Section 1.1 Certain Defined Terms.................................1
Section 1.2 Provisions of General Application....................42
ARTICLE II Establishment of the Trust Sale and Conveyance of
the Trust Fund........................................44
Section 2.1 Sale and Conveyance of Trust Fund: Priority
and Subordination of Ownership Interests;
Establishment of the Trust...........................44
Section 2.2 Possession of Mortgage Files; Access to
Mortgage Files.......................................46
Section 2.3 Delivery of Mortgage Loan Documents..................46
Section 2.4 Acceptance by Trustee of the Trust Fund;
Certain Substitutions; Certification by
Trustee..............................................49
Section 2.5 [RESERVED]...........................................51
Section 2.6 Execution of Certificates............................51
Section 2.7 Application of Principal and Interest................51
Section 2.8 Further Assurances; Powers of Attorney...............51
Section 2.9 Conveyance of the Subsequent Mortgage Loans..........52
ARTICLE III Representations and Warranties..........................56
Section 3.1 Representations of the Servicer......................56
Section 3.2 Representations, Warranties and Covenants of
the Depositor........................................57
Section 3.3 RESERVED.............................................58
Section 3.4 Purchase and Substitution............................58
Section 3.5 Indemnification of the Trust Fund by the
Indemnitors..........................................60
Section 3.6 Third Party Claims...................................61
Section 3.7 Indemnificationa of [Ceretificate Insurer]...........62
ARTICLE IV The Certificates.........................................62
Section 4.1 The Certificates.....................................62
Section 4.2 Registration of Transfer and Exchange of
Certificates.........................................62
Section 4.3 Mutilated, Destroyed; Lost or Stolen
Certificates.........................................68
Section 4.4 Persons Deemed Owners................................68
ARTICLE V Administration and Servicing of the Mortgage Loans.......71
Section 5.1 Appointment of the Servicer..........................71
Section 5.2 Subservicing Agreements Between the Servicer
and Subservicers.....................................72
Section 5.3 Collection of Certain Mortgage Loan Payments;
Collection Account..................................73
Section 5.4 Permitted Withdrawals from the Collection
Account..............................................75
Section 5.5 Payment of Taxes, Insurance and Other Charges........76
Section 5.6 Maintenance of Casualty Insurance....................77
Section 5.7 Servicer Account.....................................78
Section 5.8 Fidelity Bond: Errors and Omissions Policy...........78
Section 5.9 Collection of Taxes, Assessments and Other Items.....78
Section 5.10 Enforcement of Due-on-Sale Clauses; Assumption
Agreements...........................................79
Section 5.11 Realization upon Defaulted Mortgage Loans............80
Section 5.12 Trustee to Cooperate; Release of Mortgage Files......83
Section 5.13 Servicing Fee; Servicing Compensation................84
Section 5.14 Reports to the Trustee; Collection Account
Statements...........................................85
Section 5.15 Annual Statement as to Compliance....................85
Section 5.16 Annual Independent Public Accountants' Servicing
Report...............................................85
Section 5.17 [Reserved]...........................................86
Section 5.18 Reports to be Provided by the Servicer...............86
Section 5.19 Adjustment of Servicing Compensation in
Respect of Prepaid Mortgage Loans...................86
Section 5.20 Delinquency Interest Advances........................86
Section 5.21 [Reserved]...........................................87
Section 5.22 Maintenance of Corporate Existence and Licenses;
Merger or Consolidation of the Servicer..............87
Section 5.23 Assignment of Agreement by Servicer; Servicer Not
to Resign............................................87
Section 5.24 Information Reports to be Filed by the Servicer......88
ARTICLE Vl Distributions and Payments..............................89
Section 6.1 Establishment of Certificate Account; Deposits
to the Certificate Account..........................89
Section 6.2 Permitted Withdrawals From the Certificate
Account..............................................89
Section 6.3 Collection of Money..................................90
Section 6.4 The [Certificate Insurance Policy]...................90
Section 6.5 Distributions........................................92
Section 6.7 Reports by Trustee...................................94
Section 6.8 Additional Reports by Trustee........................97
Section 6.9 Compensating Interest................................97
Section 6.10 Effect of Payments by the [Certificate Insurer];
Subrogation..........................................98
Section 6.11 Pre-Funding Account..................................98
Section 6.12 Capitalized Interest Accounts........................99
ARTICLE VII Default................................................101
Section 7.1 Events of Default...................................101
Section 7.2 Trustee to Act; Appointment of Successor............103
Section 7.3 Waiver of Defaults..................................105
Section 7.4 Mortgage Loans, Trust Fund and Accounts Held
for Benefit of the [Certificate Insurer]...........105
ARTICLE VIII Termination............................................106
Section 8.1 Termination.........................................106
Section 8.2 Additional Termination Requirements.................107
Section 8.3 Accounting Upon Termination of Servicer.............108
ARTICLE IX The Trustee.............................................110
Section 9.1 Duties of Trustee...................................110
Section 9.2 Certain Matters Affecting the Trustee...............112
Section 9.3 Not Liable for Certificates or Mortgage Loans.......113
Section 9.4 Trustee May Own Certificates........................113
Section 9.5 Payment of Trustee Fees.............................114
Section 9.6 Eligibility Requirements for Trustee................114
Section 9.7 Resignation and Removal of the Trustee..............114
Section 9.8 Successor Trustee...................................116
Section 9.9 Merger or Consolidation of Trustee..................116
Section 9.10 Appointment of Co-Trustee or Separate Trustee.......116
Section 9.11 Retirement of Certificates..........................117
ARTICLE X REMIC Administration and Provisions......................118
Section 10.1 REMIC Administration................................118
Section 10.2 Prohibited Transactions and Activities..............124
Section 10.3 Servicer, Trustee and REMIC Administrator
Indemnification.....................................124
ARTICLE XI Miscellaneous Provisions................................126
Section 11.1 Limitation on Liability of the Depositor and
the Servicer........................................126
Section 11.2 Acts of Certificateholders; Certificateholders'
Rights..............................................126
Section 11.3 Amendment...........................................127
Section 11.4 Recordation of Agreement............................128
Section 11.5 Duration of Agreement...............................128
Section 11.6 Notices.............................................128
Section 11.7 Severability of Provisions..........................129
Section 11.8 No Partnership......................................129
Section 11.9 Counterparts........................................129
Section 11.10 Successors and Assigns..............................129
Section 11.11 Headings............................................129
Section 11.12 The [Certificate Insurer] Default...................129
Section 11.13 Third Party Beneficiary.............................130
Section 11.14 Intent of the Parties...............................130
<PAGE>
This Pooling and Servicing Agreement, dated as of [___________], by
and among Preferred Securitization Corporation, a Delaware corporation, in its
capacity as depositor (the "Depositor"), Preferred Credit Corporation, a
California corporation, in its capacity as seller (the "Seller"), Advanta
Mortgage Corp. USA, a Delaware corporation, in its capacity as servicer (the
"Servicer"), and [Bankers Trust Company], a New York banking corporation, in its
capacity as trustee (the "Trustee).
PRELIMINARY STATEMENT:
The Depositor intends to sell asset-backed certificates (collectively,
the "Certificates"), to be issued hereunder in [nine classes] (each, a "Class"),
which in the aggregate will evidence the entire beneficial ownership interest in
the Trust Fund (as defined herein), consisting primarily of the Mortgage Loans,
the Collection Account, the Certificate Account, the Pre-Funding Account and the
Capitalized Interest Account (each, as defined herein).
In consideration of the mutual agreements herein contained,
the Depositor, the Seller, the Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. Whenever used herein, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings.
"ACCEPTED SERVICING PRACTICES" shall mean the Servicer's normal
servicing practices in servicing and administering mortgage loans for its own
account, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Mortgage Loans in the jurisdictions in
which the related Mortgaged Properties are located and will give due
consideration to the [Certificate Insurer]'s and the Certificateholders'
reliance on the Servicer.
"ACCOUNT" shall mean any Eligible Account established hereunder.
"ACCRUAL PERIOD" shall mean, with respect to any Distribution Date,
the calendar month immediately preceding the month in which such Distribution
Date occurs.
"ADDITION NOTICE" shall mean, with respect to the transfer of
Subsequent Mortgage Loans to the Trust Fund pursuant to Section 2.9 of this
Agreement and the related Subsequent Transfer Instrument, a notice,
substantially in the form of Exhibit O, which shall be given not later than five
Business Days prior to the related Subsequent Transfer Date, of the Depositor's
designation of Subsequent Mortgage Loans to be sold to the Trust Fund and the
aggregate Principal Balance as of the related Subsequent Cut-Off Date of such
Subsequent Mortgage Loans.
"ADVANTA" shall mean Advanta Mortgage Corp. USA, a Delaware
corporation.
"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGREEMENT" shall mean this Pooling and Servicing Agreement, including
the Exhibits hereto, as amended or supplemented from time to time.
"APPRAISED VALUE" shall mean the appraised value of any Mortgaged
Property, equal to the value of the related Mortgaged Property based upon the
appraisal made at the time the Mortgage Loan is originated.
"ASSIGNMENT OF MORTGAGE" shall mean, with respect to each Mortgage
Loan, an assignment of the Mortgage, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the Mortgage to the Trustee
for the benefit of the Certificateholders and the [Certificate Insurer].
"AUTHORIZED DENOMINATIONS" shall mean with respect to each of the
Class A Certificates, the minimum Percentage Interest corresponding to a minimum
denomination of $1,000 or integral multiples of $1.00 in excess thereof; with
respect to the Class B Certificates and the Residual Certificates, a minimum
Percentage Interest of 10.00% and integral multiples of 0.01% in excess thereof.
"AVAILABLE FUNDS" shall have the meaning set forth in Section 6.4(a).
"AVAILABLE FUNDS SHORTFALL" shall mean, with respect to the Mortgage
Loans and any Distribution Date, the excess of (x) the Insured Distribution
Amount over (y) the Available Funds for such Distribution Date.
"BUSINESS DAY" shall mean any day other than (a) a Saturday or Sunday,
or (b) a day on which banking institutions in the States of California or New
York or in the city in which the Corporate Trust Office of the Trustee or the
principal offices of the [Certificate Insurer] are authorized or obligated by
law or executive order to be closed.
"CAPITALIZED INTEREST ACCOUNT" shall mean the Account established and
maintained pursuant to Section 6.12, which must be an Eligible Account.
"CAPITALIZED INTEREST ADDITION" shall mean, as to any Distribution
Date, an amount equal to interest accrued for the related Collection Period on
an amount equal to (i) [$____________] minus (ii) the aggregate Principal
Balance of any related Subsequent Mortgage Loans transferred prior to the first
day of the month in which such Distribution Date occurs, calculated at a rate
equal to the sum of the weighted average Class A Pass-Through Rate and, with
respect to the second and third Distribution Dates, the Premium Percentage.
"CAPITALIZED INTEREST AMOUNT" shall mean [$------------].
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"CERTIFICATE" shall mean any Class A Certificate, Class B Certificate,
Class RU Certificate or Class RL Certificate executed by the Trustee on behalf
of the Trust Fund and authenticated by the Trustee.
"CERTIFICATE ACCOUNT" shall mean the Eligible Account established in
accordance with Section 6.1(a) hereof and maintained by the Trustee.
"CERTIFICATEHOLDER" OR "HOLDER" shall mean the Person in whose name a
Certificate is registered in the Certificate Register, except that, neither a
Disqualified Organization nor a Non-United States Person shall be a Holder of a
Residual Certificate for any purposes hereof and, solely for the purposes of
giving any consent (except any consent required to be obtained pursuant to
Section 11.2), waiver, request or demand pursuant to this Agreement, any
Certificate registered in the name of the Depositor or the Seller or any
Affiliate thereof shall be deemed not to be outstanding and the rights to which
it is entitled shall not be taken into account in determining whether the
requisite percentage of rights necessary to effect any such consent has been
obtained, except as otherwise provided in Section 11.3. The Trustee shall be
entitled to rely upon a certification of the Depositor or the Seller in
determining if any Certificates are registered in the name of a respective
Affiliate. Any Class A Certificates on which payments are made under the
[Certificate Insurance Policy] shall be deemed to be outstanding and held by the
[Certificate Insurer] to the extent of such payment.
["CERTIFICATE INSURANCE AGREEMENT" shall mean that certain agreement
dated as of [____________] between the [Certificate Insurer], the Depositor and
the parties named therein.]
["CERTIFICATE INSURANCE PAYMENTS ACCOUNT" shall mean the Eligible
Account established in accordance with Section 6.4(c) hereof and maintained by
the Trustee.]
"[CERTIFICATE INSURANCE POLICY]" shall mean the certificate guaranty
insurance policy No. [_________,] and all endorsements thereto dated the Closing
Date, issued by the [Certificate Insurer] for the benefit of the Class A
Certificateholders, a copy of which is attached hereto as Exhibit A-1.]
"[CERTIFICATE INSURANCE POLICY] PREMIUM AMOUNT" shall mean the product
of the Premium Percentage and the Class A Principal Balance for the related
Distribution Date.
"[CERTIFICATE INSURER]" shall be _______________, a stock insurance
company organized and created under the laws of the State of ________________,
and any successors thereto.]
"[CERTIFICATE INSURER] DEFAULT" shall mean the failure, and
continuance of such failure, by the [Certificate Insurer] to make a payment
required under the [Certificate Insurance Policy] in accordance with its terms.]
"CERTIFICATE REGISTER" shall have the meaning described in Section
4.2(a).
"CHARGED-OFF LOAN": a Mortgage Loan shall become a Charged-off Loan on
the earlier to occur of (a) the date on which any payment due or portion thereof
with respect to such Mortgage Loan has become Delinquent for a period of 180
consecutive days (irrespective of grace periods), (b) the time such Mortgage
Loan becomes a Liquidated Loan or (c) the date on which the holder of 50.01%
Percentage Interest of the Class RL Certificates repurchases such Mortgage Loan
pursuant to the last paragraph of Section 5.11(a) hereof.
"CIVIL RELIEF ACT" shall mean the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended.
"CLASS" shall mean any designated Class of Certificates of this
Series.
"CLASS A CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of the Class A-1 Carry-Forward Amount, Class A-2 Carry-Forward
Amount, Class A-3 Carry-Forward Amount, Class A-4 Carry-Forward Amount, Class
A-5 Carry-Forward Amount and Class A-6 Carry-Forward Amount.
"CLASS A CERTIFICATE" shall mean any of the Certificates designated as
a "Class A-1 Certificate," "Class A-2 Certificate," "Class A-3 Certificate,"
"Class A-4 Certificate," "Class A-5 Certificate" or "Class A-6 Certificate" on
the face thereof, in the form of Exhibit B-1-1, B-1-2, B-1-3, B-1-4, B-1-5 and
B-1-6, respectively, hereto, and executed, authenticated and delivered by the
Trustee in accordance with the procedures set forth herein and evidencing an
interest designated as a "regular interest" in the Upper-Tier REMIC for the
purposes of the REMIC Provisions.
"CLASS A FINAL SCHEDULED MATURITY DATE" shall mean with respect to
each Class of Class A Certificates, the scheduled final maturity date for such
Class A Certificates.
"CLASS A INTEREST DISTRIBUTION AMOUNT" shall mean the sum of the Class
A-1 Interest Distribution Amount, the Class A-2 Interest Distribution Amount,
the Class A-3 Interest Distribution Amount, the Class A-4 Interest Distribution
Amount, the Class A-5 Interest Distribution Amount and the Class A-6 Interest
Distribution Amount.
"CLASS A PRINCIPAL BALANCE" shall mean, as of any date of
determination, the sum of the Class A-1 Principal Balance, the Class A-2
Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal
Balance, the Class A-5 Principal Balance and the Class A-6 Principal Balance.
"CLASS A PRINCIPAL DISTRIBUTION AMOUNT" shall mean the related
principal distribution with respect to the Class A-1 Principal Distribution
Amount, the Class A-2 Principal Distribution Amount, the Class A-3 Principal
Distribution Amount, the Class A-4 Principal Distribution Amount, the Class A-5
Principal Distribution Amount or the Class A-6 Principal Distribution Amount, as
the case may be.
"CLASS A-1 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-1 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-1 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-1
Certificateholders by the [Certificate Insurer] pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-1
Pass-Through Rate. Any Class A-1 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-1 Interest Distribution Amount.
"CLASS A-1 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-1 Certificates, [_____________], or if such date is not a Business
Day, the first Business Day thereafter.
"CLASS A-1 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-1 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-1 Principal Balance immediately prior to such Distribution Date at the Class
A-1 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-1 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-1
Interest Distribution Amount in respect of the Class A-1 Certificates.
"CLASS A-1 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of [______%.]
"CLASS A-1 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-1 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-1 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-1 Certificates for any Distribution Date, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-1 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-1 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-1
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-2 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-2 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-2 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-2
Certificateholders by the [Certificate Insurer] pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-2
Pass-Through Rate. Any Class A-2 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-2 Interest Distribution Amount.
"CLASS A-2 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-2 Certificates, [_____________], or if such day is not a Business
Day, the first Business Day thereafter.
"CLASS A-2 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-2 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-2 Principal Balance immediately prior to such Distribution Date at the Class
A-2 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-2 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-2
Interest Distribution Amount in respect of the Class A-2 Certificates.
"CLASS A-2 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of [____%].
"CLASS A-2 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-2 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-2 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with
respect to the Class A-2 Certificates for any Distribution Date after the Class
A-1 Principal Balance has been reduced to zero, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-2 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-2 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amount released from the Pre-Funding
Account as a prepayment of such Class A-2
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-3 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-3 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-3 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-3
Certificateholders by the [Certificate Insurer] pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-3
Pass-Through Rate. Any Class A-3 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-3 Interest Distribution Amount.
"CLASS A-3 FINAL SCHEDULE MATURITY DATE" shall mean with respect to
the Class A-3 Certificates, [ ], or if such day is not a Business Day, the first
Business Day thereafter.
"CLASS A-3 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-3 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-3 Principal Balance immediately prior to such Distribution Date at the Class
A-3 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-3 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-3
Interest Distribution Amount in respect of the Class A-3 Certificates.
"CLASS A-3 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of [____%].
"CLASS A-3 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-3 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-3 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-3 Certificates for any Distribution Date after the Class A-1
Principal Balance and the Class A-2 Principal Balance have been reduced to zero,
the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-3 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-3 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-3
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts
distributed under clause (viii) above, the
amount of any Overcollateralization Increase
Amount for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-4 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-4 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-4 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-4
Certificateholders by the [Certificate Insurer] pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-4
Pass-Through Rate. Any Class A-4 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-4 Interest Distribution Amount.
"CLASS A-4 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-4 Certificates, [ ], or if such day is not a Business Day, the first
Business Day thereafter.
"CLASS A-4 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-4 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-4 Principal Balance immediately prior to such Distribution Date at the Class
A-4 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-4 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-4
Interest Distribution Amount in respect of the Class A-4 Certificates.
"CLASS A-4 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of [____%].
"CLASS A-4 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-4 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-4 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-4 Certificates for any Distribution Date after the Class A-1
Principal Balance, the Class A-2 Principal Balance and the Class A-3 Principal
Balance have been reduced to zero, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-4 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-4 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-4
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-5 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-5 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-5 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-5
Certificateholders by the [Certificate Insurer] pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-5
Pass-Through Rate. Any Class A-5 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-5 Interest Distribution Amount.
"CLASS A-5 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-5 Certificates, [ ], or if such day is not a Business Day, the first
Business Day thereafter.
"CLASS A-5 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-5 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-5 Principal Balance immediately prior to such Distribution Date at the Class
A-5 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-5 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-5
Interest Distribution Amount in respect of the Class A-5 Certificates.
"CLASS A-5 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of [____%].
"CLASS A-5 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-5 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-5 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-5 Certificates for any Distribution Date after the Class A-1
Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance and the Class A-4 Principal Balance have been reduced to zero, the
lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-5 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-5 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-5
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution Date.
"CLASS A-6 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-6 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-6 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-6
Certificateholders by the [Certificate Insurer] pursuant to Section 6.5 hereof
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-6
Pass-Through Rate. Any Class A-6 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-6 Interest Distribution Amount.
"CLASS A-6 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-6 Certificates, [ ], or if such day is not a Business Day, the first
Business Day thereafter.
"CLASS A-6 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-6 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-6 Principal Balance immediately prior to such Distribution Date at the Class
A-6 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-6 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-6
Interest Distribution Amount in respect of the Class A-6 Certificates.
"CLASS A-6 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of [___%].
"CLASS A-6 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-6 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-6 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-6 Certificates for any Distribution Date after the Class A-1
Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance
have been reduced to zero, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-6 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-6 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-6
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS B ACCRUED INTEREST" shall mean, with respect to any
Distribution Date, the interest allocated to the Class B Certificate as separate
components pursuant to footnote (5) of Section 10.1(c) with respect to such
Distribution Date.
"CLASS B CERTIFICATE" shall mean any Certificate denominated as a
"Class B Certificate" on the face thereof and subordinate to the Class A
Certificates in right of payment to the extent set forth herein, which
Certificates shall be executed, authenticated and delivered by the Trustee in
accordance with the procedures set forth herein and shall be in the form of
Exhibit B-2 hereto and evidencing an interest designated as a "regular interest"
in the Upper-Tier REMIC for the purposes of the REMIC Provisions.
"CLASS B CERTIFICATEHOLDER" shall mean a Holder of a Class B
Certificate.
"CLASS B FINAL SCHEDULED DISTRIBUTION DATE" shall mean the [ ]
Distribution Date.
"CLASS B PRINCIPAL BALANCE" shall mean the Original Class B Principal
Balance, increased by (i) 3% of the principal balance of each Subsequent
Mortgage Loan as of the related Subsequent Cut-Off Date and (ii) the amount of
any previously unpaid Class B Accrued Interest pursuant to Section 6.5(vi), and
decreased by (i) any amounts deposited into the Certificate Account pursuant to
Section 6.11(b)(ii) and (ii) any distributions pursuant to Section 6.5(vii).
"CLASS LT-A CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-1 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-2 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-3 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-4 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-5 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-6 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-M CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS RL CERTIFICATES" shall mean those Certificates executed,
authenticated and delivered by the Trustee in the form of Exhibit B-4 hereto,
which represent certain residual rights to distributions from the Lower-Tier
REMIC.
"CLASS RU CERTIFICATES" shall mean those Certificates executed,
authenticated and delivered by the Trustee in the form of Exhibit B-5 hereto,
which represent certain residual rights to distributions from the Upper-Tier
REMIC.
"CLEAN-UP CALL DATE" shall mean the first date on which the Holder of
the Residual Certificates can exercise its option set forth in Section 8.1(b).
"CLOSING DATE" shall mean [ ].
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" shall mean the Eligible Account established and
maintained by the Servicer for the benefit of the Certificateholders and the
[Certificate Insurer] pursuant to Section 5.3(a) hereof.
"COLLECTION PERIOD" shall mean, with respect to each Distribution
Date, the period beginning on the opening of business on the first day of the
calendar month preceding the calendar month in which such Distribution Date
occurs, and ending at the close of business on the last day of the calendar
month preceding the calendar month in which such Distribution Date occurs.
"COMBINED LOAN-TO-VALUE RATIO" shall mean, with respect to any
Mortgage Loan, the sum of (x) any outstanding (as of the date of origination of
such Mortgage Loan) senior mortgage balance plus (y) the original principal
balance of the Mortgage Loan, divided by the Appraised Value of such Mortgaged
Property.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMPENSATING INTEREST" shall have the meaning set forth in Section
6.9 hereof.
"CREDIT BUREAU RISK SCORE" shall mean a statistical ranking of likely
future credit performance developed by Fair, Isaac & Company and the three
national credit repositories, Equifax, TransUnion and TRW; such score is
obtained from one of the three national credit repositories previously stated
and is used by the Seller to provide a means of analysis to assist in
underwriting to estimate the probability that a mortgage loan will be paid in
accordance with its terms.
"CURTAILMENT" shall mean, with respect to a Mortgage Loan, any payment
of principal received during a Collection Period as part of a payment that is in
excess of the amount of the Monthly Payment due for such Collection Period and
which is neither intended to satisfy the Mortgage Loan in full, intended as an
advance payment of an amount due in a subsequent Collection Period, nor intended
to cure a delinquency.
"CUT-OFF DATE" shall mean the opening of business on [ .]
"DELETED MORTGAGE LOAN" shall mean a Mortgage Loan replaced by a
Qualified Substitute Mortgage Loan.
"DELINQUENCY INTEREST ADVANCE" shall mean, with respect to any
Delinquent Mortgage Loan and Collection Period, the interest due, but not
collected, with respect to such Mortgage Loan during such Collection Period.
"DELINQUENT" shall mean a Mortgage Loan is "delinquent" if any payment
due thereon or any portion thereof is not made by the close of business on the
Due Date therefor. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the close of
business on the last day of such immediately succeeding month. Similarly for "60
days delinquent," "90 days delinquent" and so on.
"DEPOSITOR" shall mean Preferred Securitization Corporation, a
Delaware corporation, and any successor thereto.
"DEPOSITORY" shall mean the Depository Trust Company, 7 Hanover
Square, New York, New York 10004 and any successor Depository hereafter named.
"DETERMINATION DATE" shall mean, with respect to each Distribution
Date, the 15th day of each calendar month in which such Distribution Date occurs
or, if such 15th day is not a Business Day, the Business Day immediately
preceding such 15th day.
"DIRECT PARTICIPANT" shall mean any broker-dealer, bank or other
financial institution for which the Depository holds Class A Certificates from
time to time as a securities depositary.
"DISQUALIFIED ORGANIZATION" shall mean any of (i) the United States,
any State or political subdivision thereof, any possession of the United States,
or any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (unless such organization is subject to the tax imposed by
Section 511 of the Code on unrelated business taxable income), or rural electric
and telephone cooperatives described in Section 1381(a)(2)(C) of the Code and
(iv) any other Person so designated by the Trustee based upon an Opinion of
Counsel provided to the Trustee that the holding of an ownership interest in a
Residual Certificate by such Person may cause the Trust Fund or any Person
having an ownership interest in any Class of Certificates (other than such
Person) to incur liability for any federal tax imposed under the Code that would
not otherwise be imposed but for the transfer of an ownership interest in the
Residual Certificate to such Person. The terms "United States," "State" and
"international organization" shall have the meanings set forth in section 7701
of the Code.
"DISTRIBUTION DATE" shall mean the 25th day of any month or if such
25th day is not a Business Day, the first Business Day immediately following,
commencing on [_______, 199_].
"DUE DATE" shall mean the day of each calendar month specified in the
related Mortgage Note.
"ELIGIBLE ACCOUNT" shall mean either (A) a segregated account or
accounts maintained with an institution (which may include the Trustee, provided
such institution otherwise meets these requirements) whose deposits are insured
by the FDIC, the unsecured and uncollateralized long term debt obligations of
which institution shall be rated A or better by S&P and Aal or better by Moody's
and in the highest short term rating by each of the Rating Agencies, and which
is (i) a federal savings and loan association duly organized, validly existing
and in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable laws of
any state, (iii) a national banking association (including the Trustee) duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the [Certificate Insurer] and each of the Rating Agencies or (B) a
segregated trust account or accounts maintained with the trust department of a
federal or state chartered depository institution acceptable to each Rating
Agency and the [Certificate Insurer] (the Trustee shall be deemed acceptable,
PROVIDED THAT the Trustee otherwise meets these requirements), having capital
and surplus of not less than $100,000,000, acting in its fiduciary capacity.
"ERISA" shall have the meaning defined in Section 4.2(i) hereof.
"EVENT OF DEFAULT" shall have the meaning described in Section 7.1.
"EXCESS OVERCOLLATERALIZATION AMOUNT" shall mean, with respect to any
Distribution Date, the difference, if any, between (a) the Overcollateralization
Amount that would exist on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (exclusive of any reductions
thereto attributable to Overcollateralization Reduction Amounts on such
Distribution Date) and (b) the Required Overcollateralization Level for such
Distribution Date.
"FDIC" shall mean the Federal Deposit Insurance Corporation and any
successor thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FISCAL AGENT" shall have the meaning set forth in the [Certificate
Insurance Policy].
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"FORECLOSURE PROFITS" shall mean, as to any Distribution Date, the
excess, if any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan
that became a Liquidated Loan during the month immediately preceding the month
of such Distribution Date over (ii) the sum of the unpaid Principal Balance of
each such Liquidated Loan plus accrued and unpaid interest at the applicable
Mortgage Interest Rate on the unpaid Principal Balance thereof from the Due Date
to which interest was last paid by the Mortgagor (or, in the case of a
Liquidated Loan that had been an REO Mortgage Loan, from the Due Date to which
interest was last deemed to have been paid pursuant to Section 5.11 to the first
day of the month following the month in which such Mortgage Loan became a
Liquidated Loan).
"HAZARDOUS MATERIALS" shall mean any dangerous, toxic or hazardous
pollutants, chemical wastes or substances, including, without limitation, those
identified pursuant to CERCLA or any other federal, state or local environmental
related laws now existing or hereafter enacted.
"INDIRECT PARTICIPANT" shall mean any financial institution for whom
any Direct Participant holds an interest in a Class A Certificate.
"INSURANCE PROCEEDS" shall mean proceeds paid by any insurer pursuant
to any insurance policy covering a Mortgage Loan to the extent such proceeds are
not applied to the restoration of the related Mortgaged Property or released to
the related Mortgagor in accordance with Accepted Servicing Practices or
pursuant to applicable law plus amounts required to be paid by the Servicer
pursuant to Section 5.6. "Insurance Proceeds" do not include "Insured Payments."
"INSURED DISTRIBUTION AMOUNT" shall mean, with respect to any
Distribution Date, the sum of (a) the Class A Interest Distribution Amount with
respect to such Distribution Date and (b) the Overcollateralization Deficit, if
any, as of such Distribution Date.
"INSURED PAYMENT" shall mean, the sum of (i) with respect to any
Distribution Date, the related Available Funds Shortfall PLUS (ii) any unpaid
Preference Amount.
"INTEREST COLLECTIONS" shall mean all amounts (including, without
limitation, Monthly Payments (or Delinquency Interest Advances in respect
thereof) and Liquidation Proceeds) collected on any Mortgage Loan allocable to
interest pursuant to the terms of the related Mortgage Note, or if no provision
for allocation is made therein, pursuant to the terms hereof.
"LATE PAYMENT RATE" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"LIQUIDATED LOAN" shall mean a Mortgage Loan as to which the Servicer,
in its good faith, reasonable business judgment in accordance with Accepted
Servicing Practices, has determined that all amounts which will be recovered
with respect to such Mortgage Loan have been so recovered (exclusive of a
possibility of a deficiency judgment).
"LIQUIDATION EXPENSES" shall mean expenses incurred by the Servicer in
connection with the charge-off or liquidation of any defaulted Mortgage Loan,
REO Mortgage Loan or REO Property (including, without limitation, legal fees and
expenses, committee or referee fees, and, if applicable, brokerage commissions
and conveyance taxes), any unreimbursed amount expended by the Servicer pursuant
to Sections 5.5, 5.6 and 5.11 respecting the related Mortgage Loan and any
unreimbursed expenditures for real property taxes or for property restoration or
preservation of the related Mortgaged Property. Liquidation Expenses shall not
include any previously incurred expenses in respect of an REO Mortgage Loan
which have been netted against related REO Proceeds.
"LIQUIDATION PROCEEDS" shall mean amounts, if any, received by the
Servicer (including Insurance Proceeds) in connection with the liquidation of
Mortgage Loans or property acquired in respect thereof, whether through
foreclosure, sale or otherwise, including payments in connection with such
Mortgage Loans received from the Mortgagor, other than amounts required to be
paid to the Mortgagor pursuant to the terms of the applicable Mortgage or to be
applied otherwise pursuant to law and other than any Loan Repurchase Price
deposited into the Certificate Account pursuant to the last paragraph of Section
5.11(a).
"LOAN REPURCHASE PRICE" shall have the meaning defined in Section
2.4(b).
"LOWER-TIER INTERESTS" means the uncertificated classes of interests
in the Lower-Tier REMIC, as described and designated in Section 10.1(c) hereof.
"LOWER-TIER REMIC" means the segregated pool of assets held by the
Trust Fund consisting of the Mortgage Loans, the Collection Account, the
[Certificate Insurance Policy] and the Certificate Account, but excluding the
Pre-Funding Account and Capitalized Interest Account.
"MAJORITY CERTIFICATEHOLDERS" shall mean the Holder or Holders of
Class A Certificates evidencing a Percentage Interest in excess of 50% in the
aggregate; once the Class A Certificates have been paid in full, then the Holder
or Holders of Class B Certificates evidencing a Percentage Interest in excess of
50% in the aggregate.
"MATURITY DATE" shall mean the latest possible maturity date as
defined in Section 1.860G-1(a)(4)(iii) of the Treasury regulations, by which the
Certificates representing a regular interest in a REMIC of the Trust Fund would
be reduced to zero as determined under a hypothetical scenario that assumes,
among other things, that (a) scheduled interest and principal payments on the
Mortgage Loans are received in a timely manner, with no delinquencies or losses,
(b) there are no principal prepayments on the Mortgage Loans, (c) the Depositor
and the Seller will not repurchase any Mortgage Loan and neither the Seller, the
Servicer nor the [Certificate Insurer] will exercise its option to purchase the
Mortgage Loans and thereby cause a termination of the REMICs of the Trust Fund,
and (d) the Mortgage Loans generally have an original term to maturity of 360
months and, on a latest maturing loan basis, a remaining term to maturity of 360
months.
"MAXIMUM COLLATERAL AMOUNT" shall mean an amount equal to the sum of
(i) the Original Pool Principal Balance and (ii) the Principal Balance (as of
the related Subsequent Cut-Off Date) of each Subsequent Mortgage Loan acquired
by the Trust Fund.
"MONTHLY PAYMENT" shall mean, as to any Mortgage Loan (including any
REO Mortgage Loan) and any Due Date, the scheduled payment of principal and
interest due thereon by such Due Date.
"MOODY'S" shall mean Moody's Investors Service, Inc., a corporation
organized and existing under Delaware law, or any successor thereto and if such
corporation no longer for any reason performs the services of a securities
rating agency, "Moody's" shall be deemed to refer to any other nationally
recognized rating agency designated by the [Certificate Insurer].
"MORTGAGE" shall mean the mortgage, deed of trust or other instrument
creating a first, second or third lien on the Mortgaged Property.
"MORTGAGE FILE" shall include the Mortgage Loan documents described in
Section 2.3 hereof.
"MORTGAGE INTEREST RATE" shall mean, as to any Mortgage Loan, the per
annum rate at which interest accrues on the unpaid principal balance thereof.
"MORTGAGE LOAN" shall mean (i) each closed-end home equity loan
identified on the Mortgage Loan Schedule on the Closing Date, (ii) any
additional such closed-end home equity loans identified on the Mortgage Loan
Schedule after the Closing Date, as such schedule is amended and supplemented
from time to time to reflect the substitution of Qualified Substitute Mortgage
Loans for loans deleted from the Trust Fund, (iii) from and after the date a
mortgage loan becomes a Subsequent Mortgage Loan in accordance with Section 6.11
hereof, each Subsequent Mortgage Loan and (iv) the related Mortgage. Unless
otherwise clearly indicated by the context, Mortgage Loan shall be deemed to
refer to the related REO Mortgage Loan and REO Property.
"MORTGAGE LOAN INTEREST SHORTFALL" shall mean, with respect to any
Distribution Date, as to any Mortgage Loan, any Prepayment Interest Shortfall
for which no payment of Compensating Interest is paid.
"MORTGAGE LOAN SCHEDULE" shall mean the list of the Mortgage Loans
transferred to the Trustee on the Closing Date as part of the Trust Fund and
attached hereto as Exhibit C (and also provided to the Trustee and the
[Certificate Insurer] on a computer readable magnetic tape or disk) and any
Subsequent Mortgage Loans transferred to the Trustee pursuant to any Subsequent
Transfer Instrument as provided in Section 6.11 and attached to such Subsequent
Transfer Instrument as an Exhibit (and also provided to the Trustee and the
[Certificate Insurer] on a computer readable magnetic tape or disk). The
Mortgage Loan Schedule shall set forth at a minimum the following information as
to each Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the original Principal Balance of the
Mortgage Loan;
(iv) the Due Date;
(v) the date of the first Monthly Payment;
(vi) the origination date;
(vii) the Principal Balance of the Mortgage
Loan as of the Cut-Off Date or with respect
to Subsequent Mortgage Loans, the Subsequent
Cut-Off Date;
(viii) the city, state and zip code of the
Mortgaged Property;
(ix) the type of Mortgaged Property;
(x) the current Monthly Payment as of the
Cut-Off Date (and with respect to any
Subsequent Mortgage Loan, the current
Monthly Payment as of the Subsequent Cut-Off
Date applicable thereto);
(xi) the original number of months to maturity;
(xii) the scheduled maturity date;
(xiii) the Principal Balance of such Mortgage Loan
as of the Cut-Off Date (or, with respect to
any Qualified Substituted Mortgage Loans,
the revised Principal Balance as of the date
of such substitution);
(xiv) as of the Cut-Off Date, Substitution
Date or Subsequent Cut-Off Date, as
applicable, the remaining number of months
to stated maturity;
(xv) the Subordinate Mortgage Ratio at
origination and the Combined Loan-to-Value
Ratio as of the Cut-Off Date;
(xvi) the Mortgage Interest Rate at
origination;
(xvii) the Mortgage Interest Rate as of the
Cut-Off Date, or, with respect to
Subsequent Mortgage Loans, the Subsequent
Cut-Off Date applicable thereto (the
"Current Mortgage Interest Rate");
(xviii) the Appraised Value;
(xix) the occupancy status; and
(xx) the lien priority of each Mortgage Loan.
Such "Mortgage Loan Schedule" may consist of multiple reports that collectively
set forth all of the information required, including the aggregate number of
Mortgage Loans and the aggregate Principal Balance as of the Cut-Off Date or
applicable Subsequent Cut-Off Date. In addition, a summary of the information
regarding the Mortgage Loans shall be included as a part of the Mortgage Loan
Schedule which summary shall include such consolidated and aggregated
information as may be requested by the Trustee and the [Certificate Insurer]
from time to time.
"MORTGAGE NOTE" shall mean the original, executed note or other
evidence of indebtedness evidencing the indebtedness of a Mortgagor under a
Mortgage Loan.
"MORTGAGED PROPERTY" shall mean the underlying property securing a
Mortgage Loan, consisting of a fee simple estate in a single parcel of land
improved by a Residential Dwelling.
"MORTGAGED PROPERTY STATE" shall mean any state in which any Mortgaged
Property is located.
"MORTGAGOR" shall mean the obligor on a Mortgage Note.
"NET FORECLOSURE PROFITS" shall mean, as to any Distribution Date, the
excess, if any, of (i) the aggregate Foreclosure Profits with respect to such
Distribution Date over (ii) the aggregate Realized Losses with respect to such
Distribution Date.
"NET LIQUIDATION PROCEEDS" shall mean, as to any Liquidated Loan,
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Delinquency Interest Advances or Servicing Advances made by the Servicer with
respect to the related Mortgage Loan. For all purposes of this Agreement, Net
Liquidation Proceeds shall be allocated first to accrued and unpaid interest on
the related Mortgage Loan and then to the unpaid principal balance thereof.
"NET MONTHLY EXCESS CASHFLOW" shall mean, as of any Distribution Date,
an amount equal to (x) the Available Funds minus (y) the sum of (i) sum of the
Class A Interest Distribution Amount and the amount described in clause (b) of
the definition of the related Class A Principal Distribution Amount (calculated
for this purpose without regard to any Overcollateralization Increase Amount or
portion thereof included therein); and (ii) the Reimbursement Amount, if any,
for such Distribution Date.
"NET MORTGAGE INTEREST RATE" shall mean, with respect to each Mortgage
Loan at any time of determination, a rate equal to (i) the Mortgage Interest
Rate on such Mortgage Loan minus (ii) the sum of the per annum rates used to
determine the Servicing Fee and Trustee Fee and the Premium Percentage. Any
regular monthly computation of interest at such rate shall be based upon annual
interest at such rate on the applicable amount divided by twelve.
"NET REO PROCEEDS" shall mean, as to any REO Mortgage Loan, REO
Proceeds net of any related expenses of the Servicer.
"NONRECOVERABLE ADVANCE" shall mean, with respect to any Mortgage
Loan, (a) any Delinquency Interest Advance or Servicing Advance previously made
and not reimbursed from late collections pursuant to Section 5.4(b), or (b) a
Delinquency Interest Advance or Servicing Advance proposed to be made in respect
of a Mortgage Loan or REO Property either of which, in the good faith business
judgment of the Servicer, as evidenced by an Officer's Certificate delivered to
the [Certificate Insurer] and the Trustee, would not be ultimately recoverable
pursuant to Section 5.4.
"OFFICER'S CERTIFICATE" shall mean a certificate signed by the
Chairman of the Board, the President or a Vice President and the Treasurer, the
Secretary or one of the Assistant Treasurers or Assistant Secretaries of the
Seller and/or the Servicer, or the Depositor, as required by this Agreement.
"OPINION OF COUNSEL" shall mean a written opinion of counsel, who may,
without limitation, be counsel for the Seller, the Servicer, the Trustee, a
Certificateholder or a Certificateholder's prospective transferee or the
[Certificate Insurer] (including except as otherwise provided herein, in-house
counsel) reasonably acceptable to each addressee of such opinion and experienced
in matters relating to the subject of such opinion; except that any opinion of
counsel relating to (a) the qualification of the Upper-Tier REMIC or Lower-Tier
REMIC as a REMIC or (b) compliance with the REMIC Provisions must be an opinion
of counsel who (i) is in fact independent of the Depositor, the Seller, the
Servicer and the Trustee, (ii) does not have any direct financial interest or
any material indirect financial interest in the Depositor, the Seller, the
Servicer or the Trustee or any Affiliate thereof, (iii) is not connected with
the Depositor or the Seller or the Servicer or the Trustee as an officer,
employee, director or person performing similar functions and (iv) is reasonably
acceptable to the [Certificate Insurer]. The [Certificate Insurer] shall be an
addressee on each Opinion of Counsel relating to, or otherwise affecting, the
Trust Fund and the Class A Certificates.
"ORIGINAL CLASS A PRINCIPAL BALANCE" shall mean, the respective
original class principal balance of each of the Class A Certificates.
"ORIGINAL CLASS A-L PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-1 Certificates, [$ ].
"ORIGINAL CLASS A-2 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-2 Certificates, [$ ].
"ORIGINAL CLASS A-3 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-3 Certificates, [$ ].
"ORIGINAL CLASS A-4 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-4 Certificates, [$ ].
"ORIGINAL CLASS A-5 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-5 Certificates, [$ ].
"ORIGINAL CLASS A-6 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-6 Certificates, [$ ].
"ORIGINAL CLASS B PRINCIPAL BALANCE" shall mean, as of the Startup Day
and as to the Class B Certificates, [$ ].
"ORIGINAL POOL PRINCIPAL BALANCE" shall mean the Pool Principal
Balance as of the Cut-off Date, which amount is equal to [$ ].
"ORIGINAL PRE-FUNDED AMOUNT" shall mean [$ ].
"OUTSTANDING MORTGAGE LOAN" shall mean, as to any Due Date, a Mortgage
Loan (including an REO Mortgage Loan) which has not been prepaid in full prior
to such Due Date, which did not become a Charged-off Loan prior to such Due Date
and which was not repurchased by the Seller prior to such Due Date pursuant to
Section 2.4 and which is not a Deleted Mortgage Loan.
"OVERCOLLATERALIZATION AMOUNT" shall mean, as of any Distribution
Date, the amount, if any, by which (a) the Pool Principal Balance plus the
Pre-Funded Amount (exclusive of any investment earnings thereon) as of the close
of business on the last day of the related Collection Period exceeds (b) the
aggregate Class A Principal Balance as of such Distribution Date (after taking
into account the payment of the aggregate Class A Principal Distribution Amount
on such Distribution Date, but without regard to any portion thereof funded by
the proceeds of an Insured Payment); PROVIDED, HOWEVER, that such amount shall
not be less than zero.
"OVERCOLLATERALIZATION DEFICIENCY AMOUNT" shall mean, with respect to
any Distribution Date, the amount, if any, by which (a) the Required
Overcollateralization Level applicable to such Distribution Date exceeds (b) the
Overcollateralization Amount applicable to such Distribution Date prior to
taking into account the payment of any related Overcollateralization Increase
Amounts on such Distribution Date.
"OVERCOLLATERALIZATION DEFICIT" shall mean, as of any Distribution
Date, the amount, if any, by which (a) the aggregate Class A Principal Balance
(after taking into account the payment of the related Class A Principal
Distribution Amount (other than payments in respect thereof under the
[Certificate Insurance Policy]) on such date) exceeds (b) the Pool Principal
Balance plus the Pre-Funded Amount, each determined as of the end of the
immediately preceding Collection Period.
"OVERCOLLATERALIZATION INCREASE AMOUNT" shall mean, with respect to
any Distribution Date, the lesser of (a) the Overcollateralization Deficiency
Amount as of such Distribution Date (after taking into account the payment of
the related Class A Principal Distribution Amount on such Distribution Date
(other than clause (viii) thereof) and (b) the amount of Net Monthly Excess
Cashflow on such Distribution Date.
"OVERCOLLATERALIZATION REDUCTION AMOUNT" shall mean, with respect to
any Distribution Date, an amount equal to the lesser of (a) the Excess
Overcollateralization Amount for such Distribution Date and (b) the Principal
Remittance Amount for such Distribution Date.
"OWNERSHIP INTEREST" shall mean, as to any Certificate, any ownership
or security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"OWNER-OCCUPIED MORTGAGED PROPERTY" shall mean a Residential Dwelling
as to which (a) the related Mortgagor represented an intent to occupy as such
Mortgagor's primary residence at the origination of the Mortgage Loan, and (b)
the Seller has no actual knowledge that such Residential Dwelling is not so
occupied.
"PERCENTAGE INTEREST" shall mean, with respect to a Class A
Certificate, the portion evidenced by such Certificate, expressed as a
percentage rounded to four decimal places, equal to a fraction the numerator of
which is the original denomination of such Certificate and the denominator of
which is the related Original Class A Principal Balance, and with respect to a
Class B, Class RL or RU Certificate, the portion evidenced thereby as stated on
the face of such Certificate.
"PERMITTED INVESTMENTS" shall mean, as used herein, Permitted
Investments shall include the following:
(a) direct general obligations of, or obligations
fully and unconditionally guaranteed as to the
timely payment of principal and interest by, the
United States or any agency or instrumentality
thereof, provided such obligations are backed by
the full faith and credit of the United States
and any obligation of, or guaranties by, FHLMC
or FNMA (other than senior debt obligations and
mortgage pass-through certificates guaranteed by
FHLMC or FNMA) shall be a Permitted Investment;
PROVIDED, that at the time of such investment,
such investment is acceptable to the [Certificate
Insurer], but excluding any of such securities whose
terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption;
(b) federal funds and certificates of deposit, time
and demand deposits and banker's acceptances
issued by any bank or trust company incorporated
under the laws of the United States or any state
thereof and subject to supervision and
examination by federal or state banking
authorities, PROVIDED THAT at the time of such
investment or contractual commitment providing
for such investment the short-term debt
obligations of such bank or trust company at
the date of acquisition thereof have been rated
A-1 + by S&P and P-1 by Moody's;
(c) commercial paper (having original maturities of
not more than 180 days) rated A-1 + by S&P and
P-1 by Moody's;
(d) investments in money market funds rated "AAAm" or
"AAAm-G" by S&P and Aaa by Moody's; and
(e) investments approved by the Rating Agencies and
the [Certificate Insurer] in writing delivered
to the Trustee;
PROVIDED, that each such Permitted Investment shall be a "permitted investment"
within the meaning of Section 860G(a)(5) of the Code and that no instrument
described hereunder shall evidence either the right to receive (x) only interest
with respect to the obligations underlying such instrument or (y) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provided a
yield to maturity at par greater than 120% of the yield to maturity at par of
the underlying obligations; and PROVIDED, FURTHER, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to stated
maturity.
"PERMITTED TRANSFEREE" shall mean any Person other than a Non-United
States Person or Disqualified Organization.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
national banking association, unincorporated organization or government or any
agency or political subdivision thereof.
"PLAN" shall have the meaning defined in Section 4.2(i).
"POOL CUMULATIVE REALIZED LOSSES" shall mean, with respect to any
period, the sum of all Realized Losses with respect to the Mortgage Loans
experienced during such period.
"POOL DEFAULT RATE" shall mean with respect to any Collection Period,
the fraction, expressed as a percentage, equal to (x) twelve times the aggregate
Principal Balances of all Mortgage Loans that became Charged-off Loans
(including all foreclosures and REO Properties) as of the close of business on
the last day of such Collection Period over (y) the Pool Principal Balance as of
the close of business on the last day of such Collection Period.
"POOL DELINQUENCY RATE" shall mean with respect to any Collection
Period, the fraction, expressed as a percentage, equal to (x) the aggregate
Principal Balances of all Mortgage Loans 60 or more days Delinquent (including
all foreclosures and REO Properties) as of the close of business on the last day
of such Collection Period over (y) the Pool Principal Balance as of the close of
business on the last day of such Collection Period.
"POOL PRINCIPAL BALANCE" shall mean the sum of the aggregate Principal
Balances of the Outstanding Mortgage Loans in the Trust Fund as of any date of
determination.
"POOL ROLLING THREE MONTH DELINQUENCY RATE" shall mean as of any
Distribution Date, the fraction, expressed as a percentage, equal to the average
of the Pool Delinquency Rates for each of the three (or one or two, in the case
of the first and second Distribution Dates) immediately preceding Collection
Periods.
"PREFERENCE AMOUNT" shall mean any amount previously distributed to a
Class A Certificateholder that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the U.S. Bankruptcy
Code as amended from time to time, in accordance with a final nonappealable
order of a court having competent jurisdiction.
"PREFERENCE CLAIM" shall have the meaning defined in Section 6.4(f).
"PRE-FUNDING ACCOUNT" shall mean the Eligible Account established and
maintained pursuant to Section 6.11 as defined therein.
"PRE-FUNDED AMOUNT" shall mean, with respect to any Determination
Date, the amount on deposit in the Pre-Funding Account.
"PRE-FUNDING PERIOD" shall mean the period beginning on the Closing
Date and ending on the earlier of the date on which (a) the amount on deposit in
the Pre-Funding Account is less than $50,000.00, (b) the date on which an Event
of Default occurs hereunder or (c) the close of business on [ ].
"PREMIUM PERCENTAGE" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"PREPAYMENT ASSUMPTION" shall mean (used solely for determining the
accrual of original issue discount and market discount on the Certificates for
federal income tax purposes) a prepayment rate of __% per annum of the then
outstanding principal balance of the Mortgage Loans in the first month in the
life of the mortgage loans and an additional .___% per annum in each month
thereafter until the twelfth month. In the twelfth month and thereafter, the
Prepayment Assumption shall mean a prepayment rate of ___% per annum each month.
"PREPAYMENT INTEREST SHORTFALL" shall mean, with respect to any
Distribution Date, for each Mortgage Loan that was the subject during the
related Collection Period of a Principal Prepayment, an amount equal to the
excess, if any, of (a) 30 days' interest on the Principal Balance of such
Mortgage Loan at a per annum rate equal to the Mortgage Interest Rate, MINUS the
rate at which the Servicing Fee is calculated OVER (b) the amount of interest
actually remitted by the Mortgagor in connection with such Principal Prepayment
LESS the Servicing Fee for such Mortgage Loan in such month.
"PRINCIPAL BALANCE" shall mean, as to any Mortgage Loan and
Distribution Date, initially the outstanding principal balance of such Mortgage
Loan as of the Cut-Off Date or the related Subsequent Cut-Off Date, as
applicable, and thereafter, as of any Distribution Date such balance as of the
last day of the Collection Period related to such Distribution Date after giving
effect to Principal Prepayments received and payments of principal collected
during such Collection Period and any Curtailments applied by the Servicer in
reduction of the unpaid principal balance of such Mortgage Loan as of such Due
Date; once a Mortgage Loan becomes a Charged-off Loan, its Principal Balance,
for purposes of the Trust Fund, will thereafter be considered to be zero.
"PRINCIPAL PREPAYMENT" shall mean any payment or other recovery of
principal on a Mortgage Loan equal to the outstanding principal balance thereof,
received in advance of the final scheduled Due Date which is not intended as an
advance payment of a scheduled Monthly Payment.
"PRINCIPAL REMITTANCE AMOUNT" shall mean, as of any Distribution Date,
the sum, without duplication of the amounts specified in clauses (b)(ii) through
(v) and (vii) of the definition of Class A Principal Distribution Amount for
such Distribution Date.
"QUALIFIED MORTGAGE" shall have the meaning set forth from time to
time in the definition of "Qualified Mortgage" at Section 860G(a)(3) of the Code
(or any successor statute thereto).
"QUALIFIED SUBSTITUTE MORTGAGE LOAN" shall mean a mortgage loan or
mortgage loans which on the date of substitution (a) has or have a mortgage
interest rate or rates of not less than (and not more than two percentage points
more than) the Mortgage Interest Rate for the Deleted Mortgage Loan for which it
is to be substituted, (b) relates or relate to a detached one-family residence
or to the same type of Residential Dwelling as the Deleted Mortgage Loan for
which it is to be substituted and in each case has or have the same or a better
lien priority as the Deleted Mortgage Loan for which it is to be substituted and
has or have the same occupancy status or is an Owner-Occupied Mortgaged
Property, (c) matures or mature no later than (and not more than one year
earlier than) the Deleted Mortgage Loan for which it is to be substituted, (d)
has or have a Subordinate Mortgage Ratio or Combined Loan-to-Value Ratios at the
time of such substitution no higher than the Subordinate Mortgage Ratio or the
Combined Loan-to-Value Ratio of the Deleted Mortgage Loan for which it is to be
substituted, (e) has or have a principal balance or principal balances (after
deduction of all payments received on or prior to the date of substitution) not
substantially less and not more than the Principal Balance of the Deleted
Mortgage Loan for which it is to be substituted as of such date, (f) satisfies
or satisfy the criteria set forth from time to time in the definition of
"qualified replacement mortgage" at Section 860G(a)(4) of the Code (or any
successor statute thereto), (g) has or have an applicable borrower or borrowers
with the same or better traditionally ranked credit status as the borrower or
borrowers under the Deleted Mortgage Loan for which it is to be substituted, and
(h) complies or comply as of the date of substitution with each representation
and warranty set forth in Section 3.3 herein.
"RATING AGENCY" shall mean S&P or Moody's.
"REALIZED LOSS" shall mean, with respect to each Mortgage Loan which
became a Charged-off Loan, the excess, if any, of (i) the Principal Balance of
such Mortgage Loan as of the date of charge-off and accrued interest thereon
over (ii) Net Liquidation Proceeds, if any, realized thereon and allocated to
principal and accrued interest.
"RECORD DATE" shall mean, with respect to any Distribution Date, the
close of business on the last Business Day of the calendar month immediately
preceding the month in which such Distribution Date occurs. The Record Date for
the first Distribution Date shall be the Closing Date.
"REIMBURSEMENT AMOUNT" shall mean, as of any Distribution Date, the
sum of (i) all Insured Payments (as defined in the [Certificate Insurance
Policy]) previously paid by the [Certificate Insurer] and in each case not
previously repaid to the [Certificate Insurer] pursuant to Section 6.5(iii)
hereof; plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated at the rate specified in the Certificate Insurance Agreement
from the date such Insured Payment was made and (b)(i) any amounts then due and
owing to the [Certificate Insurer] under the Certificate Insurance Agreement, as
certified to the Trustee by the [Certificate Insurer] plus (ii) interest on such
amounts at the rate specified in the Certificate Insurance Agreement. The
[Certificate Insurer] shall notify the Trustee and the Depositor of the amount
of any Reimbursement Amount.
"RELEASED MORTGAGED PROPERTY PROCEEDS" shall mean, as to any Mortgage
Loan, proceeds received by the Servicer in connection with (a) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (b) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which are not released to the Mortgagor in accordance with applicable law,
Accepted Servicing Practices and this Agreement.
"REMIC" shall mean a "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC ADMINISTRATOR" shall mean initially [Bankers Trust Company,]
its successor or assigns, PROVIDED, that each REMIC Administrator shall be
reasonably acceptable to the [Certificate Insurer].
"REMIC PROVISIONS" shall mean provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter I of the Code, and related
provisions, and temporary and final regulations promulgated thereunder and
published rulings, notices and announcements, as the foregoing may be in effect
from time to time.
"REO DISPOSITION" shall mean the final sale by the Servicer of a
Mortgaged Property acquired by the Servicer in foreclosure or by deed in lieu of
foreclosure.
"REO MORTGAGE LOAN" shall mean any Mortgage Loan which is not a
Liquidated Loan and as to which the indebtedness evidenced by the related
Mortgage Note is discharged and the related Mortgaged Property is held as part
of the Trust Fund.
"REO PROCEEDS" shall mean proceeds received in respect of any REO
Mortgage Loan (including, without limitation, proceeds from the rental of the
related Mortgaged Property).
"REO PROPERTY" shall have the meaning described in Section 5.11.
"REPRESENTATION LETTER" shall mean letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Certificate Register under the nominee name of
the Depository.
"REQUEST FOR RELEASE" shall mean a request for release in
substantially the form attached as Exhibit G hereto.
"REQUIRED OVERCOLLATERALIZATION LEVEL" shall mean, for each
Distribution Date, the amount determined as follows:
(a) for any Distribution Date occurring during the
period commencing on the Closing Date and ending
on the later of (x) the date upon which principal
payments on the Mortgage Loans equal to one-half of
the sum of (1) the Original Pool Principal Balance
PLUS (2) the aggregate Principal Balances
(as of the related Subsequent Cut-Off Dates) of all
Subsequent Mortgage Loans acquired by the Trust Fund
have been received by the Class A Certificateholders
and (y) the thirtieth Distribution Date following the
Closing Date, the greater of the following:
(i) the product of (x) $200,000,000 and (y) the
Target Percentage applicable to such
Distribution Date; and
(ii) two times an amount equal to (x) the
aggregate Principal Balances of all Mortgage
Loans which are 91 or more days Delinquent
(including REO Properties) minus (y) five
times the Net Monthly Excess Cashflow for
such Distribution Date; and
(b) for any Distribution Date occurring after the end
of the period in clause (a) above, the greatest
of the following:
(i) the lesser of (A) the product of (x)
$200,000,000 and (y) the Target Percentage
applicable to such Distribution Date and (B)
the product of (i) the Class A Principal
Balance immediately preceding such
Distribution Date and (ii) two times the
Target Percentage applicable to such
Distribution Date;
(ii) two times the difference of (A) the
aggregate Principal Balances of all Mortgage
Loans which are 91 or more days Delinquent
(including REO Properties) and (B) five
times the Net Monthly Excess Cashflow for
such Distribution Date;
(iii) an amount equal to 0.50% of the sum of
(1) the Original Pool Principal Balance
plus (2) the aggregate Principal Balances
(as of the related Subsequent Cut-Off Dates)
of all Subsequent Mortgage Loans acquired by
the Trust Fund. and
(iv) three times the Principal Balance of the
Mortgage Loan with the largest Principal
Balance as of the last day of the related
Collection Period.
Notwithstanding anything to the contrary set forth in clauses (a) or
(b) above, on or after any Distribution Date on which an Insured Payment is
made, or any Distribution Date on which an Event of Default has occurred and is
continuing, the Required Overcollateralization Level shall be equal to the
Required Overcollateralization Level as of the Distribution Date immediately
prior to the Distribution Date on which either such event occurred.
The [Certificate Insurer], in its sole discretion, may reduce or
eliminate the Required Overcollateralization Level without the consent of any
party hereto or any Certificateholder. Upon any reduction or elimination, the
Trustee shall give written notice thereof to each of the Rating Agencies.
"RESIDENTIAL DWELLING" shall mean a one- to four-family dwelling, a
unit in a planned unit development, a unit in a condominium development or a
townhouse.
"RESIDUAL CERTIFICATE" means any Class RL Certificate or any Class RU
Certificate.
"RESIDUAL CERTIFICATEHOLDER" means the person in whose name a Residual
Certificate is registered on the Certificate Register.
"RESPONSIBLE OFFICER" shall mean, when used with respect to the
Trustee, any officer assigned to the Corporate Trust Department (or any
successor thereto), including any Vice President, Assistant Vice President,
Senior Trust Officer, Trust Officer, Assistant Trust Officer, any Assistant
Secretary, any trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and to whom, with respect to a particular matter, such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Seller or the Servicer, the
President or any Vice President, Assistant Vice President, or any Secretary or
Assistant Secretary.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc., or any successor thereto and if such corporation no
longer for any reason performs the services of a securities rating agency, "S&P"
shall be deemed to refer to any other nationally recognized statistical rating
organization designated by the [Certificate Insurer].
"SALE AND PURCHASE AGREEMENT" shall mean that certain Sale and
Purchase Agreement dated [ ] between the Seller and the Depositor.
"SELLER" shall mean Preferred Credit Corporation, a California
corporation.
"SERVICER" shall mean Advanta Mortgage Corp. USA, a Delaware
corporation, or any successor appointed as herein provided.
"SERVICER ACCOUNT" shall mean the Eligible Account created and
maintained pursuant to Section 5.7.
"SERVICER EMPLOYEES" shall have the meaning as defined in Section 5.8
hereof.
"SERVICER REMITTANCE AMOUNT" shall mean, with respect to any Servicer
Remittance Date, an amount equal to the sum of (i) all scheduled and unscheduled
collections of principal on the Mortgage Loans (including Principal Prepayments,
Curtailments, Net REO Proceeds and Net Liquidation Proceeds, if any, and any
amounts deposited in the Collection Account in connection with a complete plan
of liquidation of the assets of the Trust or termination of the Trust) collected
by the Servicer during the Collection Period and all interest due during such
Collection Period and received by the Servicer on or prior to the related
Determination Date, plus (ii) all Delinquency Interest Advances made by the
Servicer with respect to interest payments due to be received on the Mortgage
Loans during the related Collection Period PLUS (iii) the amount of Compensating
Interest due with respect to the related Collection Period, plus (iv) any other
amounts required to be deposited in the Collection Account pursuant to this
Agreement, but excluding, without duplication, the following:
(a) amounts received on particular Mortgage Loans as late
payments of principal or interest and respecting
which the Servicer has previously made an
unreimbursed Delinquency Interest Advance or
Servicing Advance;
(b) the portion of Liquidation Proceeds used to
reimburse any unreimbursed Delinquency Interest
Advances or Servicing Advances by the Servicer;
(c) the Servicing Fee;
(d) that portion of Liquidation Proceeds and REO
Proceeds which represents any unpaid Servicing
Fee;
(e) all income from Permitted Investments that is
held in the Collection Account for the account
of the Servicer;
(f) all amounts in respect of late fees, assumption
fees, prepayment fees and similar fees;
(g) all other amounts which are explicitly reimbursable
to the Servicer hereunder, including (i) as provided
in Section 5.4 hereof; and (ii) any unreimbursed and
accrued Liquidation Expenses; and
(h) the portion of Net Foreclosure Profits
representing any unpaid Servicing Fee.
"SERVICER REMITTANCE DATE" shall mean, with respect to any
Distribution Date, the 18th day of the month in which such Distribution Date
occurs, or if such day is not a Business Day, the first Business Day preceding
such 18th day.
"SERVICER TRIGGER EVENT" has the meaning set forth in Section 7.1(c)
hereof.
"SERVICING ADVANCES" shall mean all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance by the Servicer
of its servicing obligations, including, but not limited to, the cost of (a) the
preservation, restoration and protection of the Mortgaged Property, (b) any
enforcement proceedings, including foreclosures, (c) expenditures relating to
the purchase or maintenance of a first lien not included in the Trust Fund on
the Mortgaged Property, (d) the management and liquidation of the REO Property,
including reasonable fees paid to any independent contractor in connection
therewith, (e) compliance with the obligations under Sections 5.5, 5.9 or 5.11,
all of which reasonable and customary out-of-pocket costs and expenses are
reimbursable to the Servicer to the extent provided in Section 5.4(a) and (b)
and 5.11.
"SERVICING COMPENSATION" shall mean the Servicing Fee and other
amounts to which the Servicer is entitled pursuant to Section 5.13.
"SERVICING FEE" shall mean, as to each Distribution Date, the annual
fee payable to the Servicer, which is calculated as an amount equal to the
product of (a) 0.65% per annum and (b) the aggregate Principal Balance of the
Mortgage Loans (except any Charged-off Loan as to which the Servicer is not
pursuing any collection activity). Such fee shall be calculated and payable
monthly. The Servicing Fee includes any servicing fees owed or payable to any
Subservicer.
"SERVICING OFFICER" shall mean any officer of the Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Trustee and the [Certificate Insurer] by the Servicer, as such
list may from time to time be amended.
"STARTUP DAY" shall mean the day designated as such pursuant to
Section 10.1(d) hereof.
"SUBORDINATE MORTGAGE RATIO" shall mean, with respect to any Mortgage
Loan, an amount equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the principal balance at the time of
origination of any senior liens (computed at the time of origination of such
Mortgage Loan).
"SUBSEQUENT CUT-OFF DATE" shall mean, with respect to those Subsequent
Mortgage Loans which are transferred and assigned to the Trust Fund pursuant to
a Subsequent Transfer Instrument (i) the last day of the month preceding the
month in which Subsequent Mortgage Loans shall be conveyed by the Depositor to
the Trust Fund occurring during the Pre- Funding Period or (ii) the date of
origination, if any such Subsequent Mortgage Loan is originated in the month of
conveyance by the Depositor to the Trust Fund.
"SUBSEQUENT MORTGAGE LOAN" shall mean a Mortgage Loan assigned and
transferred by the Depositor to the Trustee pursuant to Section 6.11, such
Mortgage Loan being identified on the Mortgage Loan Schedule attached to a
Subsequent Transfer Instrument.
"SUBSEQUENT TRANSFER DATE" shall mean the date on which a Subsequent
Mortgage Loan is transferred and assigned to the Trustee.
"SUBSEQUENT TRANSFER INSTRUMENT" shall mean each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Trustee, the
Seller and the Depositor substantially in the form of Exhibit O, by which
Subsequent Mortgage Loans are transferred and assigned to the Trustee.
"SUBSERVICER" shall mean any Person with whom the Servicer has entered
into a Subservicing Agreement and who satisfies the requirements set forth in
Section 5.2(a) hereof in respect of the qualification of a Subservicer.
"SUBSERVICING AGREEMENT" shall mean any agreement between the Servicer
and any Subservicer relating to subservicing and/or administration of certain
Mortgage Loans as provided in Section 5.2(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
[Certificate Insurer].
"SUBSTITUTION ADJUSTMENT" shall mean, as to any date on which a
substitution occurs pursuant to Section 2.4 or 3.3, the amount (if any) by which
the aggregate Principal Balances (after application of principal payments
received on or before the date of substitution of any Qualified Substitute
Mortgage Loans as of the date of substitution) of the related Qualified
Substitute Mortgage Loans are less than the aggregate of the Principal Balances
of the related Deleted Mortgage Loans together with 30 days' interest thereon at
the Mortgage Interest Rate plus any unreimbursed Servicing Advances and any
unreimbursed Delinquency Interest Advances with respect to such Deleted Mortgage
Loan.
"TARGET PERCENTAGE" shall mean, initially, ____%, PROVIDED, HOWEVER,
that the Target Percentage shall be increased to ____% if:
(i) on any Distribution Date, the Pool Rolling
Three Month Delinquency Rate for each of the
three (or one or two, in the case of the
first and second Distribution Dates)
immediately preceding Collection Periods, is
___% or greater; or
(ii) on any Distribution Date, the Three Month
Average Annualized Default Rate for each of
the three (or one or two, in the case of the
first and second Distribution Dates)
immediately preceding Collection Periods,
is ___% or greater; or
(iii) (a) on any Distribution Date occurring
before _______, the aggregate Pool
Cumulative Realized Losses since the Cut-off
Date exceed __% of the Maximum Collateral
Amount, (b) on any Distribution Date on or
after __________ and before March 1, 1999,
the aggregate Pool Cumulative Realized
Losses since the Cut-off Date exceed __% of
the Maximum Collateral Amount, (c) on any
Distribution Date on or after _______ 1,
199_ and before ________, 1, 199_, the
aggregate Pool Cumulative Realized Losses
since the Cut-off Date exceed ____% of the
Maximum Collateral Amount, (d) on any
Distribution Date on or after ____________
and before _____________, the aggregate Pool
Cumulative Realized Losses since the
Cut-off Date exceed ___% of the Maximum
Collateral Amount, or (e) on any
Distribution Date on or after ________ 1,
200_, the aggregate Pool Cumulative Realized
Losses since the Cut-off Date exceed ____%
of the Maximum Collateral Amount;
PROVIDED, FURTHER, HOWEVER, that if the Target Percentage has increased to ____%
pursuant to application of clause (i) above, the Target Percentage may
thereafter revert to ____% if (x) the Pool Rolling Three Month Delinquency Rate
has remained below ____% for six consecutive Distribution Dates (y) the Three
Month Average Annualized Default Rate has remained below 3.5% for six
consecutive Distribution Dates and (z) Pool Cumulative Realized Losses remain
below the levels set forth in clause (iii) above.
The [Certificate Insurer], in its sole discretion, may reduce or
eliminate the Target Percentage without the consent of any party hereto or any
Certificateholder. Upon any reduction or elimination, the Servicer shall give
written notice thereof to each of the Rating Agencies.
"TAX MATTERS PERSON" shall mean the Person or Persons appointed
pursuant to Section 10.1(e) from time to time to act as the "tax matters person"
(within the meaning of the REMIC Provisions) of a REMIC of the Trust Fund.
"TAX RETURN" shall mean the federal income tax return on Internal
Revenue Service Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income
Tax Return," including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to the classification of each of the
Lower-Tier REMIC and the Upper-Tier REMICs as a REMIC under the REMIC
Provisions, together with any and all other information reports or returns that
may be required to be furnished to the Certificateholders or filed with the
Internal Revenue Service or any other governmental taxing authority under any
applicable provision of federal, state or local tax laws.
"THREE MONTH AVERAGE ANNUALIZED DEFAULT RATE" shall mean as of any
Distribution Date, the fraction, expressed as a percentage, equal to the average
of the Pool Default Rates for each of the three (or one or two, in the case of
the first and second Distribution Dates) immediately preceding Collection
Periods.
"TOTAL EXPECTED LOSSES" shall mean, as of Distribution Date, the sum,
as of such Distribution Date, of (x) Pool Cumulative Realized Losses since the
Cut-Off Date and (y) the sum of (i) 25% of the aggregate Principal Balances of
all Mortgage Loans 30-59 days Delinquent as of the end of the preceding
Collection Period, (ii) 50% of the aggregate Principal Balances of all Mortgage
Loans 60-89 days Delinquent as of the end of the preceding Collection Period and
(iii) 100% of the sum of (x) the aggregate Principal Balances of all Mortgage
Loans 90 or more days Delinquent (plus, without duplication, (y) the aggregate
Principal Balances of all Mortgage Loans in foreclosure and the Principal
Balance of all Mortgage Loans relating to REO Properties) at the end of the
preceding Collection Period.
"TRANSFER" shall mean any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"TRANSFER AFFIDAVIT AND AGREEMENT" shall have the meaning as defined
in Section 4.2(f)(ii).
"TRANSFEREE" shall mean any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"TRANSFEROR" shall mean any Person who is disposing by Transfer any
Ownership Interest in a Certificate.
"TRUST FUND" shall mean the segregated pool of assets subject hereto,
and to be administered hereunder, consisting of: (a) such Mortgage Loans as from
time to time are subject to this Agreement, together with the Mortgage Files
relating thereto and all principal collections received thereon, interest due
thereon, and the proceeds thereof, on and after the Cut-Off Date (other than
Monthly Payments due on each Mortgage Loan up to and including any Due Date
prior to the Cut-Off Date), (b) such assets as from time to time are identified
as REO Property and collections thereon and proceeds thereof, (c) amounts
(including Permitted Investments as may be held from time to time, except as
otherwise provided herein) on deposit in each Account, (d) the Trustee's rights
with respect to the Mortgage Loans under the [Certificate Insurance Policy] and
all insurance policies required to be maintained pursuant to this Agreement and
any Insurance Proceeds, (e) Liquidation Proceeds, (f) Released Mortgaged
Property Proceeds, (g) amounts (including Permitted Investments as may be held
from time to time) on deposit in the Capitalized Interest Account and the
Pre-Funding Account, (h) all of the income, payments and proceeds of each of the
foregoing, except to the extent provided herein; (i) the rights and remedies of
the Trustee against any representation or warranty made to the Trustee hereby
and (j) the rights and remedies of the Depositor against the Seller under the
Sale and Purchase Agreement.
"TRUSTEE" shall mean [Bankers Trust Company,] or its successor in
interest, or any successor trustee appointed as herein provided.
"TRUSTEE FEE" shall mean, as to any Distribution Date, the fee payable
to the Trustee in respect of its services as Trustee that accrues at a monthly
rate equal to 1/12 of 0.0115% of the Pool Principal Balance of each Outstanding
Mortgage Loan and the amount of funds in the Pre-Funding Account as of the
opening of the immediately preceding Collection Period; provided, HOWEVER, in
the event the Trustee is no longer the REMIC Administrator, the REMIC
Administrator shall be entitled to 0.020% of the Trustee Fee.
"TRUSTEE'S MORTGAGE FILE" shall mean the documents delivered to the
Trustee or its designated agent pursuant to Section 2.3.
"TRUSTEE'S REMITTANCE REPORT" shall have the meaning as defined in
Section 6.7.
"UNDERWRITER" shall mean [ ] and its successors and assigns.
"UNITED STATES PERSON" shall mean 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 whose income from sources without the United States is includible in
gross income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States, and
a trust other than a "foreign trust," as such term is defined in Section
7701(a)(31) of the Code.
"UNPAID REO AMORTIZATION" shall mean, as to any REO Mortgage Loan and
any month, the aggregate of the installments of principal and accrued interest
(adjusted to the related Net Mortgage Interest Rate) deemed to be due in such
month and in any prior months that remain unpaid, calculated in accordance with
Section 5.11.
"UPPER-TIER REMIC" means the segregated pool of assets held by the
Trust Fund consisting of the Lower-Tier Interests (except for the Class RL
Lower-Tier Interest), as set forth in the chart in Section 10.1(c) hereof.
Section 1.2 Provisions of General Application. (a) All accounting
terms not specifically defined herein shall be construed in accordance with
GAAP.
(b) The terms defined in this Article include the plural as
well as the singular.
(c) The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole. All references to
Articles and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(d) Reference to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute to which
reference is made and all regulations promulgated pursuant to such statutes.
(e) All calculations of interest (other than with respect to
the Mortgage Loans, or as otherwise specifically set forth herein) provided for
herein shall be made on the basis of actual days elapsed divided by a year
comprised of 360 days. All calculations of interest with respect to any Mortgage
Loan provided for herein shall be made in accordance with the terms of the
related Note and Mortgage or, if such documents do not specify the basis upon
which interest accrues thereon, on the basis of dividing actual days elapsed by
a 360 day year.
(f) Any Mortgage Loan payment is deemed to be received on the
date such payment is actually received by the Servicer; PROVIDED, HOWEVER, that
for purposes of calculating distributions on the Certificates prepayments with
respect to any Mortgage Loan are deemed to be received on the date they are
applied in accordance with customary servicing practices consistent with the
terms of the related Note and Mortgage to reduce the outstanding principal
balance of such Mortgage Loan on which interest accrues.
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<PAGE>
ARTICLE II
Establishment of the Trust
Sale and Conveyance of the Trust Fund
Section 2.1 SALE AND CONVEYANCE OF TRUST FUND: PRIORITY AND
SUBORDINATION OF OWNERSHIP INTERESTS; ESTABLISHMENT OF THE TRUST. (a) The
Depositor, as of the Closing Date, does hereby sell, transfer, assign, set over
and convey to the Trust Fund, for the benefit of the Certificateholders as their
respective interests may from time to time appear and the [Certificate Insurer],
without recourse but subject to the provisions in this Section 2.1 and the other
terms and provisions of this Agreement, all of the right, title and interest of
the Depositor in and to the Trust Fund, exclusive of the obligations of the
Depositor, Seller or any other party with respect to the Mortgage Loans. In
connection with such transfer and assignment, and pursuant to Section 2.07 of
the Sale and Purchase Agreement, the Depositor does hereby also irrevocably
transfer, assign, set over and otherwise convey to the Trustee all of its rights
under the Sale and Purchase Agreement including, without limitation, its right
to exercise the remedies created by Section 3.05 of the Sale and Purchase
Agreement for breaches of representations and warranties, agreements and
covenants of the Seller contained in Sections 3.02 and 3.03 of the related Sale
and Purchase Agreement. Upon receipt of the Certificates in exchange for the
Mortgage Loans, the Depositor shall have hereby relinquished all rights with
respect to the Mortgage Loans, and have no right to sell, pledge, encumber or
otherwise dispose of the Mortgage Loans.
It is intended that the conveyance of the Mortgage Loans by the
Depositor to the Trustee as provided in this Section 2.1(b) and of the
Subsequent Mortgage Loans and the related property pursuant to Section 2.9 be,
and be construed as, a sale of the Mortgage Loans by the Depositor to the
Trustee for the benefit of the Certificateholders and the [Certificate Insurer],
and it is, further, not intended that such conveyance be deemed a pledge of the
Mortgage Loans by the Depositor to the Trustee to secure a debt or other
obligation of the Depositor. However, in the event that the Mortgage Loans are
held to be property of the Depositor or if for any reason this Agreement is held
or deemed to create a security interest in the Mortgage Loans, then it is
intended that, (a) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the New York Uniform
Commercial Code; (b) the conveyance provided for in this Section 2.1 shall be
deemed (1) to be a grant by the Depositor to the Trustee of a security interest
in all of the Depositor's right, title and interest in and to the Mortgage Loans
and all amounts payable to the holders of the Mortgage Loans in accordance with
the terms thereof and all proceeds of the conversion, voluntary or involuntary,
of the foregoing into cash, instruments, securities or other property,
including, without limitation, all amounts from time to time held or invested in
the Certificate Account, the Collection Account, the Pre-Funding Account and the
Capitalized Interest Account, whether in the form of cash, instruments,
securities or other property and (2) an assignment by the Depositor to the
Trustee of any security interest in any and all of the Depositor's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clause (b) granted by the Seller to the Depositor pursuant to the Sale and
Purchase Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Section 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee shall be made for the purpose
of perfecting such security interest under applicable law. The Depositor and the
Trustee, as directed by the Servicer, the [Certificate Insurer] or the
Depositor, shall, to the extent consistent with this Agreement, take such
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Mortgage Loans, such security interest would
be deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of the Agreement,
including the filing by the Depositor of any financing statements and
continuation statements evidencing such security interest.
In connection with the sale, transfer, assignment, and conveyance,
from the Depositor to the Trust Fund, the Depositor has filed, or shall cause to
be filed, in the appropriate office or offices in the State of New York, a UCC-1
financing statement executed by the Depositor as debtor, naming the Trustee as
secured party and listing the Mortgage Loans and the other property described
above as collateral. The characterization of the Depositor as a debtor and the
Trustee as the secured party in such financing statements is solely for
protective purposes and shall in no way be construed as being contrary to the
intent of the parties that this transaction be treated as a sale of the
Depositor's entire right, title and interest in the Mortgage Loans to the Trust
Fund. In connection with such filing, the Depositor agrees that it shall cause
to be filed all necessary continuation statements thereof and to take or cause
to be taken such actions and execute such documents as are necessary to perfect
and protect the Trustee's, the Certificateholders' and the [Certificate
Insurer]'s interests in the Mortgage Loans.
(b) The rights of the Certificateholders to receive payments with
respect to the Mortgage Loans in respect of the Certificates, and all ownership
interests of the Certificateholders, in such payments, shall be as set forth in
this Agreement. In this regard, all rights of the Class B Certificateholders and
the Residual Certificateholders to receive payments in respect of the Class B
Certificates and the Residual Certificates, respectively, are subject and
subordinate to the preferential rights of the Class A Certificateholders to
receive payments in respect of the Class A Certificates and to the [Certificate
Insurer]'s rights to be reimbursed for Insured Payments together with interest
thereon at the rate specified in the Certificate Insurance Agreement. In
accordance with the foregoing, the ownership interest of the Class B
Certificateholders and the Residual Certificateholders in amounts deposited in
the Certificate Account, the Collection Account, the Pre-Funding Account or the
Capitalized Interest Account from time to time shall not vest unless and until
such amounts are distributed in respect of the Class B Certificates and the
Residual Certificates in accordance with the terms of this Agreement.
Section 2.2 POSSESSION OF MORTGAGE FILES; ACCESS TO MORTGAGE FILES.
(a) Upon the issuance of the Certificates, the ownership of each Mortgage Note,
the Mortgage and the contents of the related Mortgage File related to each
Mortgage Loan is vested in the Trustee for the benefit of the Certificateholders
and the [Certificate Insurer], as their respective interests may, from time to
time, appear.
(b) The Trustee shall or cause to afford the Depositor, the
[Certificate Insurer] and the Servicer reasonable access to all records and
documentation regarding the Mortgage Loans relating to this Agreement, such
access being afforded at customary charges, upon reasonable request and during
normal business hours at the offices of the Trustee.
Section 2.3 DELIVERY OF MORTGAGE LOAN DOCUMENTS. (a) In connection
with each conveyance pursuant to Section 2.1 or 2.9 hereof, the Depositor has
delivered or does hereby agree to deliver or cause to be delivered to the
Trustee the [Certificate Insurance Policy] and each of the following documents
for each Mortgage Loan sold by the Seller to the Depositor and sold by the
Depositor to the Trust Fund:
(i) The original Mortgage Note, bearing all
intervening endorsements showing a complete
chain of endorsements from the originator of such
Mortgage Loan to the Seller endorsed by the Seller
endorsed without recourse in the following form: "Pay
to the order of [Bankers Trust Company,] as Trustee
for the benefit of the Certificateholders and the
[Certificate Insurer] for Preferred Credit
Asset-Backed Certificates Series 199_-_, without
recourse" and signed in the name of the Seller by an
authorized officer;
(ii) The original Mortgage with evidence of recording
indicated thereon; PROVIDED, HOWEVER, that if such
Mortgage has not been returned from the applicable
recording office, a copy of the Mortgage certified by
an authorized officer of the Seller (such original
recorded Mortgage shall be delivered when so
returned);
(iii) An original assignment of the original
Mortgage, in suitable form for recordation in
the jurisdiction in which the related Mortgaged
Property is located, in the name of the Seller
signed by an authorized officer of the Seller
(with evidence of submission for recordation of
such assignment in the appropriate real estate
recording office for such Mortgaged Property);
PROVIDED, HOWEVER, that Assignments of Mortgages
shall not be required to be submitted for
recording with respect to any Mortgage Loan which
relates to the Trustee's Mortgage File if the
Trustee, each of the Rating Agencies and the
[Certificate Insurer] shall have received an opinion
of counsel at the expense of the Seller satisfactory
to the Trustee, each of the Rating Agencies and the
[Certificate Insurer] stating that, in such counsel's
opinion, the failure to record such Assignment of
Mortgage shall not have a materially adverse effect
on the security interest of the Trustee in the
Mortgage; provided, FURTHER, that any Assignment of
Mortgage for which an opinion has
been delivered shall be recorded by the Seller
upon the earlier to occur of (i) receipt by the
Trustee of the [Certificate Insurer]'s written
direction to record such Mortgage, (ii) the
occurrence of any Event of Default, as such term is
defined in this Pooling and Servicing Agreement, or
(iii) a bankruptcy or insolvency proceeding involving
the Mortgagor is initiated or foreclosure proceedings
are initiated against the Mortgaged Property as a
consequence of an event of default under the Mortgage
Loan; PROVIDED, FURTHER, that if the related Mortgage
has not been returned from the applicable recording
office, a copy of the Mortgage certified by an
authorized officer of the Seller (such original
assignment shall be delivered when so returned);
(iv) The original of any intervening Assignments of the
Mortgage with evidence of recording thereon showing a
complete chain of assignment from the originator of
such Mortgage Loan to the Seller;
(v) The original of any assumption, modification,
consolidation or extension agreements with
evidence of recording thereon; and
(vi) The title report or policy of title insurance (or a
commitment for title insurance, if the policy is
being held by the title insurance company pending
recordation of the Mortgage) issued with respect to
such Mortgage Loan;
PROVIDED, HOWEVER, that in the case of any Mortgage Loans which have been
prepaid in full after the Cut-Off Date and prior to the date of the execution of
this Agreement, the Depositor, in lieu of delivering the above documents, hereby
delivers to the Trustee a certification of an officer of the Seller of the
nature set forth in Exhibit N attached hereto; and PROVIDED, FURTHER, HOWEVER,
that as to certain Mortgages or assignments thereof which have been delivered or
are being delivered to recording offices for recording and have not been
returned to the Seller in time to permit their delivery hereunder at the time of
such transfer, in lieu of delivering such original documents, the Depositor is
delivering to the Trustee a true copy thereof with a certification by the Seller
on the face of such copy substantially as follows: "certified true and correct
copy of original which has been transmitted for recordation." The Seller agrees
that it will deliver such original documents, together with any related policy
of title insurance not previously delivered, on behalf of the Depositor to the
Trustee promptly after they are received, and no later than 120 days after the
Closing Date; PROVIDED, HOWEVER, that in those instances where the public
recording office retains the original Mortgage or Assignment of Mortgage after
it has been recorded or such original document has been lost by the recording
office, the Seller shall be deemed to have satisfied its obligations hereunder
if it shall have delivered to the Trustee a copy of such original Mortgage or
Assignment of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof. The Seller agrees, at its own expense, to
record (or to provide the Trustee with evidence of recordation thereof) each
assignment within 60 days of the Closing Date in the appropriate public office
for real property records, PROVIDED THAT such assignments are redelivered by the
Trustee to the Seller upon the Seller's written request and at the Seller's
expense, unless the Seller (at its expense) furnishes to the Trustee, the
[Certificate Insurer] and the Rating Agencies an Opinion of Counsel reasonably
acceptable to the Trustee and the [Certificate Insurer] to the effect that
recordation of such assignment is not necessary under applicable state law to
preserve the Trustee's interest in the related Mortgage Loan against the claim
of any subsequent transferee of such Mortgage Loan or any successor to, or
creditor of, the
(b) In the event that any additional original documents are required
pursuant to the terms of this Section 2.3 to be a part of a Mortgage File, the
Seller or the Depositor, respectively, shall promptly deliver written notice to
the Trustee that such additional original documents are required hereunder and
deliver such original documents to the Trustee. In acting as custodian of any
such original document, the Servicer agrees further that it does not and will
not have or assert any beneficial ownership interest in the Mortgage Loans or
the Mortgage Files.
On or prior to the Closing Date, the Trustee, at the Seller's
direction and expense, shall also complete each Assignment of Mortgage with
respect to each Mortgage Loan conveyed on the Closing Date such that the final
Assignment of Mortgage appears in the following form:
["Bankers Trust Company,] as Trustee for the benefit of the Certificateholders
and the [Certificate Insurer] for Preferred Credit Asset Backed Certificates
Series 199_-_."
(c) In the event that any Mortgage Note required to be delivered
pursuant to this Section 2.3 is conclusively determined by any of the Seller,
the Servicer or the Trustee to be lost, stolen or destroyed the Seller shall,
within 14 days of the Closing Date, deliver to the Trustee a "lost note
affidavit" in form and substance acceptable to the Trustee, and shall
simultaneously therewith request the obligor on such Mortgage Note to execute
and return a replacement Mortgage Note, and shall further agree to hold the
Trustee and the [Certificate Insurer] harmless from any loss or damage resulting
from any action taken in reliance on the delivery and possession by the Trustee
of such lost note affidavit. Upon the receipt of such replacement Mortgage Note,
the Trustee shall return the lost note affidavit. Delivery by the Seller of such
lost note affidavit shall not affect the obligations of the Seller hereunder
with respect to the related Mortgage Loan.
(d) Promptly after the Closing Date, the Seller shall, with respect to
each Mortgage Loan, cause to be recorded in the appropriate public office for
real property records, where permitted by applicable law and where applicable
law does not require that a subordinate mortgagee be named as a party defendant
in foreclosure or comparable proceedings in order to foreclose or otherwise
preempt such mortgagee's equity of redemption, a request for notice of any
action by or on behalf of any mortgagee under the related senior lien.
Section 2.4 ACCEPTANCE BY TRUSTEE OF THE TRUST FUND; CERTAIN
SUBSTITUTIONS; CERTIFICATION BY TRUSTEE. (a) The Trustee agrees to execute and
deliver to the Depositor, the [Certificate Insurer,] the Servicer and the Seller
on or prior to the Closing Date an acknowledgment of receipt of the related
[Certificate Insurance Policy] and, with respect to each Mortgage Loan, the
original Mortgage Note (with any exceptions noted), in the form attached as
Exhibit D hereto and declares that it will hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Fund and delivered to the Trustee, as
Trustee in trust upon and subject to the conditions set forth herein for the
benefit of the Certificateholders and the [Certificate Insurer]. The Trustee
agrees, for the benefit of the Certificateholders and the [Certificate Insurer,]
to review (or cause to be reviewed) each Trustee's Mortgage File prior to the
Closing Date (with respect to the Mortgage Loans) and to deliver to the Seller,
the Servicer, the Depositor and the [Certificate Insurer] a certification in the
form attached hereto as Exhibit E to the effect that, as to each Mortgage Loan
listed in the related Mortgage Loan Schedule (other than any Mortgage Loan paid
in full or any Mortgage Loan specifically identified in such certification as
not covered by such certification), (i) all Mortgage Notes required to be
delivered to it pursuant to Section 2.3(a)(i) hereof are in its possession, (ii)
each such Mortgage Note has been reviewed by it, has been, to the extent
required, executed and has not been mutilated, damaged, torn or otherwise
physically altered (handwritten additions, changes or corrections shall not
constitute physical alteration if initialed by the Mortgagor), appears regular
on its face and relates to such Mortgage Loan. The Trustee shall be under no
duty or obligation 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.
Within thirty (30) days after the Closing Date and within thirty (30)
days of receipt of a Subsequent Mortgage Loan or Qualified Substitute Mortgage
Loan, the Trustee shall deliver (or cause to be delivered) to the Servicer, the
Seller, the Depositor and the [Certificate Insurer] a final certification in the
form attached hereto as Exhibit F to the effect that, as to each Mortgage Loan
listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or any Mortgage Loan specifically identified in such certification as not
covered by such certification), and as to any document noted as an exception
included in the Trustee's initial certification, (i) all documents required to
be delivered to it pursuant to Section 2.3 hereof are in its possession, (ii)
each such document has been reviewed by it, has been, to the extent required,
executed and has not been mutilated, damaged, torn or otherwise physically
altered (handwritten additions, changes or corrections shall not constitute
physical alteration if initialed by the Mortgagor), appears regular on its face
and relates to such Mortgage Loan.
(b) If the [Certificate Insurer] or the Trustee during the process of
reviewing the Trustee's Mortgage Files finds any document constituting a part of
a Trustee's Mortgage File which is not executed, has not been received, is
unrelated to the Mortgage Loan identified in the related Mortgage Loan Schedule,
or does not conform to the requirements of Section 2.3 or the description
thereof as set forth in the related Mortgage Loan Schedule, the Trustee or the
[Certificate Insurer], as applicable, shall promptly so notify the Servicer, the
Seller, the Depositor, the [Certificate Insurer] and the Trustee. In performing
any such review, the Trustee may conclusively rely on the Seller as to the
purported genuineness of any such document and any signature thereon. It is
understood that the scope of the Trustee's review of the Mortgage Files is
limited solely to confirming that the documents listed in Section 2.3 have been
executed and received and relate to the Mortgage Files identified in the related
Mortgage Loan Schedule. The Seller agrees to use reasonable efforts to cause to
be remedied a material defect in a document constituting part of a Mortgage File
of which it is so notified by the Trustee. If, however, within 60 days after the
Trustee's notice to it respecting such defect the Seller has not caused to be
remedied the defect and the defect materially and adversely affects the interest
of the Certificateholders in the related Mortgage Loan or the interests of the
[Certificate Insurer], the Trustee shall enforce the Seller's obligation to
either (i) substitute in lieu of such Mortgage Loan a Qualified Substitute
Mortgage Loan in the manner and subject to the conditions set forth in Section
3.4 hereof or (ii) purchase such Mortgage Loan at a purchase price equal to the
outstanding Principal Balance of such Mortgage Loan as of the date of purchase,
plus the greater of (x) all accrued and unpaid interest thereon and (y) 30 days'
interest thereon, computed at the related Mortgage Interest Rate, plus the
amount of any unpaid and accrued Servicing Fees, any unreimbursed Delinquency
Interest Advances and Servicing Advances made by the Servicer with respect to
such Mortgage Loan, which purchase price shall be deposited in the Collection
Account prior to the next succeeding Servicer Remittance Date, after deducting
therefrom any amounts received in respect of such repurchased Mortgage Loan or
Loans and being held in the Collection Account for future distribution to the
extent such amounts have not yet been applied to principal or interest on such
Mortgage Loan (the "Loan Repurchase Price"); PROVIDED, HOWEVER, that the Seller
may not, pursuant to clause (ii) preceding, purchase the Principal Balance of
any Mortgage Loan that is not in default or as to which no default is imminent
unless the Seller has theretofore delivered an Opinion of Counsel knowledgeable
in federal income tax matters which states that such a purchase would not
constitute a prohibited transaction under the Code.
(c) Upon receipt by the Trustee of a certification of a Servicing
Officer of such substitution or purchase and, in the case of a substitution,
upon receipt of the related Trustee's Mortgage File for the applicable Qualified
Substitute Mortgage Loan or Loans, and the deposit of the amounts described
above into the Collection Account (which certification shall be in the form of
Exhibit G hereto), the Trustee shall release to the Servicer for release to the
Seller the related Trustee's Mortgage File and shall execute, without recourse,
and deliver such instruments of transfer furnished by the Seller as may be
necessary to transfer such Mortgage Loan to the Seller. The Trustee shall
promptly notify the [Certificate Insurer] if the Seller fails to repurchase or
substitute for a Mortgage Loan in accordance with the foregoing.
Section 2.5 [RESERVED] .
Section 2.6 EXECUTION OF CERTIFICATES. The Trustee acknowledges the
assignment to it of the Mortgage Loans and the delivery to it of the Trustee's
Mortgage Files relating thereto and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Depositor, in
exchange for the Mortgage Loans, the Trustee's Mortgage Files and the other
assets included in the definition of Trust Fund, Certificates duly authenticated
by the Trustee, in Authorized Denominations, evidencing the entire beneficial
ownership interest in the Trust Fund.
Section 2.7 APPLICATION OF PRINCIPAL AND INTEREST. In the event that
Net Liquidation Proceeds on a Liquidated Mortgage Loan are less than the
outstanding Principal Balance of the related Mortgage Loan plus accrued interest
thereon, or any Mortgagor makes a partial payment of any Monthly Payment due on
a Mortgage Loan, such Net Liquidation Proceeds or partial payment shall be
applied to payment of the related Mortgage Note as provided therein, and if not
so PROVIDED, first to interest accrued at the Mortgage Interest Rate, then to
the principal owed on such Mortgage Loan.
Section 2.8 FURTHER ASSURANCES; POWERS OF Attorney. (a) The Depositor
and the Servicer shall take no action inconsistent with the Trust's ownership of
the Trust Fund and shall indicate or shall cause to be indicated in its records
and records held on its behalf that ownership of each Mortgage Loan and the
assets in the Trust Fund are held by the Trustee on behalf of the Trust Fund. In
addition, the Depositor and the Servicer shall respond to any inquiries from
third parties with respect to ownership of a Mortgage Loan or any other asset in
the Trust Fund by stating that it is not the owner of such asset and that
ownership of such Mortgage Loan or other Trust Fund asset is held by the Trustee
on behalf of the Trust Fund.
(b) The Servicer agrees that, from time to time, at the Seller's
expense, it shall cause the Seller (and the Depositor also agrees that it
shall), promptly to execute and deliver all further instruments and documents,
and take all further action, that may be necessary or appropriate, or that the
Servicer or the Trustee or the [Certificate Insurer] may reasonably request, in
order to perfect, protect or more fully evidence the transfer of ownership of
the Trust Fund or to enable the Trustee to exercise or enforce any of its rights
hereunder. Without limiting the generality of the foregoing, the Servicer, the
Seller and the Depositor will, upon the request of the Servicer or of the
Trustee execute and file (or cause to be executed and filed) such real estate
filings, financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as may be necessary
or appropriate.
(c) The Depositor hereby grants to the Servicer and the Trustee powers
of attorney to execute all documents on its behalf under this Agreement as may
be necessary or desirable to effectuate the foregoing.
Section 2.9 CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS. (a) Subject
to the conditions set forth in Section 2.3 above and paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
to or upon the order of the Depositor of all or a portion of the balance of
funds in the Pre-Funding Account, the Depositor shall on any Subsequent Transfer
Date sell, transfer, assign, set over and convey without recourse to the Trustee
but subject to the other terms and provisions of this Agreement all of the
right, title and interest of the Depositor in and to (i) the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument delivered by the Depositor on such Subsequent
Transfer Date, (ii) principal due and interest accruing on the Subsequent
Mortgage Loans on and after the related Subsequent Cut-Off Date and (iii) all
items with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.3 above and the other items in the related Mortgage Files; PROVIDED,
HOWEVER, that the Depositor reserves and retains all right, title and interest
in and to principal received and interest accruing on the Subsequent Mortgage
Loans prior to the related Subsequent Cut-Off Date. The transfer to the Trustee
by the Depositor of the Subsequent Mortgage Loans identified on the Mortgage
Loan Schedule shall be absolute and is intended by the Depositor, the Servicer,
the Trustee and the Certificateholders to constitute and to be treated as a sale
of the Subsequent Mortgage Loans by the Depositor to the Trust Fund. The related
Mortgage File for each Subsequent Mortgage Loan shall be delivered to the
Trustee three Business Days (or such shorter period as may be agreed between the
Depositor and the Trustee) prior to the Subsequent Transfer Date.
The purchase price paid by the Trustee from amounts released from the
Pre-Funding Account shall be 97% of the aggregate Principal Balances as of the
related Subsequent Cut-Off Date of the Subsequent Mortgage Loans so transferred.
This Agreement shall constitute a fixed-price purchase contract in accordance
with Section 860G(a)(3)(A)(ii) of the Code.
(b) The Depositor shall transfer to the Trustee the Subsequent
Mortgage Loans and the other property and rights related thereto described in
Section 2.9 (a) above, and the Trustee shall release funds from the Pre-Funding
Account, only upon the satisfaction of each of the following conditions on or
prior to the related Subsequent Transfer Date:
(i) the Depositor shall have provided the Trustee and the
[Certificate Insurer] no later than five Business
Days prior to the Subsequent Transfer Date an
Addition Notice and shall have provided any
information reasonably requested by the Trustee or
the [Certificate Insurer] with respect to the
Subsequent Mortgage Loans;
(ii) the Depositor shall have delivered to the Trustee a
duly executed Subsequent Transfer Instrument, which
shall include a Mortgage Loan Schedule, listing the
Subsequent Mortgage Loans;
(iii) as of each Subsequent Transfer Date, the Depositor
shall not be insolvent nor shall it have been made
insolvent by such transfer nor shall it be aware of
any pending insolvency;
(iv) such sale and transfer shall not result in a
material adverse tax consequence to the Trust
Fund or the Certificateholders;
(v) the Pre-Funding Period shall not have terminated;
(vi) each of the conditions precedent to the obligations
of the Depositor to purchase the Subsequent Mortgage
Loans pursuant to the Sale and Purchase Agreement
shall have been satisfied;
(vii) the Depositor shall have delivered to the Trustee an
Officer's Certificate, substantially in the form
delivered at closing, confirming the satisfaction of
each condition precedent and representations
specified in this Section 2.9(b) and Section 2.9(c)
following and in the related Subsequent Transfer
Instrument;
(viii) the Depositor shall have delivered to the
Trustee and the [Certificate Insurer] Opinions
of Counsel addressed to the [Certificate
Insurer], the Rating Agencies and the Trustee
with respect to the transfer of the Subsequent
Mortgage Loans substantially in the form of the
Opinions of Counsel delivered to the
[Certificate Insurer] and the Trustee on the
Closing Date regarding certain bankruptcy, tax
and corporate matters; and
(ix) the Trustee shall have delivered to the
[Certificate Insurer] and the Depositor an Opinion of
Counsel addressed to the Depositor, the Rating
Agencies and the [Certificate Insurer] with respect
to the Subsequent Transfer Instrument substantially
in the form of the Opinion of Counsel delivered to
the [Certificate Insurer] and the Depositor on the
Closing Date regarding certain corporate matters
relating to the Trustee.
(c) The obligation of the Trust Fund to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the following representations
and warranties of the Seller and the Depositor with respect to such Subsequent
Mortgage Loan being satisfied (i) such Subsequent Mortgage Loan may not be more
than 30 days Delinquent as of the related Subsequent Cut-Off Date; (ii) such
Subsequent Mortgage Loan has a Mortgage Interest Rate of at least ___%; (iii)
such Subsequent Mortgage Loan has a weighted average Combined Loan-to- Value
Ratio (based on the original appraisal) no greater than 125%; (iv) such
Subsequent Mortgage Loan is a fully amortizing loan with level payments
generally over 15 years; (v) such Subsequent Mortgage Loan is secured by a
Residential Dwelling; (vi) the related Trustee's Mortgage File with respect to
such Subsequent Mortgage Loan shall have been delivered to the Trustee; (vii) no
such Subsequent Mortgage Loan is secured by an investor property or associated
with the purchase of a home; (viii) the Subsequent Mortgage Loans in the
aggregate have a weighted average Principal Balance no greater than $______;
(ix) the Subsequent Mortgage Loans in the aggregate (as of their related
Subsequent Cut-off Dates) have a weighted average remaining term to stated
maturity of no greater than ___ months; (x) such Subsequent Mortgage Loan may
not have a DTI greater than 50%; (xi) such Subsequent Mortgage Loan has a Credit
Bureau Risk Score of at least ___; and (xii) following the purchase of such
Subsequent Mortgage Loans by the Trust Fund, the Mortgage Loans (including the
Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Interest
Rate of at least ____%; (b) will have a weighted average Combined Loan-to-Value
Ratio (based on the original appraisal) of not more than ___%; (c) will have no
Subsequent Mortgage Loan with a Principal Balance in excess of $____; (d) will
not have any non-owner occupied properties; (e) will have a weighted average
Subordinate Mortgage Ratio of not more than __%; (f) will not have a
concentration in a single zip code in excess of 2.0% by aggregate Principal
Balance; (g) will not have a concentration in Los Angeles County, California in
excess of 10% by aggregate Principal Balance; (h) will not have concentration in
any other county in excess of 8% by aggregate Principal Balance; (i) the
concentration of Credit Bureau Risk Scores by aggregate Principal Balance shall
be the following: (1) between 620-639 shall not exceed __%; (2) between 620-659
shall not exceed __%; (3) between 620-669 shall not exceed __%; (4) between
620-689 shall not exceed __% (5) between 620-709 shall not exceed __%; and (j)
will not have a concentration of Mortgage Loans with self employed mortgagors in
excess of __% by aggregate Principal Balances; (k) will have a weighted average
Credit Bureau Risk Score of at least 673 and a weighted average DTI of no more
than __%; (l) will have a concentration of Mortgage Loans secured by single
family residences of at least 100% by aggregate Principal Balances; and (n) the
concentration of Combined Loan-to-Value Ratios by aggregate Principal Balance
shall be the following (1) greater than 80% shall not exceed __%; (2) greater
than 115% and less than 120% shall not exceed __%; and (3) greater than 120% and
less than 125% shall not exceed __%; (o) will not have a concentration in the
State of California in excess of __% by aggregate Principal Balance; (p) will
not have a concentration of Mortgage Loans secured by condominiums in excess of
__% (q) such Subsequent Mortgage Loan satisfies all representations and
warranties set forth in Sections 3.02 and 3.03 of the Sale and Purchase
Agreement hereof as of the related Subsequent Transfer Date. Such requirements
may be waived or modified in writing by the [Certificate Insurer]; PROVIDED
THAT, if the [Certificate Insurer] waives or modifies any such requirements
because such Subsequent Mortgage Loans do not satisfy such requirements, the
[Certificate Insurer], in its sole discretion, may modify the definitions of
"Required Overcollateralization Level" and/or "Target Percentage," without the
consent of any party hereto or any Certificateholder; PROVIDED, FURTHER, that
the [Certificate Insurer] agrees to notify the Depositor and the Trustee in
writing of any modifications to the definitions of "Required
Overcollateralization Level" and/or "Target Percentage" no later than the
Determination Date immediately preceding a Distribution Date (or such shorter
period as the Trustee shall reasonably agree).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS OF THE SERVICER. The Servicer hereby
represents and warrants to the Trustee, the Depositor, the [Certificate Insurer]
and the Certificateholders as of the Closing Date:
(a) The Servicer is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and is in compliance with the laws of each state in which any Mortgaged Property
is located to the extent necessary to enable it to perform its obligations under
the terms of this Agreement; the Servicer has the full corporate power and
authority to execute and deliver this Agreement and to perform in accordance
herewith: the execution, delivery and performance of this Agreement by the
Servicer and the consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement evidences the legal, valid, binding
and enforceable obligation of the Servicer; and all requisite corporate action
has been taken by the Servicer to make this Agreement valid and binding upon the
Servicer in accordance with its terms;
(b) Neither the execution and delivery of this Agreement, nor the
fulfillment of or compliance with the terms and conditions of this Agreement,
will conflict with or result in a breach of any of the terms, conditions or
provisions of the Servicer's charter or by-laws or any legal restriction or any
agreement or instrument to which the Servicer is now a party or by which it is
bound, or constitute a 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 Servicer or its property is subject, or impair
the ability of the Trustee (or the Servicer as the agent of the Trustee) to
realize on the Mortgage Loans, or impair the value of the Mortgage Loans;
(c) The Servicer is an approved seller/servicer of conventional
residential mortgage loans for FNMA and FHLMC;
(d) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Servicer, threatened against the Servicer which, either
in any one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or assets of
the Servicer, or in any material impairment of the right or ability of the
Servicer to carry on its business substantially as now conducted, or of any
action taken or to be taken in connection with the obligations of the Servicer
contemplated herein, or which would materially impair the ability of the
Servicer to perform under the terms of this Agreement;
(e) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of or compliance by the Servicer with this Agreement
or the Mortgage Loans or the consummation of the transactions contemplated by
this Agreement or, if required, such approval has been obtained prior to the
Closing Date; and
(f) Neither this Agreement nor any statement, report or other document
furnished by the Servicer pursuant to this Agreement or in connection with the
transactions contemplated hereby contains any untrue statement of material fact
regarding the Servicer or omits to state a material fact necessary to make the
statements regarding the Servicer contained herein or therein not misleading.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 3.1 shall survive the
delivery of the respective Mortgage Files to the Trustee or to a custodian, as
the case may be, and inure to the benefit of the Trustee.
Section 3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
DEPOSITOR. (a) The Depositor hereby represents, warrants and covenants to the
Trustee and the [Certificate Insurer] that as of the Closing Date or as of such
date specifically provided herein:
(i) The Depositor is a corporation duly organized,
validly existing and in good standing under the
laws of the State of Delaware;
(ii) The Depositor has the corporate power and authority
to convey the Mortgage Loans and to execute, deliver
and perform, and to enter into and consummate
transactions contemplated by this Agreement;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the
Depositor, all requisite corporate action having
been taken, and, assuming the due authorization,
execution and delivery hereof by the Servicer
and the Trustee, constitutes or will constitute
the legal, valid and binding agreement of the
Depositor, enforceable against the Depositor in
accordance with its terms, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights
of creditors generally, and by general equity
principles (regardless of whether such
enforcement is considered in a proceeding in
equity or at law);
(iv) No consent, approval, authorization or order of,
or registration or filing with, or notice to,
any governmental authority or court is required
for the execution, delivery and performance of
or compliance by the Depositor with this
Agreement or the consummation by the Depositor of
any of the transactions contemplated hereby,
except as have been received or obtained on or
prior to the Closing Date;
(v) None of the execution and delivery of this
Agreement, the consummation of the transactions
contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and
conditions of this Agreement, (a) conflicts or
will conflict with or results or will result in a
breach of, or constitutes or will constitute a
default or results or will result in an
acceleration (I) under the charter or bylaws of
the Depositor, or (II) of any term, condition or
provision of any material indenture, deed of
trust, contract or other agreement or instrument
to which the Depositor or any of its subsidiaries
is a party or by which it or any of its subsidiaries
is bound; (b) results or will result in a violation
of any law, rule, regulation, order, judgment or
decree applicable to the Depositor of any court or
governmental authority having jurisdiction over the
Depositor or its subsidiaries; or (c) results in the
creation or imposition of any lien, charge or
encumbrance which would have a material adverse
effect upon the Mortgage Loans or any documents or
instruments evidencing or securing the Mortgage
Loans;
(vi) There are no actions, suits or proceedings before
or against or investigations of, the Depositor
pending, or to the knowledge of the Depositor,
threatened, before any court, administrative
agency or other tribunal, and no notice of any
such action, which, in the Depositor's
reasonable judgment, might materially and
adversely affect the performance by the
Depositor of its obligations under this
Agreement, or the validity or enforceability of
this Agreement; and
(vii) 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
governmental agency that would materially and
adversely affect its performance hereunder.
Section 3.3 RESERVED.
Section 3.4 PURCHASE AND SUBSTITUTION. (a) It is understood and agreed
that the representations and warranties set forth herein shall survive delivery
of the Certificates to the Certificateholders. With respect to any
representation or warranty contained in Sections 3.02 and 3.03 of the Sale and
Purchase Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, any Subservicer, the Depositor, the Trustee, the
[Certificate Insurer] or any Certificateholder that the substance of such
representation and warranty was inaccurate as of the Closing Date (or in the
case of the Subsequent Mortgage Loans, as of the respective Subsequent Transfer
Date) and such inaccuracy materially and adversely affects the value of the
related Mortgage Loan or the interest of the [Certificate Insurer,] then
notwithstanding the Seller's lack of knowledge with respect to the inaccuracy at
the time the representation or warranty was made, such inaccuracy shall be
deemed a breach of the applicable representation or warranty. Upon discovery by
the Seller, the Depositor, the Servicer, any Subservicer, the Trustee the
[Certificate Insurer] or any Certificateholder of a breach of any
representations and warranties which materially and adversely affects the value
of the Mortgage Loans or the interest of the Certificateholders, or which
materially and adversely affects the interests of the [Certificate Insurer] or
the Certificateholders in the related Mortgage Loan in the case of a
representation and warranty relating to a particular Mortgage 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. Subject to the last paragraph of this Section 3.4, within
60 days of the earlier of its discovery or its receipt of notice of any breach
of a representation or warranty, the Seller shall be required to (i) promptly
cure such breach in all material respects, (ii) purchase such Mortgage Loan on
the next succeeding Servicer Remittance Distribution Date, in the manner and at
the related Loan Repurchase Price, or (iii) remove such Mortgage Loan from the
Trust Fund (in which case the Mortgage Loan shall become a Deleted Mortgage
Loan) and substitute one or more Qualified Substitute Mortgage Loans; PROVIDED,
that, such substitution is effected not later than the date which is two years
after the Startup Day or at such later date, if the Trustee and the [Certificate
Insurer] receive an Opinion of Counsel to the effect that such substitution will
not constitute a prohibited transaction for the purposes of the REMIC provisions
of the Code or cause the Upper Tier REMIC or Lower Tier REMIC to fail to qualify
as a REMIC at any time any Certificates are outstanding. Any such substitution
shall be accompanied by payment by the Seller of the Substitution Adjustment, if
any, to the Servicer to be deposited in the Collection Account.
(b) As to any Deleted Mortgage Loan for which the Seller substitutes a
Qualified Substitute Mortgage Loan or Loans, the Seller shall be required to
effect such substitution by delivering to the Trustee a certification in the
form attached hereto as Exhibit G, executed by a Servicing Officer and the
documents described in Sections 2.3(a)(i)-(vi) for such Qualified Substitute
Mortgage Loan or Loans.
(c) The Servicer shall deposit in the Collection Account all principal
payments received and interest due in connection with such Qualified Substitute
Mortgage Loan or Loans after the date of such substitution or related cut-off
date, as applicable, set forth in the certification delivered to the Trustee.
Monthly Payments received with respect to Qualified Substitute Mortgage Loans on
or before the date of substitution or cut-off date, as applicable, will be
retained by the Seller. The Trust Fund will own all principal payments received
and interest due on the Deleted Mortgage Loan on or before the date of
substitution or cut-off date, as applicable, and the Seller shall thereafter be
entitled to retain all amounts subsequently received in respect of such Deleted
Mortgage Loan after the date of substitution or the related cut-off date, as
applicable. The Servicer shall give written notice to the Trustee and the
[Certificate Insurer] that such substitution has taken place and shall amend the
Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from
the terms of this Agreement and the substitution of the Qualified Substitute
Mortgage Loan. Upon such substitution, such Qualified Substitute Mortgage Loan
or Loans shall be subject to the terms of this Agreement in all respects. For
purposes of this paragraph, "cut-off date" shall mean a date not later than the
related date of substitution.
(d) It is understood and agreed that the obligations of the Seller to
cure, purchase or substitute for a defective Mortgage Loan constitute the sole
remedies of the Trustee, the [Certificate Insurer] and the Certificateholders
with respect to a breach of the representations and warranties of the Seller set
forth in Sections 3.02 and 3.03 of the Sale and Purchase Agreement (other than
the representation and warranty set forth in Section 3.03(g) to the extent of
any fines, penalties, costs or other damages or losses except the lost economic
value of the Mortgage Loan, the value of which the remedies provided for in
Section 2.06 and this Section 3.4 shall be deemed adequate for). The Trustee
shall give prompt written notice to the [Certificate Insurer] and each of the
Rating Agencies of any repurchase or substitution made pursuant to this Section
3.4 or Section 2.4(b) hereof.
(e) Upon discovery by the Seller, the Servicer, the Trustee, the
[Certificate Insurer] or any Certificateholder that any Mortgage Loan does not
constitute a Qualified Mortgage, the party discovering such fact shall promptly
(and in any event within 5 days of the discovery) give written notice thereof to
the other parties and the [Certificate Insurer]. In connection therewith, the
Seller shall be required to repurchase or substitute a Qualified Substitute
Mortgage Loan for the affected Mortgage Loan within 60 days of the earlier of
such discovery by any of the foregoing parties, or the Trustee's or the Seller's
receipt of notice, in the same manner as it would a Mortgage Loan for a breach
of representation or warranty contained in Section 3.02 or 3.03 of the Sale and
Purchase Agreement. The Trustee shall reconvey to the Seller the Mortgage Loan
to be released pursuant hereto in the same manner, and on the same terms and
conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section 3.02 or 3.03 of the Sale and
Purchase Agreement.
Section 3.5 INDEMNIFICATION OF THE TRUST FUND BY THE INDEMNITORS. The
Indemnitors hereby agree to indemnify the Trust Fund for any losses incurred by
it on any Liquidated Loan which had a Combined Loan-to-Value Ratio at
origination of greater than 100%; PROVIDED THAT such indemnity is limited to the
dollar amount of the difference at origination between the aggregate principal
balance of such Liquidated Loan and its Appraised Value; PROVIDED FURTHER, that
such indemnity is a nonrecourse obligation of each Indemnitor limited to an
amount equal to the aggregate of amounts received by such Indemnitor pursuant to
Section 6.5(vi) through (ix) and the outstanding principal amount of any demand
notes contributed by the Seller to either Indemnitor, if any. Upon receipt of
such funds from the Indemnitors, the Trustee shall deposit such amount in the
Certificate Account for distribution to Certificateholders. "Indemnitors" means,
together, Preferred Mortgage SPC Funding Corp. II and Preferred Mortgage SPC
Funding Corp.
The Trustee, the [Certificate Insurer] and each Certificateholder, by
its acceptance of a Certificate agree (i) that they will not at any time
institute against any Indemnitor or join in any institution against any
Indemnitor of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law, and (ii) the foregoing obligations of each
Indemnitor shall not constitute claims against such Indemnitor to the extent not
paid from amounts received by such Indemnitor or distributor on the Residual
Certificates, the Class B Certificates or any demand note contributed to such
Indemnitor.
Section 3.6 THIRD PARTY CLAIMS. The Trustee shall reimburse the Seller
from amounts otherwise distributable on the Residual Certificates for all
amounts advanced by the Seller pursuant to the second sentence of Section
4.04(a)(ii) of the Sale and Purchase Agreement except when the relevant claim
relates directly to the failure of the Seller to perform its duties in
compliance with the terms of the Sale and Purchase Agreement.
Section 3.7 INDEMNIFICATION OF [CERTIFICATE Insurer]. By acceptance of
its Certificate, the [Class RL] Certificateholders agree to indemnify the
[Certificate Insurer] pursuant to Section 3.03 (f) of the Certificate Insurance
Agreement.
ARTICLE IV
THE CERTIFICATES
Section 4.1 THE CERTIFICATES. The Certificates shall be substantially
in the forms annexed hereto as Exhibit B-l-l, Exhibit B-1-2, Exhibit B-1-3,
Exhibit B-1-4, Exhibit B-1-5, Exhibit B-1-6, Exhibit B-2, Exhibit B-3, Exhibit
B-4 and Exhibit B-5. All Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee by an authorized officer and authenticated by
the manual or facsimile signature of an authorized officer. Any Certificates
bearing the signatures of individuals who were at the time of the execution
thereof the authorized officers of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the delivery of such Certificates or did not hold such offices
at the date of such Certificates. All Certificates issued hereunder shall be
dated the date of their authentication.
Section 4.2 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a)
The Trustee, as registrar, shall cause to be kept a register (the "Certificate
Register") in which, subject to such reasonable regulations as it may prescribe,
the Trustee shall provide for the registration of Certificates and the
registration of transfer of Certificates. The Trustee is hereby appointed
registrar for the purpose of registering and transferring Certificates, as
herein provided. The [Certificate Insurer] and the Servicer shall be entitled to
inspect and copy the Certificate Register and the records of the Trustee
relating to the Certificates during normal business hours upon reasonable
notice.
(b) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust Fund and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
(c) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
Holder or holder thereof or his attorney duly authorized in writing. Every Class
A Certificate issued in definitive form shall include a statement of insurance,
attached hereto as Exhibit A-2 provided by the [Certificate Insurer].
(d) (i) No service charge shall be made to a Holder or holder for any
registration of transfer or exchange of Certificates, but the Trustee 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 Certificates.
(ii) It is intended that the Class A Certificates be registered so as
to participate in a global book-entry system with the Depository, as set forth
herein. The Class A Certificates shall, except as otherwise provided in the next
paragraph, be initially issued in the form of six fully registered Class A
Certificates with a denomination equal to the related Original Class A Principal
Balance. Upon initial issuance, the ownership of each such Class A Certificate
shall be registered in the Certificate Register in the name of Cede & Co., or
any successor thereto, as nominee for the Depository. The Depositor and the
Trustee are hereby authorized to execute and deliver the Representation Letter
with the Depository. With respect to Class A Certificates registered in the
Certificate Register in the name of Cede & Co., as nominee of the Depository,
the Depositor, the Seller, the Servicer, the Trustee and the [Certificate
Insurer] shall have no responsibility or obligation to Direct or Indirect
Participants or beneficial owners for which the Depository holds Class A
Certificates from time to time as a Depository. Without limiting the immediately
preceding sentence, the Depositor, the Seller, the Servicer, the Trustee and the
[Certificate Insurer] shall have no responsibility or obligation with respect to
(i) the accuracy of the records of the Depository, [Cede & Co., or any Direct or
Indirect Participant with respect to any Ownership Interest, (ii) the delivery
to any Direct or Indirect Participant or any other Person, other than a
Certificateholder, of any notice with respect to the Class A Certificates or
(iii) the payment to any Direct or Indirect Participant or any other Person,
other than a Certificateholder, of any amount with respect to any distribution
of principal or interest on the Class A Certificates. No Person other than a
Certificateholder shall receive a certificate evidencing such Class A
Certificate. Upon delivery by the Depository to the Trustee of written notice to
the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts to the Certificateholders
appearing as Certificateholders at the close of business on a Record Date, the
name "Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
In the event that (x) the Depository or the Seller advises the Trustee
and the [Certificate Insurer] in writing that the Depository is no longer
willing or able to discharge properly its responsibilities as nominee and
depository with respect to the Class A Certificates and the Seller or the
Depository is unable to locate a qualified successor or (ii) the Trustee at its
sole option elects to terminate the book-entry system through the Depository,
the Class A Certificates shall no longer be restricted to being registered in
the Certificate Register in the name of Cede & Co. (or a successor nominee) as
nominee of the Depository. At that time, the Seller may determine that the Class
A Certificates shall be registered in the name of and deposited with a successor
depository operating a global book-entry as may be acceptable to the Seller, or
such depository's agent or designee but, if the Seller does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name or names Certificateholders transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates as the case may be and all notices with respect to such
Class A Certificates as the case may be shall be made and given, respectively,
in the manner provided in the Representation Letter.
(e) Except as provided in Section 4.2(e)(ii), no transfer, sale,
pledge or other disposition of any Class B or Residual Certificate shall be made
unless such transfer, sale, pledge or other disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
and any applicable state securities laws or is made in accordance with said Act
and laws. In the event that a transfer of a Class B or Residual Certificate is
to be made under this Section 4.2(e)(i), (a) the Trustee shall require an
Opinion of Counsel acceptable to and in form and substance satisfactory to the
Trustee and the Depositor that such transfer shall be made pursuant to an
exemption, describing the application exemption and the basis therefor, from
said Act and laws or is being made pursuant to said Act and laws, which Opinion
of Counsel shall not be an expense of the Trustee, the Depositor or the
Servicer, PROVIDED THAT such Opinion of Counsel will not be required in
connection with the initial transfer of any such Certificate by the Depositor or
any affiliate thereof, to a non-affiliate of the Depositor and (b) the Trustee
shall require the transferee to execute a representation letter, substantially
in the form of Exhibit H hereto, and Trustee shall require the transferor to
execute a representation letter, substantially in the form of Exhibit I hereto,
each acceptable to and in form and substance satisfactory to the Depositor and
the Trustee certifying to the Depositor and the Trustee the facts surrounding
such transfer, which representation letters shall not be an expense of the
Trustee, the Depositor or the Servicer, PROVIDED THAT such representation letter
will not be required in connection with any transfer of any such Certificate by
the Depositor to an affiliate of the Depositor. Any such Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor, the Servicer and the [Certificate Insurer] against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such applicable federal and state laws.
(ii) Transfers of Certificates may be made in accordance with Section
4.2(e)(ii) if the prospective transferee of a Certificate provides the Trustee
and the Depositor with an investment letter substantially in the form of Exhibit
J attached hereto, which investment letter shall not be an expense of the
Trustee, the Depositor or the Servicer, and which investment letter states that,
among other things, such transferee is a "qualified institutional buyer" as
defined under Rule 144A. Such transfers shall be deemed to have complied with
the requirements of Section 4.2(e)(i) hereof; PROVIDED, HOWEVER, that no
Transfer of any of the Certificates may be made pursuant to this Section
4.2(e)(ii) by the Depositor. Any such Certificateholder desiring to effect such
transfer shall, and does hereby agree to indemnify the Trustee, the Depositor,
the Servicer and the [Certificate Insurer] against any liability that may result
if the transfer is not so exempt or is not made in accordance with such
applicable federal and state laws.
(f) Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably appointed the Trustee or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under subclause (vii) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
Ownership Interest in a Residual Certificate are expressly subject to the
following provisions:
(i) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall be a
Permitted Transferee and shall promptly notify the Trustee of
any change or impending change in its status as either a
United States Person or a Permitted Transferee.
(ii) In connection with any proposed
Transfer of any Ownership Interest in a Residual Certificate,
the Trustee shall require delivery to it, and shall not
register the Transfer of any Residual Certificate until its
receipt of, an affidavit and agreement (a "Transfer Affidavit
and Agreement") attached hereto as Exhibit K from the proposed
Transferee, representing and warranting, among other things,
that such Transferee is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Residual Certificate
that is the subject of the proposed Transfer as a nominee,
trustee or agent for any Person that is not a Permitted
Transferee, that for so long as it retains its Ownership
Interest in a Residual Certificate, it will endeavor to remain
a Permitted Transferee, and that it has reviewed the
provisions of this Section 4.2(f) and agrees to be bound by
them.
(iii) Notwithstanding the delivery of a
Transfer Affidavit and Agreement by a proposed Transferee
under clause (ii) above, if a Responsible Officer of the
Trustee has actual knowledge that the proposed Transferee is
not a Permitted Transferee, no Transfer of an Ownership
Interest in a Residual Certificate to such proposed Transferee
shall be effected.
(iv) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall agree (x)
to require a Transfer Affidavit and Agreement from any other
Person to whom such Person attempts to transfer its Ownership
Interest in a Residual Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate (attached
hereto as Exhibit L) to the Trustee stating that, among other
things, it has no actual knowledge that such other Person is
not a Permitted Transferee.
(v) Each Person holding or acquiring an
Ownership Interest in a Residual Certificate, by purchasing an
Ownership Interest in such Certificate, agrees to give the
Trustee written notice that it is a "pass-through interest
holder" within the meaning of temporary Treasury Regulation
Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Residual Certificate, if it is, or is
holding an Ownership Interest in a Residual Certificate on
behalf of, a "pass-through interest holder."
(vi) The Trustee will register the Transfer
of any Residual Certificate only if it shall have received the
Transfer Affidavit and Agreement. In addition, no Transfer of
a Residual Certificate shall be made unless the Trustee shall
have received a representation letter from the Transferee of
such Certificate to the effect that such Transferee is a
Permitted Transferee and is not a "disqualified organization"
(as defined in Section 860E(e)(5) of the Code).
(vii) Any attempted or purported transfer of
any Ownership Interest in a Residual Certificate in violation
of the provisions of this Section 4.2 shall be absolutely null
and void and shall vest no rights in the purported transferee.
If any purported transferee shall become a Holder of a
Residual Certificate in violation of the provisions of this
Section 4.2, then the last preceding Permitted Transferee
shall be restored to all rights as Holder thereof retroactive
to the date of registration of transfer of such Residual
Certificate. The Trustee shall notify the Servicer upon
receipt of written notice or discovery by a Responsible
Officer that the registration of transfer of a Residual
Certificate was not in fact permitted by this Section 4.2.
Knowledge shall not be imputed to the Trustee with respect to
an impermissible transfer in the absence of such a written
notice or discovery by a Responsible Officer. The Trustee
shall be under no liability to any Person for any registration
of transfer of a Residual Certificate that is in fact not
permitted by this Section 4.2 or for making any payments due
on such Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of
this Agreement so long as the transfer was registered after
receipt of the related Transfer Affidavit and Transfer
Certificate. The Trustee shall be entitled, but not obligated
to recover from any Holder of a Residual Certificate that was
in fact not a Permitted Transferee at the time it became a
Holder or, at such subsequent time as it became other than a
Permitted Transferee, all payments made on such Residual
Certificate at and after either such time. Any such payments
so recovered by the Trustee shall be paid and
delivered by the Trustee to the last preceding Holder
of such Certificate.
(viii) If any purported transferee shall
become a Holder of a Residual Certificate in violation of the
restrictions in this Section 4.2, then the Trustee or its
designee shall have the right, without notice to the Holder or
any prior Holder of such Residual Certificate, to sell such
Residual Certificate to a purchaser selected by the Trustee or
its designee on such reasonable terms as the Trustee or its
designee may choose. Such purchaser may be the Trustee itself
or any Affiliate of the Trustee. The proceeds of such sale,
net of commissions, expenses and taxes due, if any, will be
remitted by the Trustee to the last preceding purported
transferee of such Residual Certificate, except that in the
event that the Trustee determines that the Holder or any prior
Holder of such Residual Certificate may be liable for any
amount due under this Section 4.2 or any other provision of
this Agreement, the Trustee may withhold a corresponding
amount from such remittance as security for such claim. The
terms and conditions of any sale under this subclause (viii)
shall be determined in the sole discretion of the Trustee or
its designee, and it shall not be liable to any Person having
an Ownership Interest in a Residual Certificate as a result of
its exercise of such discretion.
(g) The Trustee shall make available to the Internal Revenue Service
and those Persons specified by the REMIC Provisions, all information necessary
to compute any tax imposed (A) as a result of the transfer of an ownership
interest in a Residual Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess inclusions" of such
Residual Certificates required to be provided to the Internal Revenue Service
and certain Persons as described in Treasury Regulations Sections 1.860D-l(b)(5)
and 1.860E-2(a)(5), and (B) as a result of any regulated investment company,
real estate investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the Code holds an Ownership Interest
in a Residual Certificate having as among its record holders at any time any
Person who is a Disqualified Organization. The Trustee may charge and shall be
entitled to reasonable compensation for providing such information as may be
required from those Persons which may have had a tax imposed upon them as
specified in clauses (A) and (B) of this paragraph for providing such
information.
(h) The provisions of Section 4.2 may be modified, added to or
eliminated, PROVIDED THAT there shall have been delivered to the Trustee and the
[Certificate Insurer] an Opinion of Counsel to the effect that such modification
of, addition to or elimination of such provisions will not cause the Upper-Tier
REMIC or Lower-Tier REMIC to cease to qualify as a REMIC and will not cause (x)
the Upper-Tier REMIC or Lower-Tier REMIC to be subject to an entity-level tax
caused by the Transfer of any Ownership Interest in a Residual Certificate to a
Person that is not a Permitted Transferee or (y) a Person other than the
prospective transferee to be subject to a REMIC-related tax caused by the
Transfer of an Ownership Interest in a Residual Certificate to a Person that is
not a Permitted Transferee.
(i) No transfer of a Class B Certificate or a Residual Certificate or
any interest therein shall be made to any (a) employee benefit plans (as defined
in Section 3(3) of ERISA) subject to the provisions of Title I of ERISA, (b)
plans described in section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans, (c) any entities whose underlying assets
include assets of a plan described in (a) or (b) above by reason of such a
plan's investment in such entities (each a "Plan"). Prior to the earlier of (i)
the date on which the Pre- Funding Period expires and (ii) the date on which the
U.S. Department of Labor amends Prohibited Transaction Class Exemption 90-32 to
permit the use thereunder of pre-funding accounts as described herein, no
transfer of a Class A Certificate shall be made to any Plan. The Trustee and the
Servicer shall require the prospective transferee of any Class B Certificate or
Residual Certificate to certify (in the form of Exhibit M-1 hereto) that it is
not a Plan. The Trustee and the Servicer shall require the prospective
transferee of any Class A Certificate (1) if such proposed transfer shall occur
during the period the proposed transfer of the Class A Certificates is not
permitted to be made to Plans (as described above), to certify (in the form of
Exhibit M-1 hereto) that it is not a Plan or (2) if such proposed transfer shall
occur after such period, to execute a certificate in the form of Exhibit M-2
hereto.
(j) Subject to the restrictions set forth in this Agreement, upon
surrender for registration of transfer of any Certificate at the office or
agency of the Trustee located in New York, New York, the Trustee shall execute,
authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate of the same Class and evidencing the same
Percentage Interest, and in any other case, the equivalent undivided beneficial
ownership interest in the Trust Fund and dated the date of authentication by the
Trustee. At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of Authorized Denominations of a like aggregate undivided
beneficial ownership interest, upon surrender of the Certificates to be
exchanged at such office. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute, authenticate and deliver the Certificates
which the Certificateholder making the exchange is entitled to receive. No
service charge shall be made for any transfer or exchange of Certificates, but
the Trustee 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 Certificates. All Certificates surrendered for transfer and exchange
shall be canceled by the Trustee.
Section 4.3 MUTILATED, DESTROYED; LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate is surrendered to the Trustee, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the [Certificate Insurer] and the
Trustee such security or indemnity as may reasonably be required by each of them
to save each of them harmless, then, in the absence of notice to the
[Certificate Insurer] and the Trustee that such Certificate has been acquired by
a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and representing an equivalent
beneficial ownership interest, but bearing a number not contemporaneously
outstanding. Upon the issuance of any new Certificate under this Section 4.3,
the Trustee may require the payment by the transferee Certificateholder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and their fees and expenses connected therewith. Any duplicate
Certificate issued pursuant to this Section 4.3 shall constitute complete and
indefeasible evidence of ownership in the Trust Fund, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Certificate shall be
found at any time.
Section 4.4 PERSONS DEEMED OWNERS. Prior to due presentation of a
Certificate for registration of transfer and subject to the provisions of
Section 4.2 and Article XI, the Servicer, the Depositor, the Seller, the
[Certificate Insurer] and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.5 and for all other purposes
whatsoever, and the Servicer, the Depositor, the Seller, the [Certificate
Insurer] and the Trustee shall not be affected by notice to the contrary.
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ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.1 APPOINTMENT OF THE SERVICER. (a) Advanta Mortgage Corp.
USA agrees to act as the Servicer and to perform all servicing duties under this
Agreement subject to the terms hereof.
(b) The Servicer shall service and administer the Mortgage Loans on
behalf of the Trustee and the [Certificate Insurer] and shall have full power
and authority, acting alone or through one or more Subservicers, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable. Without limiting the generality of the foregoing,
the Servicer, in its own name or the name of a Subservicer, may, and is hereby
authorized and empowered by the Trustee to, execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans, the insurance policies and accounts related thereto and the properties
subject to the Mortgages. Upon the execution and delivery of this Agreement, and
from time to time as may be required thereafter, the Trustee shall furnish the
Servicer or its Subservicers with any powers of attorney and such other
documents as may be necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder.
In servicing and administering the Mortgage Loans, the Servicer shall
employ procedures consistent with Accepted Servicing Practices and in a manner
consistent with recovery under any insurance policy required to be maintained by
the Servicer pursuant to this Agreement. The Servicer shall notify the
[Certificate Insurer] and the Seller of any material changes to its Accepted
Servicing Practices.
In servicing and administering the Mortgage Loans, the Servicer may,
in its sole discretion, and is hereby authorized to obtain and use consumer
reports, including but not limited to Credit Bureau Risk Scores, on behalf of
the Trust Fund for any lawful purpose, including but not limited to account
review and collection activities.
Costs incurred by the Servicer in effectuating the timely payment of
taxes and assessments on the property securing a Mortgage Note and foreclosure
costs may be added by the Servicer to the amount owing under such Mortgage Note
where the terms of such Mortgage Note so permit; PROVIDED, HOWEVER, that the
addition of any such cost shall not be taken into account for purposes of
calculating the principal amount of the Mortgage Note and the Mortgage Loan
secured by the Mortgage Note or distributions to be made to Certificateholders.
Such costs shall be recoverable by the Servicer pursuant to Section 5.9.
Notwithstanding any other provision of this Agreement, the Servicer shall at all
times service the Mortgage Loans in a manner consistent with the provisions of
this Section 5.1(b).
(c) Subject to Section 5. 11, the Servicer is hereby authorized and
empowered to execute and deliver on behalf of the Trustee and each
Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the Mortgaged Properties. If
reasonably required by the Servicer, the Trustee shall execute any powers of
attorney furnished to the Trustee by the Servicer and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.
(d) On and after such time as the Trustee receives the resignation of,
or notice of the removal of, the Servicer from its rights and obligations under
this Agreement, and with respect to resignation pursuant to Section 5.23, after
receipt by the Trustee and the [Certificate Insurer] of the Opinion of Counsel
required pursuant to Section 5.23, the Trustee or its designee approved by the
[Certificate Insurer] or other successor servicer approved by the [Certificate
Insurer] shall assume all of the rights and obligations of the Servicer, subject
to Section 7.2 hereof. The Servicer shall, upon request of the Trustee but at
the expense of the Servicer, deliver to the Trustee all documents and records
relating to the Mortgage Loans and an accounting of amounts collected and held
by the Servicer and otherwise use its best efforts to effect the orderly and
efficient transfer of servicing rights and obligations to the assuming party.
(e) The Servicer shall deliver a list of Servicing Officers to the
Trustee and the [Certificate Insurer] by the Closing Date, which list may, from
time to time, be amended, modified or supplemented by the subsequent delivery to
the Trustee and the [Certificate Insurer] of any superseding list of Servicing
Officers.
Section 5.2 SUBSERVICING AGREEMENTS BETWEEN THE SERVICER AND
SUBSERVICERS. (a) The Servicer may, subject to the prior written approval of the
[Certificate Insurer], enter into Subservicing Agreements with Subservicers for
the performance of servicing and administration of the Mortgage Loans. Each
Subservicer shall be either (i) a depository institution the accounts of which
are insured by the FDIC or (ii) another entity that engages in the business of
originating, acquiring or servicing mortgage loans, and in either case shall be
authorized to transact business in the state or states where the related
Mortgaged Properties it is to service are situated. In addition, each
Subservicer will obtain and preserve its qualifications to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of this Agreement, the
Certificates and any of the Mortgage Loans and to perform or cause to be
performed its duties under the related Subservicing Agreement which shall
provide that the Subservicer's rights shall automatically terminate upon the
termination, resignation or other removal of the Servicer under this Agreement.
Each account used by any Subservicer for the deposit of payments on any of the
Mortgage Loans shall be an Eligible Account.
(b) Notwithstanding any Subservicing Agreement or arrangement with a
collection agency, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and a Subservicer or any
collection agency or reference to actions taken through a Subservicer, a
collection agency or otherwise, the Servicer shall remain obligated and
primarily liable to the Trustee, the [Certificate Insurer] and the
Certificateholders for the servicing and administering of the Mortgage Loans in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Subservicing Agreements or
arrangements with a Subservicer or any collection agency or by virtue of
indemnification from the Subservicer or any collection agency and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Mortgage Loans. For purposes of this Agreement,
the Servicer shall be deemed to have received payments on Mortgage Loans when
the Subservicer or any collection agency, as the case may be, has received such
payments.
In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the Trustee or its
designee may, with the prior written consent of the [Certificate Insurer], or
shall, at the direction of the [Certificate Insurer], either (i) assume all of
the rights and obligations of the Servicer under each Subservicing Agreement
that the Servicer may have entered into or (ii) notwithstanding anything to the
contrary contained in each such Subservicing Agreement, terminate the related
Subservicer without being required to pay any fee in connection therewith.
Section 5.3 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS; COLLECTION
ACCOUNT. (a) The Servicer shall use its best efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and any
applicable primary mortgage insurance policy, follow such collection procedures
as shall constitute Accepted Servicing Practices. The Servicer may utilize the
services of any collection agencies in connection with its collection efforts.
The costs of any such collection agency shall be a "Servicing Advance."
The Servicer shall establish and maintain in the name of the Trustee
the Collection Account (collectively, the "Collection Account"), in trust for
the benefit of the Holders of the Certificates and the [Certificate Insurer].
The Servicer shall promptly provide notice to the [Certificate Insurer], the
Trustee and each Rating Agency of any creation and establishment of a Collection
Account hereunder. The Collection Account shall be established and maintained as
an Eligible Account.
The Servicer shall deposit in the Collection Account any amounts
representing Monthly Payments on the Mortgage Loans due or to be applied as of a
date after the Cut-Off Date, and thereafter, on a daily basis within two
Business Days of receipt (except as otherwise permitted herein), the following
payments and collections received or made by it (other than in respect of
principal of and interest on the Mortgage Loans due on or before the Cut-Off
Date):
(i) all payments received after the Cut-Off Date on
account of principal on the Mortgage Loans and all Principal
Prepayments, Curtailments and all Net REO Proceeds collected
after the Cut-Off Date;
(ii) all payments received after the Cut-Off Date on
account of interest on the Mortgage Loans (other than payments
of interest that accrued on each Mortgage Loan up to and
including the Due Date immediately preceding the Cut-Off
Date);
(iii) all Net Liquidation Proceeds;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the
repurchase of any Mortgage Loan and the amount of any
Substitution Adjustment pursuant to Sections 2.4 and
3.4 hereof;
(vii) any amount expressly required to be deposited
in the Collection Account in accordance with certain
provisions of this Agreement, including, without limitation
amounts in respect of the termination of the Trust Fund, and
amounts referenced in Sections 2.4(b), 3.4, 5.3, 5.6, and
6.6(d) of this Agreement; and
(viii) any deficiency judgments collected by
the Servicer;
PROVIDED, HOWEVER, that the Servicer shall be entitled, at its election to pay
to itself the applicable Servicing Fee. All other amounts shall be deposited in
the Collection Account not later than the second Business Day following the day
of receipt by the Servicer.
The Servicer may direct, in writing, the institution maintaining the
Collection Account to invest the funds in the Collection Account, only in
Permitted Investments. No Permitted Investment shall be sold or disposed of at a
gain prior to maturity unless the Servicer has obtained an Opinion of Counsel
delivered to the Trustee and the [Certificate Insurer] (at the Servicer's
expense) that such sale or disposition will not cause either the Upper-Tier
REMIC or Lower-Tier REMIC to be subject to the tax on income from prohibited
transactions imposed by Code Section 860F(a)(1), otherwise subject either
Upper-Tier REMIC or Lower-Tier REMIC to tax or cause the Trust Fund to fail to
qualify as a REMIC. All income (other than any gain from a sale or disposition
of the type referred to in the preceding sentence) realized from any such
Permitted Investment shall be for the benefit of the Servicer as additional
servicing compensation. The amount of any losses incurred in respect of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
The foregoing requirements for deposit in the Collection Account shall
be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of those described in the
last paragraph of Section 5.13 and payments in the nature of prepayment charges,
late payment charges or assumption fees need not be deposited by the Servicer in
the Collection Account. Notwithstanding any provision herein to the contrary, if
the Servicer deposits in the Collection Account any amount not required to be
deposited therein, it may at any time withdraw such amount from the Collection
Account. All funds deposited by the Servicer in the Collection Account shall be
held therein for the account of the Trustee in trust for the Certificateholders
and the [Certificate Insurer] until disbursed in accordance with Section 6.1 or
withdrawn in accordance with Section 5.4.
(b) Prior to the time of their required deposit in the Collection
Account, all amounts required to be deposited therein may be deposited in an
account in the name of Servicer, PROVIDED THAT such account is an Eligible
Account. The Servicer hereby acknowledges all such related funds shall be held
in trust for the benefit of the Certificateholders and the [Certificate Insurer]
pursuant to the terms hereof.
(c) The Collection Account may, upon written notice by the Trustee to
the [Certificate Insurer], be transferred by the Servicer to a different
depository so long as such transfer is to an Eligible Account.
Section 5.4 PERMITTED WITHDRAWALS FROM THE COLLECTION ACCOUNT. The
Servicer may, from time to time, make withdrawals from the Collection Account
for the following purposes, without duplication:
(a) to pay to itself from any funds in the Collection Account any
accrued and unpaid Servicing Fees and unreimbursed Delinquency Interest Advances
and Servicing Advances, PROVIDED, HOWEVER, that Servicing Advances may only be
reimbursed from late collections on the related Mortgage Loan, Insurance
Proceeds and Liquidation Proceeds;
(b) to reimburse itself for any Delinquency Interest Advances or
Servicing Advances determined in good faith to have become Nonrecoverable
Advances, such reimbursement to be made from any funds in the Collection
Account;
(c) to withdraw from the Collection Account any Preference Amount
received from a Mortgagor;
(d) to withdraw any funds deposited in the Collection Account that
were not required to be deposited therein;
(e) to withdraw from the Collection Account any funds needed to pay
itself Servicing Compensation pursuant to Section 5.13 hereof to the extent not
retained or paid pursuant to Section 5.3, 5.4 or 5.13;
(f) to withdraw from the Collection Account to pay to the Seller with
respect to each Mortgage Loan or property acquired in respect thereof that has
been repurchased or replaced pursuant to Section 2.4 or 3.4 or to pay to itself
with respect to each Mortgage Loan or property acquired in respect thereof that
has been purchased pursuant to Section 8.1, all amounts received thereon and not
required to be distributed as of the date on which the related repurchase or
purchase price or Principal Balance, as the case may be, was determined as a
result of such repurchase or replacement;
(g) to withdraw from the Collection Account to pay to the Seller with
respect to each Mortgage Loan any interest accrued and unpaid on such Mortgage
Loan prior to the Cut-Off Date, to the extent received;
(h) to transfer funds from the Collection Account necessary to make
deposits to the Certificate Account (which shall include the Trustee Fee) in the
amounts and in the manner provided for herein;
(i) to pay itself any interest earned on or investment income earned
with respect to funds in the Collection Account;
(j) to reimburse itself or the Depositor pursuant to 11. 1; and
(k) to clear and terminate the Collection Account upon the termination
of this Agreement.
Section 5.5 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES. With
respect to each Mortgage Loan as to which the Servicer maintains escrow
accounts, the Servicer shall maintain accurate records reflecting the status of
ground rents, taxes, assessments, water rates and other charges which are or may
become a lien upon the Mortgaged Property and the status of primary mortgage
guaranty insurance premiums, if any, and casualty insurance coverage and shall
obtain, from time to time, all bills for the payment of such charges (including
renewal premiums) and shall effect payment thereof prior to the applicable
penalty or termination date and at a time appropriate for securing maximum
discounts allowable, employing for such purpose deposits of the Mortgagor in any
escrow account which shall have been estimated and accumulated by the Servicer
in amounts sufficient for such purposes, as allowed under the terms of the
Mortgage. To the extent that a Mortgage does not provide for escrow payments,
the Servicer shall, if it has received notice of a default or deficiency,
monitor such payments to determine if they are made by the Mortgagor.
Section 5.6 MAINTENANCE OF CASUALTY INSURANCE. With respect to each
Mortgage Loan, the Servicer shall maintain accurate records reflecting casualty
insurance coverage. For each Mortgage Loan, the Servicer shall maintain or cause
to be maintained, to the extent required by the related Mortgage Loan to be
maintained by the Mortgagor, fire and casualty insurance with a standard
mortgagee clause and extended coverage in an amount which is not less than the
replacement value of the improvements securing such Mortgage Loan or the unpaid
principal balance of such Mortgage Loan, whichever is less. If, upon origination
of the Mortgage Loan, the Mortgaged Property was in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance has been made available) the Servicer
will cause to be maintained, to the extent required by the related Mortgage Loan
to be maintained by the Mortgagor, a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier, in an amount representing
coverage not less than the least of (i) the unpaid principal balance of the
Mortgage Loan, (ii) the full insurable value of the Mortgaged Property and (iii)
the maximum amount of insurance available under the Flood Disaster Protection
Act of 1973. With respect to each Mortgage Loan, the Servicer shall also
maintain fire insurance with extended coverage and, if applicable, flood
insurance on REO Property in an amount which is at least equal to the lesser of
(i) the maximum insurable value of the improvements which are a part of such
property and (ii) the principal balance owing on such Mortgage Loan at the time
of such foreclosure or grant of deed in lieu of foreclosure. It is understood
and agreed that such insurance shall be with insurers approved by the Servicer
and that no earthquake or other additional insurance is to be required of any
Mortgagor or to be maintained on property acquired in respect of a defaulted
loan, other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. Pursuant to
Section 5.3, any amounts collected by the Servicer under any insurance policies
maintained pursuant to this Section 5.6 (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or released to the
Mortgagor in accordance with Accepted Servicing Practices and applicable law)
shall be deposited into the Collection Account, subject to withdrawal pursuant
to Section 5.4. Any cost incurred by the Servicer in maintaining any such
insurance shall be added to the amount owing under the Mortgage Loan where the
terms of the Mortgage Loan so permit; PROVIDED, HOWEVER, that the addition of
any such cost shall not be taken into account for purposes of calculating the
principal amount of the Mortgage Note or the Mortgage Loan secured by the
Mortgage Note or the distributions to be made to the Certificateholders. Such
costs shall be recoverable by the Servicer pursuant to Section 5.4. In the event
that the Servicer shall obtain and maintain a blanket policy issued by an
insurer that is acceptable to FNMA or FHLMC, insuring against hazard losses on
all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligation as set forth in the second and third sentences of this Section 5.6,
it being understood and agreed that such policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall not have been
maintained on the related mortgaged or acquired property an insurance policy
complying with the second and third sentences of this Section 5.6 and there
shall have been a loss which would have been covered by such a policy had it
been maintained, be required to deposit from its own funds into the Collection
Account the amount not otherwise payable under the blanket policy because of
such deductible clause.
Section 5.7 SERVICER ACCOUNT. In addition to the Collection Account,
the Servicer shall be permitted to establish and maintain one or more Servicer
Accounts (collectively, the "Servicer Account"), which shall be an Eligible
Account, in which the Servicer may deposit all payments by, and collections
from, the Mortgagors received in connection with the Mortgage Loans prior to the
Servicer's deposit of all such funds required to be deposited into the
Collection Account. Withdrawals may be made out of such collections in the
Servicer Account to reimburse the Servicer for any required advances not
otherwise made from amounts on deposit in the Collection Account or for any
refunds made by the Servicer of any sums determined to be overages, or to pay
any interest owed to Mortgagors on such account to the extent required by law,
and in order to terminate and clear the Servicer Account upon the termination of
this Agreement upon the termination of the Trust Fund.
Section 5.8 FIDELITY BOND: ERRORS AND OMISSIONS POLICY. (a) The
Servicer shall maintain with a responsible company, and at its own expense, a
blanket fidelity bond (a "Fidelity Bond") and an errors and omissions insurance
policy (an "Errors and Omissions Policy"), in a minimum amount acceptable to
FNMA or otherwise in an amount as is commercially available at a cost that is
not generally regarded as excessive by industry standards, with broad coverage
on all officers, employees or other persons acting in any capacity requiring
such persons to handle funds, money, documents or papers relating to the
Mortgage Loans ("Servicer Employees"). Any such fidelity bond and errors and
omissions insurance shall protect and insure the Servicer against losses,
including losses resulting from forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such Servicer Employees. Such fidelity bond
shall also protect and insure the Servicer against losses in connection with the
release or satisfaction of a Mortgage Loan without having obtained payment in
full of the indebtedness secured thereby. No provision of this Section 5.8
requiring such fidelity bond and errors and omissions insurance shall diminish
or relieve the Servicer from its duties and obligations as set forth in this
Agreement.
(b) The Servicer shall be deemed to have complied with this provision
if one of its respective Affiliates has such a Fidelity Bond and Errors and
Omissions Policy and, by the terms of such fidelity bond and errors and omission
policy, the coverage afforded thereunder extends to the Servicer and the
Servicer Employees. The Servicer shall cause each and every Subservicer for it
to maintain a policy of insurance covering errors and omissions and a fidelity
bond which would meet the requirements of Section 5.8(a) hereof.
Section 5.9 COLLECTION OF TAXES, ASSESSMENTS AND OTHER ITEMS. The
Servicer shall deposit all payments by Mortgagors for taxes, assessments,
primary mortgage or hazard insurance premiums or comparable items in the
Servicer Account. Withdrawals from the Servicer Account may be made to effect
payment of taxes, assessments, primary mortgage or hazard insurance premiums or
comparable items, to reimburse the Servicer out of related collections for any
advances made in the nature of any of the foregoing, to refund to any Mortgagors
any sums determined to be overages, or to pay any interest owed to Mortgagors on
such account to the extent required by law or to clear and terminate the
Servicer Account at the termination of this Agreement upon the termination of
the Trust Fund. The Servicer shall advance the payments referred to in the first
sentence of this Section 5.9 that are not timely paid by the Mortgagors on the
date when the tax, assessment, premium or other cost for which such payment is
intended is due, but the Servicer shall be required to so advance only to the
extent that such advances, in the good faith judgment of the Servicer, will be
recoverable by the Servicer pursuant to Section 5.4 out of Liquidation Proceeds,
Insurance Proceeds or otherwise.
Section 5.10 ENFORCEMENT OF DUE-ON-SALE CLAUSES; ASSUMPTION
AGREEMENTS. In any case in which a Mortgaged Property is about to be conveyed by
the Mortgagor (whether by absolute conveyance or by contract of sale, and
whether or not the Mortgagor remains liable thereon) and the Servicer has
knowledge of such prospective conveyance, the Servicer shall effect assumptions
in accordance with the terms of any due-on-sale provision contained in the
related Mortgage Note or Mortgage. The Servicer shall enforce any due-on-sale
provision contained in such Mortgage Note or Mortgage to the extent the
requirements thereunder for an assumption of the Mortgage Loan have not been
satisfied to the extent permitted under the terms of the related Mortgage Note,
unless such provision is not exercisable under applicable law and governmental
regulations or in the Servicer's judgment, such exercise is reasonably likely to
result in legal action by the Mortgagor, or such conveyance is in connection
with a permitted assumption of the related Mortgage Loan. Subject to the
foregoing, the Servicer is authorized to take or enter into an assumption
agreement from or with the Person to whom such property is about to be conveyed,
pursuant to which such person becomes liable under the related Mortgage Note
and, unless prohibited by applicable state law, the Mortgagor remains liable
thereon, PROVIDED THAT the Mortgage Interest Rate with respect to such Mortgage
Loan shall remain unchanged. The Servicer is also authorized to release the
original Mortgagor from liability upon the Mortgage Loan and substitute the new
Mortgagor as obligor thereon. In connection with such assumption or
substitution, the Servicer shall apply such underwriting standards and follow
such practices and procedures as shall be normal and usual for mortgage loans
similar to the Mortgage Loans and as it applies to mortgage loans owned solely
by it. The Servicer shall notify the Trustee that any such assumption or
substitution agreement has been completed by forwarding to the Trustee the
original copy of such assumption or substitution agreement, which copy shall be
added by the Trustee to the related Mortgage File and shall, for all purposes,
be considered a part of such Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. In connection with any
such assumption or substitution agreement, the Mortgage Interest Rate of the
related Mortgage Note and the payment terms shall not be changed. Any fee
collected by the Servicer for entering into an assumption or substitution of
liability agreement will be retained by the Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any conveyance by the
Mortgagor of the property subject to the Mortgage or any assumption of a
Mortgage Loan by operation of law which the Servicer in good faith determines it
may be restricted by law from preventing, for any reason whatsoever, or if the
exercise of such right would impair or threaten to impair any recovery under any
applicable insurance policy or, in the Servicer's judgment, be reasonably likely
to result in legal action by the Mortgagor.
Section 5.11 REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) In the
event that any payment due under any Mortgage Loan is not paid when the same
becomes due and payable, or in the event the Mortgagor fails to perform any
other covenant or obligation under the Mortgage Loan and such failure continues
beyond any applicable grace period, the Servicer shall take such action as it
shall deem to be in the best interest of the Certificateholders and the
[Certificate Insurer]. With respect to any Charged-off Loan as to which no
satisfactory arrangements can be made for collection of delinquent payments in
accordance with the provisions of Section 5.1, and in accordance with the
standard of care specified in Section 5. 1, in the event that in the Servicer's
reasonable judgment a foreclosure or the taking of title to a related Mortgaged
Property or pursuit of a deficiency judgment against the related borrower is
likely to result in a positive economic benefit to the Trust Fund by creating
Net Liquidation Proceeds, the Servicer shall foreclose upon or otherwise
comparably effect the ownership thereof in the name of Trustee for the benefit
of the Certificateholders and the [Certificate Insurer] or seek a deficiency
judgment. The Servicer shall give the Trustee and the [Certificate Insurer]
notice of the election of remedies made pursuant to this Section 5.11. In
connection with any foreclosure or seeking of deficiency judgment or other
conversion, the Servicer shall exercise collection and foreclosure procedures
with the same degree of care and skill as it customarily employs and exercises
in collecting and foreclosing on mortgage loans for its own account and in
accordance with accepted collection and foreclosure practices of prudent lending
institutions and servicers of loans similar to the Mortgage Loans and giving due
consideration to the Certificateholders' and the [Certificate Insurer]'s
reliance on the Servicer. Any amounts advanced or expenses incurred in
connection with such foreclosure, deficiency judgment or other action shall
constitute "Servicing Advances". The foregoing is subject to the proviso that
the Servicer shall not expend its own funds in connection with any foreclosure
or to restore any damaged property unless it shall determine that (i) such
foreclosure and/or restoration will increase the proceeds of liquidation of the
Mortgage Loan to Certificateholders after reimbursement to itself for such
expenses and (ii) such expenses will be recoverable to it through Liquidation
Proceeds (respecting which it shall reimburse itself for such expense prior to
the deposit in the Collection Account of such proceeds). The Servicer shall be
entitled to reimbursement of the Servicing Fee and other amounts due it, if any,
to the extent, but only to the extent, that withdrawals from the Collection
Account with respect thereto are permitted under Section 5.4.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed or
certificate of sale shall be issued to the Trustee, or to the Servicer in the
name of the Trustee on behalf of the Trustee and the Certificateholders and the
[Certificate Insurer]. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such REO Mortgage Loan shall be
considered to be a Mortgage Loan held in the Trust Fund until such time as the
related Mortgaged Property shall be sold and such REO Mortgage Loan becomes a
Liquidated Loan. Consistent with the foregoing, for purposes of all calculations
hereunder, so long as such REO Mortgage Loan shall be considered to be an
Outstanding Mortgage Loan:
(i) It shall be assumed that, notwithstanding that
the indebtedness evidenced by the related Mortgage Note shall
have been discharged, such Mortgage Note and the related
amortization schedule in effect at the time of any such
acquisition of title (after giving effect to any previous
Curtailments and before any adjustment thereto by reason of
any bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) shall be assumed to remain in
effect, except that such schedule shall be adjusted to reflect
the application of Net REO Proceeds received in any month
pursuant to the succeeding clause.
(ii) Net REO Proceeds received in any month shall be
deemed to have been received first in payment of the accrued
interest that remained unpaid on the date that such Mortgage
Loan became an REO Mortgage Loan, with the excess thereof, if
any, being deemed to have been received in respect of the
delinquent principal installments that remained unpaid on such
date. Thereafter, Net REO Proceeds received in any month shall
be applied to the payment of installments of principal and
accrued interest on such Mortgage Loan deemed to be due and
payable in accordance with the terms of such Mortgage Note and
such amortization schedule. If such Net REO Proceeds exceed
the then Unpaid REO Amortization, the excess shall be treated
as a Curtailment received in respect of such Mortgage Loan.
In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, such Mortgaged Property shall be disposed of by or on behalf of
the Trust Fund within two years after its acquisition thereby unless (a) the
Servicer shall have provided to the Trustee and the [Certificate Insurer] an
Opinion of Counsel (at the expense of the Trust Fund) to the effect that the
holding by the Trust Fund of such Mortgaged Property subsequent to two years
after its acquisition (and specifying the period beyond such two-year period for
which the Mortgaged Property may be held) will not cause either the Upper-Tier
REMIC or Lower-Tier REMIC to be subject to the tax on prohibited transactions
imposed by Code Section 860F(a)(1), otherwise subject either the Upper-Tier
REMIC or Lower-Tier REMIC to tax or cause either the Upper-Tier REMIC or
Lower-Tier REMIC to fail to qualify as a REMIC at any time that any Certificates
are outstanding, or (b) the Servicer or the Trustee (at the Trust Fund's
expense) shall have applied for, at least 60 days prior to the expiration of
such two-year period, an extension of such two-year period in the manner
contemplated by Code Section 856(e)(3), in which case the two-year period shall
be extended by the applicable period. The Servicer shall further ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from non-permitted assets as described in Code Section 860F(a)(2)(B), and that
the Trust Fund does not derive any "net income from foreclosure property" within
the meaning of Code Section 860G(c)(2) with respect to such property.
Any REO Disposition shall be for cash only (unless changes in the
REMIC Provisions made subsequent to the Startup Day allow for a sale for other
consideration).
In lieu of foreclosing upon any defaulted Mortgage Loan, the Servicer
may, in its discretion, permit the assumption of such Mortgage Loan if, in the
Servicer's judgment, such default is unlikely to be cured and if the assuming
borrower satisfies the Servicer's good faith underwriting guidelines with
respect to mortgage loans owned by the Servicer. In connection with any such
assumption, the Mortgage Interest Rate of the related Mortgage Note and the
payment terms shall not be changed. Any fee collected by the Servicer for
entering into an assumption agreement will be retained by the Servicer as
servicing compensation. Alternatively, the Servicer may encourage the
refinancing of any defaulted Mortgage Loan by the Mortgagor.
Notwithstanding the foregoing, prior to instituting foreclosure
proceedings or accepting a deed-in-lieu of foreclosure with respect to any
Mortgaged Property, the Servicer shall make, or cause to be made, inspection of
the Mortgaged Property in accordance with the Accepted Servicing Practices and,
with respect to environmental hazards, such procedures as are required by the
provisions of the FNMA's selling and servicing guide applicable to single-family
homes and in effect on the date hereof. The Servicer shall be entitled to rely
upon the results of any such inspection made by others. In cases where the
inspection reveals that such Mortgaged Property is potentially contaminated with
or affected by hazardous wastes or hazardous substances, the Servicer shall
promptly give written notice of such fact to the [Certificate Insurer], the
Trustee and each Class A Certificateholder. The Servicer shall not proceed with
any foreclosure proceedings or accept a deed in lieu of foreclosure for such
Mortgaged Property without the prior written consent of the [Certificate
Insurer].
In addition to the foregoing, the holder of 50.01% Percentage Interest
or greater of the Class RL Certificates may purchase from the Trust Fund any
Charged-off Loan (or any Mortgage Loan which will imminently become a
Charged-off Loan) by depositing in the Certificate Account an amount equal to
the Loan Repurchase Price; PROVIDED, that such holder of the Class RL
Certificate may only make such repurchases if, following such repurchase, the
aggregate Loan Repurchase Price of all such repurchased Mortgage Loans does not
exceed 10% of the Maximum Collateral Amount.
(b) Upon becoming aware that a first lien mortgage loan relating to
any Mortgage Loan has come into default or of any action that the related
mortgagee has taken or may take in respect thereof, the Servicer shall,
consistent with the REMIC Provisions, take such actions as it shall deem
necessary or advisable, as shall be normal and usual in its general mortgage
servicing activities and as shall be required or permitted by Accepted Servicing
Practices. In taking such actions, the Servicer may advance such funds as are
necessary to cure such default, maintain such first lien mortgage loan relating
to any Mortgage Loan, acquire the related mortgagee's interest therein or redeem
the related Mortgaged Property. The Servicer, however, shall not be required to
expend its own funds in connection therewith unless it shall determine that such
expense will be recoverable to it. All such expenses shall be included as
Liquidation Expenses pursuant to the definition thereof, and shall be
reimbursable from the related Liquidation Proceeds in accordance with Section
5.4.
Section 5.12 TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES. (a) Upon
the payment in full of any Mortgage Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer shall (i) immediately deliver to the Trustee a
notice substantially in the form of the Request for Release of Documents
attached hereto as Exhibit G (which request shall include a statement to the
effect that all amounts received in connection with such payment which are
required to be deposited in the Collection Account pursuant to Section 5.3 have
been or shall be so deposited) and executed by a Servicing Officer and (ii)
request delivery to it of the Mortgage File. Upon receipt of such Request for
Release of Documents, the Trustee, or the Custodian on its behalf, shall
promptly release the related Mortgage File to the Servicer. Upon any such
payment in full, the Servicer is authorized to give, as agent for the Trustee
and the mortgagee under the Mortgage which secured the Mortgage Loan, an
instrument of satisfaction (or assignment of mortgage without recourse)
regarding the property subject to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of such payment, it being
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In connection therewith, the Trustee shall
execute and return to the Servicer any required power of attorney provided to
the Trustee by the Servicer and other required documentation in accordance with
Section 5.1(b). From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan and in accordance with Accepted Servicing
Practices, the Trustee shall, upon request of the Servicer and delivery to the
Trustee of a Request for Release of Documents signed by a Servicing Officer,
release, or cause the Custodian to release, the related Mortgage File to the
Servicer and shall execute such documents as shall be necessary to the
prosecution of any such proceedings. Such Request for Release of Documents shall
obligate the Servicer to return the Mortgage File to the Trustee when the need
therefor by the Servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of a certificate of a Servicing Officer
similar to the Request for Release of Documents or an additional Request for
Release of Documents hereinabove specified, the Mortgage File shall be delivered
by the Trustee to the Servicer.
(b) Each Request for Release of Documents may be delivered to the
Trustee (i) via mail or courier, (ii) via facsimile or (iii) by such other
means, including, without limitation, electronic or computer readable medium, as
the Servicer and the Trustee shall mutually agree. The Trustee shall promptly
release the related Mortgage File(s) within five (5) to seven (7) Business Days
of receipt of a properly completed Request for Release of Documents pursuant to
clauses (i), (ii) or (iii) above or such shorter period as may be agreed upon by
the Servicer and the Trustee. Receipt of a Request for Release of Documents
pursuant to clauses (i), (ii) or (iii) above shall be authorization to the
Trustee to release such Mortgage Files, provided the Trustee has determined that
such Request for Release of Documents has been executed, with respect to clauses
(i) or (ii) above, or approved, with respect to clause (iii) above, by a
Servicing Officer of the Servicer, and so long as the Trustee complies with its
duties and obligations under this Agreement. If the Trustee is unable to release
the Mortgage Files within the time frames previously specified, the Trustee
shall immediately notify the Servicer indicating the reason for such delay, but
in no event shall such notification be later than five Business Days after
receipt of a Request for Release of Documents. If the Servicer is required to
pay penalties or damages due solely to the Trustee's negligent failure to
release the related Mortgage File or the Trustee's negligent failure to execute
and release documents in a timely manner, the Trustee shall be liable for such
penalties or damages.
On each day that the Servicer remits to the Trustee Requests for
Release of Documents pursuant to clauses (ii) or (iii) above, the Servicer shall
also submit to the Trustee a summary of the total amount of such Request for
Release of Documents requested on such day by the same method as described in
such clauses (ii) or (iii) above.
Section 5.13 SERVICING FEE; SERVICING COMPENSATION. (a) The Servicer
shall be entitled, to pay itself the Servicing Fee pursuant to Section 5.3.
The aggregate Servicing Fee is reserved for the administration of the
Trust Fund and, in the event of replacement of the Servicer as servicer of the
Mortgage Loans, for the payment of other expenses related to such replacement.
The Trustee, in its capacity as successor servicer, shall not be liable for the
costs of replacement of a predecessor servicer, unless the Trustee is the
predecessor servicer.
The aggregate Servicing Fee shall be offset as provided in Section
5.19. The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including maintenance of the
hazard insurance required by Section 5.5) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
(b) Servicing compensation in the form of assumption fees, late
payment charges, tax service fees, fees for statement of account or payoff of
the Mortgage Loan (to the extent permitted by applicable law) or otherwise shall
be retained by the Servicer and are not required to be deposited in the
Collection Account.
Section 5.14 REPORTS TO THE TRUSTEE; COLLECTION ACCOUNT STATEMENTS.
Not later than 15 days after each Distribution Date, the Servicer shall provide
to the Trustee, the [Certificate Insurer], the Underwriter and the Depositor a
statement, certified by a Servicing Officer, setting forth the status of the
Collection Account as of the close of business on the last day of the
immediately preceding calendar month, stating that all distributions required by
this Agreement to be made by the Servicer on behalf of the Trustee have been
made (or if any required distribution has not been made by the Servicer,
specifying the nature and status thereof) and showing, for the period covered by
such statement, the aggregate of deposits into and withdrawals from the
Collection Account for each category of deposit specified in Section 5.3 and
each category of withdrawal specified in Section 5.4 and the aggregate of
deposits into the Certificate Account specified in Section 6.1(c). Copies of
such statement shall be provided by the Trustee to any Certificateholder upon
request.
Section 5.15 ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer will
deliver to the Trustee, the [Certificate Insurer], the Underwriter, and each of
the Rating Agencies not later than the last day of the fifth month subsequent to
the end of the Servicer's fiscal year, beginning in 1998, an Officers'
Certificate stating as to each signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
year, or if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and (iii) the Servicer has in full force and effect a blanket fidelity
bond and an errors and omissions insurance policy in accordance with the terms
and requirements of Section 5.8 hereof. Such Officers' Certificate shall be
accompanied by the statement described in Section 5.16 of this Agreement. Copies
of such statement shall, upon request, be provided to any Certificateholder by
the Servicer, or by the Trustee at the Servicer's expense if the Servicer shall
fail to provide such copies.
Section 5.16 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
Not later than the last day of the fifth month subsequent to the end of the
Servicer's fiscal year, beginning in 1998, the Servicer, at its expense, shall
cause a firm of nationally recognized independent public accountants to furnish
a statement to the Trustee, the [Certificate Insurer], the Underwriter, each of
the Rating Agencies, each Certificateholder to the effect that, on the basis of
an examination of certain documents and records relating to the servicing of the
mortgage loans being serviced by the Servicer under pooling and servicing
agreements similar to this Agreement (which agreements shall be described in a
schedule to such statement), conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers, such firm is of the
opinion that such servicing has been conducted in compliance with this
Agreement. Copies of such statement shall, upon request, be provided to
Certificateholders by the Servicer, or by the Trustee at the Servicer's expense
if the Servicer shall fail to provide such copies. For purposes of such
statement, such firm may conclusively presume that any pooling and servicing
agreement which governs mortgage pass-through certificates offered by the
Depositor (or any predecessor or successor thereto) in a registration statement
under the Securities Act of 1933, as amended, is similar to this Agreement,
unless such other pooling and servicing agreement expressly states otherwise.
Section 5.17 [Reserved].
Section 5.18 REPORTS TO BE PROVIDED BY THE Servicer. The Servicer
agrees to make available on a reasonable basis to the [Certificate Insurer] a
knowledgeable financial or accounting officer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the [Certificate Insurer]
to inspect the Servicer's servicing facilities during normal business hours for
the purpose of satisfying the [Certificate Insurer] that the Servicer has the
ability to service the Mortgage Loans in accordance with this Agreement.
Section 5.19 ADJUSTMENT OF SERVICING COMPENSATION IN RESPECT OF
PREPAID MORTGAGE LOANS. The aggregate amount of the Servicing Fees that the
Servicer shall be entitled to receive with respect to all of the Mortgage Loans
and each Distribution Date shall be offset on such Distribution Date by an
amount equal to the aggregate Prepayment Interest Shortfall with respect to all
Mortgage Loans which were subjects of Principal Prepayments during the
Collection Period applicable to such Distribution Date. The amount of any offset
against the aggregate Servicing Fee with respect to any Distribution Date under
this Section 5.19 shall be limited to the aggregate amount of the Servicing Fees
otherwise payable to the Servicer and any Subservicer (without adjustment on
account of Prepayment Interest Shortfalls) with respect to (i) scheduled
payments having the Due Date occurring in Collection Period applicable to such
Distribution Date, and (ii) Principal Prepayments and Liquidation Proceeds
applicable to such Distribution Date, and the rights of the Certificateholders
to the offset of the aggregate Prepayment Interest Shortfalls shall not be
cumulative.
Section 5.20 DELINQUENCY INTEREST ADVANCES. By 3:00 p.m. New York time
on each Servicer Remittance Date, the Servicer shall make a Delinquency Interest
Advance with respect to delinquent interest on each Mortgage Loan which was a
Delinquent Mortgage Loan with respect to the related Collection Period by
depositing such Delinquency Interest Advance into the Certificate Account;
PROVIDED, HOWEVER, that the Servicer will not be required to make any
Delinquency Interest Advance if the Servicer has determined in accordance with
Accepted Servicing Practices that all amounts which it expects to receive with
respect to such Mortgage Loan have been received. Such deposit may be made in
whole or in part or in part from funds in the Collection Account being held for
future distribution or withdrawal on or in connection with Distribution Dates in
subsequent months. Any funds being held for future distribution to
Certificateholders and so used shall be replaced by Servicer from its own funds
by deposit in the Certificate Account on or before the Business Day preceding
any such future Servicer Remittance Date to the extent that funds in the
Certificate Account on such Servicer Remittance Date shall be less than payments
to Certificateholders required to be made on such date.
The Servicer shall be permitted to reimburse itself for any
Delinquency Interest Advance from any subsequent collections or Net Liquidation
Proceeds relating to such Mortgage Loan. If not theretofore recovered by the
Servicer, and the Servicer determines that any Delinquency Interest Advance was
a Nonrecoverable Advance, such Delinquency Interest Advance shall be recoverable
pursuant to Section 5.4 hereof.
Section 5.21 [RESERVED].
Section 5.22 MAINTENANCE OF CORPORATE EXISTENCE AND LICENSES; MERGER
OR CONSOLIDATION OF THE SERVICER. (a) The Servicer will keep in full effect its
existence, rights and franchises as a corporation, will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction
necessary to protect the validity and enforceability of this Agreement or any of
the Mortgage Loans and to perform its duties under this Agreement and will
otherwise operate its business so as to cause the representations and warranties
under Section 3.1 to be true and correct at all times under this Agreement.
(b) Any Person into which the Servicer may be merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer shall be a party, or any Person succeeding to the business of
the Servicer, shall be an established mortgage loan servicing institution
acceptable to the [Certificate Insurer] that has a net worth of at least
$15,000,000 and is a Permitted Transferee, and in all events shall be the
successor of the Servicer without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Servicer shall send notice of any such merger or
consolidation to the Trustee and the [Certificate Insurer].
Section 5.23 ASSIGNMENT OF AGREEMENT BY SERVICER; SERVICER NOT TO
RESIGN. The Servicer shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual written consent of
the Servicer, the Seller, the Depositor, the [Certificate Insurer] and the
Trustee or upon the determination that the Servicer's duties hereunder are no
longer permissible under applicable law and that such incapacity cannot be cured
by the Servicer without the incurrence, in the reasonable judgment of the
[Certificate Insurer], of unreasonable expense. Any such determination that the
Servicer's duties hereunder are no longer permissible under applicable law
permitting the resignation of the Servicer shall be evidenced by a written
Opinion of Counsel (who may be counsel for the Servicer) to such effect
delivered to the Trustee, the Seller, the Depositor and the [Certificate
Insurer]. No such resignation shall become effective until the Trustee or a
successor appointed in accordance with the terms of this Agreement has assumed
the Servicer's responsibilities and obligations hereunder in accordance with
Section 7.2. The Servicer shall provide the Trustee, each of the Rating Agencies
and the [Certificate Insurer] with 30 days' prior written notice of its
intention to resign pursuant to this Section 5.23.
Section 5.24 INFORMATION REPORTS TO BE FILED BY THE SERVICER. The
Servicer or Subservicers shall file information returns with respect to the
receipt of mortgage interest received in a trade or business, reports of
foreclosures and abandonments of any Mortgaged Property and cancellation of
indebtedness income with respect to any Mortgaged Property as required by
Sections 6050H, 6050J and 6050P of the Code, respectively.
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<PAGE>
ARTICLE Vl
DISTRIBUTIONS AND PAYMENTS
Section 6.1 ESTABLISHMENT OF CERTIFICATE ACCOUNT; DEPOSITS TO THE
CERTIFICATE ACCOUNT. (a) The Trustee shall establish and maintain the
Certificate Account which shall be titled "Certificate Account, [Bankers Trust
Company,] as trustee for the registered holders of Preferred Credit Asset-Backed
Certificates, Series 199_-_ and MBIA Insurance Corporation as [Certificate
Insurer]" and which shall be an Eligible Account. Notice of the establishment of
the Certificate Account shall be promptly provided in writing to each of the
Servicer, the Rating Agencies and the [Certificate Insurer].
(b) Subject to Section 6.6 hereof, the Servicer may direct the Trustee
in writing to invest the funds in the Certificate Account only in Permitted
Investments which mature not later than the Business Day prior to the
Distribution Date. No Permitted Investment shall be sold or disposed of at a
gain prior to maturity unless the Servicer has delivered to the Trustee and the
[Certificate Insurer] an Opinion of Counsel (at the Servicer's expense) that
such sale or disposition will not cause the Lower-Tier REMIC or Upper-Tier REMIC
to be subject to the tax on income from prohibited transactions imposed by Code
Section 860F(a)(1), otherwise subject the Lower-Tier REMIC or Upper-Tier REMIC
to tax or cause the Lower-Tier REMIC or Upper-Tier REMIC to fail to qualify as a
REMIC. All income (other than any gain from a sale or disposition of the type
referred to in the preceding sentence) realized from any such Permitted
Investment shall be for the benefit of the Servicer as additional servicing
compensation. The amount of any losses incurred in respect of any such
investments shall be deposited in the Certificate Account by the Servicer out of
its own funds immediately as realized.
(c) On each Servicer Remittance Date, the Servicer shall cause to be
deposited in the Certificate Account, from related funds on deposit in the
Collection Account, an amount equal to the related Servicer Remittance Amount.
(d) The Trustee shall make deposits to the Certificate Account
pursuant to Section 6.11 and 6.12.
Section 6.2 PERMITTED WITHDRAWALS FROM THE CERTIFICATE ACCOUNT. The
Trustee shall, in accordance with the Servicer's written directions to the
Trustee as described in Section 6.5, withdraw or cause to be withdrawn funds
from the Certificate Account for the following purposes:
(i) to effect the distributions described in
Section 6.5;
(ii) to pay the Servicer any interest earned on
or investment income earned with respect to funds in
the Certificate Account;
(iii) to return to the Collection Account any
amount deposited in the Certificate Account that was
not required to be deposited therein;
(iv) to pay to itself the Trustee Fee in
accordance with Section 9.5; and
(v) to clear and terminate the Certificate
Account upon termination of the Trust Fund pursuant
to Article VIII.
The Trustee shall keep and maintain a separate accounting for
withdrawals from the Certificate Account pursuant to each of subclauses (i)
through (vi) listed above.
Section 6.3 COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of all money and
other property payable to or receivable by the Trustee pursuant to this
Agreement, including, but not limited to, (a) all payments due on the Mortgage
Loans in accordance with the respective terms and conditions of such Mortgage
Loans and required to be paid over to the Trustee by the Servicer or by any
Subservicer and (b) Insured Payments. The Trustee shall hold all such money and
property received by it, as part of the Trust Fund and shall apply it as
provided in this Agreement.
Section 6.4 THE [CERTIFICATE INSURANCE POLICY]. (a) Subject to receipt
of the report referenced in Section 6.5, within three Business Days after each
Determination Date, the Trustee shall determine with respect to the immediately
following Distribution Date the amount to be on deposit in the Certificate
Account on such Distribution Date less the amounts described in clauses (i) and
(ii) of Section 6.5 for the related Distribution Date, and not including the
amount of any Insured Payment which is required to be deposited in the related
Certificate Account for such Distribution Date. The amounts described in the
preceding sentence with respect to each Distribution Date are the "Available
Funds" for such Distribution Date.
(b) If on any Distribution Date there is an Available Funds Shortfall,
the Trustee shall complete a Notice in the form of Exhibit A to the [Certificate
Insurance Policy] and submit such Notice to the [Certificate Insurer] no later
than 12:00 noon New York City time on the third Business Day preceding such
Distribution Date as a claim for an Insured Payment in an amount equal to such
Available Funds Shortfall.
(c) The Trustee shall establish a separate Eligible Account for the
benefit of Holders of the Certificates and the [Certificate Insurer] referred to
herein as the "Certificate Insurance Payments Account" over which the Trustee
shall have exclusive control and sole right of withdrawal. The Trustee shall
deposit upon receipt any amount paid under the [Certificate Insurance Policy] in
the Certificate Insurance Payments Account and distribute such amount only for
purposes of payment to Certificateholders of the portion of the Insured
Distribution Amount for which a claim was made and such amount may not be
applied to satisfy any costs, expenses or liabilities of the Servicer, the
Trustee or the Trust Fund. Amounts paid under the [Certificate Insurance
Policy], to the extent needed to pay the Insured Distribution Amount, shall be
transferred by the Trustee from the Certificate Insurance Payments Account to
the Certificate Account on the related Distribution Date and disbursed by the
Trustee to the Class A Certificateholders in accordance with Section 6.5. It
shall not be necessary for payments made under the [Certificate Insurance
Policy] to be made by checks or wire transfers separate from other amounts
distributed pursuant to Section 6.5. However, the amount of any payment of
principal of or interest on the Class A Certificates to be paid from funds
transferred from the Certificate Insurance Payments Account shall be noted as
provided in paragraph (d) below. Funds held in the Certificate Insurance
Payments Account shall not be invested. Any funds remaining in the Certificate
Insurance Payments Account on the first Business Day following a Distribution
Date shall be returned to the [Certificate Insurer] by the Trustee pursuant to
the written instructions of the [Certificate Insurer] by the end of such
Business Day.
(d) The Trustee shall keep a complete and accurate record of the
amount of interest and principal paid in respect of any Class A Certificate from
moneys received under the [Certificate Insurance Policy]. The [Certificate
Insurer] shall have the right to inspect such records at reasonable times during
normal business hours upon one Business Day's prior notice to the Trustee.
(e) In the event that the Trustee has received a certified copy of an
order of the appropriate court that any amount distributed on the Class A
Certificates, including any amounts represented by an Insured Payment, has been
voided in whole or in part as a preference payment under applicable bankruptcy
law that constitutes a Preference Amount under the [Certificate Insurance
Policy], the Trustee shall so notify the [Certificate Insurer], shall comply
with the provisions of the [Certificate Insurance Policy] to obtain payment by
the [Certificate Insurer] of such voided amount distributed, and shall, at the
time it provides notice to the [Certificate Insurer], notify, by mail to Class A
Certificateholders of the affected Class A Certificates that, in the event any
Class A Certificateholder's amount distributed is so recovered, such Class A
Certificateholder will be entitled to payment pursuant to the [Certificate
Insurance Policy], a copy of which shall be made available through the Trustee,
the [Certificate Insurer] or the [Certificate Insurer]'s Fiscal Agent, if any,
and the Trustee shall furnish to the [Certificate Insurer] or its Fiscal Agent,
if any, its records evidencing the payments which have been made by the Trustee
and subsequently recovered from Certificateholders, and dates on which such
payments were made.
(f) The Trustee shall promptly notify the [Certificate Insurer] of any
proceeding or the institution of any action, of which a Responsible Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Certificates.
Each Certificateholder, by its purchase of Certificates, the Seller, the
Depositor, the Servicer and the Trustee agree that, the [Certificate Insurer]
(so long as no [Certificate Insurer] Default exists) may at any time during the
continuation of any proceeding relating to a Preference Claim direct all matters
relating to such Preference Claim, including, without limitation, (i) the
direction of any appeal of any order relating to such Preference Claim and (ii)
the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the [Certificate
Insurer] shall be subrogated to, and each Certificateholder, the Servicer, the
Seller, the Depositor and the Trustee hereby delegate and assign to the
[Certificate Insurer], to the fullest extent permitted by law, the rights of the
Servicer, the Trustee, the Depositor, the Seller and each Certificateholder in
the conduct of any such Preference Claim, including, without limitation, all
rights of any party to any adversary proceeding or action with respect to any
court order issued in connection with any such Preference Claim.
Section 6.5 DISTRIBUTIONS. No later than 12:00 noon California time on
the Business Day following the Determination Date, the Servicer shall deliver to
the Trustee and the [Certificate Insurer] a report in computer-readable form
(including electronic transmission) containing such information as to the
Mortgage Loans as of such date and such other information as the Trustee and the
[Certificate Insurer] may reasonably require. With respect to funds on deposit
in the Certificate Account (inclusive of amounts transferred from the
Certificate Insurance Payments Account, the Pre-Funding Account and the
Capitalized Interest Account), on each Distribution Date, the Trustee shall make
the following allocations, disbursements and transfers in the following order of
priority, and each such allocation, transfer and disbursement shall be treated
as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(i) to the [Certificate Insurer], the [Certificate Insurance Policy
Premium Amount;]
(ii) to the Trustee, an amount equal to the Trustee Fees then due to
it;
(iii) to the [Certificate Insurer], the lesser of (x) an amount equal
to (i) the Available Funds MINUS (ii) the Insured Distribution Amount for such
Distribution Date and (y) the outstanding Reimbursement Amount, if any, as of
such Distribution Date;
(iv) to each Class A Certificateholder, an amount equal to the related
Class A Interest Distribution Amount;
(v) to each of the Class A Certificateholders, an amount equal to the
lesser of (a) the related Class A Principal Distribution Amount and (b) the
amount remaining in the Certificate Account after distributions pursuant to
clauses (i) through (iiv) above, as follows:
(1) to the Class A-1 Certificateholders until
the Class A-1 Principal Balance has been reduced to
zero;
(2) to the Class A-2 Certificateholders until
the Class A-2 Principal Balance has been reduced to
zero;
(3) to the Class A-3 Certificateholders until
the Class A-3 Principal Balance has been reduced to
zero; and
(4) to the Class A-4 Certificateholders until
the Class A-4 Principal Balance has been reduced to
zero;
(5) to the Class A-5 Certificateholders until
the Class A-5 Principal Balance has been reduced to
zero; and
(6) to the Class A-6 Certificateholders until
the Class A-6 Principal Balance has been reduced to
zero;
(vi) to the Class B Certificateholders, the lesser of (a) the Class B
Accrued Interest and (b) the amount remaining in the Certificate Account after
distributions pursuant to clauses (i) through (v) above; however, any unpaid
Class B Accrued Interest for such Distribution Date shall be added to the Class
B Principal Balance.
(vii) to the Class B Certificateholders, an amount equal to the
Overcollateralization Reduction Amount, which shall be applied as a reduction of
the Class B Principal Balance;
(viii) to the Class B Certificateholders, on any Distribution Date an
amount equal to the lesser of (a) the Class B Accrued Interest and (b) the
amount remaining in the Certificate Account after distributions pursuant to
clauses (i) through (v) above.
(ix) to the Class B Certificateholders, on any Distribution Date on
which the Class A Principal Balance is zero, an amount equal to the lesser of
(a) the Class B Principal Balance and (b) the amount remaining in the
Certificate Account;overcollateralization Reduction amount is greater than zero,
the amount of such Overcollateralization amount, which shall be applied to
reduce the Class B Principal Balance until the Class B Principal Balance has
been reduced to zero.
(x) to the Holders of the Class RU Certificates, the amount remaining
on such Distribution Date, if any;
PROVIDED, HOWEVER, that if, on any Distribution Date, (x) the [Certificate
Insurer] is then in default under the [Certificate Insurance Policy] relating to
the Mortgage Loans and (y) an Overcollateralization Deficit exists, then any
distribution of the Class A Principal Distribution Amount on such Distribution
Date shall be made PRO RATA to the holders of each of the Class A Certificates
until the Class A Principal Balance has been reduced to zero.
Notwithstanding clause (iv) above, the aggregate amounts distributed
on all Distribution Dates to the Holders of the Class A Certificates on account
of the related Class A Principal Distribution Amount shall not exceed the
related Original Class A Principal Balance.
Section 6.6 INVESTMENT OF ACCOUNTS. (a) So long as no Event of Default
shall have occurred and be continuing and consistent with any requirements of
the Code, all or a portion of any Account (other than the Certificate Insurance
Payments Account) held by the Trustee shall be invested and reinvested by the
Trustee, as directed in writing by the Servicer (with respect to the Collection
Account and the Certificate Account) or the Seller (with respect to the
Pre-Funding Account and the Capitalized Interest Account) in one or more
Permitted Investments bearing interest or sold at a discount. If an Event of
Default shall have occurred and be continuing or if the Servicer or the Seller
do not provide investment directions, the Trustee shall invest all Accounts in
Permitted Investments described in paragraph (d) of the definition of Permitted
Investments. No such investment in any Account shall mature later than the
Business Day immediately preceding the next Distribution Date (except that if
such Permitted Investment is an obligation of the Trustee, then such Permitted
Investment shall mature not later than such Distribution Date). Notwithstanding
anything to the contrary in this Section 6.6(a), all amounts received under the
[Certificate Insurance Policy] shall remain uninvested.
(b) If any amounts are needed for disbursements from any Account
(other than the Certificate Insurance Payments Account) held by the Trustee and
sufficient uninvested funds are not available to make such disbursement, the
Trustee shall cause to be sold or otherwise converted to cash a sufficient
amount of the investments in such Account. The Trustee shall not be liable for
any investment loss or other charge resulting therefrom unless the Trustee's
failure to perform in accordance with this Section 6.6 is the cause of such loss
or charge or the Trustee is the obligor of the related investment.
(c) Subject to Section 9.1 hereof, the Trustee shall not in any way be
held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any investment loss on any Permitted Investment included therein
(except as provided in subsection (b) of this Section 6.6).
(d) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
earnings on, funds deposited in the Collection Account shall be for the benefit
of the Servicer as servicing compensation (in addition to the Servicing Fee).
The Servicer shall deposit in the Collection Account and the Certificate Account
and the Seller shall deposit in the Pre-Funding Account and the Capitalized
Interest Account, the amount of any loss incurred in respect of any Permitted
Investment held therein which is in excess of the income and gain thereon
immediately upon realization of such loss, without any right to reimbursement
therefor from its own funds.
Section 6.7 REPORTS BY TRUSTEE. (a) on each Distribution Date the
Trustee shall, based on a report delivered to it by the Servicer on the
Determination Date, as described in Section 6.5 hereof, provide to each Holder,
to the [Certificate Insurer], to the Depositor, to the Servicer, to the
Underwriter, to S&P and to Moody's a written report (the "Trustee Remittance
Report"), setting forth information, including, without limitation, the
following information:
(i) the amount of the distributions made on such
Distribution Date with respect to the Class A
Certificates, the Class B Certificates and any
Residual Certificates;
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments, Curtailments, any Pre-Funded Amounts distributed
as a prepayment or other unscheduled recoveries of principal
included therein;
(iii) the amount of such distributions
allocable to interest and the calculation thereof;
(iv) the amount of any Net Liquidation Proceeds
and Net REO Proceeds included in such distributions
and the calculation thereof;
(v) the principal amount of the related Class A
Certificates (based on a Certificate in an original principal
amount of $1,000) then outstanding in each case after giving
effect to any principal payments made on such Distribution
Date;
(vi) the principal amount of the related Class B
Certificates (based on a Certificate in an original principal
amount of $1,000) then outstanding in each case after giving
effect to any principal payments made on such Distribution
Date;
(vii) the amount of any Insured Payment
included in the amounts distributed to the Class A
Certificateholders on such Distribution Date, together
with any Reimbursement Amount paid to the
[Certificate Insurer];
(viii) the Required Overcollateralization
Level and the Overcollateralization Amount as of
such Distribution Date;
(ix) the total of any Substitution Adjustments
and any Loan Repurchase Price amounts included in
such distribution;
(x) the amounts, if any, of any Realized Losses
for the related Collection Period; and
(xi) for Distribution Dates during the
Pre-Funding Period, the remaining Pre-Funded Amount.
Items (i), (ii) and (iii) above shall, with respect to the Class A Certificates
and the Class B Certificates, be presented on the basis of a Certificate having
a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Certificates are outstanding, the Trustee
shall furnish a report to the [Certificate Insurer] and to each Holder of record
if so requested in writing at any time during each calendar year as to the
aggregate of amounts reported pursuant to (i), (ii) and (iii) with respect to
the Certificates for such calendar year.
(b) The Trustee shall, on behalf of the Trust, cause to be filed with
the Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Depositor and the Servicer shall
cooperate with the Trustee in the preparation of any such report and shall
provide to the Trustee in a timely manner all such information or documentation
as the Trustee may reasonably request in connection with the performance of its
duties and obligations under this Section 6.7(b).
(c) All distributions made to the Certificateholders according to
Class or type of Certificate on each Distribution Date will be made on a pro
rata basis among the Certificateholders as of the next preceding Record Date
based on the Percentage Interest represented by their respective Certificates,
and shall be made by wire transfer of immediately available funds to the account
of such Certificateholder at a bank or other entity having appropriate
facilities therefor, if, in the case of a Class A Certificateholder, such
Certificateholder shall own of record Class A Certificates having an aggregate
initial Class A Principal Balance of at least $5,000,000 appearing in the
Certificate Register and shall have provided complete wiring instructions at
least five Business Days prior to the Record Date, and otherwise by check mailed
to the address of such Certificateholder appearing in the Certificate Register.
(d) In addition, on each Distribution Date the Trustee will distribute
to each Holder, to the [Certificate Insurer], to the Underwriter, to the
Depositor, to each of the Rating Agencies, together with the information
described in subsection (a) preceding, the following information with respect to
the Mortgage Loans as of the close of business on the last Business Day of the
prior Collection Period (except as otherwise provided in clause (v) below),
which is hereby required to be prepared by the Servicer and furnished to the
Trustee for such purpose on or prior to the related Servicer Remittance Date:
(i) the total number of Mortgage Loans and the
aggregate Principal Balances thereof, together with the
number, aggregate Principal Balances of such Mortgage Loans
and the percentage of the aggregate Principal Balances of such
Mortgage Loans to the aggregate Principal Balance of all
Mortgage Loans (A) 30-59 days Delinquent, (B) 60-89 days
Delinquent and (C) 90 or more days Delinquent;
(ii) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal
Balance of all Mortgage Loans in foreclosure proceedings and
the number, aggregate Principal Balances of all Mortgage Loans
and percentage of any such Mortgage Loans that are also
included in any of the statistics described in the foregoing
clause (i);
(iii) (a) the number, aggregate Principal Balances of
all Mortgage Loans and percentage of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal
Balance of all Mortgage Loans relating to Mortgagors in
bankruptcy proceedings and (b) the number, aggregate Principal
Balances of all Mortgage Loans and percentage of any such
Mortgage Loans that are also included in any of the statistics
described in the foregoing clause (i);
(iv) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal
Balance of all REO Mortgage Loans and the number, aggregate
Principal Balances of all Mortgage Loans and percentage of any
such Mortgage Loans that are also included in any of the
statistics described in the foregoing clause (i);
(v) the weighted average Mortgage Interest Rate and
the Net Mortgage Interest Rate as of the Due Date occurring in
the Collection Period related to such Distribution Date;
(vi) the weighted average remaining term to
stated maturity of all Mortgage Loans; and
(vii) the book value of any REO Property.
Section 6.8 ADDITIONAL REPORTS BY TRUSTEE. (a) The Trustee shall
report to the Depositor, the Servicer and the [Certificate Insurer] with respect
to the amount then held in each Account (including investment earnings accrued
or scheduled to accrue) held by the Trustee and the identity of the investments
included therein, as the Depositor, the Servicer or the [Certificate Insurer]
may from time to time request in writing.
(b) From time to time, at the request of the [Certificate Insurer],
the Trustee shall report to the [Certificate Insurer] with respect to its actual
knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
Section 3.2 or 3.3 hereof.
Section 6.9 COMPENSATING INTEREST. By 3:00 p.m. New York time on each
Servicer Remittance Date, the Servicer or any Subservicer shall remit to the
Trustee (without right of reimbursement therefor) for deposit into the
Certificate Account an amount equal to the lesser of (a) the aggregate of the
Prepayment Interest Shortfalls for the related Distribution Date resulting from
Principal Prepayments during the related Collection Period and (b) its aggregate
Servicing Fees received in the related Collection Period (the "Compensating
Interest").
Section 6.10 EFFECT OF PAYMENTS BY THE [CERTIFICATE INSURER];
SUBROGATION. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Certificates which is made with
moneys received pursuant to the terms of the [Certificate Insurance Policy]
shall not be considered payment of the Certificates from the Trust Fund. The
Depositor, the Servicer and the Trustee acknowledge, and each Holder by its
acceptance of a Certificate agrees, that without the need for any further action
on the part of the [Certificate Insurer], the Depositor, the Servicer, the
Trustee or the Certificate Registrar (i) to the extent the [Certificate Insurer]
makes payments, directly or indirectly, on account of principal of or interest
on the Certificates to the Holders of such Certificates, the [Certificate
Insurer] will be fully subrogated to, and each Certificateholder, the Depositor,
the Servicer and the Trustee hereby delegate and assign to the [Certificate
Insurer], to the fullest extent permitted by law, the rights of such Holders to
receive such principal and interest from the Trust Fund, including, without
limitation, any amounts due to the Certificateholders in respect of securities
law violations arising from the offer and sale of the Certificates, and (ii) the
[Certificate Insurer] shall be paid such amounts but only from the sources and
in the manner provided herein for the payment of such amounts. The Depositor,
the Seller and Trustee and the Servicer shall cooperate in all respects with any
reasonable request by the [Certificate Insurer] for action to preserve or
enforce the [Certificate Insurer]'s rights or interests under this Agreement
without limiting the rights or affecting the interests of the Holders as
otherwise set forth herein.
Section 6.11 PRE-FUNDING ACCOUNT.
(a) No later than the Closing Date, the Trustee shall establish and
maintain with itself one or more segregated trust accounts that are Eligible
Accounts, which shall be titled "Pre-Funding Account, [Bankers Trust Company,]
as trustee for the registered holders of Preferred Credit Asset--Backed
Certificates, Series 199_-_ and MBIA Insurance Corporation, as [Certificate
Insurer]" (the "Pre-Funding Account"). On the Closing Date, the Trustee shall
from the proceeds of the sale of the Class A Certificates deposit in the
Pre-Funding Account and retain therein the Original Pre-Funded Amount. Funds
deposited in the Pre-Funding Account shall be held in trust by the Trustee for
the Holders of the Certificates and the [Certificate Insurer] for the uses and
purposes set forth herein. For federal income tax purposes, the Depositor shall
be the owner of the Pre-Funding Account and shall report all items of income,
deduction, gain or loss arising therefrom. All income and gain realized from
investment of funds deposited in the Pre-Funding Account shall be transferred to
the Capitalized Interest Account on the Business Day immediately preceding each
Distribution Date.
(b) Amounts on deposit in the Pre-Funding Account shall be withdrawn
by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee,
upon written direction from the Depositor, shall withdraw from
the Pre-Funding Account and pay to the Depositor an amount
equal to 97% of the Principal Balances of the Subsequent
Mortgage Loans transferred and assigned to the Trustee on such
Subsequent Transfer Date upon satisfaction of the conditions
set forth in Sections 2.3 and 2.9(b) above with respect to
such transfer and assignment; and
(ii) if the Pre-Funded Amount has not been reduced to
zero during the Pre-Funding Period, or if the Pre-Funded
Amount has been reduced to $50,000 or less on the immediately
succeeding Determination Date, the Trustee shall deposit into
the Certificate Account any amounts remaining in the
Pre-Funding Account.
Section 6.12 CAPITALIZED INTEREST ACCOUNTS.
(a) No later than the Closing Date, the Trustee shall establish and
maintain with itself a separate, aggregated trust account, which shall be an
Eligible Account, titled "Capitalized Interest Account, [Bankers Trust Company,]
as trustee for the registered holders of Preferred Credit Asset--Backed
Certificates, Series 199_-_ and [MBIA Insurance Corporation], as [Certificate
Insurer]" (the "Capitalized Interest Account"). On the Closing Date, the Trustee
shall from proceeds of the sale of the Class A Certificates deposit in the
Capitalized Interest Account and retain therein the Capitalized Interest Amount.
In addition, the Trustee shall deposit into the Capitalized Interest Account all
income and gain on investments in the Pre-Funding Account pursuant to Section
6.11. Funds deposited in the Capitalized Interest Account shall be held in trust
by the Trustee for the Holders of the Certificates and the [Certificate Insurer]
for the uses and purposes set forth herein. For federal income tax purposes, the
Depositor shall be the owner of the Capitalized Interest Account and shall
report all items of income, deduction, gain or loss arising therefrom. The
Depositor shall deposit in the Capitalized Interest Account the amount of any
net loss incurred in respect of any such Permitted Investment immediately upon
realization of such loss, without any right of reimbursement.
(b) On each of the first three Distribution Dates, the Trustee shall
withdraw from the Capitalized Interest Account and deposit in the Certificate
Account the related Capitalized Interest Addition.
(c) On each Determination Date following the conveyance of a
Subsequent Mortgage Loan to the Trustee, funds on deposit in the Capitalized
Interest Account in an amount equal to the product of (i) the Principal Balance
of such Subsequent Mortgage Loan and (ii) the weighted average of the Class A-1
Pass-Through Rate, the Class A-2 Pass-Through Rate, the Class A-3 Pass-Through
Rate, the Class A-4 Pass-Through Rate, the Class A-5 Pass-Through Rate and the
Class A-6 Pass-Through Rate, and (iii) a fraction, the numerator of which is the
number of days from the Subsequent Cut-Off Date to [June 1, 1997] and the
denominator of which is 360, shall be remitted immediately to the Depositor.
(d) Upon the earliest of (i) termination of the Trust Fund in
accordance with Section 8.1 or (ii) the first Remittance Day following the end
of the Pre-Funding Period, any amount remaining on deposit in the Capitalized
Interest Account after distributions pursuant to Section 6.12(b) above shall be
withdrawn by the Trustee and paid to the Depositor.
<PAGE>
ARTICLE VII
DEFAULT
Section 7.1 EVENTS OF DEFAULT. (a) In case one or more of the
following Events of Default by the Servicer shall occur and be continuing, that
is to say:
(i) any failure by the Servicer to remit to the
Trustee any payment, other than a Servicing Advance, required
to be made by the Servicer under the terms of this Agreement
which continues unremedied for two days after the date upon
which such payment was required to be made;
(ii) the failure by the Servicer to make any required
Servicing Advance which failure continues unremedied for a
period of 30 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee or to the Servicer
and the Trustee by any Certificateholder or the [Certificate
Insurer];
(iii) any failure on the part of the Servicer duly to
observe or perform in any material respect any other of the
covenants or agreements on the part of the Servicer contained
in this Agreement or in the Certificate Insurance Agreement,
or the failure of any representation and warranty made
pursuant to Section 3.1 to be true and correct which continues
unremedied for a period of 30 days (or 15 days in the case of
a failure to pay the premium for any insurance policy which is
required to be maintained under this Agreement) after the date
on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer, as the
case may be, by the Depositor or the Trustee or to the
Servicer and the Trustee by any Certificateholder or the
[Certificate Insurer];
(iv) a decree or order of a court or agency or
supervisory authority having jurisdiction in an involuntary
case under any present or future federal or state bankruptcy,
insolvency or similar law or for the appointment of a
conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force,
undischarged or unstayed for a period of 60 days;
(v) the Servicer shall consent to the appointment of
a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of the Servicer's
property;
(vi) the Servicer shall admit in writing its
inability to pay its debts as they become due, file a petition
to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its
obligations; or
(vii) a Servicer Trigger Event that the
[Certificate Insurer] declares is an Event of
Default.
(b) If an Event of Default described in this Section shall occur,
then, and in each and every such case, so long as such Event of Default shall
not have been remedied or waived pursuant to Section 7.3: (1) with respect
solely to clause (i) above, if such payment is not made on the second day after
the date upon which such payment was required to be made, the Trustee shall give
immediate telephonic notice of such failure to a Responsible Officer of the
Servicer and to the [Certificate Insurer] and the Trustee shall terminate all of
the rights and obligations of the Servicer under this Agreement and the Trustee,
or a successor Servicer appointed in accordance with Section 7.2, shall
immediately make such payment and assume, pursuant to Section 7.2, the duties of
a successor Servicer and (2) with respect to clauses (ii), (iii), (iv), (v),
(vi) and (vii) above, the Trustee shall, but only at the direction of the
[Certificate Insurer] or the Majority Certificateholders and with the prior
written consent of the [Certificate Insurer], by notice in writing to the
Servicer and a Responsible Officer of the Trustee, and in addition to whatever
rights such Certificateholders may have at law or equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof, as servicer.
Upon receipt by the Servicer of such written notice, all authority and
power of the Servicer under this Agreement, whether with respect to the Mortgage
Loans or otherwise, shall, subject to Section 7.2, pass to and be vested in the
Trustee or its designee approved by the [Certificate Insurer] and the Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, at the expense of the Servicer, any
and all documents and other instruments and do or cause to be done all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Servicer agrees to
cooperate (and pay any related costs and expenses) with the Trustee in effecting
the termination of the Servicer's responsibilities and rights hereunder,
including, without limitation, the transfer to the Trustee or its designee for
administration by it of all amounts which shall at the time be credited by the
Servicer to the Collection Account or the Servicer Account or thereafter
received with respect to the Mortgage Loans. The Trustee shall promptly notify
the [Certificate Insurer], each Certificateholder and each of the Rating
Agencies of the occurrence of an Event of Default.
(c) Upon the occurrence of a Servicer Trigger Event, the [Certificate
Insurer] may require that an audit of the Servicer's servicing practices be
performed, at the expense of the Seller, by a Person selected by the
[Certificate Insurer]. The Servicer shall promptly provide the [Certificate
Insurer] the written results of such audit. If, upon being furnished with the
results of such audit, the [Certificate Insurer] reasonably concludes that the
Servicer's servicing practices have not been in compliance with the Accepted
Servicing Practices, and the Servicer cannot cure such audit discrepancies
within 30 days of the delivery of such audit to the [Certificate Insurer] and
the Servicer, the [Certificate Insurer] may declare an Event of Default and may
remove the Servicer by giving written notice of such determination to the
Seller, the Servicer and the Trustee.
As used above, "SERVICER TRIGGER EVENT" means (a) prior to the
Distribution Date in [ ], Total Expected Losses exceed 7.75 % of the Maximum
Collateral Amount or (b) on and after the Distribution Date in [ ], Total
Expected Losses exceed 12.00 % of the Maximum Collateral Amount.
Section 7.2 TRUSTEE TO ACT; APPOINTMENT OF Successor. (a) On and after
the time the Servicer receives a notice of termination pursuant to Section 7.1,
or the Trustee receives the resignation of the Servicer evidenced by an Opinion
of Counsel pursuant to Section 5.23, or the Servicer is removed as Servicer
pursuant to Article VII, in which event the Trustee shall promptly notify the
[Certificate Insurer] and each of the Rating Agencies, except as otherwise
provided in Section 7.1, the Trustee shall be the successor in all respects to
the Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof arising on or after the date of succession;
PROVIDED, HOWEVER, that the Trustee shall not be liable for any actions or the
representations and warranties of any servicer prior to it and including,
without limitation, the obligations of the Servicer set forth in Section 3.4.
The Trustee, as successor servicer, or any other successor servicer shall be
obligated to pay Compensating Interest pursuant to Section 6.9 hereof; the
Trustee, as successor servicer shall be obligated to make advances pursuant to
Section 5.20 unless, and only to the extent the Trustee, as successor servicer
or any other successor servicer determines reasonably and in good faith that
such advances would not be recoverable, such determination to be evidenced by a
certification of a Responsible Officer of the Trustee, as successor servicer or
any other successor servicer delivered to the [Certificate Insurer].
(b) Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if the Majority
Certificateholders with the consent of the [Certificate Insurer] or the
[Certificate Insurer] so requests in writing to the Trustee, appoint, pursuant
to the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution acceptable to the [Certificate Insurer] that has a net worth of not
less than $15,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder.
(c) In the event the Trustee is the successor servicer, it shall be
entitled to the Servicing Compensation and other funds pursuant to Section 5.13
hereof as the Servicer if the Servicer had continued to act as servicer
hereunder. In the event the Trustee is unable or unwilling to act as successor
servicer, the Trustee shall solicit, by public announcement, bids from housing
and home finance institutions, banks and mortgage servicing institutions meeting
the qualifications set forth above. Such public announcement shall specify that
the successor servicer shall be entitled to the full amount of the aggregate
Servicing Fees hereunder as servicing compensation, together with the other
Servicing Compensation. Within thirty days after any such public announcement,
the Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualifying party
submitting the highest qualifying bid. The Trustee shall deduct from any sum
received by the Trustee from the successor to the Servicer in respect of such
sale, transfer and assignment all costs and expenses of any public announcement
and of any sale, transfer and assignment of the servicing rights and
responsibilities hereunder and the amount of any unreimbursed Servicing Advances
and Delinquency Interest Advances owed to the Trustee. After such deductions,
the remainder of such sum shall be paid by the Trustee to the Servicer at the
time of such sale, transfer and assignment to the Servicer's successor.
(d) The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
The Servicer agrees to cooperate with the Trustee and any successor servicer in
effecting the termination of the Servicer's servicing responsibilities and
rights hereunder and shall promptly provide the Trustee or such successor
servicer, as applicable, at the Servicer's cost and expense, all documents and
records reasonably requested by it to enable it to assume the Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor servicer, as applicable, all amounts that then have been or should
have been deposited in the Collection Account by the Servicer or that are
thereafter received with respect to the Mortgage Loans. Any collections received
by the Servicer after such removal or resignation shall be held by the Servicer
in trust for the benefit of the Certificateholders and the [Certificate Insurer]
and shall be endorsed by it to the Trustee and remitted directly to the Trustee
or, at the direction of the Trustee, to the successor servicer. Neither the
Trustee nor any other successor servicer shall be held liable by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof caused by (i) the failure of the Servicer to deliver, or any
delay in delivering, cash, documents or records to it, or (ii) restrictions
imposed by any regulatory authority having jurisdiction over the Servicer
hereunder. No appointment of a successor to the Servicer hereunder shall be
effective until the Trustee and the [Certificate Insurer] shall have consented
thereto, and written notice of such proposed appointment shall have been
provided by the Trustee to the [Certificate Insurer] and to each
Certificateholder. The Trustee shall not resign as servicer until a successor
servicer reasonably acceptable to the [Certificate Insurer] has been appointed
and has assumed the Servicer's responsibilities and obligations hereunder.
(e) Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as herein above provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; PROVIDED, HOWEVER, that no such compensation shall be in
excess of that permitted the Servicer pursuant to Section 5.13, together with
other Servicing Compensation. The Servicer, the Trustee and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
Section 7.3 WAIVER OF DEFAULTS. The [Certificate Insurer] or the
Majority Certificateholders may, on behalf of all Certificateholders, and
subject to the consent of the [Certificate Insurer], waive any events permitting
removal of the Servicer as servicer pursuant to this Article VII; provided,
HOWEVER, that the Majority Certificateholders may not waive a default in making
a required distribution on a Certificate without the consent of the holder of
such Certificate. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to each of the Rating Agencies.
Section 7.4 MORTGAGE LOANS, TRUST FUND AND ACCOUNTS HELD FOR BENEFIT
OF THE [CERTIFICATE INSURER]. (a) The Trustee shall hold the Trust Fund and the
Mortgage Files for the benefit of the Certificateholders and the [Certificate
Insurer] and all references in this Agreement and in the Certificates to the
benefit of Holders of the Certificates shall be deemed to include the
[Certificate Insurer.] The Trustee shall cooperate in all reasonable respects
with any reasonable request by the [Certificate Insurer] for action to preserve
or enforce the [Certificate Insurer]'s rights or interests under this Agreement
and the Certificates unless, as stated in an Opinion of Counsel addressed to the
Trustee and the [Certificate Insurer], such action is adverse to the interests
of the Certificateholders or diminishes the rights of the Certificateholders or
imposes additional burdens or restrictions on the Certificateholders.
(b) The Servicer hereby acknowledges and agrees that it shall service
the Mortgage Loans for the benefit of the Certificateholders and for the benefit
of the [Certificate Insurer], and all references in this Agreement to the
benefit of or actions on behalf of the Certificateholders shall be deemed to
include the [Certificate Insurer].
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<PAGE>
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. (a) Subject to Section 8.2, this Agreement
shall terminate upon notice to the Trustee and the [Certificate Insurer] of
either: (i) the later of the distribution to Certificateholders of the final
payment or collection with respect to the last Mortgage Loan (or Delinquency
Interest Advances of same by the Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due hereunder
and the payment of all amounts due and payable to the [Certificate Insurer] and
the Trustee or (ii) mutual consent of the Servicer, the [Certificate Insurer]
and all Certificateholders in writing; PROVIDED, HOWEVER, that in no event shall
the Trust Fund established by this Agreement terminate later than twenty-one
years after the death of the last survivor of the descendants of John D.
Rockefeller, alive as of the date hereof.
(b) In addition, subject to Section 8.2, the holder of a 50.01%
Percentage Interest or greater of the Class RL Certificates or the Servicer (or
the [Certificate Insurer], if the Servicer fails to exercise such option) may,
at its option and at its sole cost and expense, terminate this Agreement on any
date on which the related Pool Principal Balance is less than 10% of the Maximum
Collateral Amount (if the holders of the Class RL Certificates exercise this
option) or is less than 5% of the Maximum Collateral Amount (if the Servicer or
the [Certificate Insurer] exercises this option), by purchasing, on the next
succeeding Distribution Date, all of the outstanding Mortgage Loans and REO
Properties at a price equal to the sum of (i) the greater of (x) 100% of the
aggregate Principal Balance of each Outstanding Mortgage Loan and each REO
Property and (y) the fair market value (disregarding accrued interest) of the
Mortgage Loans and REO Properties, determined as the average of three written
bids (copies of which are to be delivered to the Trustee and the [Certificate
Insurer] by the Servicer and the reasonable cost of which may be deducted from
the final purchase price PROVIDED THAT such deduction will not cause a draw on
the [Certificate Insurance Policy]) made by nationally recognized dealers
acceptable to the [Certificate Insurer] and based on a valuation process which
would be used to value comparable mortgage loans and REO property, (ii) the
greater of (x) the aggregate amount of accrued and unpaid interest on the
Mortgage Loans through the related Collection Period and (y) 30 days' accrued
interest thereon at a rate equal to the Mortgage Interest Rate, (iii) and in the
event the Holders of the Residual Certificates or the [Certificate Insurer]
exercises such option, plus any unpaid and accrued Servicing Fees or in the
event the Servicer exercises such option, net of the Servicing Fee, and (iv) any
unreimbursed amounts due to the Servicer hereunder and the [Certificate Insurer]
hereunder or under the Certificate Insurance Agreement (the "Termination
Price"). Any such purchase shall be accomplished by deposit into the Certificate
Account of the Termination Price. No such termination is permitted without the
prior written consent of the [Certificate Insurer] (i) if it would result in a
draw on the [Certificate Insurance Policy] and (ii) unless the Servicer shall
have delivered to the [Certificate Insurer] an Opinion of Counsel reasonably
satisfactory to the [Certificate Insurer] stating that no amounts paid hereunder
are subject to recapture as preferential transfers under the United States
Bankruptcy Code, 11 U.S.C. ss. ss. 101 ET SEQ., as amended.
(c) If on any Distribution Date, the Servicer determines that there
are no Outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other than funds in the Certificate Account, the Servicer shall send a final
distribution notice promptly to the [Certificate Insurer] and to each such
Certificateholder in accordance with paragraph (d) below.
(d) Notice of any termination, specifying the Distribution Date upon
which the Trust Fund will terminate and the Certificateholders shall surrender
their Certificates to the Trustee for payment of the final distribution and
cancellation, shall be given promptly by the Servicer by letter to the
[Certificate Insurer] and to each of the Certificateholders identified to the
Servicer by the Trustee as the Certificateholders of record as of the most
recent Record Date, and shall be mailed during the month of such final
distribution before the Servicer Distribution Date in such month, specifying (i)
the Distribution Date upon which final payment of the Certificates will be made
upon presentation and surrender of Certificates at the office of the Trustee
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 Certificates at
the office of the Trustee therein specified. The Servicer shall give such notice
to the Trustee therein specified. The Servicer shall give such notice to the
Trustee at the time such notice is given to Certificateholders. The rights of
the [Certificate Insurer] hereunder shall terminate (i) upon the deposit by the
Servicer with the Trustee of a sum sufficient to purchase all of the Mortgage
Loans and REO Properties as set forth above and when the Class A Principal
Balance has been reduced to zero and (ii) when the [Certificate Insurer] has
received all amounts owing to it hereunder and under the Certificate Insurance
Agreement.
(e) In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice, all of the Certificates
shall not have been surrendered for cancellation, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates and
the cost thereof shall be paid out of the funds and other assets which remain
subject hereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Residual
Certificateholders shall be entitled to all unclaimed funds and other assets
which remain subject hereto and the Trustee upon transfer of such funds shall be
discharged of any responsibility for such funds and the Certificateholders shall
look only to the Residual Certificateholders for payment. Such funds shall
remain uninvested.
Section 8.2 ADDITIONAL TERMINATION REQUIREMENTS. (a) In the event that
the Class RL Certificateholders, the Servicer or the [Certificate Insurer] (any
of which, an "Exercising Party") exercises its purchase option as provided in
Section 8.1, the Trust Fund shall be terminated in accordance with the following
additional requirements, unless the Trustee and the [Certificate Insurer] have
been furnished with an Opinion of Counsel to the effect that the failure of the
Trust Fund to comply with the requirements of this Section 8.2 will not (i)
result in the imposition of taxes on "prohibited transactions" of the Upper-Tier
REMIC or Lower-Tier REMIC as defined in Section 860F of the Code or (ii) cause
the Upper-Tier REMIC or Lower- Tier REMIC to fail to qualify as a REMIC at any
time that any Class A Certificates are outstanding:
(i) within 90 days prior to the final Distribution
Date the Trustee shall adopt and the Trustee shall sign, a
plan of complete liquidation of each of the Upper-Tier REMIC
or Lower-Tier REMIC meeting the requirements of a "Qualified
Liquidation" under Section 860F of the Code and any
regulations thereunder;
(ii) at or after the time of adoption of such a plan
of complete liquidation, which plan shall include a
description of the method for such liquidation and the price
to be conveyed for all of the assets of the Trust Fund at the
time of such liquidation, and at or prior to the final
Distribution Date, the Trustee shall sell all of the assets of
the Trust Fund to the Exercising Party for cash; and
(iii) at the time of the making of the final payment
on the Certificates, the Trustee shall distribute or credit,
or cause to be distributed or credited (A) to the Class A
Certificateholders, the Class A Principal Balance, plus one
month's interest thereon at the Class A Pass-Through Rate, (B)
to the [Certificate Insurer], all amounts due to it hereunder
and under the Certificate Insurance Agreement, (C) to the
Class B Certificateholders, any Class B Principal Balance then
remaining unpaid, and (D) to the Class RL and Class RU
Certificateholders, respectively, all of the Lower-Tier
REMIC's and the Upper-Tier REMIC's respective cash on hand
after such payment to the Class A and Class B
Certificateholders and the [Certificate Insurer], and the
Trust Fund shall terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof
hereby agree to appoint the Trustee as their attorney-in-fact to: (i) adopt such
a plan of complete liquidation (and the Certificateholders hereby appoint the
Trustee as their attorney-in-fact to sign such plan) as appropriate or upon the
written request of the [Certificate Insurer] and (ii) to take such other action
in connection therewith as may be reasonably required to carry out such plan of
complete liquidation all in accordance with the terms hereof.
Section 8.3 ACCOUNTING UPON TERMINATION OF Servicer. Upon termination
of the Servicer, the Servicer shall, at its expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the [Certificate Insurer] and, upon request, to the
Certificateholders a full accounting of all funds, including a statement showing
the Monthly Payments collected by it and a statement of monies held in trust by
it for the payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the "Servicer" under this
Agreement.
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<PAGE>
ARTICLE IX
THE TRUSTEE
Section 9.1 DUTIES OF TRUSTEE. (a) The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If an Event of Default has
occurred and has not been cured or waived, the Trustee shall exercise such of
the rights and power vested in it by this Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; PROVIDED, HOWEVER,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Servicer or the Seller hereunder. If any such
instrument is found not to conform on its face to the requirements of this
Agreement, the Trustee shall take action as it deems appropriate to have the
instrument corrected and, if the instrument is not corrected to the Trustee's
satisfaction, the Trustee will, at the expense of the Servicer, notify the
[Certificate Insurer] and request written instructions as to the action it deems
appropriate to have the instrument corrected, and if the instrument is not so
corrected, the Trustee will provide notice thereof to the [Certificate Insurer]
who shall then direct the Trustee as to the action, if any, to be taken.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; PROVIDED, HOWEVER, that:
(i) Prior to the occurrence of an Event of Default,
and after the curing of all such Events of Default which may
have occurred, the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable
for an error of judgment made in good faith by a
Responsible Officer or other officers of the Trustee,
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of the
[Certificate Insurer] or with the consent of the [Certificate
Insurer], the Class A Certificateholders holding Class A
Certificates evidencing Percentage Interests of at least 25%,
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement;
(iv) The Trustee shall not be required to take notice
or be deemed to have notice or knowledge of any default or
Event of Default (except an Event of Default with respect to
the nonpayment of any amount described in Section 7.1(a)),
unless a Responsible Officer of the Trustee shall have
received written notice thereof. In the absence of receipt of
such notice, the Trustee may conclusively assume that there is
no default or Event of Default (except a failure to make a
Delinquency Interest Advance);
(v) The Trustee shall not be required to expend or
risk its own funds or otherwise incur financial liability for
the performance of any of its duties hereunder or the exercise
of any of its rights or powers if there is reasonable ground
for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably
assured to it and none of the provisions contained in this
Agreement shall in any event require the Trustee to perform,
or be responsible for the manner of performance of, any of the
obligations of the Servicer under this Agreement except during
such time, if any, as the Trustee shall be the successor to,
and be vested with the rights, duties powers and privileges
of, the Servicer in accordance with the terms of this
Agreement; and
(vi) Subject to the other provisions of this
Agreement and without limiting the generality of this Section,
the Trustee shall have no duty (A) to see to any recording,
filing, or depositing of this Agreement or any agreement
referred to herein or any financing statement or continuation
statement evidencing a security interest, or to see to the
maintenance of any such recording or filing or depositing or
to any rerecording, refiling or redepositing of any thereof,
(B) to see to any insurance, (C) to see to the payment or
discharge of any tax, assessment, or other governmental charge
or any lien or encumbrance of any kind owing with respect to,
assessed or levied against, any part of the Trust, the Trust
Fund, the Certificateholders or the Mortgage Loans, (D) to
confirm or verify the contents of any reports or certificates
of the Servicer delivered to the Trustee pursuant to this
Agreement believed by the Trustee to be genuine and to have
been signed or presented by the proper party or parties.
Section 9.2 CERTAIN MATTERS AFFECTING THE TRUSTEE. (a) Except as
otherwise provided in Section 9.1:
(i) the Trustee may rely and shall be protected
in acting or refraining from acting upon any
resolution, Officers' Certificate, Opinion of Counsel,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to
be genuine and to have been signed or presented by the proper
party or parties;
(ii) the Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such opinion of counsel;
(iii) the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to institute, conduct or defend by litigation
hereunder or in relation hereto at the request, or direction
of the [Certificate Insurer] or any of the Certificateholders,
pursuant to the provisions of this Agreement, unless such
Certificateholders or the [Certificate Insurer], as
applicable, shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (which
has not been cured), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of
care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such
person's own affairs;
(iv) the Trustee shall not be personally liable for
any action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(v) prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so
by the [Certificate Insurer] or Holders of Class A
Certificates evidencing Percentage Interests aggregating not
less than 25%; PROVIDED, HOWEVER, that if the payment within a
reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to
it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a
condition to taking any such action;
(vi) the right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be answerable
for other than its negligence or willful misconduct in the
performance of such act;
(vii) the Trustee shall not be required to
give any bond or surety in respect of the execution
of the Trust Fund created hereby or the powers granted
hereunder; and
(viii) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys.
(b) Following the Startup Day, the Trustee shall not knowingly accept
any contribution of assets to the Trust Fund, unless the Trustee and the
[Certificate Insurer] shall have received an Opinion of Counsel (at the expense
of the Servicer) to the effect that the inclusion of such assets in the Trust
Fund will not cause the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify
as a REMIC at any time that any Certificates are outstanding or subject the
Upper-Tier REMIC or Lower-Tier REMIC to any tax under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances. The
Trustee agrees to indemnify the Trust Fund, the [Certificate Insurer] and the
Servicer for any taxes and costs, including any attorney's fees, imposed or
incurred by the Trust Fund, the [Certificate Insurer] or the Servicer as a
result of the breach of the Trustee's covenants set forth within this subsection
(b).
Section 9.3 NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS. The
recitals contained herein (other than the certificate of authentication on the
Certificates) shall be taken as the statements of the Seller and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the
use or application of any funds paid to the Servicer in respect of the Mortgage
Loans or deposited in or withdrawn from the Collection Account by the Servicer.
The Trustee shall not be responsible for the legality or validity of the
Agreement or the validity, priority, perfection or sufficiency of the security
for the Certificates issued or intended to be issued hereunder.
Section 9.4 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its
individual or any other capacity may become the owner or pledgor of Certificates
with the same rights it would have if it were not Trustee, and may otherwise
deal with the parties hereto.
Section 9.5 PAYMENT OF TRUSTEE FEES. The Trustee shall withdraw from
the Certificate Account on each Distribution Date and pay to itself the Trustee
Fee. Except as otherwise provided in this Agreement, the Trustee and any
director, officer, employee or agent of the Trustee shall be indemnified by the
Trust Fund and held harmless against any loss, liability or "unanticipated
out-of-pocket" expense incurred or paid to third parties (which expenses shall
not include salaries paid to employees, or allocable overhead, of the Trustee)
in connection with the acceptance or administration of its trusts hereunder, the
Certificate Insurance Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. The provisions of this Section
9.5 shall survive the termination of this Agreement and the removal or
resignation of the Trustee.
The Servicer covenants and agrees to indemnify the Trustee and the
[Certificate Insurer] and any director, officer, employee or agent of either
against any losses, liabilities, damages, claims or expenses (including
reasonable legal fees and such related expenses) that may be sustained by the
Trustee in connection with this Agreement and the Certificate Insurance
Agreement related to the willful misfeasance, bad faith or negligence in the
performance of the Servicer's duties hereunder.
Section 9.6 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee
hereunder shall at all times be (a) a banking association organized and doing
business under the laws of any state or the United States of America subject to
supervision or examination by federal or state authority, (b) authorized under
such laws to exercise corporate trust powers, including taking title to the
Trust Fund assets on behalf of the Certificateholders (c) having a combined
capital and surplus of at least $50,000,000, (d) whose long-term deposits, if
any, shall be rated at least BBB by S&P and Baa3 by Moody's (except as provided
herein) or such lower long-term deposit rating as may be approved in writing by
the [Certificate Insurer], (e) whose short-term deposits rating is rated A-1 +
by S&P and P-1 by Moody's, and (f) reasonably acceptable to the [Certificate
Insurer] as evidenced in writing. If such banking association publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 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
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 9.7.
Section 9.7 RESIGNATION AND REMOVAL OF THE Trustee. (a) The Trustee
may at any time resign and be discharged from the trusts hereby created by
giving at least 30 days' prior written notice thereof to the Servicer, the
[Certificate Insurer] and to all Certificateholders. Upon receiving such notice
of resignation, the [Certificate Insurer] may appoint a successor trustee and if
the [Certificate Insurer] fails to appoint a successor trustee, the Servicer
shall promptly appoint a successor trustee acceptable to the [Certificate
Insurer] (which acceptance shall not be unreasonably withheld) by written
instrument, in duplicate, which instrument shall be delivered to the resigning
Trustee and to the successor trustee. A copy of such instrument shall be
delivered to the Depositor, the Certificateholders, the [Certificate Insurer]
and the Seller by the Servicer. Unless a successor trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.6 and shall fail to resign after
written request therefor by the Servicer or the [Certificate Insurer], or if at
any time the Trustee shall become incapable of acting, or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the [Certificate Insurer] may appoint a successor trustee and
if the [Certificate Insurer] fails to appoint a successor trustee, the Servicer
or the [Certificate Insurer] may remove the Trustee and the Servicer shall,
within 30 days after such removal, appoint, subject to the approval of the
[Certificate Insurer], which approval shall not be unreasonably delayed, a
successor trustee by written instrument, in duplicate, which instrument shall be
delivered to the Trustee so removed and to the successor trustee. A copy of such
instrument shall be delivered to the Depositor, the Certificateholders, the
[Certificate Insurer] and the Seller by the Servicer.
(c) If the Trustee fails to perform in accordance with the terms of
this Agreement, the Majority Certificateholders (with the consent of the
[Certificate Insurer], which consent shall not be unreasonably withheld) or the
[Certificate Insurer] may remove the Trustee and appoint a successor trustee
acceptable to the [Certificate Insurer] by written instrument or instruments, in
triplicate, signed by such Holders or their attorneys-in-fact duly authorized,
one complete set of which instruments shall be delivered to the Servicer and the
[Certificate Insurer], one complete set to the Trustee so removed and one
complete set to the successor Trustee so appointed.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 9.8.
(e) Upon any termination of, or appointment of any successor to the
Trustee hereunder, the Trustee shall promptly transfer all of the Residual
Interest (as defined under the Code) of the Trust Fund to the successor Trustee.
Section 9.8 SUCCESSOR TRUSTEE. Any successor trustee appointed as
provided in Section 9.7 shall execute, acknowledge and deliver to the Depositor,
the [Certificate Insurer], the Seller, the Servicer and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements held by it hereunder, and
the Servicer and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations. No successor trustee shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor trustee shall be eligible under the provisions of Section 9.6.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register (such Certificate Register shall be provided to the
Servicer by the Successor Trustee) and to each of the Rating Agencies. If the
Servicer fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Servicer.
Section 9.9 MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into which
the Trustee may be merged or converted or with which it may be consolidated or
any corporation or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or national banking association succeeding to the business of the
trustee, shall be the successor of the Trustee hereunder, provided such
corporation or national banking association shall be eligible under the
provisions of Section 9.6, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a)
Notwith standing any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
9.10, such powers, duties, obligations, rights and trusts as the Servicer and
the Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 9.6 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 9.8 hereof.
(b) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the 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 Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
(c) Any notice, request or other writing given to the 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 IX. 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, either jointly with the 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 Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may, at any time, constitute
the 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. The Trustee shall not be
responsible for any action or inaction of any such separate trustee or
co-trustee, PROVIDED THAT the Trustee appointed such separate trustee or
co-trustee with due care. 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
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 9.11 RETIREMENT OF CERTIFICATES. The Trustee shall, upon the
retirement of the Certificates pursuant hereto or otherwise, furnish to the
[Certificate Insurer] a notice of such retirement, and, upon retirement of the
Class A Certificates shall surrender the [Certificate Insurance Policy] to the
[Certificate Insurer] for cancellation.
[Remainder of this page intentionally left blank]
<PAGE>
ARTICLE X
REMIC ADMINISTRATION AND PROVISIONS
Section 10.1 REMIC ADMINISTRATION. (a) The Trust Fund shall elect that
the Upper-Tier REMIC and the Lower-Tier REMIC shall be treated as REMICs under
Section 860D of the Code. Such elections will be made on Form 1066 or other
appropriate federal tax or information returns and any appropriate state returns
for the taxable year ending on the last day of the calendar year in which the
Certificates are issued. Any inconsistencies or ambiguities in this Agreement or
in the administration of the Trust Fund shall be resolved in a manner that
preserves the validity of such REMIC elections.
(b) The Class A Certificates and the Class B Certificates are hereby
designated as "regular interests" with respect to the Upper-Tier REMIC and the
Class RU Certificates are hereby designated as the single class of "residual
interest" with respect to the Upper-Tier REMIC. The REMIC Administrator shall
not permit the creation of any "interests" in the Trust Fund (within the meaning
of Section 860G of the Code) other than the Upper-Tier and Lower-Tier REMIC
regular interests and the interests represented by the Residual Certificates.
(c) The Lower-Tier REMIC will be evidenced by (x) the Class [LT-A,
Class LT-1, Class LT-2, Class LT-3, Class LT-4, Class LT-5, Class LT-6 and Class
LT-M] Certificates (the "Lower-Tier Regular Interests"), which will be
uncertificated and non-transferable and are hereby designated as the "regular
interests" in the Lower-Tier REMIC and (y) the Class RL Certificates, which are
hereby designated as the single "residual interest" in the Lower-Tier REMIC (the
Lower-Tier Regular Interests, together with the Class RL Certificates, the
"Lower- Tier Interests"). The Lower-Tier Regular Interests shall be recorded on
the records of the Lower- Tier REMIC as being issued to and held by the REMIC
Administrator on behalf of the Upper- Tier REMIC.
Any (i) Overcollateralization Deficit (including the portion of a
Class A Carryforward Amount which relates to a shortfall in a distribution of an
Overcollateralization Deficit) and (ii) any Overcollateralization Increase
Amount (without duplication of amounts described in (i)) (together, the "Turbo
Amount") that is payable from interest on the Mortgage Loans will not be paid to
the Lower-Tier Regular Interests, but a portion of the interest payable with
respect to the Class LT-M Certificate which equals 1% of the Turbo Amount will
be payable as a reduction of the principal balances of the [Class LT-1, Class
LT-2, Class LT-3, Class LT-4, Class LT-5 and Class LT-6] Certificates in the
same manner in which the Turbo Amount is allocated among the Class [A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6] Certificates, respectively
(and will be accrued and added to principal on the Class LT- M Certificate).
Principal payments on the Mortgage Loans shall be allocated 98% to the Class
LT-A Certificate, 1% to the Class LT-M Certificate, and 1% to the [Class LT-1,
Class LT-2, Class LT-3, Class LT-4, Class LT-5 and Class LT-6 Certificates.] The
aggregate amount of principal allocated to the Class [LT-1, Class LT-2, Class
LT-3, Class LT-4, Class LT-5 and Class LT-6] Certificates shall be apportioned
among such Classes in the same manner in which principal is payable with respect
to the [Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6]
Certificates, respectively. Notwithstanding the above, [98%] and [2%] of any
principal payments on the Mortgage Loans that are attributable to an
Overcollateralization Reduction Amount shall be allocated to the [Class LT-A and
Class LT-M] Certificates, respectively. Similarly, [98%] and [2%] of any
realized losses with respect to principal on the Mortgages Loans shall be
allocated to the [Class LT-A and Class LT-M] Certificates, respectively, except
that to the extent such realized losses create an Overcollateralization Deficit
that is not paid from interest on the Mortgage Loans (but is paid by the
[Certificate Insurer]), such losses shall be allocated 98% to the Class [LT-A]
Certificate, [1%] to the Class [LT-M] Certificate and [1%] to the [Class LT-1,]
[Class LT-2, Class LT-3, Class LT-4, Class LT-5 and Class LT-6] Certificates,
apportioned among such Class LT-1, Class LT-2, Class LT-3, Class LT-4, Class
LT-5 and Class LT-6 Certificates in the same manner in which the
Overcollateralization Deficit is payable with respect to the [Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6] Certificates, respectively.
The Lower-Tier Interests will have the following designations and pass-through
rates, and distributions of principal and interest thereon shall be allocated to
the Class A Certificates in the following manner:
Pass- Allocation Allocation
Lower-Tier Initial Through of of
Interests Balance Rate Principal (1) Interest (1)
[LT-A $155,816,107.35 (7) (2) (3) (4),(5)
LT-1 $478,000 (2) (3) (4),(5)
LT-2 $295,000 (2) (3) (4),(5)
LT-3 $232,000 (2) (3) (4),(5)
LT-4 $506,000 (2) (3) (4),(5)
LT-5 $115,000 (2) (3) (4),(5)
LT-6 $374,000 (2) (3) (4),(5)
LT-M $3,179,920.56 (7) (2) (3) (4),(5)
RL $0 0% N/A N/A (6)]
- -----------------
(1) Except as otherwise indicated, the amount of principal and interest
allocable from a Lower-Tier Interest to the Class A Certificates on any
Distribution Date shall be 100%.
(2) The pass-through rate on these Lower-Tier Regular
Interests shall at any time of determination equal the
weighted average of the Net Mortgage Interest Rates for
each of the Mortgage Loans. Any shortfalls in interest
on the Lower-Tier Regular Interests that result from
Principal Prepayments on any Mortgage Loans during the
related Collection Period after accounting for any
Compensating Interest paid under Section 6.9 shall
proportionately reduce the interest accrued on the
Lower-Tier Regular Interests.
(3) Principal will be allocated to and apportioned among the
Class A-1, Class A-2, Class A- 3, Class A-4, Class A-5, and
Class A-6 Certificates in the same proportion as principal
is payable with respect to such Certificates, except that
a portion of such principal in an amount equal to the
Overcollateralization Reduction Amount shall first be
allocated to the Class B Certificates, and all principal
will be allocated to the Class B Certificates after the
Class A Principal Balance has been reduced to zero.
(4) Except as provided in footnotes, Interest will be allocated among the
Class A-1, Class A- 2, Class A-3, Class A-4, Class A-5, and Class A-6
Certificates in the same proportion as interest is payable on such
Certificates.
(5) Any interest with respect to this Lower-Tier Interest in
excess of the product of (i) two times the weighted
average coupon of the Class LT-1, Class [LT-2, Class LT-3,
Class LT-4, Class LT-5, Class LT-6 and Class LT-M]
Certificates, where each of such Classes, other than the
Class LT-M Certificate, is first subject to a cap and floor
equal to the Class [A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6] Pass-Through Rate , respectively,
and the Class LT-M Certificate is subject to a cap equal to
0%, and (ii) the principal balance of this Lower-Tier
Interest, shall not be allocated to the Class A
Certificates but will be allocated to the Class B
Certificates as a separate component.
(6) On each Distribution Date, available funds, if any, remaining in the
Lower-Tier REMIC after payments of interest and principal, as
designated above, will be distributed to the Class RL Certificate.
(7) The principal balances of the Class LT-A and Class LT-M Certificates
shall be increased by 98% and 2%, respectively, of the principal
balance of each Subsequent Mortgage Loan as of the related Subsequent
Cut-Off Date.
<PAGE>
(d) The Closing Date is hereby designated as the Startup Day of the
Upper-Tier REMIC and Lower-Tier REMIC within the meaning of Section 860G(a)(9)
of the Code.
(e) The REMIC Administrator shall pay out of its own funds, without
any right of reimbursement, any and all expenses relating to any tax audit of
the Trust Fund (including, but not limited to, any professional fees or any
administrative or judicial proceedings with respect thereto that involved the
Internal Revenue Service or state tax authorities), other than the expense of
obtaining any tax related Opinion of Counsel not obtained in connection with
such an audit and other than taxes, in either case except as specified herein;
PROVIDED, HOWEVER, that if such audit resulted from the negligence of the
Servicer or the Depositor, then the Servicer or the Depositor, as the case may
be, shall pay such expenses. The REMIC Administrator, as agent for the tax
matters person, shall (i) act on behalf of the Trust Fund in relation to any tax
matter or controversy involving the Trust Fund and (ii) represent the Trust Fund
in any administrative or judicial proceeding relating to an examination or audit
by any governmental taxing authority with respect thereto. The Holders of the
largest Percentage Interest in the Class RU and Class RL Certificates of the
Upper-Tier REMIC and Lower-Tier REMIC, respectively, from time to time are
hereby designated as Tax Matters Person with respect to the Upper-Tier REMIC and
Lower-Tier REMIC, respectively, and hereby irrevocably appoint and authorize the
Trustee to act as their agent to perform the duties of the Tax Matters Person
with respect to each such REMIC Fund. To the extent authorized under the Code
and the regulations promulgated thereunder, each Holder of a Residual
Certificate hereby irrevocably appoints and authorizes the REMIC Administrator
to be its attorney-in-fact for purposes of signing any Tax Returns required to
be filed on behalf of the Trust Fund.
(f) The REMIC Administrator shall prepare or cause to be prepared, and
the Trustee shall sign and file all of the Tax Returns in respect of the Trust
Fund created hereunder, other than Tax Returns required to be filed by the
Servicer pursuant to Section 5.24. The expenses of preparing and filing such
returns shall be borne by the REMIC Administrator without any right of
reimbursement therefor.
(g) The REMIC Administrator shall perform on behalf of the Trust Fund
all reporting and other compliance duties that are the responsibility of the
Trust Fund under the Code, the REMIC Provisions or other compliance guidance
issued by the Internal Revenue Service or any state or local taxing authority.
Among its other duties, as required by the Code, the REMIC Provisions or other
such compliance guidance, the REMIC Administrator shall provide (i) to any
Transferor of a Residual Certificate such information as is necessary for the
application of any tax relating to the transfer of a Residual Certificate to any
Person who is not a Disqualified Organization, (ii) to Certificateholders such
information or reports as are required by the Code or REMIC Provisions including
reports relating to interest, original issue discount and market discount or
premium (using the Prepayment Assumption) and (iii) to the Internal Revenue
Service the name, title, address and telephone number of the person who will
serve as the representative of the Trust Fund. In addition, the Depositor shall
provide or cause to be provided to the REMIC Administrator, within ten (10) days
after the Closing Date, all information or data that the REMIC Administrator
reasonably determines to be relevant for tax purposes as to the valuations and
issue prices of the Certificates, including, without limitation, the price,
yield, prepayment assumption and projected cash flow of the Certificates.
(h) The REMIC Administrator shall take such action and shall cause the
Trust Fund created hereunder to take such action as shall be necessary to create
or maintain the status of each of the Upper-Tier REMIC and the Lower-Tier REMIC
as a REMIC under the REMIC Provisions (and the Servicer shall assist it, to the
extent reasonably requested by the REMIC Administrator). Neither the Trustee nor
the REMIC Administrator shall take any action, cause the Trust Fund to take any
action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger
the status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or (ii)
result in the imposition of a tax upon the Upper-Tier REMIC or the Lower-Tier
REMIC (including but not limited to the tax on prohibited transactions as
defined in Section 860F(a)(2) of the Code and the tax on contributions to a
REMIC set forth in Section 860G(d) of the Code or the tax on net income from
foreclosure property as defined in Section 860G(c) of the Code) (any such event,
an "Adverse REMIC Event") unless the REMIC Administrator and the [Certificate
Insurer] received an Opinion of Counsel (at the expense of the party seeking to
take such action but in no event shall such Opinion of Counsel be an expense of
the Trustee) to the effect that the contemplated action will not, with respect
to the Upper-Tier REMIC or the Lower-Tier REMIC, endanger such status or result
in an Adverse REMIC Event. The Servicer shall not take or fail to take any
action (whether or not authorized hereunder) as to which the REMIC Administrator
has advised it in writing that it has received an Opinion of Counsel (which such
Opinion of Counsel shall not be an expense of the REMIC Administrator) to the
effect that an Adverse REMIC Event could occur with respect to such action. In
addition, prior to taking any action with respect to the Trust Fund or its
assets, or causing the Trust Fund to take any action which is not expressly
permitted under the terms of this Agreement, the Servicer will consult with the
[Certificate Insurer] and with the REMIC Administrator or its designee, in
writing, with respect to whether such action could cause an Adverse REMIC Event
to occur with respect to the Upper-Tier REMIC or the Lower-Tier REMIC, and the
Servicer shall not take any such action or cause the Trust Fund to take any such
action as to which the REMIC Administrator or the [Certificate Insurer] has
advised it in writing that an Adverse REMIC Event could occur. The REMIC
Administrator may consult with counsel to make such written advice, and the cost
of same shall be borne by the party seeking to take the action not permitted by
this Agreement (but in no event shall such cost be an expense of the REMIC
Administrator). At all times as may be required by the Code, the REMIC
Administrator and the Trustee will ensure that substantially all of the assets
of the Trust Fund will consist of "qualified mortgages" as defined in Section
860G(a)(3) of the Code and "permitted investments" as defined in Section
860G(a)(5) of the Code.
(i) In the event that any tax is imposed on "prohibited transactions"
of the Upper-Tier REMIC or the Lower-Tier REMIC as defined in Section 860F(a)(2)
of the Code, on "net income from foreclosure property" of the Upper-Tier REMIC
or the Lower-Tier REMIC as defined in Section 860G(c) of the Code, on any
contributions to the Upper-Tier REMIC or the Lower-Tier REMIC after the Startup
Day therefor pursuant to Section 860G(d) of the Code, or any other tax is
imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the REMIC Administrator pursuant to Section
10.3 hereof, if such tax arises out of or results from a breach by the REMIC
Administrator of any of its obligations under this Article X, (ii) to the
Trustee pursuant to Section 10.3 hereof, if such tax arises out of or results
from a breach by the Trustee of any of its obligations under Article IX or this
Article X, (iii) to the Servicer pursuant to Section 10.3 hereof, if such tax
arises out of or results from a breach by the Servicer of any of its obligations
under Article V or this Article X, or otherwise (iv) against amounts on deposit
in the Certificate Account and shall be paid by withdrawal therefrom.
(j) On or before [April 15] of each calendar year, commencing [April
15, 1997], the REMIC Administrator shall deliver to the Servicer, the
[Certificate Insurer] and each Rating Agency a Certificate from a Responsible
Officer of the REMIC Administrator stating the REMIC Administrator's compliance
with this Article X.
(k) The Servicer and the REMIC Administrator shall, for federal income
tax purposes, maintain books and records with respect to the Upper-Tier REMIC or
the Lower-Tier REMIC on a calendar year and on an accrual basis.
(l) Neither the Trustee nor the REMIC Administrator shall accept any
contributions of assets to the Trust Fund unless it and the [Certificate
Insurer] shall have received an Opinion of Counsel (which such Opinion of
Counsel shall not be an expense of the Trustee or the REMIC Administrator) to
the effect that the inclusion of such assets in the Trust Fund will not cause
the Upper-Tier REMIC or the Lower-Tier REMIC to fail to qualify as a REMIC at
any time that any Certificates are outstanding or subject the Upper-Tier REMIC
or the Lower-Tier REMIC to any tax under the REMIC Provisions or other
applicable provisions of federal, state and local law or ordinances.
(m) Neither the REMIC Administrator nor the Servicer shall enter into
any arrangement by which the Trust Fund will receive a fee or other compensation
for services nor permit either the Upper-Tier REMIC or the Lower-Tier REMIC to
receive any income from assets other than "qualified mortgages" as defined in
Section 860G(a)(3) of the Code or "permitted investments" as defined in Section
860G(a)(5) of the Code.
(n) Solely for purposes of satisfying Section 1.860G-l(a)(4)(iii) of
the Treasury Regulations, the "latest possible maturity date" by which the
certificate principal balances of each Class of Certificates representing a
regular interest in the Upper-Tier REMIC or the Lower-Tier REMIC would be
reduced to zero is [ ] which is the Distribution Date one year following the
latest scheduled maturity of any Mortgage Loan.
(o) Upon filing with the Internal Revenue Service, the REMIC
Administrator shall furnish to the Holders of the Residual Certificates the Form
1066 and each Form 1066Q and shall respond promptly to written requests made not
more frequently than quarterly by any Holder of Residual Certificates with
respect to the following matters:
(A) the original projected principal and interest
cash flows on the Closing Date on the regular and residual
interests created hereunder and on the Mortgage Loans, based
on the Prepayment Assumption;
(B) the projected remaining principal and interest
cash flows as of the end of any calendar quarter with respect
to the regular and residual interests created hereunder and
the Mortgage Loans, based on the Prepayment Assumption;
(C) the Prepayment Assumption and any interest rate
assumptions used in determining the projected principal and
interest cash flows described above;
(D) the original issue discount (or, in the case of
the Mortgage Loans, market discount) or premium accrued or
amortized through the end of such calendar quarter with
respect to the regular or residual interests created hereunder
and with respect to the Mortgage Loans, together with each
constant yield to maturity used in computing the same;
(E) the treatment of losses realized with respect to
the Mortgage Loans or the regular interests created hereunder,
including the timing and amount of any cancellation of
indebtedness income of the REMIC with respect to such regular
interests or bad debt deductions claimed with respect to the
Mortgage Loans;
(F) the amount and timing of any non-interest
expenses of the REMIC; and
(G) any taxes (including penalties and interest)
imposed on the REMIC, including, without limitation, taxes on
"prohibited transactions," "contributions" or "net income from
foreclosure property" or state or local income or franchise
taxes.
Section 10.2 PROHIBITED TRANSACTIONS AND Activities. Neither the
Depositor, the Servicer, the REMIC Administrator nor the Trustee shall sell,
dispose of, or substitute for any of the Mortgage Loans, except in connection
with (i) the foreclosure of a Mortgage Loan, including but not limited to, the
acquisition or sale of a Mortgaged Property acquired by deed in lieu of
foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of the
Trust Fund pursuant to Article VIII of this Agreement, or (iv) a purchase of
Mortgage Loans pursuant to Article II or III of this Agreement nor acquire any
assets for the Trust Fund, nor sell or dispose of any investments in the
Certificate Accounts for gain, nor accept any contributions to the Trust Fund
after the Closing Date unless it and the [Certificate Insurer] has received an
Opinion of Counsel (at the expense of the party seeking to cause such sale,
disposition, substitution or acquisition but in no event shall such Opinion of
Counsel be an expense of the Trustee or the REMIC Administrator) that such sale,
disposition, substitution or acquisition will not (a) affect adversely the
status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or (b) cause
the Upper-Tier REMIC or the Lower-Tier REMIC to be subject to a tax on
"prohibited transactions" or "contributions" pursuant to the REMIC Provisions .
Section 10.3 SERVICER, TRUSTEE AND REMIC ADMINISTRATOR
INDEMNIFICATION. (a) The Trustee agrees to indemnify the Trust Fund, the
[Certificate Insurer], the Depositor and the Servicer for any taxes and costs
(including, without limitation, any reasonably attorneys' fees) including
without limitation, any reasonable attorneys' fees imposed on or incurred by the
Upper-Tier REMIC, the Lower-Tier REMIC, the [Certificate Insurer], the
Depositor, the Servicer or the REMIC Administrator, as a result of a breach of
the Trustee's covenants set forth in this Article X.
(b) The Servicer agrees to indemnify the Trust Fund, the [Certificate
Insurer], the Depositor, the REMIC Administrator and the Trustee for any taxes
and costs (including, without limitation, any reasonable attorneys' fees)
imposed on or incurred by the Upper-Tier REMIC, the Lower-Tier REMIC, the
[Certificate Insurer], the Depositor, the REMIC Administrator or the Trustee, as
a result of a breach of the Servicer's covenants set forth in this Article X or
in Article V with respect to compliance with the REMIC Provisions, including,
without limitation, any penalties arising from the Trustee's execution of Tax
Returns prepared by the Servicer pursuant to Section 5.24 that contain errors or
omissions.
(c) The REMIC Administrator agrees to indemnify the Trust Fund, the
[Certificate Insurer], the Depositor, the Servicer and the Trustee for any taxes
and costs (including, without imitation, any reasonable attorneys' fees) imposed
on or incurred by the Upper-Tier REMIC, the Lower-Tier REMIC, the [Certificate
Insurer], the Depositor, the Servicer or the Trustee, as a result of a breach of
the REMIC Administrator's covenants set forth in this Article X with respect to
compliance with the REMIC Provisions, including, without limitation, any
penalties arising from the Trustee's execution of Tax Returns prepared by the
REMIC Administrator pursuant to this Article X that contain errors or omissions.
[Remainder of this page intentionally left blank]
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1 LIMITATION ON LIABILITY OF THE DEPOSITOR AND THE
SERVICER. Neither the Depositor nor the Servicer nor any of the directors,
officers, employees or agents of the Depositor or the Servicer shall be under
any liability to the Trust, the Certificateholders or the [Certificate Insurer]
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 Depositor or the Servicer or any such
Person against any breach of warranties or representations made herein, or
against any specific liability imposed on each such party pursuant to this
Agreement or against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties hereunder. The Depositor
or the Servicer and any director, officer, employee or agent of the Depositor or
the Servicer may rely in good faith on any document of any kind which, PRIMA
FACIE, is properly executed and submitted by any appropriate Person respecting
any matters arising hereunder. The Depositor, the Servicer and any director,
officer, employee or agent of the Depositor or the Servicer shall be indemnified
and held harmless by the Trust Fund against any loss, liability or expense
incurred in connection with any legal action relating to this Agreement or the
Certificates, with respect to the Servicer, other than any loss, liability or
expense related to Servicer's servicing obligations with respect to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) or related to the
Servicer's obligations under this Agreement, with respect to the Depositor, the
Seller, or Servicer, as the case may be, or any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor, nor the Servicer shall
be under any obligation to appear in, prosecute or defend any legal action which
is not incidental to its respective duties under this Agreement and which in its
opinion may involve it in any expense or liability; PROVIDED, HOWEVER, that the
Depositor, or the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable with respect to this Agreement and the
rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In the event the Depositor or the Servicer take
any action as described in the preceding sentence, the legal expenses and costs
of such action, if previously approved by the [Certificate Insurer], which
approval shall not be unreasonably withheld, and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Fund, and the
Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor out of funds in the Collection Account.
Section 11.2 ACTS OF CERTIFICATEHOLDERS; CERTIFICATEHOLDERS' RIGHTS.
(a) Except as otherwise specifically provided herein, whenever Certificateholder
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 Certificateholders if the Majority
Certificateholders (with the consent of the [Certificate Insurer], which consent
shall not be unreasonably withheld) or the [Certificate Insurer] agrees to take
such action or give such consent or approval.
(b) The death or incapacity of any Certificateholder shall not operate
to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heir to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(c) No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof or thereof.
Section 11.3 AMENDMENT. (a) This Agreement may be amended from time to
time by the Servicer, the Depositor and the Trustee by written agreement, upon
the prior written consent of the [Certificate Insurer] (which consent shall not
be unreasonably withheld), without notice to or consent of the
Certificateholders to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; PROVIDED,
HOWEVER, that such action shall not, as evidenced by an Opinion of Counsel, at
the expense of the party requesting the change, but in no event an expense of
the Trustee, delivered to the Trustee and the [Certificate Insurer], adversely
affect in any material respect the interests of any Certificateholder; PROVIDED,
FURTHER, that the amendment shall not be deemed to adversely affect in any
material respect the interests of the Certificateholders and no Opinion of
Counsel to that effect shall be required if the person requesting the amendment
obtains a letter from Moody's or S&P stating that the amendment would not result
in the downgrading or withdrawal of the respective ratings then assigned to the
Class A Certificates without regard to the [Certificate Insurance Policy]; and
PROVIDED, FURTHER, that no such amendment shall reduce in any manner the amount
of, or delay the timing of, payments received on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the Holder
of such Certificate, or change the rights or obligations of any other party
hereto without the consent of such party. The Trustee shall give prompt written
notice to Moody's and S&P of any amendment made pursuant to this Section 11.3
and shall promptly send copies of any such amendment to Moody's and S&P.
(b) This Agreement may be amended from time to time by the Servicer,
the Depositor and the Trustee with the consent of the [Certificate Insurer]
(which consent shall not be withheld if, in the Opinion of Counsel addressed to
the Trustee and the [Certificate Insurer], failure to amend would adversely
affect the interests of the Certificateholders unless such consent would
adversely affect the interests of the [Certificate Insurer]), the Majority
Certificateholders 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 Holders; PROVIDED, HOWEVER, that no
such amendment shall be made unless the Trustee and the [Certificate Insurer]
receive an Opinion of Counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the Upper-Tier
REMIC or the Lower-Tier REMIC as a REMIC or cause a tax to be imposed on such
Upper-Tier REMIC or Lower-Tier REMIC; and PROVIDED, FURTHER, that no such
amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or reduce the
percentage for the Holders of which are required to consent to any such
amendment without the consent of the Holders of 100% of Certificates affected
thereby.
(c) It shall not be necessary for the consent of Holders 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.
Section 11.4 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 properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at the Certificateholders' expense on direction
and at the expense of Majority Certificateholders requesting such recordation,
but only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.
Section 11.5 DURATION OF AGREEMENT. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 11.6 NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (i) in the case of the Depositor, Preferred Securitization
Corporation, 3347 Michelson Drive, Suite 400, Irvine, California 92612,
Attention: Todd A. Rodriguez, (ii) in the case of the Servicer, Advanta Mortgage
Corp. USA, 16875 West Bernardo Drive, San Diego, California 92127, Attention:
Senior Vice President Loan Servicing, (iii) in the case of the Seller, Preferred
Credit Corporation, 3347 Michelson Drive, Suite 400, Irvine, California 92612,
Attention: Walter Villaume, President, with an additional copy of such notice
simultaneously delivered to the Servicer, (iv) in the case of the Trustee,
[Bankers Trust Company, 3 Park Plaza, 16th Floor, Irvine, California 92614,
Attention: Preferred Credit Asset-Backed Certificates Series 199_-_,] (v) in the
case of the Certificateholders, as set forth in the Certificate Register, (vi)
in the case of Moody's, 99 Church Street, New York, New York 10007 Attention:
Home Equity Monitoring Department, (vii) in the case of S&P, 26 Broadway, New
York, New York 10004 Attention: Residential Mortgage Surveillance Group, (viii)
in the case of the [Certificate Insurer], SF, (ix) in the case of the Fiscal
Agent, to State Street Bank and Trust Company, 61 Broadway, l5th Floor, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency (or such
other address as the Fiscal Agent shall specify to the Trustee in writing) and
(x) in the case of the Underwriter, [Credit Suisse First Boston Corporation, 11
Madison Avenue, New York, New York 10010, Attention: Nita S. Cherry, Asset
Finance Group.] 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 Certificateholders shall be effective upon mailing or personal
delivery.
The parties hereto without the consent of the Owners, but with the
consent of the [Certificate Insurer] may agree in writing that the notices and
reports required hereunder may be provided or delivered via electronic, computer
or by any other means acceptable to the parties hereunder and the [Certificate
Insurer].
Section 11.7 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 11.8 NO PARTNERSHIP. Nothing herein contained shall be deemed
or construed to create a co-partnership or joint venture between the parties
hereto and the services of the Servicer shall be rendered as an independent
contractor and not as agent for the Certificateholders.
Section 11.9 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 11.10 SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and the Certificateholders
and their respective successors and permitted assigns.
Section 11.11 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 11.12 THE [CERTIFICATE INSURER] DEFAULT. Any right conferred
to the [Certificate Insurer] shall be suspended during any period in which a
[Certificate Insurer] Default exists. At such time as the Certificates are no
longer outstanding hereunder, and no amounts owed to the [Certificate Insurer]
hereunder remain unpaid, the [Certificate Insurer] is no longer obligated under
the Policy, the [Certificate Insurer]'s rights hereunder shall terminate.
Section 11.13 THIRD PARTY BENEFICIARY. The parties agree that the
[Certificate Insurer] is intended and shall have all rights of a third-party
beneficiary of this Agreement.
Section 11.14 INTENT OF THE PARTIES. It is the intent of the Depositor
and Certificateholders that, for federal income taxes, state and local income or
franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
Section 11.15 GOVERNING LAW CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(b) THE SERVICER, THE DEPOSITOR, THE SELLER AND THE TRUSTEE HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW
YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
THE ADDRESS SET FORTH IN SECTION 11.6 HEREOF AND SERVICE SO MADE SHALL BE DEEMED
TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S.
MAILS, POSTAGE PREPAID. THE DEPOSITOR, THE SERVICER, THE SELLER AND THE TRUSTEE
EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION
TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT OF THE DEPOSITOR, THE SERVICER OR THE TRUSTEE TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR
RIGHTS TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER
JURISDICTION.
(c) THE DEPOSITOR, THE SERVICER, THE SELLER AND THE TRUSTEE EACH
HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
[End of Agreement.]
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee, the Seller and the
Depositor have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
PREFERRED SECURITIZATION
CORPORATION, as Depositor
By: --------------------------------
Name: Todd A. Rodriguez
Title: President
PREFERRED CREDIT CORPORATION, as Seller
By: --------------------------------
Name: Todd A. Rodriguez
Title: Chief Executive Officer
ADVANTA MORTGAGE CORP. USA,
as Servicer
By: --------------------------------
Name: William P. Garland
Title: Senior Vice President
[BANKERS TRUST COMPANY], as Trustee
By: --------------------------------
Name:
Title:
<PAGE>
ACCEPTED AND
AGREED TO WITH
RESPECT TO SECTION 3.5
PREFERRED MORTGAGE
SPC FUNDING CORP.
By:__________________________
Name: Todd A. Rodriguez
Title President
PREFERRED MORTGAGE
SPC FUNDING CORP. II
By:_________________________
Name: Todd A. Rodriguez
Title: President
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee, the Seller and the
Depositor have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
PREFERRED SECURITIZATION
CORPORATION., as Depositor
By: --------------------------------
Name: Todd A. Rodriguez
Title: President
PREFERRED CREDIT CORPORATION, as Seller
By: --------------------------------
Name: Todd A. Rodriguez
Title: Chief Executive Officer
ADVANTA MORTGAGE CORP. USA,
as Servicer
By: --------------------------------
Name: William P. Garland
Title: Senior Vice President
[BANKERS TRUST COMPANY,] as Trustee
By: --------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee, the Seller and the
Depositor have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
PREFERRED SECURITIZATION
CORPORATION, as Depositor
By: --------------------------------
Name: Joy Margolies
Title: Vice President
PREFERRED CREDIT CORPORATION, as Seller
By: --------------------------------
Name: Todd A. Rodriguez
Title: Chief Executive Officer
ADVANTA MORTGAGE CORP. USA,
as Servicer
By: --------------------------------
Name: William P. Garland
Title: Senior Vice President
BANKERS TRUST COMPANY, as Trustee
By: --------------------------------
Name:
Title:
<PAGE>
State of New York )
) ss.:
County of New York )
On the ___ day of _________, 1997 before me, a Notary Public in and
for the State of New York, personally appeared _____________, known to me to be
___________, of Preferred Securitization Corporation, the corporation that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my
official seal the day and year in this certificate first above written.
--------------------------------
Notary Public
My Commission expires_____________
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of _________, 1997 before me, a Notary Public in and
for the State of New York, personally appeared Todd A. Rodriguez, known to me to
be Chief Executive Officer of Preferred Credit Corporation, the corporation that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my
official seal the day and year in this certificate first above written.
--------------------------------
Notary Public
My Commission expires_____________
<PAGE>
State of California )
) ss.:
County of San Diego )
On the ___ day of ___________, 1997 before me, a Notary Public in and
for the State of California personally appeared William P. Garland, known to me
to be a Senior Vice President of Advanta Mortgage Corp. USA, the corporation
that executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my
official seal the day and year in this certificate first above written.
--------------------------------
Notary Public
My Commission expires_____________
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of _____________, 1997 before me, a Notary Public in
and for the State of New York, personally appeared [Jennifer R. Cunningham,]
known to me to be an [Assistant Vice President] of [Bankers Trust Company,] the
corporation that executed the within instrument and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my
official seal the day and year in this certificate first above written.
--------------------------------
Notary Public
My Commission expires_____________
Exhibit 4.3
PREFERRED SECURITIZATION CORPORATION
Depositor
and
PREFERRED CREDIT CORPORATION
Seller
....................................
SALE AND PURCHASE AGREEMENT
Dated as of [ ]
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE ONE DEFINITIONS...............................................1
Section 1.01. Definitions...........................................1
ARTICLE TWO PURCHASE, SALE AND CONVEYANCE OF MORTGAGE
LOANS.....................................................4
Section 2.01. Agreement to Purchase the Initial Mortgage Loans......4
Section 2.02. Agreement to Purchase the Subsequent Mortgage Loans...4
Section 2.03. Purchase Price........................................6
Section 2.04. Conveyance of Mortgage Loans; Possession of
Mortgage Files........................................6
Section 2.05. Delivery of Mortgage Loan Documents...................7
Section 2.06. Acceptance of Mortgage Loans.........................10
Section 2.07. Transfer of Mortgage Loans; Assignment of Agreement..11
Section 2.08. Examination of Mortgage Files........................11
Section 2.09. Books and Records....................................11
Section 2.10. Cost of Delivery and Recordation of Documents........12
ARTICLE THREE REPRESENTATIONS AND WARRANTIES...........................12
Section 3.01. RESERVED.............................................12
Section 3.02. Representations and Warranties as to the Seller......12
Section 3.03. Representations and Warranties Relating to the
Mortgage Loans.......................................15
Section 3.04. Representations and Warranties of the Depositor......26
Section 3.05. Repurchase Obligation for Defective Documentation
and for Breach of a Representation or Warranty.......27
ARTICLE FOUR THE SELLER...............................................30
Section 4.01. Covenants of the Seller..............................30
Section 4.02. Merger or Consolidation..............................31
Section 4.03. Costs................................................31
Section 4.04. Indemnification......................................32
ARTICLE FIVE CONDITIONS OF CLOSING....................................35
Section 5.01. Conditions of Depositor's Obligations................35
Section 5.02. Conditions of Seller's Obligations...................36
Section 5.03. Termination of Depositor's Obligations...............37
ARTICLE SIX MISCELLANEOUS............................................38
Section 6.01. Notices..............................................38
Section 6.02. Severability of Provisions...........................38
Section 6.03. Agreement of Seller..................................39
Section 6.04. Survival.............................................39
Section 6.05. Effect of Headings and Table of Contents.............39
Section 6.06. Successors and Assigns...............................39
Section 6.07. Confirmation of Intent: Grant of Security Interest...39
Section 6.08. Miscellaneous........................................40
Section 6.09. Amendments...........................................40
Section 6.10. Third-Party Beneficiaries............................41
Section 6.11. GOVERNING LAW, CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL.................................41
Section 6.12. Execution in Counterparts............................42
Exhibit A - Mortgage Loan Schedule
Exhibit B - Officer's Certificate
Exhibit C - Opinion to Counsel to Seller
<PAGE>
This Sale and Purchase Agreement, dated as of [ ], by and among
PREFERRED SECURITIZATION CORPORATION, a Delaware corporation, its successors and
assigns (the "Depositor") and PREFERRED CREDIT CORPORATION, a California
corporation and its successors (the "Seller").
WHEREAS, Exhibit A attached hereto and made a part hereof lists
certain fixed rate first, second and third lien mortgage loans (the "Mortgage
Loans") owned by the Seller and the Seller desires to sell to the Depositor and
that the Depositor desires to purchase;
WHEREAS, it is the intention of the Seller and the Depositor that
simultaneously with the Seller's conveyance of the Mortgage Loans to the
Depositor on the Closing Date, (a) the Depositor shall deposit the Mortgage
Loans in a trust fund pursuant to a Pooling and Servicing Agreement to be dated
as of [ ] (the "Pooling and Servicing Agreement"), to be entered into by and
among Preferred Securitization Corporation, as depositor, Preferred Credit
Corporation, as seller, Advanta Mortgage Corp. USA, as servicer (the
"Servicer"), and [Bankers Trust Company,] as trustee (the "Trustee") and (b) the
Trustee shall issue certificates evidencing beneficial ownership interests in
the property of the trust fund formed by the Pooling and Servicing Agreement to
the Depositor;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. DEFINITIONS. Whenever used herein, the following words
and phrases, unless the context otherwise requires, shall have the meanings
specified in this Article:
"AGREEMENT" means this Sale and Purchase Agreement, as amended or
supplemented in accordance with the provisions hereof.
"[CERTIFICATE INSURER" means _____________________, a stock insurance
company organized and created under the laws of the State of New York, and any
successors thereto.]
"CLOSING DATE" shall have the meaning ascribed thereto in Section
2.01(c).
"COMMISSION" means the Securities and Exchange Commission.
"CUT-OFF DATE" means, with respect to each Initial Mortgage Loan, the
Initial Cut-Off Date, and with respect to each Subsequent Mortgage Loan, the
related Subsequent Cut- Off Date.
"CUT-OFF DATE AGGREGATE PRINCIPAL BALANCE" means the aggregate unpaid
principal balance of the Mortgage Loans as of their respective Cut-Off Date.
"CUT-OFF DATE PRINCIPAL BALANCE" means as to each Mortgage Loan, its
unpaid principal balance as of the related Cut-Off Date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INITIAL CUT-OFF DATE" means the opening of business on [ ].
"INITIAL MORTGAGE LOANS" means the Mortgage Loans transferred and
assigned to the Depositor on the Closing Date.
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first, second or third lien on the Mortgaged Property.
"MORTGAGE LOAN SCHEDULE" shall have the meaning ascribed thereto in
Section 2.01(b).
"POOLING AND SERVICING AGREEMENT" shall have the meaning ascribed
thereto in the recitals hereof.
"PROSPECTUS" means the Prospectus dated [ ] relating to the offering
by the Depositor from time to time of its ABS Mortgage and Manufactured Housing
Contract Pass-Through Certificates (Issuable in Series) in the form in which it
was or will be filed with the Securities Exchange Commission pursuant to Rule
424(b) under the Securities Act with respect to the offer and sale of the
Certificates.
"PROSPECTUS SUPPLEMENT" means the Prospectus Supplement dated [ ],
relating to the offering of the Class A Certificates in the form in which it was
or will be filed with the Commission pursuant to Rule 424(b) under the
Securities Act with respect to the offer and sale of the Class A Certificates.
"QUALIFIED APPRAISER" means an appraiser, duly appointed by the
Seller, who had no interest, direct or indirect, in the Mortgaged Property or in
any loan made on the security thereof, and whose compensation is not affected by
the approval or disapproval of the Mortgage Loan, and such appraiser and the
appraisal made by such appraiser both satisfy the requirements of Title XI of
the Federal Institutions Reform, Recovery and Enforcement Act of 1989 and the
regulations promulgated thereunder, all as in effect on the date the Mortgage
Loan was originated.
"REGISTRATION STATEMENT" means that certain registration statement on
Form S-3, as amended (Registration No. 333-22843 relating to the offering by the
Depositor from time to time of its [ABS Mortgage and Manufactured Housing
Contract Pass-Through Certificates] (issuable in Series) as heretofore declared
effective by the Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TERMINATION EVENT" means the existence of any one or more of the
following conditions:
(a) a stop order suspending the effectiveness of the Registration
Statement shall have been issued or a proceeding for that purpose shall have
been initiated or threatened by the Commission; or
(b) subsequent to the execution and delivery of this Agreement, a
downgrading, or public notification of a possible change, without indication of
direction, shall have occurred in the rating afforded any of the debt securities
or claims paying ability of any person providing any form of credit enhancement
for any of the Class A Certificates, by any "nationally recognized statistical
rating organization," as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Securities Act; or
(c) subsequent to the execution and delivery of this Agreement, there
shall have occurred an adverse change in the condition, financial or otherwise,
earnings, affairs, regulatory situation or business prospects of the
[Certificate Insurer] or the Seller reasonably determined by the Depositor to be
material; or
(d) subsequent to the date of this Agreement there shall have occurred
any of the following: (i) a suspension or material limitation in trading in
securities substantially similar to the Class A Certificates; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; or (iii) the engagement by the United
States in hostilities, or the escalation of such hostilities, or any calamity or
crisis, if the effect of any such event specified in this clause (iii) in the
reasonable judgment of the Depositor makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Class A Certificates on
the terms and in the manner contemplated in the Prospectus Supplement.
"SELLER" means Preferred Credit Corporation, in its capacity as Seller
of the Mortgage Loans under this Agreement and any successor to Preferred Credit
Corporation, whether through merger, consolidation, purchase and assumption of
Preferred Credit Corporation or all or substantially all of its assets or
otherwise.
Capitalized terms used herein that are not otherwise defined shall
have the respective meanings ascribed thereto in the Pooling and Servicing
Agreement.
ARTICLE TWO
PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS
Section 2.01. AGREEMENT TO PURCHASE THE INITIAL MORTGAGE LOANS. (a)
Subject to the terms and conditions of this Agreement, the Seller agrees to
sell, and the Depositor agrees to purchase, the Mortgage Loans having the
Cut-Off Date Aggregate Principal Balance or, in accordance with Section 2.08,
such other balance as is evidenced by the actual Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans accepted by the Depositor on the Closing
Date and listed in the Mortgage Loan Schedule.
(b) Subject to Section 2.08, the Depositor and the Seller have agreed
upon which of the Seller's Mortgage Loans are to be purchased by the Depositor
on the Closing Date pursuant to this Agreement, and the Seller has prepared a
schedule describing the Mortgage Loans (the "Mortgage Loan Schedule") setting
forth all of the Mortgage Loans to be purchased under this Agreement, which
schedule is attached hereto as Exhibit A. The Mortgage Loan Schedule shall
conform to the requirements of the Depositor and to the definition of "Mortgage
Loan Schedule" under the Pooling and Servicing Agreement.
(c) The closing for the purchase and sale of the Mortgage Loans shall
take place at the offices of Stroock & Stroock & Lavan LLP, New York, New York,
at 10:00 a.m., New York time, on [ ] or such other place and time as the parties
shall agree (such time being herein referred to as the "Closing Date").
Section 2.02. AGREEMENT TO PURCHASE THE SUBSEQUENT MORTGAGE LOANS. (a)
Subject to the terms and conditions of this Agreement, the Seller agrees to
sell, and the Depositor agrees to purchase, Subsequent Mortgage Loans, having an
Aggregate Principal Balance of up to [$ ] as listed in the Mortgage Loan
Schedule attached to the related Addition Notice.
(b) Subject to Section 2.08, the Depositor and the Seller shall agree
upon which of the Seller's Mortgage Loans are to be purchased by the Depositor
on a Subsequent Transfer Date, and the Seller shall prepare a Mortgage Loan
Schedule setting forth all of the Subsequent Mortgage Loans to be purchased
under the related Subsequent Transfer Instrument.
(c) Subject to the satisfaction of the conditions set forth in
paragraph (d) below, in consideration of the Depositor's delivery on the related
Subsequent Transfer Dates to or upon the order of the Seller of the purchase
price, the Seller shall on any Subsequent Transfer Date sell, transfer, assign,
set over and convey to the Depositor without recourse but subject to terms and
provisions of this Agreement, all of the right, title and interest of the Seller
in and to the Subsequent Mortgage Loans, and all other assets included or to be
included in the Trust Fund for the benefit of the Certificateholders and the
[Certificate Insurer].
(d) The Subsequent Mortgage Loans and the other property and rights
related thereto described in paragraph (c) above shall be transferred by the
Seller to the Depositor and by the Depositor to the Trust Fund only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:
(i) the Seller shall have provided the Trustee, the
Rating Agencies and the [Certificate Insurer] with a timely Addition
Notice in no event later than five Business
Days prior to the Subsequent Transfer Date and shall have provided any
other information reasonably requested by any of the foregoing with
respect to the Subsequent Mortgage Loans, to be transferred on such
Subsequent Transfer Date;
(ii) the Seller shall have delivered to the Trustee a
duly executed Subsequent Transfer Instrument, which shall include a
Mortgage Loan Schedule listing the Subsequent Mortgage Loans;
(iii) the Seller shall have deposited or cause to have
deposited in the Collection Account all collections of (x) principal in
respect of the Subsequent Mortgage Loans received on and after the
related Subsequent Cut-Off Date and (y) interest due on the Subsequent
Mortgage Loans on and after the related Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, the Seller was
not insolvent nor will be made insolvent by such transfer nor is the
Seller aware of any pending insolvency;
(v) such sale and transfer will not result in a
material adverse tax consequence to the Trust Fund or the
Holders of the Certificates;
(vi) the Pre-Funding Period shall not have terminated;
(vii) in connection with the final Subsequent Transfer
Date only, the Seller shall have delivered to the Depositor such
information as is necessary to permit the Depositor to file a Form 8-K
with the Commission containing tabular descriptions of all the Mortgage
Loans acquired by the Trust Fund as of their respective Cut-Off Dates
compared to those contained under the heading "Description of the
Mortgage Loan" in the Prospectus Supplement;
(viii) in connection with the final Subsequent Transfer
Date only, the Seller shall cause to be delivered to the Depositor a
letter, in form and substance acceptable to the Depositor and its
counsel, prepared by [KPMG Peat Marwick,] independent certified public
accountants, regarding the numerical information required to be
furnished pursuant to Section 2.02(d)(vii) above.
(ix) the Seller shall have delivered to the Trustee an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (d) and that the Subsequent
Mortgage Loans comply with the provisions of Section 2.9 of the Pooling
and Servicing Agreement; and
(x) there shall have been delivered to the [Certificate
Insurer], the Rating Agencies and the Trustee, independent Opinions of
Counsel addressed to such Persons with respect to the transfer of the
Subsequent Mortgage Loans substantially in the form of the Opinions of
Counsel delivered to the [Certificate Insurer] and the Trustee on the
Startup Day (bankruptcy, corporate and tax opinions).
(e) The obligation of the Depositor to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the requirements set forth in
Section 2.9 of the Pooling and Servicing Agreement.
Section 2.03. PURCHASE PRICE. On the Closing Date, as full
consideration for the Seller's sale of the Initial Mortgage Loans to the
Depositor, the Depositor will deliver to the Seller (i) an amount in cash equal
to the sum of (A) _________% of the aggregate principal balance as of the
Closing Date of the Class A-1 Certificates, ___________% of the aggregate
principal balance as of the Closing Date of the Class A-2 Certificates,
___________% of the aggregate principal balance as of the Closing Date of the
Class A-3 Certificates, ___________% of the aggregate principal balance as of
the Closing Date of the Class A-4 Certificates, ___________ % of the aggregate
principal balance as of the Closing Date of the Class A-5 Certificates,
___________% of the aggregate principal balance as of the Closing Date of the
Class A-6 Certificates, and (B) accrued interest on the principal balances of
such Certificates at the rate of ____% per annum for the Class A-1 Certificates,
____% per annum for the Class A-2 Certificates, ____% per annum for the Class
A-3 Certificates, ____% per annum for the Class A- 4 Certificates, ____% per
annum for the Class A-5 Certificates and ____% per annum for the Class A-6
Certificates, in each case from (and including) [ ] to (but not including) [ ],
payable by wire transfer of same day funds and (ii) the Class B and Class R
Certificates to be issued pursuant to the Pooling and Servicing Agreement.
Section 2.04. CONVEYANCE OF MORTGAGE LOANS; POSSESSION OF MORTGAGE
FILES.
(a) On the Closing Date and on each Subsequent Transfer Date, the
Seller shall sell, transfer, assign, set over and convey to the Depositor,
without recourse but subject to the terms of this Agreement, all right, title
and interest in and to the applicable Mortgage Loans, together with the Mortgage
Files relating thereto and the insurance policies relating to each such Mortgage
Loan and all right, title and interest in and to all collections thereon and the
proceeds thereof on and after the Cut-Off Date. Upon payment of the purchase
price for such Mortgage Loans as provided in Section 2.03 of this Agreement, the
Seller shall have hereby, and shall be deemed to have, relinquished all rights
with respect to, and to have sold, transferred, assigned, set over and conveyed
such Mortgage Loans together with the Mortgage Files relating thereto and the
insurance policies relating to each such Mortgage Loan and all right, title and
interest in and to all collections thereon and the proceeds thereof on and after
the Cut-Off Date, and shall have no right to sell, pledge, encumber or otherwise
dispose of such Mortgage Loans.
In connection with the sale, transfer, assignment and conveyance from
the Seller to the Depositor, the Seller has filed, or shall cause to be filed,
in the appropriate office or offices in the States of California and New York, a
UCC-1 financing statement executed by the Seller as debtor, naming the Depositor
as secured party and listing the Mortgage Loans and the other property described
above as collateral. The characterization of the Seller as a debtor and the
Depositor as the secured party in such financing statements is solely for
protective purposes and shall in no way be construed as being contrary to the
interest of the parties that this transaction be treated as a sale of the
Seller's entire right, title and interest in the Mortgage Loans to the
Depositor. In connection with such filing, the Seller agrees that it shall cause
to be filed all necessary continuation statements thereof and to take or cause
to be taken such actions and execute such documents as are necessary to perfect
and protect the Trustee's, the Certificateholders' and the [Certificate
Insurer]'s interests in the Mortgage Loans.
(b) Upon the sale of such Mortgage Loans, the ownership of each
related Mortgage Note, each related Mortgage and the contents of the related
Mortgage File shall immediately vest in the Depositor and the ownership of all
related records and documents with respect to each Mortgage Loan prepared by or
which come into the possession of the Seller shall immediately vest in the
Depositor. The contents of any Mortgage File in the possession of the Seller at
any time after such sale, and any payments of principal on the Mortgage Loans
received by the Seller on and after the Cut-off Date, and interest on the
Mortgage Loan due on and after the Cut-Off Date and received by the Seller,
shall be held in trust by the Seller for the benefit of the Trustee (as assignee
of the Depositor pursuant to the Pooling and Servicing Agreement), and shall be
promptly delivered by the Seller to or upon the order of the Trustee.
(c) Pursuant to the Pooling and Servicing Agreement, the Depositor
shall, on the Closing Date, assign all of its right, title and interest in and
to the applicable Mortgage Loans to the Trustee for the benefit of the
Certificateholders and the [Certificate Insurer].
Section 2.05. DELIVERY OF MORTGAGE LOAN DOCUMENTS. (a) On or prior to
the Closing Date or Subsequent Transfer Date, as applicable, the Seller shall
deliver to the Trustee (as assignee of the Depositor pursuant to the Pooling and
Servicing Agreement), each of the following documents for each applicable
Mortgage Loan:
(i) The original Mortgage Note, bearing all intervening
endorsements showing a complete chain of endorsements from the
originator of such Mortgage Loan to the Seller endorsed by the Seller
without recourse in the following form: "Pay to the order of [Bankers
Trust Company,] as Trustee for the benefit of the Certificateholders
and the [Certificate Insurer] for Preferred Credit Asset-Backed
Certificates, Series 199_-_, without recourse" and signed in the name
of the Seller by an authorized officer;
(ii) The original Mortgage with evidence of recording
indicated thereon or if such Mortgage has not been returned from the
applicable recording office, a copy of the Mortgage certified by an
authorized officer of the Seller (such original recorded Mortgage shall
be delivered when so returned);
(iii) An original assignment of the original Mortgage, in
suitable form for recordation in the jurisdiction in which the related
Mortgaged Property is located, in the name of the Seller signed by an
authorized officer (with evidence of submission for recordation of such
assignment in the appropriate real estate recording office for such
Mortgaged Property); provided, however, that assignments of mortgages
shall not be required to be submitted for recording with respect to any
Mortgage Loan which relates to the Trustee's Mortgage File if the
Trustee, each of the Rating Agencies and the [Certificate Insurer]
shall have received an opinion of counsel at the expense of the Seller
satisfactory to the Trustee, each of the Rating Agencies and the
[Certificate Insurer] stating that, in such counsel's opinion, the
failure to record such assignment of Mortgage shall not have a
materially adverse effect on the security interest of the Trustee in
the Mortgage; PROVIDED, FURTHER, that any assignment of Mortgage for
which an opinion has been delivered shall be recorded by the Seller
upon the earlier to occur of (i) receipt by the Trustee of the
[Certificate Insurer]'s written direction to record such Mortgage, (ii)
the occurrence of any Event of Default, as such term is defined in the
Pooling and Servicing Agreement, or (iii) a bankruptcy or insolvency
proceeding involving the Mortgagor is initiated or foreclosure
proceedings are initiated against the Mortgaged Property as a
consequence of an event of default under the Mortgage Loan; PROVIDED,
further, that if the related Mortgage has not been returned from the
applicable recording office, then a copy of such Mortgage certified by
an authorized officer of the Seller shall be delivered (such original
assignment shall be delivered when so returned);
(iv) The original of any intervening assignments of the
Mortgage with evidence of recording thereon showing a complete chain of
assignment from the originator of such Mortgage Loan to the Seller;
(v) The original of any assumption, modification,
consolidation or extension agreements with evidence of
recording thereon; and
(vi) The title report or policy of title insurance (or a
commitment for title insurance if the policy is being held by the title
insurance company pending recordation of the Mortgage) issued with
respect to such Mortgage Loan;
PROVIDED, HOWEVER, that in the case of any Mortgage Loans which have
been prepaid in full after the Cut-Off Date and prior to the date of the
execution of this Agreement, the Seller, in lieu of delivering the above
documents, hereby delivers to the Depositor a certification of an officer of the
Seller of the nature set forth in Exhibit N attached to the Pooling and
Servicing Agreement; and PROVIDED, FURTHER, HOWEVER, that as to certain
Mortgages or assignments thereof which have been delivered or are being
delivered to recording offices for recording and have not been returned to the
Seller in time to permit their delivery hereunder at the time of such transfer,
in lieu of delivering such original documents, the Depositor is delivering to
the Trustee a true copy thereof with a certification by the Seller on the face
of such copy substantially as follows: "certified true and correct copy of
original which has been transmitted for recordation." The Seller agrees that it
will deliver such original documents, together with any related title report or
policy of title insurance not previously delivered, on behalf of the Depositor
to the Trustee promptly after they are received, and no later than 120 days
after the Closing Date; PROVIDED, HOWEVER, that in those instances where the
public recording office retains the original Mortgage or assignment of Mortgage
after it has been recorded or such original document has been lost by the
recording office, the Seller shall be deemed to have satisfied its obligations
hereunder if it shall have delivered to the Trustee a copy of such original
Mortgage or assignment of Mortgage certified by the public recording office to
be a true copy of the recorded original thereof. The Seller agrees, at its own
expense, to record (or to provide the Trustee with evidence of recordation
thereof) each assignment within 60 days of the Closing Date in the appropriate
public office for real property records, provided that such assignments are
redelivered by the Trustee to the Seller upon the Seller's written request and
at the Seller's expense, unless the Seller (at its expense) furnishes to the
Trustee, the [Certificate Insurer] and the Rating Agencies an Opinion of Counsel
reasonably acceptable to the Trustee and the [Certificate Insurer] to the effect
that recordation of such assignment is not necessary under applicable state law
to preserve the Trustee's interest in the related Mortgage Loan against the
claim of any subsequent transferee of such Mortgage Loan or any successor to, or
creditor of the Seller.
(b) In the event that any additional original documents are required
pursuant to the terms of this Section 2.05 to be a part of a Mortgage File, the
Seller or the Depositor, respectively, shall promptly deliver written notice to
the Trustee that such additional original documents are required hereunder and
deliver such original documents to the Trustee. In acting as custodian of any
such original document, the Servicer agrees further that it does not and will
not have or assert any beneficial ownership interest in the Mortgage Loans or
the Mortgage Files.
(c) In the event that any Mortgage Note required to be delivered
pursuant to this Section 2.05 is conclusively determined by any of the Seller,
the Servicer or the Trustee to be lost, stolen or destroyed the Seller shall,
within 14 days of the Closing Date, deliver to the Trustee a "lost note
affidavit" in form and substance acceptable to the Trustee, and shall
simultaneously therewith request the obligor on such Mortgage Note to execute
and return a replacement Mortgage Note, and shall further agree to hold the
Trustee and the [Certificate Insurer] harmless from any loss or damage resulting
from any action taken in reliance on the delivery and possession by the Trustee
of such lost note affidavit. Upon the receipt of such replacement Mortgage Note,
the Trustee shall return the lost note affidavit. Delivery by the Seller of such
lost note affidavit shall not affect the obligations of the Seller hereunder
with respect to the related Mortgage Loan.
(d) Promptly after the Closing Date, the Seller shall, with respect to
each Mortgage Loan, cause to be recorded in the appropriate public office for
real property records, where permitted by applicable law and where applicable
law does not require that a subordinate mortgagee be named as a party defendant
in foreclosure or comparable proceedings in order to foreclose or otherwise
preempt such mortgagee's equity of redemption, a request for notice of any
action by or on behalf of any mortgagee under the related senior lien.
Section 2.06. ACCEPTANCE OF MORTGAGE LOANS (a) Pursuant to the Pooling
and Servicing Agreement, the Trustee has agreed to execute and deliver on or
prior to the Closing Date an acknowledgment of receipt of each Mortgage Loan,
the original Mortgage Note with respect to each Mortgage Loan (with any
exceptions noted), in the form attached as Exhibit D to the Pooling and
Servicing Agreement and declares that it will hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Fund in the Pooling and Servicing Agreement
and delivered to the Trustee, as Trustee in trust upon and subject to the
conditions set forth in the Pooling and Servicing Agreement for the benefit of
the Certificateholders and the [Certificate Insurer]. Pursuant to the Pooling
and Servicing Agreement, the Trustee has agreed, for the benefit of the
Certificateholders and the [Certificate Insurer], to review (or cause to be
reviewed) each Trustee's Mortgage File within 30 days after the Closing Date
(or, with respect to any Subsequent Mortgage Loan or Qualified Substitute
Mortgage Loan, within 30 days after the receipt by the Trustee thereof) and to
deliver to the initial Certificateholders, the Seller, the Servicer and the
[Certificate Insurer] a final certification in the form attached to the Pooling
and Servicing Agreement as Exhibit F to the effect that, as to each Mortgage
Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or any Mortgage Loan specifically identified in such certification as not
covered by such certification), (i) all documents required to be delivered to it
pursuant to Section 2.3(a)(i) of the Pooling and Servicing Agreement are in its
possession, (ii) each such document has been reviewed by it, has been, to the
extent required, executed and has not been mutilated, damaged, torn or otherwise
physically altered (handwritten additions, changes or corrections shall not
constitute physical alteration if initialed by the Mortgagor), appears regular
on its face and relates to such Mortgage Loan, and (iii) based on its
examination and only as to the foregoing documents, the information set forth on
the Mortgage Loan Schedule accurately reflects the information set forth in the
Trustee's Mortgage File delivered on such date. Pursuant to the Pooling and
Servicing Agreement, the Trustee shall be under no duty or obligation 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.
(b) The Pooling and Servicing Agreement provides that, if the
[Certificate Insurer] or the Trustee during the process of reviewing the
Trustee's Mortgage Files finds any document constituting a part of a Trustee's
Mortgage File which is not executed, has not been received, is unrelated to the
Mortgage Loan identified in the Mortgage Loan Schedule, or does not conform to
the requirements of Section 2.05 or the description thereof as set forth in the
Mortgage Loan Schedule, the Trustee or the [Certificate Insurer], as applicable,
shall promptly so notify the Servicer, the Seller, the [Certificate Insurer] and
the Trustee. The Seller agrees that in performing any such review, the Trustee
may conclusively rely on the Seller as to the purported genuineness of any such
document and any signature thereon. The Seller agrees to use reasonable efforts
to remedy a material defect in a document constituting part of a Mortgage File
of which it is notified. If, however, within 60 days after such notice the
Seller has not remedied the defect and the defect materially and adversely
affects the interest of the Certificateholders in the related Mortgage Loan or
the interests of the [Certificate Insurer], then the Seller shall either
substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan or
purchase such Mortgage Loan in the manner and subject to the conditions set
forth in Section 3.05.
(c) The failure of the Trustee or the [Certificate Insurer] to give
any notice contemplated herein within the time periods specified above shall not
affect or relieve the Seller's obligation to repurchase for any Mortgage Loan
pursuant to this Section 2.06 or Section 3.05 of this Agreement.
Section 2.07. TRANSFER OF MORTGAGE LOANS; ASSIGNMENT OF AGREEMENT. The
Seller hereby acknowledges and agrees that the Depositor may assign its interest
under this Agreement to the Trustee as may be required to effect the purposes of
the Pooling and Servicing Agreement, without further notice to, or consent of,
the Seller, and the Trustee shall succeed to such of the rights and obligations
of the Depositor hereunder as shall be so assigned. The Depositor shall,
pursuant to the Pooling and Servicing Agreement, assign all of its right, title
and interest in and to the Mortgage Loans and its right to exercise the remedies
created by Sections 2.06 and 3.05 hereof for breaches of the representations,
warranties, agreements and covenants of the Seller contained in Sections 2.05,
2.06, 3.02 and 3.03 hereof to the Trustee for the benefit of the
Certificateholders and the [Certificate Insurer]. The Seller agrees that, upon
such assignment to the Trustee, such representations, warranties, agreements and
covenants will run to and be for the benefit of the Trustee and the Trustee may
enforce, without joinder of the Depositor, the repurchase obligations of the
Seller set forth herein with respect to breaches of such representations,
warranties, agreements and covenants.
Section 2.08. EXAMINATION OF MORTGAGE FILES. Prior to the Closing Date
and each Subsequent Transfer Date, as applicable, the Seller shall make the
related Mortgage Files available to the Depositor or its designee for
examination at the Seller's offices or at such other place as the Seller shall
reasonably specify. Such examination may be made by the Depositor or its
designee at any time on or before the Closing Date or Subsequent Transfer Date,
as the case may be. If the Depositor or its designee makes such examination
prior to the Closing Date or Subsequent Transfer Date, as the case may be, and
identifies any Mortgage Loans that do not conform to the requirements of the
Depositor as described in this Agreement, such Mortgage Loans shall be deleted
from the Mortgage Loan Schedule and may be replaced, prior to the Closing Date
or Subsequent Transfer Date, as the case may be, by substitute Mortgage Loans
acceptable to the Depositor. The Depositor may, at its option and without notice
to the Seller, purchase all or part of the Mortgage Loans without conducting any
partial or complete examination. The fact that the Depositor or the Trustee has
conducted or has failed to conduct any partial or complete examination of the
Mortgage Files shall not affect the rights of the Depositor or the Trustee to
demand repurchase or other relief as provided in this Agreement.
Section 2.09. BOOKS AND RECORDS. The sale of each Mortgage Loan shall
be reflected on the Seller's accounting and other records, balance sheet and
other financial statements as a sale of assets by the Seller to the Depositor.
The Seller shall be responsible for maintaining, and shall maintain, a complete
set of books and records for each Mortgage Loan which shall be clearly marked to
reflect the ownership of each Mortgage Loan by the Trustee for the benefit of
the Certificateholders and the [Certificate Insurer]. The Seller shall respond
to any inquiries from third parties with respect to ownership of a Mortgage Loan
by stating that is not the owner of such Mortgage Loan and that ownership of
such Mortgage Loan is held by the Trustee on behalf of the Trust Fund.
Section 2.10. COST OF DELIVERY AND RECORDATION OF DOCUMENTS. The costs
relating to the delivery and recordation of the documents specified in this
Article Two in connection with the Mortgage Loans shall be borne by the Seller.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
Section 3.01. RESERVED
Section 3.02. REPRESENTATIONS AND WARRANTIES AS TO THE SELLER. The
Seller hereby represents and warrants to the Depositor, as of the Closing Date,
that:
(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all licenses
necessary to carry on its business as now being conducted and is licensed,
qualified and in good standing in each state where a Mortgaged Property is
located if the laws of such state require licensing or qualification in order to
conduct business of the type conducted by the Seller and to perform its
obligations as the Seller hereunder and under the Pooling and Servicing
Agreement, and in any event the Seller is in compliance with the laws of any
such state to the extent necessary to ensure the enforceability of the related
Mortgage Loan; the Seller has the full power and authority, corporate and
otherwise, to execute and deliver this Agreement and the Pooling and Servicing
Agreement and to perform in accordance herewith and therewith; the execution,
delivery and performance of this Agreement (including all instruments of
transfer to be delivered pursuant to this Agreement and the Pooling and
Servicing Agreement) and the Pooling and Servicing Agreement by the Seller and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized; each of this Agreement and the Pooling and
Servicing Agreement evidences the valid, binding and enforceable obligation of
the Seller; and all requisite corporate action has been taken by the Seller to
make this Agreement and the Pooling and Servicing Agreement valid and binding
upon the Seller in accordance with its terms;
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Seller of or compliance by the Seller with the Pooling and
Servicing Agreement, this Agreement or the sale of the Mortgage Loans pursuant
to the terms of this Agreement or the consummation of the transactions
contemplated by this Agreement and the Pooling and Servicing Agreement, or if
required, such approval has been obtained prior to the Closing Date;
(c) Neither the execution and delivery of this Agreement or the
Pooling and Servicing Agreement, the acquisition or origination of the Mortgage
Loans by the Seller or the transactions contemplated hereby or thereby, nor the
fulfillment of or compliance with the terms and conditions of this Agreement or
the Pooling and Servicing Agreement, has or will conflict with or result in a
breach of any of the terms, conditions or provisions of the Seller's charter or
by-laws or any legal restriction or any agreement or instrument to which the
Seller is now a party or by which it is bound or to which its property is
subject, or constitute a 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 Seller or its property is subject, or impair the
ability of the Trustee (or the Servicer as the agent of the Trustee) to realize
on the Mortgage Loans, or impair the value of the Mortgage Loans;
(d) None of this Agreement, the Pooling and Servicing Agreement or the
information contained in the Prospectus Supplement under the captions
"Description of the Mortgage Loans," "The Seller" nor any statement, report or
other document prepared by the Seller and furnished or to be furnished pursuant
to this Agreement, the Pooling and Servicing Agreement or in connection with the
transactions contemplated hereby or thereby contains any untrue statement or
alleged untrue statement of any material fact or omits to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Seller, threatened before a court, administrative agency
or government tribunal against the Seller which, either in any one instance or
in the aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of the Seller, or in any
material impairment of the right or ability of the Seller to carry on its
business substantially as now conducted, or in any material liability on the
part of the Seller, or which would draw into question the validity of this
Agreement, the Pooling and Servicing Agreement, the Mortgage Loans, or of any
action taken or to be taken in connection with the obligations of the Seller
contemplated herein or therein, or which would impair materially the ability of
the Seller to perform under the terms of this Agreement or the Pooling and
Servicing Agreement or that might prohibit its entering into this Agreement, the
Pooling and Servicing Agreement, or the consummation of any of the transactions
contemplated hereby;
(f) The Seller is not in violation of or in default with respect to,
and the execution and delivery of this Agreement and the Pooling and Servicing
Agreement by the Seller and its performance of and compliance with the terms
hereof and thereof will not constitute a violation or 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 violation or default
might have consequences that would materially and adversely affect the condition
(financial or other) or operations of the Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder or under the Pooling and Servicing Agreement;
(g) Upon the receipt of each Trustee's Mortgage File by the Depositor
under this Agreement, the Depositor will have good title on behalf of the Trust
Fund to each related Mortgage Loan and such other items comprising the corpus of
the Trust Fund free and clear of any lien created by the Seller (other than
liens which will be simultaneously released);
(h) The consummation of the transactions contemplated by this
Agreement and the Pooling and Servicing Agreement are in the ordinary course of
business of the Seller, and the transfer, assignment and conveyance of the
Mortgage Notes and the Mortgages by the Seller pursuant to this Agreement are
not subject to the bulk transfer or any similar statutory provisions in effect
in any applicable jurisdiction;
(i) With respect to any Mortgage Loan purchased by the Seller, the
Seller acquired title to the Mortgage Loan in good faith, without notice of any
adverse claim;
(j) The Seller does not believe, nor does it have any reason or cause
to believe, that it cannot perform each and every one of its covenants contained
in this Agreement and in the Pooling and Servicing Agreement. The Seller is
solvent and the sale of the Mortgage Loans by the Seller pursuant to the terms
of this Agreement will not cause the Seller to become insolvent. The sale of the
Mortgage Loans by the Seller pursuant to the terms of this Agreement was not
undertaken with the intent to hinder, delay or defraud any of the Seller's
creditors;
(k) The Mortgage Loans are not intentionally selected in a manner so
as to affect adversely the interests of the Depositor or of any transferee of
the Depositor (including the Trustee);
(l) The Seller has determined that it will treat the disposition of
the Mortgage Loans pursuant to this Agreement as a sale for accounting and tax
purposes;
(m) The Seller has not dealt with any broker or agent or anyone else
that may be entitled to any commission or compensation in connection with the
sale of the Mortgage Loans to the Depositor other than to the Depositor or an
Affiliate thereof; and
(n) The consideration received by the Seller upon the sale of the
Mortgage Loans under this Agreement constitutes fair consideration and
reasonably equivalent value for the Mortgage Loans.
(o) In making the representation containing in Section 3.03(bk), the
Seller has examined each of the Mortgage Loans, appraisals of the property
securing each of the Mortgage Loans, and information concerning any liens on
such property that are senior to or in parity with the Mortgage Loan, to
determine whether the "80-percent test" described in such representation has
been satisfied. In all cases where the "80-percent test" was not satisfied, in
order to determine whether the "Alternative test" described in Section 3.03(bk)
was satisfied, the Seller sent to the relevant borrower a survey asking the
borrower to state the purposes for which the proceeds of their Mortgage Loan
were used and the percent of the proceeds used for each purpose. The Seller
examined each of the responses to the borrower survey, which were received (in
either written or oral form) from 100 percent of the borrowers to whom the
surveys were sent, to determine whether the "Alternative test" was satisfied. In
all cases where the "Alternative test" was satisfied as per the borrower survey,
the Seller examined the disbursement records for the relevant Mortgage Loans as
further verification of the use of loan proceeds. Any Mortgage Loan for which
the use of proceeds, as indicated in the borrower survey, caused the
"Alternative test" not to be satisfied, or for which the borrower survey and the
disbursement records were inconsistent, were not treated by the Seller as
satisfying the "Alternative test."
Section 3.03. REPRESENTATIONS AND WARRANTIES RELATING TO THE MORTGAGE
LOANS. The Seller represents to the Depositor that, as of the Closing Date, as
to each Initial Mortgage Loan, and as of the Subsequent Transfer Date, as to
each Subsequent Mortgage Loan to be transferred on such Subsequent Transfer
Date, immediately prior to the sale and transfer of such Mortgage Loan by the
Seller to the Depositor:
(a) The Mortgage Loans had, as of the Initial Cut-Off Date, an
aggregate Principal Balance equal to [$ ], and all of the information set forth
in the Mortgage Loan Schedule is complete, true and correct;
(b) All payments required to be made up to the Cut-Off Date for the
Mortgage Loan under the terms of the Mortgage Note have been made and credited,
except no payment required under the Mortgage Loan is more than 30 days
Delinquent nor has any payment under the Mortgage Loan been Delinquent for more
than 30 days more than once in the 12 months preceding the Cut-Off Date;
(c) Except as described in clause (b) above, there are no defaults in
complying with the terms of the Mortgage, and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges which have
become liens against the Mortgaged Property, leasehold payments or ground rents
which previously became due and owing have been paid. The Seller has not
advanced funds, or induced, solicited or knowingly received any advance of funds
by a party other than the Mortgagor, directly or indirectly, for the payment of
any amount required under the Mortgage Loan;
(d) The terms of the Mortgage Note and Mortgage have not been
impaired, waived, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the interests of
the Trustee on behalf of the Certificateholders and the [Certificate Insurer]
and which has been delivered to the Trustee. The substance of any such waiver,
alteration or modification has been approved by the title insurer, to the extent
required by the policy, and its terms are reflected on the Mortgage Loan
Schedule. No Mortgagor has been released, in whole or in part, except in
connection with an assumption agreement, which assumption agreement is part of
the Mortgage File delivered to the Trustee and the terms of which are reflected
in the Mortgage Loan Schedule;
(e) The Mortgage Loan is not subject to any right of rescission,
set-off, counterclaim or defense, including, without limitation, the defense of
usury, nor will the operation of any of the terms of the Mortgage Note or the
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, recoupment, counterclaim or defense, including, without
limitation, the defense of usury, and no such right of rescission, set-off,
recoupment, counterclaim or defense has been asserted with respect thereto, and
no Mortgagor was a debtor in any state or federal bankruptcy or insolvency
proceeding at the time the Mortgage Loan was originated;
(f) Pursuant to the terms of the Mortgage, the Mortgaged Property is
subject to fire and casualty insurance with a standard mortgagee clause and
extended coverage which provides guaranteed replacement value of the
improvements securing such Mortgage Loan, or coverage in the amount of the full
replacement value of the improvements securing such Mortgage Loan or the amount
of the unpaid principal balance of the first mortgage plus the unpaid principal
balance of the Mortgage Loan, whichever is less. The fire and casualty insurance
is standard in the industry for property similar (in terms of property type,
value and location) to the Mortgaged Property. If the Mortgaged Property is in
an area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), a flood insurance policy is in effect with respect to the Mortgaged
Property meeting the requirements of the current guidelines of the Federal
Insurance Administration with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (i) the unpaid principal
balance of the Mortgage Loan, (ii) the full insurable value of the Mortgaged
Property or (iii) the maximum amount of insurance available under the Flood
Disaster Protection Act of 1973. To the best of the Seller's knowledge, all such
insurance policies (collectively, the "hazard insurance policy") meet the
requirements of the current guidelines of the Federal Insurance Administration,
conform to the requirements of the FNMA Sellers' Guide and the FNMA Servicers'
Guide, and are a standard policy of insurance for the locale where the Mortgaged
Property is located. It is understood and agreed that such insurance is with
insurers approved by the Servicer and that no earthquake or other additional
insurance is to be required of any Mortgagor or to be maintained on property
acquired in respect of a defaulted loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance. The hazard insurance policy names the Mortgagor as the
insured and contains a standard mortgagee loss payable clause in favor of the
Seller, and its successors and assigns. The Seller has caused and will cause to
be performed any and all acts required to be performed to preserve the rights
and remedies of the Trustee in any hazard insurance policies applicable to the
Mortgage Loans including, without limitation, any necessary notifications of
insurers and assignments of policies or interests therein. The Mortgage
obligates the Mortgagor thereunder to maintain the hazard insurance policy at
the Mortgagor's cost and expense, and on the Mortgagor's failure to do so,
authorizes the holder of the Mortgage to obtain and maintain such insurance at
such Mortgagor's cost and expense, and to seek reimbursement therefor from the
Mortgagor; PROVIDED, however, that the addition of any such cost shall not be
taken into account for purposes of calculating the principal amount of the
Mortgage Note or the Mortgage Loan secured by the Mortgage Note. Where required
by state law or regulation, the Mortgagor has been given an opportunity to
choose the carrier of the required hazard insurance, provided the policy is not
a "master" or "blanket" hazard insurance policy covering a condominium or the
common facilities of a planned unit development. To the best of Seller's
knowledge, the hazard insurance policy is the valid and binding obligation of
the insurer, is in full force and effect, and will be in full force and effect
and inure to the benefit of the Trustee upon the consummation of the
transactions contemplated by this Agreement. The Seller has not engaged in, and
has no knowledge of the Mortgagor's or any Subservicer's having engaged in, any
act or omission which would impair the coverage of any such policy, the benefits
of the endorsement provided for herein, or the validity and binding effect of
either. To the best of Seller's knowledge, in connection with the issuance of
the hazard insurance policy, no unlawful fee, commission, kickback or other
unlawful compensation or value of any kind has been or will be received,
retained or realized by any attorney, firm or other person or entity, and no
such unlawful items have been received, retained or realized by the Seller;
(g) Any and all requirements of any federal, state or local law,
including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to the Mortgage Loan have been complied with and the
consummation of the transactions contemplated hereby will not involve the
violation of any such laws;
(h) The Mortgage has not been satisfied, canceled, subordinated (other
than in connection with a refinancing of the first mortgage on the Mortgaged
Property) or rescinded, in whole or in part, and the Mortgaged 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 release, cancellation,
subordination or rescission. The Seller has not waived the performance by the
Mortgagor of any action, if the Mortgagor's failure to perform such action would
cause the Mortgage Loan to be in default, nor has the Seller waived any default
resulting from any action or inaction by the Mortgagor;
(i) The Mortgaged Property is located in the state identified in the
Mortgage Loan Schedule and consists of a fee simple estate in one or more
parcels of real property improved by a one- to four-family residential dwelling;
(j) The Mortgage is a valid, subsisting, enforceable and perfected
lien on the Mortgaged Property, including all buildings on the Mortgaged
Property and all installations and mechanical, electrical, plumbing, heating and
air conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect to the
foregoing. The lien of the Mortgage is subject only to:
(i) in the case of Mortgage Loans in a second
priority lien position, a first mortgage;
(ii) in the case of Mortgage Loans in a third priority
position, a first and second mortgage;
(iii) the lien of current real property taxes and
assessments not yet due and payable;
(iv) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of
recording acceptable to prudent mortgage lending institutions generally
and specifically referred to in the lender's title report delivered to
the originator of the Mortgage Loan and referred to or otherwise
considered in the appraisal made for the originator of the Mortgage
Loan; and
(v) other matters to which like properties are
commonly subject which do not materially interfere with
the benefits of the security intended to be provided by the
Mortgage or the use, enjoyment, value or marketability of the related
Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable junior lien and junior priority security interest on
the property described therein and immediately prior to the sale of such
Mortgage Loan to the Depositor pursuant to this Agreement, the Seller had full
right to sell and assign the same to the Depositor; as of the date of
origination of the Mortgage Loan, the Mortgage Property was not subject to a
Mortgage, deed of trust, deed to secure debt or other security instrument
creating a lien subordinate to the lien of the Mortgage.
(k) The Mortgage Note and the Mortgage and every other agreement, if
any, executed and delivered by the Mortgagor in connection with the Mortgage
Loan are genuine, and each is the legal, valid and binding obligation of the
maker thereof enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, receivership, or other
similar laws of general applicability relating to or affecting creditors' rights
generally. All parties to the Mortgage Note and the Mortgage and any other
related agreement had legal capacity to enter into the Mortgage Loan and to
execute and deliver the Mortgage Note, the Mortgage and such other related
agreements, and the Mortgage Note and the Mortgage and such other related
agreements have been duly and properly executed by such parties. The Seller has
reviewed, or has caused to be reviewed, all of the documents constituting the
Mortgage File and have made such inquiries as it deems necessary to make and
confirm the accuracy of the representations set forth herein;
(l) The Mortgage Loan has been closed and any proceeds of the Mortgage
Loan drawn by the Mortgagor as of the Cut-Off Date have been fully disbursed and
there is no requirement for future advances thereunder. All costs, fees and
expenses incurred in making or closing the Mortgage Loan and the recording of
the Mortgage were paid or will be paid, and the Mortgagor is not entitled to any
refund of any amounts paid or due under the Mortgage Note or Mortgage;
(m) At the time of the sale of the Mortgage Loan to the Depositor
under this Agreement, (i) the Seller was the sole owner and holder of the
Mortgage Loan, (ii) the Mortgage Loan was not assigned to any Person other than
the Trustee on behalf of the Trust Fund, or pledged, unless such assignment or
pledge has been duly released, (iii) the Seller had good, indefeasible and
marketable title thereto, (iv) the Seller had full right to transfer and sell
the Mortgage Loan therein to the Depositor free and clear of any encumbrance,
equity interest, participation interest, lien, pledge, charge, claim or security
interest, and (v) the Seller had full right and authority subject to no interest
or participation of, or agreement with, any other party, to sell and assign each
Mortgage Loan to the Depositor under this Agreement, and following the sale of
each Mortgage Loan, the Depositor will own such Mortgage Loan free and clear of
any encumbrance, equity interest, participation interest, lien, pledge, charge,
claim or security interest;
(n) All parties which had any interest in the Mortgage Loan, whether
as mortgagee, assignee, pledgee or otherwise, and including, without limitation,
the Seller, 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 Mortgaged Property is located
to the extent required to avoid a material adverse effect to the interest of the
Trustee on behalf of the Certificateholders and the [Certificate Insurer], and
(ii) (1) organized under the laws of such state, or (2) qualified to do business
in such state, or (3) federal savings and loan associations, savings banks, or
national banks having principal offices in such state, or (4) not doing business
in such state;
(o) The Mortgage Loan has an original Combined Loan-to-Value Ratio
(calculated at the time of origination by dividing the outstanding principal
amount of the first and second Mortgage Loan by the appraised value of the
Mortgaged Property) equal to or less than 125%;
(p) Each Mortgage Loan was originated pursuant to a title report or a
limited liability lender's title insurance policy or other generally acceptable
form of policy of insurance issued by a title insurer qualified to do business
in the jurisdiction, where the Mortgaged Property is located, evidencing the
Seller, its successors and assigns, of the priority of its lien of the Mortgage
in the original principal amount of the Mortgage Loan, and subject only to the
exceptions contained in clauses (i), (ii), (iii) and (iv) of paragraph (j)
above. Where required by state law or regulation, the Mortgagor has been given
the opportunity to choose the carrier of the required mortgage title insurance.
Immediately prior to the sale of the Mortgage Loan to the Depositor under the
terms of this Agreement, the Seller, its successors and assigns were the sole
insurers of such lender's title insurance policy. Such lender's title insurance
policy is in full force and effect and will be in force and effect upon the
consummation of the transactions contemplated by this Agreement. No claims have
been made under such lender's title insurance policy, and no prior holder of the
Mortgage, including the Seller, has done, by act or omission, anything which
would impair the coverage of such lender's title insurance policy. In connection
with the issuance of such lender's title insurance policy, no unlawful fee,
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
person or entity, and no such unlawful items have been received, retained or
realized by the Seller;
(q) Except as described in clause (b) above, there is no default,
breach, violation or event of acceleration existing under the Mortgage or the
Mortgage Note and no event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and neither the Seller nor its predecessors
have waived any default, breach, violation or event of acceleration;
(r) To the best of the Seller's knowledge, there are no mechanics' or
similar liens or claims which have been filed for work, labor or material (and
no rights are outstanding that under the law could give rise to such liens)
affecting the related Mortgaged Property which are or may be liens prior to, or
equal or coordinate with, the lien of the related Mortgage;
(s) To the best of the Seller's knowledge, all improvements which were
considered in determining the Appraised Value of the Mortgaged Property lay
wholly within the boundaries and building restriction lines of the Mortgaged
Property and no improvements on adjoining properties encroach upon the Mortgaged
Property. To the best of Seller's knowledge, no improvement located on or being
part of the Mortgaged Property is in violation of any applicable zoning law or
regulation; provided, that in no event shall a legal nonconforming use of the
Mortgaged Property be considered a violation of any such zoning law or
regulation;
(t) The Mortgage Note is payable on the day specified in such Mortgage
Note;
(u) The Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
provided thereby, including, (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon
default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale
of, the Mortgaged Property pursuant to the proper procedures, the holder of the
Mortgage Loan will be able to deliver good and merchantable title to the
Mortgaged Property. There is no homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage subject to applicable
federal and state laws and judicial precedent with respect to bankruptcy and
right of redemption;
(v) To the best of Seller's knowledge, all inspections, licenses and
certificates required to be made are issued with respect to all occupied
portions of the Mortgaged Property and with respect to the use and occupancy of
the same, including, but not limited to, certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities;
(w) The Mortgage Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage and the security
interest of any applicable security agreement or chattel mortgage referred to in
(j) above;
(x) No fees or expenses are or will become payable by the Trustee out
of the assets of the Trust Fund to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the Mortgagor, provided
that this representation and warranty shall in no way obligate the Trustee to
pay any such amounts;
(y) The Mortgage Note, the Mortgage, the related Assignment of
Mortgage and any other documents required to be delivered by the Seller have
been delivered to the Trustee in accordance with the Pooling and Servicing
Agreement. The Trustee is in possession of a complete, true and accurate
Mortgage File in accordance with the Pooling and Servicing Agreement;
(z) The Mortgage contains a provision for the acceleration of the
payment of the unpaid principal balance of the Mortgage Loan in the event that
the Mortgaged Property is sold or transferred without the prior written consent
of the Mortgagee thereunder, at the option of the Mortgagee;
(aa) Each of the Mortgage and the Assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located:
(ab) The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Seller, the Mortgagor or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor, nor does it contain
any other similar provisions currently in effect which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan
and the Mortgage Loan does not have a shared appreciation or other contingent
interest feature;
(ac) There is no proceeding pending or, to the best of Seller's
knowledge, threatened, for the total or partial condemnation of the Mortgaged
Property; the Mortgaged Property is undamaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado, other types of water damage, or other
casualty so as to affect adversely the value of the Mortgaged Property as
security for the Mortgage Loan or the use for which the premises were intended
and each Mortgaged Property is in good repair; and there have not been any
condemnation proceedings with respect to the Mortgaged Property and the Seller
has no knowledge of any such proceedings in the future;
(ad) The origination and collection practices with respect to the
Mortgage Loan have been, and in all respects are in accordance with Accepted
Servicing Practices, and with all applicable laws and regulations;
(ae) The Mortgage File contains an appraisal of the related Mortgage
Property of the Mortgage Loan application by an independent appraiser acceptable
to the Seller;
(af) The Mortgagor has not notified the Seller, and the Seller has no
knowledge of any relief requested or allowed to the Mortgagor under the
Soldiers' and Sailors' Civil Relief Act of 1940;
(ag) There exists no violation of any local, state, or federal
environmental law, rule or regulation in respect of the Mortgaged Property which
violation has or could have a material adverse effect on the market value of
such Mortgaged Property. There is no pending action or proceeding directly
involving the related Mortgaged Property in which compliance with any
environmental law, rule or regulation is in issue; and 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 employment of such
Mortgaged Property;
(ah) Any and all requirements of any federal, state or local law,
including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws, applicable to the Mortgage Loan have been complied with, and the Seller
has and shall maintain its possession, available for the Trustee's inspection,
and shall deliver to the Trustee upon demand, evidence of compliance with all
such requirements;
(ai) The Mortgage Loans are representative of the mortgage loans in
the Seller's portfolio of closed-end fixed rate loans secured by one-to-four
family residential properties;
(aj) All information regarding the Mortgage Loans which could
reasonably be expected to adversely affect the value or the marketability of any
Mortgaged Property or Mortgage Loan and of which the Seller is aware has been
provided by the Seller to the Depositor and the [Certificate Insurer];
(ak) The Mortgage Loan was originated in accordance with the
underwriting criteria of the Seller and was underwritten in accordance
therewith. The documents, instruments and agreements submitted for loan
underwriting and the documents constituting a part of the Mortgage File were not
falsified by or with the knowledge of the Seller and contain no untrue statement
of material fact and do not omit to state a material fact required to be stated
therein or necessary to make the information and statements therein not
misleading. The Seller has not made any representations to the Mortgagor that
are inconsistent with the mortgage instruments used;
(al) All amounts, with respect to the Mortgage Loans, received after
the Cut- Off Date and to which the Seller is not entitled, have been deposited
into the Collection Account;
(am) After due inquiry, there is no delinquent recording or other tax
or assessment lien on the Mortgage Property;
(an) The Seller has performed or directed the Servicer to perform any
and all acts required to be performed to preserve the rights and remedies of the
Trustee in any insurance policies applicable to the Mortgage Loan, including,
without limitation, any necessary notification of insurers, assignments of
policies (other than the title policy) or interests therein, and establishment
of co-insurer, joint loan payer and mortgagee rights in favor of the Trustee;
(ao) The Mortgage Loan conforms, and all such Mortgage Loans in the
aggregate conform, to the description thereof set forth in the Prospectus
Supplement;
(ap) As of the Cut-Off Date, no more than 2.00% of the Mortgage Loans
will be secured by Mortgaged Properties located within any single zip code area;
(aq) Each Mortgage Loan constitutes a Qualified Mortgage;
(ar) Each Mortgaged Property does not include cooperatives or mobile
homes attached to a foundation or otherwise and does not constitute other than
real property under state law;
(as) With respect to each Mortgage Loan, there is only one originally
executed Mortgage Note not stamped as a duplicate;
(at) As of the Closing Date, there is no valid offset, defense or
counterclaim to any Mortgage, including, without limitation, any offset,
defense, or counterclaim against the obligation to pay principal and interest in
accordance with the Mortgage;
(au) As of the Closing Date, each Mortgage Loan and Mortgage is an
enforceable obligation of the related Mortgagor, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a proceeding at law or in
equity); no instrument of release or waiver has been executed in connection with
any Mortgage Loan and no Mortgagor has been released, in whole or in part;
(av) The Mortgage Loans are not being transferred with any intent to
hinder, delay or defraud any creditors;
(aw) As of the Closing Date, the Seller has not received, and is not
aware of, a notice of default of any senior mortgage loan related to a Mortgaged
Property which has not been cured;
(ax) No selection procedure reasonably believed by the Seller to be
materially adverse to the interests of the Certificateholders or the
[[Certificate Insurer]] was utilized in selecting the Mortgage Loans; and
(ay) Each Mortgage was recorded or will be recorded (if necessary) and
all subsequent assignments of the original Mortgage have been recorded in the
appropriate jurisdictions wherein such recordation is necessary to perfect the
lien thereof as against creditors of the Seller.
(az) The Mortgage Note related to each Mortgage Loan bears a fixed
coupon rate of at least 10.0% per annum.
(ba) No Mortgage Loan requires a balloon payment at the end of its
term except with respect to certain Mortgage Loans which at the end of their
amortization period, the remaining balance is less than one month's schedule
payment.
(bb) No more than __% of the Mortgage Loans are secured by
condominiums;
(bc) None of the Mortgage Loans are secured by investor-owned
properties.
(bd) Approximately all of the Mortgage Loans are junior mortgage
loans.
(be) With respect to each Mortgage Loan that is not a first mortgage
loan, either (i) no consent for the Mortgage Loan is required by the holder of
the related prior lien or (ii) such consent has been obtained and has been
delivered to the Trustee.
(bf) No Mortgage Loan has a remaining term in excess of 360 months.
(bg) No Mortgage Loan was made in connection with (i) the construction
of a Mortgaged Property or (ii) facilitating the trade-in or exchange or a
Mortgaged Property.
(bh) None of the Mortgage Loans are second homes and none of the
Mortgage Loans are non-owner occupied.
(bi) No funds provided to a borrower from a second Mortgage Loan were
used as a down payment for a first mortgage loan of the same Mortgaged Property.
(bj) The Seller further represents and warrants to the Trustee and the
Certificateholders that as of the Subsequent Cut-Off Date all representations
and warranties set forth in clauses (a) through (bi) above will be correct in
all material respects as to each Subsequent Mortgage Loan and the
representations so made in this subsection (bj) as to the following matters will
be deemed to be correct if: (i) such Subsequent Mortgage Loan may not be more
than 30 days Delinquent as of the related Subsequent Cut-Off Date; (ii) such
Subsequent Mortgage Loan has a Mortgage Interest Rate of at least ___%; (iii)
such Subsequent Mortgage Loan has a weighted average Combined Loan-to-Value
Ratio (based on the original appraisal) no greater than 125%; (iv) such
Subsequent Mortgage Loan is a fully amortizing loan with level payments
generally over 15 years; (v) such Subsequent Mortgage Loan is secured by a
Residential Dwelling; (vi) the related Trustee's Mortgage File with respect to
such Subsequent Mortgage Loan shall have been delivered to the Trustee; (vii) no
such Subsequent Mortgage Loan is secured by an investor property or associated
with the purchase of a home; (viii) the Subsequent Mortgage Loans in the
aggregate have a weighted average Principal Balance no greater than $_________;
(ix) the Subsequent Mortgage Loans in the aggregate have a weighted average
remaining term to stated maturity of no greater than 182 months; (x) such
Subsequent Mortgage Loan may not have a DTI greater than _____%; (xi) such
Subsequent Mortgage Loan has a Credit Bureau Risk Score of at least _____; and
(xii) following the purchase of such Subsequent Mortgage Loans by the Trust
Fund, the Mortgage Loans (including the Subsequent Mortgage Loans) (a) will have
a weighted average Mortgage Interest Rate of at least _____%; (b) will have a
weighted average Combined Loan-to-Value Ratio (based on the original appraisal)
of not more than _____%; (c) will have no Subsequent Mortgage Loan with a
Principal Balance in excess of $_________; (d) will not have any non-owner
occupied properties; (e) will have a weighted average Subordinate Mortgage Ratio
of not more than _____%; (f) will not have a concentration in a single zip code
in excess of 2.0% by aggregate Principal Balance; (g) will not have a
concentration in Los Angeles County, California in excess of 10% by aggregate
Principal Balance; (h) will not have concentration in any other county in excess
of 8% by aggregate Principal Balance; (i) the concentration of Credit Bureau
Risk Scores by aggregate Principal Balance shall be the following: (1) between
620-639 shall not exceed _____%; (2) between 620- 659 shall not exceed _____%;
(3) between 620-669 shall not exceed 52%; (4) between 620-689 shall not exceed
_____%; and (5) between 620-709 shall not exceed _____%; (j) will not have a
concentration of Mortgage Loans with self employed mortgagors in excess of
_____% by aggregate Principal Balances; (k) will have a weighted average Credit
Bureau Risk Score of at least ____ and a weighted average DTI of no more than
_____%; (l) will have a concentration of Mortgage Loans secured by single family
residences of at least _____% by aggregate Principal Balances; and (n) the
concentration of Combined Loan-to-Value Ratios by aggregate Principal Balance
shall be the following (1) greater than 80% shall not exceed _____%; (2) greater
than _____% and less than _____% shall not exceed 18%; and (3) greater than 120%
and less than 125% shall not exceed _____%; (o) will not have a concentration in
the State of California in excess of _____% by aggregate Principal Balance; (p)
will not have a concentration of Mortgage Loans secured by condominiums in
excess of _____% and (q) except as modified by this clause (bj), such Subsequent
Mortgage Loan satisfies the representations and warranties set forth in this
Section 3.03. The Pooling and Servicing Agreement will provide that any of such
requirements may be waived or modified in any respect upon prior written consent
of the [Certificate Insurer] and certain other parties.
[(bk) The Mortgage Loans constitute "obligations principally secured
by an interest in real property" for the purpose of Code Section 860G(a)(3)(A)
and Treasury Regulations ss.1.860G-2 issued thereunder. For this purpose a
Mortgage Loan constitutes "obligations principally secured by an interest in
real property" if such Mortgage Loan satisfies either of the following:
(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, but before the Closing Date or
Subsequent Transfer Date, as applicable, the
time the obligation was significantly
modified, as such term is defined in
Treasury Regulations ss. 1.860G-2,); or
B. is at least equal to 80 percent of the
adjusted issue price of the obligation on
the Closing Date or Subsequent Transfer
Date, as applicable.
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
obligation" can reasonably be concluded to mean
at least 80 percent of the gross proceeds.]
Section 3.04. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents, warrants and covenants to the Seller, as of the
date of execution of this Agreement and the Closing Date, that:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to purchase
each Mortgage Loan and to execute, deliver and perform, and to enter into and
consummate all the transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, and, assuming the due authorization, execution and
delivery hereof by the Seller, constitutes the legal, valid and binding
agreement of the Depositor, enforceable against the Depositor in accordance with
its terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);
(d) No consent, approval, authorization or order of or registration or
filing with, or notice to, any governmental authority or court is required for
the execution, delivery and performance of or compliance by the Depositor with
this Agreement or the consummation by the Depositor of any of the transactions
contemplated hereby, except such as have been made on or prior to the Closing
Date;
(e) The Depositor has filed or will file the Prospectus and Prospectus
Supplement with the Commission in accordance with Rule 424(b) under the
Securities Act; and
(f) Following the final Subsequent Transfer Date, the Depositor will
file a Form 8-K with the Commission containing a description of the Mortgage
Loans acquired by the Trust Fund as of their respective Cut-Off Dates.
(g) None of the execution and delivery of this Agreement, the purchase
of the Mortgage Loans from the Seller, the consummation of the other
transactions contemplated hereby, or the fulfillment of or compliance with the
terms and conditions of this Agreement, (i) conflicts or will conflict with the
charter or bylaws of the Depositor or conflicts or will conflict with or results
or will result in a breach of, or constitutes or will constitute a default or
results or will result in an acceleration under, any term, condition or
provision of any indenture, deed of trust, contract or other agreement or other
instrument to which the Depositor is a party or by which it is bound and which
is material to the Depositor, or (ii) results or will result in a violation of
any law, rule, regulation, order, judgment or decree of any court or
governmental authority having jurisdiction over the Depositor.
(h) There are no actions, suits or proceedings before or against or
investigations of, the Depositor pending, or to the knowledge of the Depositor,
threatened, before any court, administrative agency or other tribunal, and no
notice of any such action, which, in the Depositor's reasonable judgment, might
materially and adversely affect the performance by the Depositor of its
obligations under this Agreement, or the validity or enforceability of this
Agreement; and
(i) 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 governmental agency that would materially and adversely affect its
performance hereunder.
Section 3.05. REPURCHASE OBLIGATION FOR DEFECTIVE DOCUMENTATION AND
FOR BREACH OF A REPRESENTATION OR WARRANTY. (a) Each of the representations and
warranties contained in Sections 3.01, 3.02 and 3.03 shall survive the purchase
by the Depositor of the Mortgage Loans and the subsequent transfer thereof by
the Depositor to the Trustee and shall continue in full force and effect,
notwithstanding any restrictive or qualified endorsement on the Mortgage Notes
and notwithstanding subsequent termination of this Agreement or the Pooling and
Servicing Agreement.
(b) With respect to any representation or warranty contained in
Sections 3.02 or 3.03 hereof that is made to the best of the Seller's knowledge,
if it is discovered by the Servicer, any Subservicer, the Trustee, the
[Certificate Insurer], the Depositor or any Certificateholder that the substance
of such representation and warranty was inaccurate as of the Closing Date (or in
the case of the Subsequent Mortgage Loans, as of the respective Subsequent
Transfer Date) and such inaccuracy materially and adversely affects the value of
the related Mortgage Loan or the interest of the [Certificate Insurer], then
notwithstanding the Seller's lack of knowledge with respect to the inaccuracy at
the time the representation or warranty was made, such inaccuracy shall be
deemed a breach of the applicable representation or warranty. Upon discovery by
the Seller, the Depositor, the Servicer, any Subservicer, the Trustee, the
[Certificate Insurer] or any Certificateholder of a breach of any of such
representations and warranties which materially and adversely affects the value
of Mortgage Loans or the interest of the Certificateholders, or which materially
and adversely affects the interests of the [Certificate Insurer] or the
Certificateholders in the related Mortgage Loan in the case of a representation
and warranty relating to a particular Mortgage Loan (notwithstanding that such
representation and warranty was made to the Seller's best knowledge), the party
discovering such breach shall give pursuant to Section 3.4 of the Pooling and
Servicing Agreement prompt written notice to the others. Subject to the next to
last paragraph of this Section 3.05, within 60 days of the earlier of its
discovery or its receipt of notice of any breach of a representation or
warranty, the Seller shall (a) promptly cure such breach in all material
respects, (b) purchase such Mortgage Loan on the next succeeding Servicer
Remittance Date at a purchase price equal to the Principal Balance of such
Mortgage Loan as of the date of purchase, plus the greater of (i) all accrued
and unpaid interest on such Principal Balance and (ii) 30 days' interest on such
Principal Balance, computed at the Mortgage Interest Rate, plus the amount of
any unpaid and accrued Servicing Fees, plus the amount of any unreimbursed
Delinquency Interest Advances and Servicing Advances made by the Servicer with
respect to such Mortgage Loan, or (c) remove such Mortgage Loan from the Trust
Fund (in which case it shall become a Deleted Mortgage Loan) and substitute one
or more Qualified Substitute Mortgage Loans; provided, that, such substitution
is effected not later than the date which is two years after the Startup Day or
at such later date, if the Trustee and the [Certificate Insurer] receive an
Opinion of Counsel to the effect that such substitution will not constitute a
prohibited transaction for the purposes of the REMIC provisions of the Code or
cause the Upper Tier REMIC or the Lower Tier REMIC to fail to qualify as a REMIC
at any time any Certificates are outstanding].
(c) As to any Deleted Mortgage Loan for which the Seller substitutes a
Qualified Substitute Mortgage Loan or Loans, the Seller shall effect such
substitution by delivering to the Trustee a certification in the form attached
to the Pooling and Servicing Agreement as Exhibit G, executed by a Servicing
Officer and the documents described in Section 2.05(a) for such Qualified
Substitute Mortgage Loan or Loans. Pursuant to the Pooling and Servicing
Agreement, upon receipt by the Trustee of a certification of a Servicing Officer
of such substitution or purchase and, in the case of a substitution, upon
receipt of the related Trustee's Mortgage File, and the deposit of certain
amounts in the Collection Account pursuant to Section 2.4 of the Pooling and
Servicing Agreement (which certification shall be in the form of Exhibit G to
the Pooling and Servicing Agreement), the Trustee shall be required to release
to the Servicer for release to the Seller the related Trustee's Mortgage File
and shall be required to execute, without recourse, and deliver such instruments
of transfer furnished by the Seller as may be necessary to transfer such
Mortgage Loan to the Seller.
(d) Pursuant to the Pooling and Servicing Agreement, the Servicer
shall deposit in the Collection Account all payments received in connection with
such Qualified Substitute Mortgage Loan or Loans after the date of such
substitution, or related cut-off date, as applicable, set forth in the
certification delivered to the Trustee. Monthly Payments received with respect
to Qualified Substitute Mortgage Loans on or before the date of substitution or
cut- off date, as applicable, will be retained by the Seller. The Trust Fund
will own all payments received on the Deleted Mortgage Loan on or before the
date of substitution or cut-off date, as applicable, and the Seller shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Mortgage Loan after the date of substitution or the related cut-off
date, as applicable. Pursuant to the Pooling and Servicing Agreement, the
Servicer shall be required to give written notice to the Trustee and the
[Certificate Insurer] that such substitution has taken place and shall amend the
Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from
the terms of the Pooling and Servicing Agreement and the substitution of the
Qualified Substitute Mortgage Loan. The parties hereto agree to amend the
Mortgage Loan Schedule accordingly. Upon such substitution, such Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of the Pooling
and Servicing Agreement and this Agreement in all respects, and the Seller shall
be deemed to have made with respect to such Qualified Substitute Mortgage Loan
or Loans, as of the date of substitution, the representations and warranties set
forth in Sections 3.02 and 3.03 herein. On the date of such substitution, the
Seller will remit to the Servicer and pursuant to the Pooling and Servicing
Agreement the Servicer will deposit into the Collection Account an amount equal
to the Substitution Adjustment, if any. For purposes of this paragraph, "cut-off
date" shall mean a date not later than the related date of substitution.
(e) It is understood and agreed that the obligations of the Seller set
forth in Section 2.06 and this Section 3.05 to cure, purchase or substitute for
a defective Mortgage Loan as provided in Section 2.06 and this Section 3.05
constitute the sole remedies of the Depositor, the Trustee, the [Certificate
Insurer] and the Certificateholders respecting a breach of the foregoing
representations and warranties (other than the representation and warranty set
forth in Section 3.03(g) to the extent of any fines, penalties, costs or other
damages or losses except for the lost economic value of the Mortgage Loan, the
value of which the remedies provided for in Section 2.06 and this Section 3.05
shall be deemed adequate).
(f) Any cause of action against the Seller relating to or arising out
of the breach of any representations and warranties or covenants made in
Sections 2.06, 3.02 or 3.03 shall accrue as to any Mortgage Loan upon (i)
discovery of such breach by any party and notice thereof to the Seller, (ii)
failure by the Seller to cure such breach or purchase or substitute such
Mortgage Loan as specified above, and (iii) demand upon the Seller by the
Trustee for all amounts payable in respect of such Mortgage Loan.
[(g) Notwithstanding any contrary provision of this Agreement, with
respect to any Mortgage Loan which is not in default or as to which no default
is imminent, no purchase, or substitution pursuant to Section 2.06(b) or this
Section 3.05 shall be made unless the Seller provides to the Trustee and the
[Certificate Insurer] an Opinion of Counsel to the effect that such purchase or
substitution would not (i) result in the imposition of taxes on "prohibited
transactions" of the REMIC, as defined in Section 860F of the Code or a tax on
contributions to the Upper Tier REMIC or Lower Tier REMIC under the REMIC
Provisions, or (ii) cause the Upper Tier REMIC or Lower Tier REMIC to fail to
qualify as an Upper Tier REMIC or Lower Tier REMIC at any time that any
Certificates are outstanding. Any Mortgage Loan as to which purchase or
substitution was delayed pursuant to this paragraph shall be purchased or
substituted (subject to compliance with Section 2.06 and this Section 3.05) upon
the earlier of (a) the occurrence of a default or imminent default with respect
to such loan and (b) receipt by the Trustee and the [Certificate Insurer] of an
Opinion of Counsel to the effect that such purchase or substitution will not
result in the events described in clauses (i) and (ii) of the preceding
sentence.]
(h) Pursuant to the Pooling and Servicing Agreement, upon discovery by
the Seller, the Servicer, the Trustee, the [Certificate Insurer] or any
Certificateholder that any Mortgage Loan does not constitute a Qualified
Mortgage, the party discovering such fact shall promptly (and in any event
within 5 days of the discovery) give written notice thereof to the other parties
and the [Certificate Insurer]. In connection therewith, the Seller shall
repurchase or substitute a Qualified Substitute Mortgage Loan for the affected
Mortgage Loan within 60 days of the earlier of such discovery by any of the
foregoing parties, or the Trustee's or the Seller's receipt of notice, in the
same manner as it would a Mortgage Loan for a breach of representation or
warranty contained in Sections 3.02 or 3.03. Pursuant to the Pooling and
Servicing Agreement the Trustee shall reconvey to the Seller the Mortgage Loan
to be released pursuant hereto in the same manner, and on the same terms and
conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Sections 3.02 or 3.03.
ARTICLE FOUR
THE SELLER
Section 4.01. COVENANTS OF THE SELLER. The Seller covenants to the
Depositor as follows:
(a) The Seller shall cooperate with the Depositor and the firm of
independent certified public accountants retained with respect to the issuance
of the Certificates in making available all information and taking all steps
reasonably necessary to permit the accountants' letters required hereunder to be
delivered within the times set for delivery herein.
(b) The Seller agrees to satisfy or cause to be satisfied on or prior
to the Closing Date, all of the conditions to the Depositor's obligations set
forth in Section 5.01 hereof that are within the Seller's (or its agents')
control.
(c) The Seller hereby agrees to do all acts, transactions, and things
and to execute and deliver all agreements, documents, instruments, and papers by
and on behalf of the Seller as the Depositor or its counsel may reasonably
request in order to consummate the transfer of the Mortgage Loans to the
Depositor and the subsequent transfer thereof to the Trustee, and the rating,
issuance and sale of the Certificates.
Section 4.02. MERGER OR CONSOLIDATION. The Seller will keep in full
effect its existence, rights and franchises as a corporation and will obtain and
preserve its qualification to do business as a foreign corporation, in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Mortgage Loans and to perform its duties under this
Agreement. Any Person into which the Seller may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
Seller shall be a party, or any Person succeeding to the business of the Seller,
shall be approved by the [Certificate Insurer] which approval shall not be
unreasonably withheld and in all events shall be the successor of the Seller
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. The
Seller shall send notice of any such merger or consolidation to the Trustee and
the [Certificate Insurer].
Section 4.03. COSTS. In connection with the transactions contemplated
under this Agreement and the Pooling and Servicing Agreement, the Seller shall
promptly pay (or shall promptly reimburse the Depositor to the extent that the
Depositor shall have paid or otherwise incurred): (a) the fees and disbursements
of the Depositor's and the Underwriter's counsel; (b) the fees of Standard &
Poor's Ratings Group and Moody's Investors Service, Inc.; (c) any of the fees of
the Trustee and the fees and disbursements of the Trustee's counsel; (d)
expenses incurred in connection with printing the Prospectus, the Prospectus
Supplement, any amendment or supplement thereto, any preliminary prospectus and
the Certificates; (e) fees and expenses relating to the filing of documents with
the Securities and Exchange Commission (including without limitation periodic
reports under the Exchange Act); (f) the shelf registration amortization fee
(which fee shall equal l/33rd of l% of the amount of the Certificates) paid in
connection with the issuance of Certificates; (g) all of the initial expenses of
the [Certificate Insurer] including, without limitation, legal fees and
expenses, accountant fees and expenses and expenses in connection with due
diligence conducted on the Mortgage Files; and (h) all accountant's fees
incurred in connection with the accountant's review of the Prospectus Supplement
and information required to be filed in the Form 8-K pursuant to Sections
2.02(d)(viii) and (ix). For the avoidance of doubt, the parties hereto
acknowledge that it is the intention of the parties that the Depositor shall not
pay any of the Trustee's fees and expenses in connection with the transactions
contemplated by the Pooling and Servicing Agreement. All other costs and
expenses in connection with the transactions contemplated hereunder shall be
borne by the party incurring such expenses.
Section 4.04. INDEMNIFICATION. (a) (i) The Seller, agrees to indemnify
and hold harmless the Depositor, each of its directors, each of its officers who
have signed the Registration Statement, and each of its directors and each
person or entity who controls the Depositor or any such person, within the
meaning of Section 15 of the Securities Act, against any and all losses, claims,
damages or liabilities, joint and several, to which the Depositor or any such
person or entity may become subject, under the Securities Act or otherwise, and
will reimburse the Depositor and each such controlling person for any legal or
other expenses incurred by the Depositor or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Prospectus
Supplement or any amendment or supplement to the Prospectus Supplement or the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements in the Prospectus Supplement
or any amendment or supplement to the Prospectus Supplement approved in writing
by the Seller, in light of the circumstances under which they were made, not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission relates to the information contained
in the Prospectus Supplement referred to in Section 3.02(d). This indemnity
agreement will be in addition to any liability which the Seller may otherwise
have.
(ii) The Seller agrees to indemnify and to hold the
Depositor harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Depositor may sustain in any
way related to the failure of any of the Seller to perform its duties
in compliance with the terms of this Agreement. The Seller shall
immediately notify the Depositor if a claim is made by a third party
with respect to this Agreement, and the Seller shall assume the defense
of any such claim and pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the
Depositor in respect of such claim. Pursuant to the Pooling and
Servicing Agreement, the Trustee shall reimburse the Seller in
accordance with Section 3.6 of the Pooling and Servicing Agreement for
all amounts advanced by the Seller pursuant to the preceding sentence
except when the claim relates directly to the failure of the Seller to
perform its duties in compliance with the terms of this Agreement.
(b) The Depositor agrees to indemnify and hold harmless the Seller,
each of its directors and each person or entity who controls the Seller or any
such person, within the meaning of Section 15 of the Securities Act, against any
and all losses, claims, damages or liabilities, joint and several, to which the
Seller or any such person or entity may become subject, under the Securities Act
or otherwise, and will reimburse the Seller and any such director or controlling
person for any legal or other expenses incurred by such party or any such
director or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, the Prospectus
Supplement, any amendment or supplement to the Prospectus or the Prospectus
Supplement or the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission is other than a statement or omission relating to
the information set forth in subsection (a)(i) of this Section 4.04. This
indemnity agreement will be in addition to any liability which the Depositor may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
4.04 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party under
this Section 4.04, notify the indemnifying party in writing of the commencement
thereof, but the omission to so notify the indemnifying party will not relieve
the indemnifying party from any liability which the indemnifying party may have
to any indemnified party hereunder except to the extent such indemnifying party
has been prejudiced thereby. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. After notice from the indemnifying party to such indemnified
party of its election to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 4.04 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it that are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. The indemnifying party shall not be
liable for the expenses of more than one separate counsel.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the preceding
parts of this Section 4.04 is for any reason held to be unavailable to or
insufficient to hold harmless an indemnified party under subsection (a) or
subsection (b) of this Section 4.04 in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by the Seller on the one hand, and the
Depositor on the other, the Seller's and the Depositor's relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission, and
any other equitable considerations appropriate in the circumstances. The Seller
and the Depositor agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation. For purposes
of this Section 4.04, each director of the Depositor, each officer of the
Depositor who signed the Registration Statement, and each person, if any who
controls the Depositor within the meaning of Section 15 of the Securities Act,
shall have the same rights to contribution as the Depositor, and each director
of Seller, and each person, if any who controls the Seller within the meaning of
Section 15 of the Securities Act, shall have the same rights to contribution as
the Seller.
ARTICLE FIVE
CONDITIONS OF CLOSING
Section 5.01. CONDITIONS OF DEPOSITOR'S OBLIGATIONS. The obligations
of the Depositor to purchase the Mortgage Loans will be subject to the
satisfaction on the Closing Date of the following conditions. Upon payment of
the purchase price for the Mortgage Loans, such conditions shall be deemed
satisfied or waived.
(a) Each of the obligations of the Seller required to be performed by
it on or prior to the Closing Date pursuant to the terms of this Agreement shall
have been duly performed and complied with and all of the representations and
warranties of the Seller under this Agreement shall be true and correct as of
the Closing Date and no event shall have occurred which, with notice or the
passage of time, would constitute a default under this Agreement, and the
Depositor shall have received a certificate to the effect of the foregoing
signed by an authorized officer of the Seller.
(b) The Depositor shall have received a letter dated the date of this
Agreement, in form and substance acceptable to the Depositor and its counsel,
prepared by [KPMG Peat Marwick], independent certified public accountants,
regarding the numerical information contained in the Prospectus Supplement under
the captions "Prepayment and Yield Considerations" and "Description of the
Mortgage Loans."
(c) The Depositor shall have received the following additional closing
documents, in form and substance satisfactory to the Depositor and its counsel:
(i) the Mortgage Loan Schedule;
(ii) the Pooling and Servicing Agreement dated as of
[ ] and the Underwriting Agreement
dated as of [ ] between the Depositor
and
[ ] and all
documents required thereunder, duly executed and delivered by each of
the parties thereto other than the Depositor;
(iii) officer's certificates of an officer of the Seller,
dated as of the Closing Date, in the form of Exhibit B hereto, and
attached thereto resolutions of the board of directors and a copy of
the charter and by-laws;
(iv) copy of the Seller's charter and all amendments,
revisions, and supplements thereof, certified by a secretary of each
entity;
(v) an opinion of the counsel for the Seller as to various
corporate matters substantially in the form attached hereto as Exhibit
C (it being agreed that the opinion shall expressly provide that the
Trustee shall be entitled to rely on the opinion);
(vii) opinions of counsel for the Seller, in forms acceptable
to the Depositor, its counsel, S&P and Moody's as to such matters as
shall be required for the assignment of a rating to the Class A
Certificates of AAA by S&P, and Aaa by Moody's (it being agreed that
such opinions shall expressly provide that the Trustee shall be
entitled to rely on such opinions);
(viii) a letter from Moody's that it has assigned a rating
of Aaa to the Class A Certificates;
(ix) a letter from S&P that it has assigned a rating
of AAA to the Class A Certificates;
(x) an opinion of counsel for the Trustee in form and
substance acceptable to the Depositor, its counsel Moody's and S&P (it
being agreed that the opinion shall expressly provide that the Seller
shall be entitled to rely on the opinion);
(xi) an opinion or opinions of counsel for the Servicer, in
form and substance acceptable to the Depositor, its counsel, Moody's
and S&P (it being agreed that the opinion shall expressly provide that
the Seller shall be entitled to rely on the opinion); and
(xii) an opinion or opinions of counsel for the [Certificate
Insurer], in each case in form and substance acceptable to the
Depositor, its counsel, Moody's and S&P (it being agreed that the
opinion shall expressly provide that the Seller shall be entitled to
rely on the opinion).
(d) The [Certificate Insurance Policy] shall have been duly executed,
delivered and issued with respect to the Certificates.
(e) All proceedings in connection with the transactions contemplated
by this Agreement and all documents incident hereto shall be satisfactory in
form and substance to the Depositor and its counsel.
(f) The Seller shall have furnished the Depositor with such other
certificates of its officers or others and such other documents or opinions as
the Depositor or its counsel may reasonably request.
Section 5.02. CONDITIONS OF SELLER'S OBLIGATIONS. The obligations of
the Seller under this Agreement shall be subject to the satisfaction, on the
Closing Date, of the following conditions:
(a) Each of the obligations of the Depositor required to be performed
by it at or prior to the Closing Date pursuant to the terms of this Agreement
shall have been duly performed and complied with and all of the representations
and warranties of the Depositor contained in this Agreement shall be true and
correct as of the Closing Date and the Seller shall have received a certificate
to that effect signed by an authorized officer of the Depositor.
(b) The Seller shall have received the following additional documents
and Certificates:
(i) the Pooling and Servicing Agreement, and all
documents required thereunder, in each case executed by
the Depositor as applicable; and
(ii) a copy of a letter from Moody's to the Depositor to the
effect that it has assigned a rating of Aaa to the Class A Certificates
and a copy of a letter from S&P to the Depositor to the effect that it
has assigned a rating of AAA to the Class A Certificates.
(iii) the Class B Certificate and the R Certificate
registered in accordance with a letter of instruction from the Seller;
(iv) an opinion of counsel for the Trustee in form and
substance acceptable to the Seller and its counsel;
(v) an opinion or opinions of counsel for the
[Certificate Insurer], in each case in form and substance acceptable
to the Seller and its counsel;
(vi) an opinion of the counsel for the Depositor as to
securities and tax matters; and
(vii) an opinion of the counsel for the Depositor as to
true sale matters.
(c) The Depositor shall have furnished the Seller with such other
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Agreement as the Seller may
reasonably request.
Section 5.03. TERMINATION OF OBLIGATIONS. (a) The Depositor may
terminate its obligations hereunder by notice to the Seller at any time before
delivery of and payment of the purchase price for the Mortgage Loans if: (a) any
of the conditions set forth in Section 5.01 are not satisfied when and as
provided therein; (b) there shall have been the entry of a decree or order by a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Seller, or for the winding up or liquidation
of the affairs of the Seller; (c) there shall have been the consent by the
Seller to the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Seller or of or relating to
substantially all of the property of the Seller; (d) any purchase and assumption
agreement with respect to the Seller or substantially all of the assets and
properties of the Seller shall have been entered into; or (e) a Termination
Event shall have occurred. The termination of the Depositor's obligations
hereunder shall not terminate the Depositor's rights hereunder or its right to
exercise any remedy available to it at law or inequity.
(b) The Seller may terminate its obligations hereunder by notice to
the Depositor at any time before delivery of and payment of the purchase price
for the Mortgage Loans if: (a) any of the conditions set forth in Section 5.02
are not satisfied when and as provided therein; (b) there shall have been the
entry of a decree or order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Depositor, or for the
winding up or liquidation of the affairs of the Depositor; (c) there shall have
been the consent by the Depositor to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Depositor or
of or relating to substantially all of the property of the Depositor; (d) any
purchase and assumption agreement with respect to the Depositor or substantially
all of the assets and properties of the Depositor shall have been entered into;
or (e) a Termination Event shall have occurred. The termination of the Seller's
obligations hereunder shall not terminate the Seller's rights hereunder or its
right to exercise any remedy available to it at law or inequity.
ARTICLE SIX
MISCELLANEOUS
Section 6.01. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person to or mailed by registered mail, postage prepaid, or
transmitted by telex or telegraph and confirmed by a similar mailed writing, if
to the Depositor, addressed to the Depositor at Preferred Securitization
Corporation, 3347 Michelson Drive, Suite 400, Irvine, CA 92612, Attention: Todd
A. Rodriguez, or to such other address as the Depositor may designate in writing
to the Seller and if to the Seller, addressed to the Seller at 3347 Michelson
Drive, Suite 400, Irvine, California 92612 Attention: Todd A. Rodriguez, or to
such other address as the Seller may designate in writing to the Depositor.
Section 6.02. SEVERABILITY OF PROVISIONS. Any part, provision,
representation, warranty or covenant of this Agreement which is prohibited or
which is held to be void or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any part, provision, representation, warranty or covenant of
this Agreement which is prohibited or unenforceable or is held to be void 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 as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.
Section 6.03. AGREEMENT OF SELLER. The Seller agrees to execute and
deliver such instruments and take such actions as the Depositor may, from time
to time, reasonably request in order to effectuate the purpose and to carry out
the terms of this Agreement.
Section 6.04. SURVIVAL. The parties to this Agreement agree that the
representations, warranties and agreements made by each of them herein and in
any certificate or other instrument delivered pursuant hereto shall be deemed to
be relied upon by the other party hereto, notwithstanding any investigation
heretofore or hereafter made by such other party or on such other party's
behalf, and that the representations, warranties and agreements made by the
parties hereto in this Agreement or in any such certificate or other instrument
shall survive the delivery of and payment for the Mortgage Loans.
Section 6.05. EFFECT OF HEADINGS AND TABLE OF Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 6.06. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Except as expressly permitted by the terms
hereof, this Agreement may not be assigned, pledged or hypothecated by any party
hereto to a third party without the written consent of the other party to this
Agreement and the [Certificate Insurer]; provided, however, that the Depositor
may assign its rights hereunder without the consent of the Seller.
Section 6.07. CONFIRMATION OF INTENT: GRANT OF SECURITY INTEREST. It
is the express intent of the parties hereto that the conveyance of the Mortgage
Loans and the related property by the Seller to the Depositor as contemplated by
this Sale and Purchase Agreement be, and be treated for all purposes as, a sale
of the Mortgage Loans and the related property. It is, further, not the
intention of the parties that such conveyance be deemed a pledge of the Mortgage
Loans and the related property by the Seller to the Depositor to secure a debt
or other obligation of the Seller. However, in the event that, notwithstanding
the intent of the parties, the Mortgage Loans and the related property are held
to continue to be property of the Seller then (a) this Sale and Purchase
Agreement shall also be deemed to be a security agreement within the meaning of
Articles 8 and 9 of the New York Uniform Commercial Code; (b) the transfer of
the Mortgage Loans provided for herein shall be deemed to be a grant by the
Seller to the Depositor of a security interest in all of the Seller's right,
title and interest in and to the Mortgage Loans and all amounts payable on the
Mortgage Loans in accordance with the terms thereof and all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash, instruments,
securities or other property; (c) the possession by the Depositor or its
respective agents of Mortgage Notes and such other items of property as
constitute instruments, money, negotiable documents or chattel paper shall be
deemed to be "possession by the secured party" for purposes of perfecting the
security interest pursuant to Section 9-305 of the New York Uniform Commercial
Code and the Uniform Commercial Code of any other applicable jurisdiction; and
(d) notifications to persons holding such property, and acknowledgments,
receipts or confirmations from persons holding such property, shall be deemed
notifications to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Depositor for the
purpose of perfecting such security interest under applicable law. Any
assignment of the interest of the Depositor pursuant to any provision hereof
shall also be deemed to be an assignment of any security interest created
hereby. The Seller and the Depositor shall, to the extent consistent with this
Sale and Purchase Agreement, take such actions as may be necessary to ensure
that, if this Sale and Purchase Agreement were deemed to create a security
interest in the Mortgage Loans, such security interest would be deemed to be a
perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of this Agreement.
Section 6.08. MISCELLANEOUS. This Agreement supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.09. AMENDMENTS. (a) This Agreement may be amended from time
to time by the Seller and the Depositor by written Agreement, upon the prior
written consent of the [Certificate Insurer], without notice to or consent of
the Certificateholders to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, at
the expense of the party requesting the change, delivered to the Trustee and the
[Certificate Insurer], adversely affect in any material respect the interests of
any Certificateholder (provided that no amendment shall be deemed to adversely
affect in any material respect the interest of any Certificateholder, and no
Opinion of Counsel to that effect shall be required, if the Person requesting
the amendment obtains a letter from Moody's and S&P stating that such amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Certificates without regard to the [Certificate Insurance
Policy]); and provided further, that no such amendment shall reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate, or change the rights or obligations
of any other party hereto without the consent of such party. The Seller shall
give prompt written notice to Moody's and S&P of any amendment made pursuant to
this Section 6.09 and shall promptly send copies of any such amendment to
Moody's and S&P.
(b) This Agreement may be amended from time to time by the Seller and
the Depositor with the consent of the [Certificate Insurer], the Majority
Certificateholders and the Holders of the majority of the Percentage Interest in
each of the Class RL and Class RM Certificates 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 Holders;
[provided, however, that no such amendment shall be made unless the Trustee
receives an Opinion of Counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the Upper-Tier
REMIC or the Lower-Tier REMIC as a REMIC or cause a tax to be imposed on such
Upper-Tier REMIC or the Lower-Tier REMIC, and provided further, that no such
amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or reduce the
percentage for each Class the Holders of which are required to consent to any
such amendment without the consent of the Holders of 100% of each Class of
Certificates affected thereby.]
(c) It shall not be necessary for the consent of Holders 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.
Section 6.10. THIRD-PARTY BENEFICIARIES. The parties agree that each
of the [Certificate Insurer] and the Trustee is an intended third-party
beneficiary of this Agreement. The parties further agree that [ ] and each of
its directors and each person or entity who controls [ ] or any such person,
within the meaning of Section 15 of the Securities Act (each, an "Underwriter
Entity") is an intended third-party beneficiary of this Agreement to the extent
necessary to obtain the benefit of the enforcement of the obligations and
covenants of the Seller with respect to each Underwriter Entity under Section
4.04(a)(i) of this Agreement.
SECTION 6.11. GOVERNING LAW, CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(B) THE DEPOSITOR AND THE SELLER EACH HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND
EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS
SET FORTH IN SECTION 6.01 OF THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED
TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S.
MAIL, POSTAGE PREPAID. THE DEPOSITOR AND THE SELLER EACH HEREBY WAIVE ANY
OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF THE DEPOSITOR AND THE SELLER TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR AFFECT EITHER'S RIGHT TO BRING ANY ACTION
OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(C) THE DEPOSITOR AND THE SELLER EACH HEREBY WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
Section 6.12. EXECUTION IN COUNTERPARTS. This Agreement 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.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed by their respective officers thereunto duly authorized as of the date
first above written.
PREFERRED SECURITIZATION CORPORATION
By:----------------------------------
Name: Todd A. Rodriguez
Title: President
PREFERRED CREDIT CORPORATION
By:-----------------------------------
Name: Todd A. Rodriguez
Title: Chief Executive Officer
[Signature Page to Sale and Purchase Agreement]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed by their respective officers thereunto duly authorized as of the date
first above written.
PREFERRED SECURITIZATION CORPORATION
By:----------------------------------
Name:
Title:
PREFERRED CREDIT CORPORATION
By:------------------------------------
Name: Todd Rodriguez
Title: Chief Executive Officer
[Signature Page to Sale and Purchase Agreement]
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On ________, 1997 before me, the undersigned, a Notary Public in and
for said County and State, personally appeared _______________ personally known
to me (or proved to me on the basis of satisfactory evidence) to be a
_____________ of Preferred Securitization Corporation, a Delaware corporation,
the corporation that executed the within Sale and Purchase Agreement on behalf
of said corporation, and acknowledged to me that said corporation executed it.
----------------------------------
Notary Public
My Commission expires:
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On ______, 1997 before me, the undersigned, a Notary Public in and for
said County and State, personally appeared Todd A. Rodriguez, personally known
to me (or proved to me on the basis of satisfactory evidence) to be Chief
Executive Officer of Preferred Credit Corporation, the entity that executed the
within Sale and Purchase Agreement; on behalf of said corporation, and
acknowledged to me that said corporation executed it.
----------------------------------
Notary Public
My Commission expires:
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
<PAGE>
SEE ATTACHMENT TO INITIAL CERTIFICATION OF TRUSTEE
<PAGE>
EXHIBIT B
FORM OF
OFFICER'S CERTIFICATE
<PAGE>
PREFERRED CREDIT
CORPORATION
CERTIFICATE OF SECRETARY
The undersigned, Walter Villaume, Secretary of Preferred Credit
Corporation, a California corporation (the "Seller"), DOES HEREBY CERTIFY that:
l. There has been no amendment to the Articles of Incorporation,
attached hereto as Exhibit 1, of the Seller.
2. There are no proceedings pending, or to the knowledge of the
undersigned contemplated, leading to the dissolution or liquidation of the
Seller.
3. The Seller is in good standing as a corporation in the State of
California.
4. To the best knowledge of the undersigned, after inquiry of the
officials of the Seller responsible for such matters, the Seller is not
delinquent in the payment of its franchise or any other tax due in any state.
5. The By-Laws attached as Exhibit 2 to this Certificate are the
accurate and complete By-Laws of the Seller in effect on the date hereof.
6. The resolutions attached as Exhibit 3 to this Certificate were duly
adopted by the Board of Directors of the Seller and such resolutions have not
been amended, modified, rescinded or revoked and are in full force and effect on
the date hereof, and are the only resolutions of said Board relating to the
Instruments referred to in paragraph 7 hereof.
7. Each of (a) the Pooling and Servicing Agreement, dated as of [ ]
(the "Pooling and Servicing Agreement"), among Preferred Securitization
Corporation, as depositor (the "Depositor"), Advanta Mortgage Corp. USA, as
servicer (the "Servicer"), the Seller, as seller, and [Bankers Trust Company,]
as trustee (the "Trustee"), (b) the Sale and Purchase Agreement, dated as of [
], between the Depositor and the Seller, (c) the Insurance Agreement, dated as
of [ ], among _____________________, as Insurer (the ["Certificate Insurer"]),
the Depositor, the Seller, the Servicer and the Trustee, and (d) the
Indemnification Agreement dated as of [ ], among the [Certificate Insurer],
[Credit Suisse First Boston Corporation,] the Seller and the Depositor, in each
case signed or executed, as the case may be, and delivered by the Seller, was
duly authorized and is in the form approved by one of the officers of the Seller
who executed such Agreements in accordance with the resolutions referred to
above.
8. The persons named below have been since __________, 1996 and are as
of the date hereof duly elected and qualified officers of the Seller, each
holding the respective office or offices set forth opposite their name below,
and their respective signatures are as set forth opposite their name below.
NAME POSITION SIGNATURE
Todd A. Rodriguez Chief Executive ------------------------
Officer
Walter Villaume President ------------------------
and Secretary
9. The information set forth in the Mortgage Loan Schedule required to
be furnished pursuant to the Pooling and Servicing Agreement is true and correct
in all material respects.
10. All material agreements, contracts, instruments and indentures to
which the Seller is a party or is bound in connection with the purchase, sale,
transfer, servicing, origination and securitization of mortgage loans and the
issuance and sale of mortgage loan asset-backed certificates have been fully
identified to our legal counsel, Stroock & Stroock & Lavan LLP, New York, New
York ("Stroock"), by the appropriate officers of the Seller.
11. All orders, judgments, writs, injunctions and decrees of any court
or governmental agency or body or other tribunal having jurisdiction over the
Seller in connection with the purchase, sale, transfer, servicing, origination
and securitization of mortgage loans and the issuance and sale of mortgage loan
asset-backed certificates have been fully identified to Dewey Ballantine by the
appropriate officers of the Seller.
12. Capitalized terms used herein without definition shall have the
meaning ascribed thereto in the Pooling and Servicing Agreement.
WITNESS my hand this __th day of ___________, 1997.
PREFERRED CREDIT CORPORATION
-------------------------------
Name: Walter Villaume
Title: Secretary
<PAGE>
EXHIBIT C
FORM OF
OPINION OF COUNSEL
TO SELLER
<PAGE>
March ___, 1997
To the Addressees Listed
on the Attached Annex A
Re: Preferred Credit Asset-Backed
CERTIFICATES, SERIES 199_-
Ladies and Gentlemen:
I have acted as counsel to Preferred Credit Corporation, a California
corporation (the "Seller"), in connection with the execution and delivery of the
following documents:
(i) The Sale and Purchase Agreement, dated as of
[ ] (the "Sale Agreement"), between the
Seller and Preferred Securitization Corporation (the
"Depositor");
(ii) the Pooling and Servicing Agreement, dated as of [ ] (the
"Pooling and Servicing Agreement"), among the Depositor, the Seller, as
seller, Advanta Mortgage Corp. USA, as servicer (the "Servicer"), and
[Bankers Trust Company,] as trustee (the "Trustee");
(iii) the Insurance Agreement, dated as of [ ] (the "Insurance
Agreement"), among [[MBIA] Insurance Corporation ("[MBIA]"),] the
Depositor, the Seller, the Servicer and the Trustee; and
(iv) the Indemnification Agreement, dated as of
[ ] (the "Indemnification Agreement"), among
[[MBIA],] the Seller, the Servicer and [Credit Suisse First Boston
Corporation.]
Capitalized terms used herein, but not defined, shall have the
meanings assigned to them in the Pooling and Servicing Agreement.
I have examined executed copies of the Sale Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement and the Indemnification Agreement
(collectively, the "Documents"). I have also examined a copy of the Class A
Certificates, the Class B Certificates and the Residual Certificates (the
"CERTIFICATES") and the Prospectus Supplement dated [ ] with respect to the
Class A Certificates (the "PROSPECTUS SUPPLEMENT").
In addition, I have examined originals or photostatic or certified
copies of all such corporate records of the Seller, and such certificates of
public officials, certificates of corporate officers, and other documents, and
such questions of law, as I have deemed relevant and necessary as a basis for
the opinions hereinafter expressed. As to certain issues of fact material to the
opinions expressed herein, I have, with your consent, relied to the extent I
deemed appropriate upon certificates and representations of officers of the
Seller. In making my examinations and rendering the opinions herein expressed, I
have made the following assumptions:
(1) the corporate power of each party (other than the
Seller) to enter into and perform all of its
obligations under each of the Documents;
(2) the due authorization, execution and delivery of the
Documents by all parties thereto (other than the
Seller) and the validity and binding effect on all
parties (other than the Seller) of each of the
Documents;
(3) the genuineness of all signatures; and
(4) the authenticity of all documents submitted to me
as originals and the conformity to originals of
all documents submitted to me as copies.
The opinion expressed in paragraph 2 below with respect to the
enforceability of the Documents is subject to the following additional
qualifications:
(a) The effect of bankruptcy, insolvency, reorganization, moratorium,
receivership, or other similar laws of general applicability relating to or
affecting creditors' rights generally.
(b) The application of general principles of equity, including, but
not limited to, the remedy of specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
As to Paragraph 5 below, I have assumed that the parties to the Sale
Agreement and the Pooling and Servicing Agreement have performed and will
perform their respective obligations thereunder, including the delivery to the
Trustee, or its agent, of the Mortgage Notes, properly endorsed, and
fully-executed assignments in proper, recordable form from the Seller to the
Trustee of the Mortgages following payment of legal and sufficient consideration
therefor, without any such Mortgage having been satisfied or released, or the
Mortgage Note discharged, and without the Trustee having actual or constructive
notice of the existence of any claim, lien, charge, mortgage, security interest,
encumbrance or right of the Seller or the Depositor, or creditors of the Seller
or the Depositor or others. Further I have assumed the absence of any defense
against enforcement of, or right of offset against, each such Mortgage Note and
the related Mortgage. I have undertaken no independent review of the Mortgage
Loans, including the Mortgage Notes and the Mortgages, and have relied solely
upon the representations of the Seller that it has title to the Mortgage Loans
and that the Mortgage Loans are not subject to any liens at the time of their
sale to the Trustee.
I am admitted to the Bar of the State of California, and express no
opinion as to the laws of any other jurisdiction except as to matters that are
governed by the federal law. All opinions expressed herein are based on laws,
regulations and policy guidelines currently in force and may be affected by
future regulations. Furthermore, no opinion is expressed herein regarding the
applicable state Blue Sky, legal investment or real estate syndication laws.
Based upon the foregoing and subject to the last paragraph hereof, I
am of the opinion that:
1. The Seller is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of California and is qualified to
do business in each state necessary to enable it to perform its obligations
under the Documents. The Seller has the power and authority to execute, deliver
and perform its obligations under the Documents.
2. Each of the Documents has been duly authorized, executed and
delivered by the Seller and each constitutes a valid, legal and binding
agreement of the Seller and is enforceable against the Seller in accordance with
their terms.
3. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required under
federal laws, including, without limitation, the Securities Act of 1933, as
amended, or the laws of the State of California, for the execution, delivery and
performance by the Seller of the Documents, or the offer, issuance, sale or
delivery of the Certificates, except such as have been obtained.
4. Neither the sale of the Mortgage Loans to the Trust Fund, the
issuance or sale of the Certificates, nor the execution, delivery or performance
by the Seller of the Documents, conflicts or will conflict with, or results or
will result in a breach of, or constitutes or will constitute a default under
(i) any term or provision of the certificate of incorporation or by- laws of the
Seller, (ii) any term or provision of any material agreement, contract,
instrument or indenture to which the Seller is a party or is bound which has
been identified to me by the appropriate officers of the Seller, or (iii) any
law, rule or regulation of the State of California or the federal government.
5. Immediately upon the receipt of the Mortgage Notes and the
accompanying Mortgages by the Trustee, and the receipt by the Seller of legal
and sufficient consideration therefor, the Trustee shall, pursuant to the laws
of the State of California, be vested with good and indefeasible title to, and
shall be the sole owner of, and shall obtain all right, title and interest of
the Seller in and to, each Mortgage Loan, free and clear of any claim, lien,
charge, mortgage, security interest, encumbrance or rights of the Seller, EXCEPT
THAT until such time as assignments of mortgage are recorded in the name of the
Trustee in the appropriate jurisdictions (x) the Trustee may not, in certain
jurisdictions, be independently able to enforce the Mortgage against the related
Mortgaged Property or the related Mortgagor, (y) the Seller could record an
assignment of a Mortgage in the name of a third party or record a discharge and
satisfaction of a Mortgage and (z) any notices which may be given to the record
holder of a Mortgage would be given to the Seller.
6. To the best of my knowledge, following due inquiry made of the
appropriate officers of the Seller, there are no actions, proceedings or
investigations pending or, to my knowledge, threatened against the Seller before
any court, governmental agency or body or other tribunal (a) asserting the
invalidity of the Documents, (b) seeking to prevent the consummation of any of
the transactions contemplated by the Documents, (c) which would materially and
adversely affect the performance by the Seller of obligations under, or the
validity or enforceability of the Documents.
I have furnished this opinion as counsel to the Seller and it is
solely for the benefit of the addressees hereto.
Very truly yours,
<PAGE>
ANNEX A
[Underwriter]
Preferred Securitization Corporation
3347 Michelson Drive
Suite 400
Irvine, California 92012
Advanta Mortgage Corp. USA
16875 West Bernardo Drive
San Diego, California 92127
[Certificate Isurer]
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
25 Broadway
New York, New York 10004
[Bankers Trust Company
Four Albany Street
New York, New York 10006]
EXIBIT 4.4
TRUST AGREEMENT
among
PREFERRED SECURITIZATION CORPORATION,
as Depositor,
PREFERRED MORTGAGE SPC FUNDING CORP.,
as the Company,
[WILMINGTON TRUST COMPANY,]
as Owner Trustee
and
[BANKERS TRUST COMPANY,]
as Co-Owner Trustee
Dated as of ______________
[PREFERRED CREDIT OWNER TRUST 199_-_]
[Asset Backed Securities, Series 199_-_]
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms.......................................1
SECTION 1.2. Other Definitional Provisions............................6
ARTICLE II.
Organization
SECTION 2.1. Name....................................................7
SECTION 2.2. Office..................................................7
SECTION 2.3. Purposes and Powers.....................................7
SECTION 2.4. Appointment of Owner Trustee............................8
SECTION 2.5. Initial Capital Contribution of Owner Trust Estate......8
SECTION 2.6. Declaration of Trust....................................8
SECTION 2.7. Liability of the Owners.................................8
SECTION 2.8. Title to Trust Property.................................9
SECTION 2.9. Situs of Trust..........................................9
SECTION 2.10.Representations and Warranties of the Depositor
and the Company; Covenant of the Company..............10
SECTION 2.11.Federal Income Tax Allocations.........................12
ARTICLE III.
Trust Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership.....................................13
SECTION 3.2. The Trust Certificates................................13
SECTION 3.3. Execution, Authentication and Delivery of
Trust Certificates...................................13
SECTION 3.4. Registration of Transfer and Exchange of
Trust Certificates...................................14
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen
Trust Certificates...................................14
SECTION 3.6. Persons Deemed Owners................................15
SECTION 3.7. Access to List of Owners' Names and Addresses........15
SECTION 3.8. Maintenance of Office or Agency......................15
SECTION 3.9. Appointment of Paying Agent..........................16
SECTION 3.10.Ownership by Company of the Company Certificates.....16
SECTION 3.11.Book-Entry Certificates..............................16
SECTION 3.12.Notices to Clearing Agency...........................17
SECTION 3.13.Definitive Certificates..............................17
SECTION 3.14.Restrictions on Transfer of Residual
Interest Instruments.................................18
ARTICLE IV.
Actions by Owner Trustee
SECTION 4.1. Prior Notice to Owners with Respect to
Certain Matters......................................21
SECTION 4.2. Action by Owners with Respect to Certain Matters.....23
SECTION 4.3. Action by Owners with Respect to Bankruptcy..........23
SECTION 4.4. Restrictions on Owners' Power........................23
SECTION 4.5. Majority Control.....................................23
ARTICLE V.
Application of Trust Funds; Certain Duties
SECTION 5.1. Establishment of Trust Account.......................23
SECTION 5.2. Application Of Trust Funds...........................24
SECTION 5.3. Method of Payment....................................25
SECTION 5.4. Segregation of Moneys; No Interest...................25
SECTION 5.5. Accounting and Reports to the Certificateholder,
Owners, the Internal Revenue Service and Others......25
SECTION 5.6. Signature on Returns; Tax Matters Partner............26
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority....................................26
SECTION 6.2. General Duties.......................................26
SECTION 6.3. Action Upon Instruction..............................27
SECTION 6.4. No Duties Except as Specified in this Agreement,
the Basic Documents or in Instructions...............28
SECTION 6.5. No Action Except Under Specified Documents
or Instructions......................................28
SECTION 6.6. Restrictions.........................................28
ARTICLE VII.
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties.....................29
SECTION 7.2. Furnishing of Documents.............................30
SECTION 7.3. Representations and Warranties......................30
SECTION 7.4. Reliance; Advice of Counsel.........................31
SECTION 7.5. Not Acting in Individual Capacity...................32
SECTION 7.6. Owner Trustee Not Liable for Trust
Certificates or Home Loans..........................32
SECTION 7.7. Owner Trustee May Own Trust Certificates and Notes..32
SECTION 7.8. Licenses............................................32
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses...................33
SECTION 8.2. Indemnification.....................................33
SECTION 8.3. Payments to the Owner Trustee.......................33
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement......................34
SECTION 9.2. Dissolution Upon Bankruptcy of the Company..........35
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee.........36
SECTION 10.2. Resignation or Removal of Owner Trustee............37
SECTION 10.3. Successor Owner Trustee............................37
SECTION 10.4. Merger or Consolidation of Owner Trustee...........38
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee......38
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments........................40
SECTION 11.2. No Legal Title to Owner Trust Estate in Owners....41
SECTION 11.3. Limitations on Rights of Others...................42
SECTION 11.4. Notices...........................................42
SECTION 11.5. Severability......................................42
SECTION 11.6. Separate Counterparts.............................42
SECTION 11.7. Successors and Assigns............................43
SECTION 11.8. Covenants of the Company..........................43
SECTION 11.9. No Petition.......................................43
SECTION 11.10.No Recourse.......................................43
SECTION 11.11.Headings..........................................44
SECTION 11.12.GOVERNING LAW.....................................44
SECTION 11.13.Certificate and Residual Interest Transfer
Restrictions......................................44
SECTION 11.14.Grant of Certificateholder and Residual
Interest Holder Rights to Securities Insurer......44
SECTION 11.15.Third-Party Beneficiary...........................45
SECTION 11.16.Suspension and Termination of Securities
Insurer's Rights..................................45
EXHIBIT A Form of Certificate
EXHIBIT A-2 Form of Certificate issued to the Company
EXHIBIT B Form of Residual Interest
EXHIBIT B-2 Form of Residual Interest issued to the Company
EXHIBIT C Form of Certificate of Trust
EXHIBIT D Form of Demand Note
EXHIBIT E Form of Certificate Depository Agreement
<PAGE>
TRUST AGREEMENT, dated as of [____________], among PREFERRED
SECURITIZATION CORPORATION, a Delaware corporation, as Depositor (the
"Depositor"), PREFERRED MORTGAGE SPC FUNDING CORP.(the "Company"), a Delaware
corporation, [WILMINGTON TRUST COMPANY,] a Delaware banking corporation, as
Owner Trustee (the "Owner Trustee") and [BANKER TRUST COMPANY,] as Co-Owner
Trustee (the "Co-Owner Trustee").
ARTICLE I.
DEFINITIONS
SECTION 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 [_______________] among the Issuer, the Transferor and [Banker Trust
Company,] as Administrator.]
"Administrator" shall mean [Banker Trust Company,] or any successor in
interest thereto, in its capacity as Administrator under the Administration
Agreement.
"Basic Documents" shall mean this Agreement, the Sale and Servicing
Agreement, the Indenture, the Administration Agreement, the [Insurance
Agreement,] the [Custodial Agreement,] the Note Depository Agreement, the
Certificate Depository Agreement and the other documents and certificates
delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
11.13.
"Book-Entry-Certificate" shall mean a beneficial interest in the
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.11.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of I the
Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be amended
from time to time.
"Certificate" shall mean a certificate (other than a Residual Interest
Instrument) evidencing the beneficial interest of an Owner in the Trust,
substantially in the form attached hereto as Exhibit A.
"Certificate Depository Agreement" shall mean the agreement among the
Trust and the DTC, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit E, relating to the Certificates, as the same may be
amended and supplemented from time to time.
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.1.
"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 and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Certificate is registered.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean 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.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"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;] 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 pursuant to Section 3.13 or a Residual Interest
Instrument.
"DTC" shall mean the Depository Trust Company, as the initial Clearing
Agency.
"ERISA" shall have the meaning assigned thereto in Section 11.13.
"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.
"Company Certificates" shall mean (i) the Definitive Certificate in
substantially the form attached hereto as Exhibit A-2 representing 1% Percentage
Interest of the Initial Certificate Principal Balance of the Certificates that
the Company is receiving pursuant to Section 3.10 and (ii) the Definitive
Certificate in substantially the form attached hereto as Exhibit B-2
representing a 1% Percentage Interest in the Residual Interest that the Company
is receiving pursuant to Section 3.10.
"Indenture" shall mean the Indenture, dated as of [________________],
by and between the Issuer and the Indenture Trustee.
"Indenture Trustee" means [Banker Trust Company,] as Indenture Trustee
under the Indenture.
"Initial Certificate Principal Balance" shall mean $---------------.
"Insolvency Event" shall have occurred with respect to the Company if:
(i) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Company and such decree or order shall have remained in
force, undischarged or unstayed for a period of 60 days; or
(ii) the Company shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings
of or relating to the Company or of or relating to all or
substantially all of the Company's property;
(iii) the board of the directors of the Company shall voluntarily
dissolve the Company; or
(iv) the Company shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors, or voluntarily suspend payment of
its obligations.
PROVIDED HOWEVER, that the substantive consolidation of the Company with an
entity in respect of which the events described in (i) - (iv) above have
occurred shall not constitute an Insolvency Event with respect to the Company.
["Insurance Agreement" shall mean the Insurance Agreement, dated as of
_____________ among the Transferor, the Seller, the Issuer, the Indenture
Trustee [and the Securities Insurer].]
"Issuer" shall mean PREFERRED CREDIT OWNER TRUST 199_-_], the Delaware
business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set forth in
Section 3.14.
"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, or an estate or
trust that is subject to U.S. federal income tax regardless of the source of its
income.
"Owner" shall mean each Holder of a Certificate and each holder of a
Residual Interest Investment, as applicable.
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Section 2.5 hereof and Article II of the Sale and Servicing Agreement (including
the Trust Estate), all funds on deposit from time to time in the Trust Accounts
(including the Certificate Distribution Account) and all other property of the
Trust from time to time, including any rights of the Owner Trustee and the Trust
pursuant to the Sale and Servicing Agreement and the Administration Agreement.
"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 Initial Certificate Principal
Balance. 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
3.14(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 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 Section 5.06 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 Interestholders" shall mean, initially, the Transferor, as
holder of 99% Percentage Interest of the Residual Interest, and the Company, as
holder of 1% Percentage Interest of the Residual Interest.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Trust as Issuer, the Depositor,
as Seller, the Indenture Trustee as Indenture Trustee and Co-Owner Trustee, the
Transferor, and [Advanta Mortgage Corp. U.S.A.] as the Servicer.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
["Securities Insurer shall mean [MBIA Insurance Corporation.]]
["Securities Insurer Default": 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.]
"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.
"Underwriters" shall mean those underwriters named in and parties to
the Underwriting Agreement dated as of [______________] pursuant to which the
Certificates will be offered publicly.
SECTION 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.
ARTICLE II.
Organization
SECTION 2.1. NAME. The Trust created hereby shall be known as
["PREFERRED CREDIT OWNER TRUST 199_-_",] 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.
SECTION 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.
SECTION 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 the Pre-Funding Account, the Capitalized Interest
Account and the Reserve Account and to pay the organizational, 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 Basic 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; and
(vi) subject to compliance with the Basic 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.
(vii) to issue the Company Certificates and the
Residual Interest Instrument 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 Basic Documents.
SECTION 2.4. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 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 Depositor or
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.
SECTION 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 Basic 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.
SECTION 2.7. LIABILITY OF THE OWNERS.
(a) The Company, as holder of the Company Certificates, shall be
liable directly to and will indemnify the injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Owner Trust Estate) to the extent that the Company
would be liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Company were a general partner;
provided, however, that the Company shall not be liable for any losses incurred
by an Owner in the capacity of an investor in the Trust Certificates or a
Noteholder in the capacity of an investor in the Notes. In addition, any third
party creditors of the Trust (other than in connection with the obligations
described in the preceding sentence for which the Company shall not be liable)
shall be deemed third party beneficiaries of this paragraph and paragraph (c)
below. The obligations of the Company under this paragraph and paragraph (c)
below shall be evidenced by the Company Certificates the Company is receiving
pursuant to Section 3.10.
(b) No Owner, other than to the extent set forth in paragraphs (a) and
(c), shall have any personal liability for any liability or obligation of the
Trust.
(c) The Company agrees to be liable directly to and will indemnify the
injured party for all losses, claim damages, liabilities and expenses (other
than those incurred by an Owner in the capacity of an investor in the Trust
Certificates or a Noteholder in the capacity of an investor in the Notes)
arising out of or based on the arrangements pursuant to which the amounts
distributed to the Residual Interestholders are held by the Company and the
Transferor, respectively, as Residual Interestholders, as though such
arrangements were partnerships under the Delaware Revised Uniform Limited
Partnership Act in which the Company were a general partner.
SECTION 2.8. 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.
SECTION 2.9. 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.
SECTION 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR AND THE
COMPANY; COVENANT OF THE COMPANY.
(a) The Depositor hereby represents and warrants to the Owner Trustee
[and the Securities Insurer] that:
(i) The Depositor 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 Depositor 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 Depositor has the power and authority to execute
and deliver this Agreement and to carry out its terms; the Depositor
has full power and authority to sell and assign the property to be sold
and assigned to and deposited with the Trust and the Depositor has duly
authorized such sale and assignment and deposit to the Trust by all
necessary corporate action; and the execution, delivery and performance
of this Agreement has been duly authorized by the Depositor 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 Depositor, or any
indenture, agreement or other instrument to which the Depositor 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 Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
(v) There are no proceedings or investigations pending or
notice of which has been received in writing before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor 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 Depositor of its obligations under, or the validity or
enforceability of, this Agreement.
(vi) The representations and warranties of the
Depositor in Section 3.01 of the Sale and Servicing Agreement are
true and correct.
(b) The Company hereby represents and warrants to the 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 Basic 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.
(vi) From the date of its incorporation until the date of
this Agreement, except with respect to serving as an indemnitor in
connection with the Preferred Credit Asset-Backed Certificates, Series
1996-2 and 1997-1, the Company has not conducted any business or trade,
has not entered into any contracts, written or oral, has not had any
employees, has no liabilities or creditors, and no liens or
encumbrances have existed or exist with respect to the Company or its
assets.
(c) The Company covenants with the Owner Trustee [and the Securities
Insurer] that during the continuance of this Agreement it will comply in all
respects with the provisions of its Articles of Incorporation in effect from
time to time.
SECTION 2.11. 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:
(a) among the Certificates as of the first Record Date following the
end of such month, in proportion to their ownership of principal amount of Trust
Certificates on such date, an amount of net income up to the sum of (i) the
amount distributed in respect of interest to the Certificateholders pursuant to
Section 5.06(c) of the Sale and Servicing Agreement for such month, and (ii) the
portion of the market discount on the Home Loans accrued during such month that
is allocable to the excess, if any, of the initial aggregate principal amount of
the Certificates over their initial aggregate issue price; and
(b) to the Residual Interestholders, pro rata, to the extent of any
remaining net income. If the net income of the Trust for any month is
insufficient for the allocations described in clause (a) above, subsequent net
income shall first be allocated to make up such shortfall before being allocated
as provided in the preceding sentence. Net losses of the Trust, if any, 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 Residual Interestholders to the extent the Residual
Interestholders are reasonably expected to bear the economic burden of such net
losses, and any remaining net losses shall be allocated among the Certificates
as of the first Record Date following the end of such month in proportion to
their ownership of principal amount of Trust certificates on such Record Date.
Any indebtedness allocated pursuant to Treasury Regulation Section 1.752 -
3(a)(3) shall be allocated to the Residual Interest.
ARTICLE III.
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 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.
SECTION 3.2. THE TRUST CERTIFICATES. The Certificates (other than the
Residual Interest) shall be issued in minimum denominations of $100,000 and in
integral multiples of $1,000 in excess thereof; provided, however, the Company
Certificates issued to the Company pursuant to Section 3.10 may be issued in a
lesser denomination. Upon the issuance of the Trust Certificates, the Company
will be issued the Company Certificates. The Residual Interest shall not be
issued with a principal 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. 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.
SECTION 3.3. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST
CERTIFICATES. Concurrently with the initial 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 principal amount equal to the Initial Certificate
Principal Balance, 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 Exhibit 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.
SECTION 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 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 Section 3.14(a) and (b). Each Trust
Certificate surrendered for registration of transfer or exchange shall be
canceled 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.
SECTION 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.
SECTION 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.
SECTION 3.7. ACCESS TO LIST OF OWNERS' NAMES AND Addresses. The Owner
Trustee shall furnish or cause to be furnished to the Servicer and the
Depositor, within 15 days after receipt by the Owner Trustee of a request
therefor from the Servicer, the Depositor or the Indenture Trustee in writing, a
list, in such form as 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 25% of the Certificate
Principal Balance 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.
SECTION 3.8. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee shall
maintain in the Borough of Manhattan, The City of New York, 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 Basic Documents
may be served. The Owner Trustee initially designates the Administrator's office
in New York 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.
SECTION 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 from the Certificate
Distribution Account pursuant to Section 5.2 hereof and Section 5.06 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 Paying
Agent will hold all sums, if any, held by it for payment to the Owners in trust
for the benefit of the Certificateholders 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. 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.
SECTION 3.10. OWNERSHIP BY COMPANY OF THE COMPANY CERTIFICATES. On the
Closing Date, the Company shall receive from the Trust and thereafter shall
retain beneficial and record ownership of the Company Certificates representing
at least a 1% Percentage Interest of the Initial Certificate Principal Balance
and at least a 1% Percentage Interest of the Residual Interest. The Company
Certificates shall be non-transferable. Any attempted transfer of any Company
Certificates shall be null and void. The Owner Trustee shall cause any Company
Certificate issued to the Company to contain a legend substantially to such
effect.
SECTION 3.11. BOOK-ENTRY CERTIFICATES. The Certificates, upon original
issuance, will be issued in the form of a typewritten Certificate or
Certificates representing Book- Entry Certificates, to be delivered to The
Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the
Trust; provided, however, that one Definitive Certificate (the Residual Interest
Instrument constituting one of the Company Certificates) may be issued to the
Company pursuant to Section 3.10. Such Certificate or Certificates shall
initially be registered on the Certificate Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency, and no Certificate Owner will
receive a definitive Certificate representing such Certificate Owners' interest
in such Certificate, except as provided in this Section 3.11 and in Section
3.13. Unless and until Definitive Certificates, fully registered, have been
issued to Certificate Owners pursuant Section 3.13:
(i) the provisions of this Section shall be in full
force and effect;
(ii) the Certificate Registrar and the Owner Trustee
shall be entitled to
deal with the Clearing Agency for all purposes of this Agreement (including the
payment of principal of and interest on the Certificates and the giving of
instructions or directions hereunder) as the sole Holder of the Certificates and
shall have no obligation to the Certificate Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Agreement, the provisions of
this Section shall control;
(iv) the rights of Certificate Owners shall be exercised
only through the Clearing Agency and shall be limited to those
established by law and agreements between such Certificate Owners and
the Clearing Agency and/or the Clearing Agency Participants. Pursuant
to the Certificate Depository Agreement, unless and until Definitive
Certificates are issued pursuant to Section 3.13, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and
interest on the Certificates to such Clearing Agency Participants; and
(v) whenever this Agreement requires or permits actions
to be taken based upon instructions or directions of Holders of
Certificates evidencing a specified percentage of the Certificate
Principal Balance, the Clearing Agency shall be deemed to represent
such percentage only to the extent that it has received instructions to
such effect from Certificate Owners and/or Clearing Agency Participants
owning or representing, respectively, such required percentage of the
beneficial interest in the Certificates and has delivered such
instructions to the Owner Trustee.
SECTION 3.12. NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Certificates shall have been issued to Certificate Owners
pursuant to Section 3.13, the Owner Trustee shall give all such notices and
communications specified herein to be given to Certificateholders to the
Clearing Agency, and shall have no obligations to the Certificate Owners.
SECTION 3.13. DEFINITIVE CERTIFICATES. If (i) the Administrator
advises the Owner Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Certificates, and the Administrator is unable to locate a qualified successor,
(ii) the Administrator at its option advises the Owner 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, Certificate Owners
representing beneficial interests aggregating at least 50% of the Certificate
Principal Balance advise the Clearing Agency in writing that the continuation of
a book-entry system through the Clearing Agency is no longer in the best
interest of the Certificate Owners, then the Clearing Agency shall notify all
Certificate Owners, the [Securities Insurer] and the Owner Trustee of the
occurrence of any such event and of the availability of the Definitive
Certificates to Certificate Owners requesting the same. Upon surrender to the
Owner Trustee of the typewritten Certificate or Certificates representing the
Book-Entry Certificates by the Clearing Agency, accompanied by registration
instructions the Owner Trustee shall execute and authenticate the Definitive
Certificates in accordance with the instructions of the Clearing Agency. Neither
the Certificate Registrar nor the Owner 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
Certificates, the Owner Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders. The Definitive Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Owner Trustee, as evidenced by its execution
thereof.
SECTION 3.14. RESTRICTIONS ON TRANSFER OF RESIDUAL INTEREST
INSTRUMENTS.
(a) Each prospective purchaser and any subsequent transferee of a
Residual Interest Instrument (each, a "Prospective Owner"), other than the
Transferor or 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 the Residual
Interest Instrument may be relying on the exemption from the
registration requirements of the Securities Act provided by Rule 144A
and is acquiring such Residual Interest Instrument 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 Transferor or the
Company).
(ii) Such Person understands that the Residual Interest
Instruments have 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 the Residual Interest
Instruments bear a legend to the following effect: "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, FIRSTPLUS RESIDUAL
HOLDINGS, INC. AND FIRSTPLUS FINANCIAL, INC. ) 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. "
(iv) Such Person shall comply with the provisions of
Section 3.14(b), as applicable, relating to the ERISA restrictions with
respect to the acceptance or acquisition of such Residual Interest
Instrument.
(b) Each Prospective Owner, other than the Transferor or 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 (1) the Prospective Owner is not an "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or a "plan" within
the meaning of Section 4975(e)(1) of the Code (any such plan or
employee benefit plan, a "Plan") and is not directly or indirectly
purchasing such Residual Interest Instrument on behalf of, as
investment manager of, as named fiduciary of, as trustee of, or with
assets of a Plan, or (2) either (I) the Prospective Owner is acquiring
such Residual Interest Instrument for its own account and no part of
the assets used to acquire such Residual Interest Instrument constitute
assets of a Plan, or (II) the source of funds to be used to acquire
such Residual Interest Instrument is an "insurance company general
account," within the meaning of Prohibited Transaction Class Exemption
95-60,60 Fed. Reg. 35925 (July 12, 1995) (the "Exemption"), and there
is no Plan with respect to which the amount of such general account's
reserves for the contract(s) held by or on behalf of such Plan
(determined under Section 807(d) of the Code), together with the amount
of the reserves of the contract(s) held by or on behalf of any other
Plans (determined under Section 807(d) of the Code) maintained by the
same employer (or an affiliate thereof as defined in
Section V(a)(1) of the Exemption) or by the same employee
organization, exceed 10% of the total of all liabilities of such
general account; 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 the Residual Interest Instrument 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 the Residual Interest Instrument 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.
(c) 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 any Residual Interest Instrument may be transferred
directly or indirectly to (i) an entity that holds residual securities as
nominee to facilitate the clearance and settlement of such securities through
electronic book-entry changes in accounts of participating organizations (a
"Book-Entry Nominee"), or (ii) 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.
(d) Subject to paragraph (f) below, the Trustee shall not execute, and
shall not countersign and deliver, a Residual Interest Instrument in connection
with any transfer thereof unless the transferor shall have provided to the
Trustee a certificate, substantially in the form attached as Exhibit F1 to this
Agreement, signed by the transferee, a Book-Entry Nominee 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 the Residual Interest Instruments to
Book-Entry Nominees or Non-permitted Foreign Holders, and an agreement by the
transferee that it will not transfer a Residual Interest Instrument without
providing to the Trustee a certificate substantially in the from attached as
Exhibit F1 to this Agreement.
(e) The Residual Interest Instruments shall bear an additional legend
referring to the restrictions contained in paragraphs (b) and (c) above.
(f) Notwithstanding paragraph (d) above, in the event that [the
Transferor] pledges, mortgages, assigns or otherwise grants any security
interest in the Residual Interest to any person (each, a "Pledgee"), the Trustee
may execute, countersign and deliver a Residual Interest Instrument to such
Pledgee, provided that such Pledgee shall have delivered to the Trustee a
Certificate signed on behalf of the Pledgee substantially in the form attached
as Exhibit F2 to this Agreement.
ARTICLE IV.
ACTIONS BY OWNER TRUSTEE
SECTION 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 Basic
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 Basic
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 Basic
Document;
(g) the consent to the assignment by the Indenture Trustee or Servicer
of their respective obligations under any Basic 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 as set forth in this Agreement;
(k) do any act that conflicts with any other Basic Document;
(l) do any act which would make it impossible to carry on the ordinary
business of the Trust as described in Section 2.13 hereof;
(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 the Servicer.
The Owner Trustee shall not have the power, except upon the direction
of the Owners [with the consent of the Securities Insurer,] and to the extent
otherwise consistent with the Transaction Documents, to (i) remove or replace
the Servicer or the Indenture Trustee, (ii) institute proceedings to have the
Trust declared or adjudicated a bankruptcy 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, (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 shall have the power to take, and shall not take, any
Bankruptcy Action with respect to the Trust or the Company or direct the Owner
Trustee to take any Bankruptcy Action with respect to the Trust or the Company.
SECTION 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
under the Administration Agreement pursuant to Section 8 thereof, (b) appoint a
successor Administrator pursuant to Section 8 of the Administration Agreement,
(c) remove the Servicer under the Sale and Servicing Agreement pursuant to
Section 10.01 thereof or (d) 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].
SECTION 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.
SECTION 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 Basic Documents or would be contrary
to Section 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
SECTION 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
the Holders of Certificates evidencing more than 50% of the Certificate
Principal Balance and holders of Residual Interest evidencing more than 50% of
the Percentage Interest in the Residual Interest. 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 more than 50%
of the Certificate Balance and holders of Residual Interest evidencing more than
50% of the Percentage Interest in the Residual Interest at the time of the
delivery of such notice.
ARTICLE V.
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1. ESTABLISHMENT OF TRUST ACCOUNT. The Owner Trustee shall
cause the Servicer, for the benefit of the Owners, to establish and maintain
with [Bankers Trust Company] 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, BANKERS
TRUST COMPANY, AS CO- OWNER TRUSTEE, IN TRUST FOR THE PREFERRED CREDIT ASSET
BACKED SECURITIES, SERIES 199_-_".] 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 Section 5.06(c) of the Sale and Servicing Agreement regarding
distributions from the Certificate Distribution Account.
The Company by virtue of its acceptance of the Company Certificates,
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.
SECTION 5.2. APPLICATION OF TRUST FUNDS.
(a) On each Distribution Date, the Owner Trustee or the Co-Owner
Trustee shall direct the Paying Agent to distribute to the Certificateholders,
the [Securities Insurer,] the Servicer and the Residual Certificateholders from
amounts on deposit in the Certificate Distribution Account the distributions as
provided in Section 5.06 of the Sale and Servicing Agreement with respect to
such Distribution Date.
(b) On each Distribution Date, the Owner Trustee shall cause the
Paying Agent to send to the DTC and each Residual Interestholder the statement
provided to the Owner Trustee by the Servicer pursuant to Section 6.01 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.
SECTION 5.3. METHOD OF PAYMENT. Subject to Section 3.11, distributions
required to be made to Owners on any Distribution Date shall be made to each
Owner of record on the preceding Record Date either by wire transfer, in
immediately available funds, to the account of such Holder at a bank or other
entity having appropriate facilities therefor, if such Owner shall have provided
to the Certificate Registrar appropriate written instructions at least five
Business Days prior to such Distribution Date and such Holder's Certificates in
the aggregate evidence a denomination of not less than $1,000,000, or, if not,
by check mailed to such Owner at the address of such holder appearing in the
Certificate Register.
SECTION 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.
SECTION 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 (including Schedule
K-1) to enable each Owner to prepare its federal and state income tax returns,
(c) file such tax 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.
SECTION 5.6. SIGNATURE ON RETURNS; TAX MATTERS PARTNER.
(a) 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.
(b) The Company shall be designated the "tax matters partner" of the
Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury
Regulations.
ARTICLE VI.
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 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 Basic 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 Basic 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 Class A-1 Notes in the
aggregate principal amount of $___________, Class A-2 Notes in the aggregate
principal amount of $_____________, Class A-3 Notes in the aggregate principal
amount of $______________, Class A-4 Notes in the aggregate principal amount of
$_____________, Class A-5 Notes in the aggregate principal amount of
$_____________, Class A-6 Notes in the aggregate principal amount of
$____________, Class A-7 Notes in the aggregate principal amount of
$____________, Class A-8 Notes in the aggregate principal amount of $__________
and Certificates in the aggregate principal amount of $______________. 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 Basic
Documents.
SECTION 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 Basic Documents
to which the Trust is a party and to administer the Trust in the interest of the
Owners, subject to the Basic 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 Basic
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 Basic 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
Collateral and each other instrument and agreement included in the Trust Estate.
SECTION 6.3. ACTION UPON INSTRUCTION.
(a) Subject to Article IV and in accordance with the terms of the
Basic 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 Basic 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 Basic 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 Basic 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 Basic 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 Basic 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 Basic
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.
SECTION 6.4. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT, THE
BASIC 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 Basic 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
Basic 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 Basic 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.
SECTION 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 Basic Documents
and (iii) in accordance with any document or instruction delivered to the owner
Trustee pursuant to Section 6.3.
SECTION 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.
ARTICLE VII.
CONCERNING THE OWNER TRUSTEE
SECTION 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
Basic 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
Basic Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic 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 Basic 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 Basic 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 Basic 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 Basic 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 Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller, the Company, the Indenture Trustee
or the Servicer under any of the Basic 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 Basic Documents that are required to be
performed by the Administrator under the Administration Agreement, the Indenture
Trustee under the Indenture or the Servicer under the Sale and 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 Basic 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
Basic 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.
SECTION 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 Basic Documents and (b) to Noteholders promptly upon written request
therefor, copies of the Sale and Servicing Agreement, the Administration
Agreement and the Trust Agreement.
SECTION 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 banking corporation duly organized and
validly existing in good standing under the laws of the State of New
York. 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 New York 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.
SECTION 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 Basic
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 Basic Document.
SECTION 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 Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 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 Basic 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 Mortgaged 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 or the Servicer with any warranty or
representation made under any Basic Document or in any related document or the
accuracy of any such warranty or representation or any action of the
Administrator, the Indenture Trustee or the Servicer or any subservicer taken in
the name of the Owner Trustee.
SECTION 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.
SECTION 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 Basic Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
ARTICLE VIII.
COMPENSATION OF OWNER TRUSTEE
SECTION 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.
SECTION 8.2. INDEMNIFICATION. The Depositor shall be liable as primary
obligor, and the Company as secondary obligor pursuant to the Administration
Agreement, for, and shall indemnify the Owner Trustee and its 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 Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Depositor 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 7.01. 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 choice of
legal counsel shall be subject to the approval of the Depositor, which approval
shall not be unreasonably withheld.
SECTION 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.
ARTICLE IX.
TERMINATION OF TRUST AGREEMENT
SECTION 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 4.1 of the
Indenture and the termination of the Sale and Servicing Agreement; (ii) at the
time provided in Section 9.2.; and (iii) 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). The bankruptcy,
liquidation, dissolution, death or incapacity of any Owner, other than the
Company as described in Section 9.2, 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, and in certain instances [the
Securities Insurer], in the manner and subject to the provisions of Section
11.02 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
Section 5.06 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 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 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 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.
SECTION 9.2. DISSOLUTION UPON BANKRUPTCY OF THE COMPANY. (i) In the
event that an Insolvency Event shall occur with respect to the Company when
there is a Securities Insurer Default subsisting, this Agreement shall be
terminated in accordance with Section 9.1 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Owner
Trustee shall have received written instructions from (a) each of the Owners
(other than the Company) representing more than 50% of the Certificate Principal
Balance and more than 50% of the Percentage Interest of the Residual Interest
(not including the Certificate Principal Balance of the Certificates held by the
Company), and (b) an Opinion of Counsel described in Section 9.2(ii). Promptly
after the occurrence of any Insolvency Event with respect to the Company, (A)
the Company shall give the Indenture Trustee and the Owner Trustee written
notice of such Insolvency Event, (B) the Owner Trustee shall, upon the receipt
of such written notice from the Company, give prompt written notice to the
Owners (other than the Company) and the Indenture Trustee, of the occurrence of
such event, and (C) the Indenture Trustee shall, upon receipt of written notice
of such Insolvency Event from the Owner Trustee or the Company, give prompt
written notice to the Noteholders [and Securities Insurer] of the occurrence of
such event; provided, however, that any failure to give a notice required by
this sentence shall not prevent or delay, in any manner, a termination of the
Trust pursuant to the first sentence of this Section 9.2. Upon a termination
pursuant to this Section, the Owner Trustee shall direct the Indenture Trustee
promptly to sell the assets of the Trust (other than the Trust Accounts and the
Certificate Distribution Account) in a commercially reasonable manner and on
commercially reasonable terms. The proceeds of such a sale of the assets of the
Trust shall be treated as collections under the Sale and Servicing Agreement.
(ii) If an Insolvency Event occurs when the Insurance
Agreement shall be in effect and there is no [Securities Insurer
Default] existing, then the Owner Trustee shall retain for the benefit
of the Certificateholders [and the Securities Insurer], all remedies
available at law or under this Agreement and none of the liens or
security interests granted by the Trust shall be extinguished,
released, terminated or impaired by such Insolvency Event; but rather,
such liens and security interests shall continue to encumber the Owner
Trust Estate until all principal and interest on the Certificates is
paid in full and any other amounts required to be distributed by the
Trust under this Agreement have been so distributed. In any case
however, subject to the following, upon the occurrence of an Insolvency
Event, the Owner Trust Estate held under this Agreement shall be sold
within 90 days of the occurrence of such event and the proceeds of such
sale distributed in accordance with the provisions of Article 5 of this
Agreement. Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not terminate and the assets shall not be sold
upon the occurrence of an Insolvency Event, if within ninety (90) days
of such Insolvency Event the holders of a majority in Percentage
Interest of the Certificates and a majority in Percentage Interest of
the Residual Interest (in each case exclusive of the Company
Certificates) [and the Securities Insurer] agree that this Agreement
shall not so terminate and the Owner Trustee [and the Securities
Insurer] shall receive an opinion of counsel to the Trust from counsel
acceptable to the [Securities Insurer], to the effect that the entity
created or reconstituted under this Agreement, if any, would not be
characterized as an association taxable as a corporation
for federal and state income tax purposes. If authorization to
continue this Agreement is not received [and the Insurance Agreement is
still in effect], and provided that the Owner Trustee [and the
Securities Insurer] shall have received an opinion of counsel to the
Trust from counsel acceptable to [the Securities Insurer] [Owner
Trustee] to the effect that the actions described in this sentence, if
consummated, shall not cause the Trust to be characterized as an
association taxable as a corporation for federal and state income tax
purposes, the assets shall not be sold, but the Owner Trustee shall
adopt a plan of dissolution, acceptable to [the Securities Insurer,] to
make collections on the Owner Trust Estate for distribution in
accordance with the terms and priority of payment which would apply
under the provisions of the Basic Documents. Any party hereto who has
actual knowledge of the occurrence of an Insolvency Event shall
immediately notify the [Owner Trustee] [Securities Insurer] of such
occurrence.
ARTICLE X.
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 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 rating of at least Baa3 by Moody's and A-1 by
Standard & Poor'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.
SECTION 10.2. RESIGNATION OR REMOVAL OF OWNER TRUSTEE. The 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
[and the Securities Insurer]. Upon receiving such notice of resignation, the
Administrator shall promptly appoint a successor 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. If no successor 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 the Securities Insurer]
may petition any court of competent jurisdiction for the appointment of a
successor Owner Trustee.
If at any time the 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 shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the 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. If
the Administrator [or the Securities Insurer] shall remove the 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 by written instrument in
duplicate, one copy of which instrument shall be delivered to the outgoing Owner
Trustee so removed and one copy to the successor Owner Trustee and payment of
all fees owed to the outgoing Owner Trustee.
Any resignation or removal of the owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor 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. The
Administrator shall provide notice of such resignation or removal of the Owner
Trustee to each of the Rating Agencies [and the Securities Insurer].
SECTION 10.3. SUCCESSOR OWNER TRUSTEE. Any successor 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 an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee [(if acceptable to the Securities Insurer)],
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties, and obligations of its predecessor under this
Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Administrator and the predecessor 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 all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Administrator shall mail notice of the successor of such
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, the successor Owner Trustee shall cause such notice to be mailed
at the expense of the Administrator.
SECTION 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.
SECTION 10.5. APPOINTMENT OF CO-TRUSTEE OR SEPARATE 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-trustee, jointly with the Owner Trustee, or
separate trustee or separate 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-trustee or separate trustee under this Agreement 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-trustee or separate
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 establishing and maintaining the Certificate
Distribution Account and making distributions therefrom to the Persons entitled
thereto pursuant to Section 5.06 of the Sale and Servicing Agreement. [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 and this Agreement, including
without limitation, the obligations of the Co-Owner Trustee as Paying Agent
pursuant to Section 3.9 hereof.]
Each separate trustee and co-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 trustee or
co-trustee jointly (it being understood that such separate trustee or
co-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 trustee or co-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 trustee under this Agreement shall be personally
liable by reason of any act or omission of any other 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 trustee or co- trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to the separate trustees and co-trustees, as if
given to each of them. Every instrument appointing any separate trustee or
co-trustee, other than this Agreement, shall refer to this Agreement and to the
conditions of this Article. Each separate trustee and co-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 trustee or co-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 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
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.
ARTICLE XI.
MISCELLANEOUS
SECTION 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 Outstanding Amount of the Notes, the Holders of
Certificates evidencing more than 50% of the Certificate Principal Balance and
holders of Residual Interest Instruments evidencing more than 50% of the
Percentage Interests of the Residual Interest, 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 Certificate Principal Balance 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
Basic 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.
SECTION 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.
SECTION 11.3. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the 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 (other than Section
2.7), 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.
SECTION 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, PREFERRED SECURITIZATION CORPORATION,
3347 Michelson Drive, Suite 400, Irvine, California 92612, Attention: Todd A.
Rodriguez; (iii) if to the Company, PREFERRED MORTGAGE SPC FUNDING CORP., 3347
Michelson Drive, Suite 400, Irvine, California 92612, Attention: Todd A.
Rodriguez; (iv) [if to the Securities Insurer, [MBIA Insurance Corporation, 113
King Street, Armonk, New York 10504, Attention: IPM-SF FIRSTPLUS 1996-3,
telephone: 914-765-3810, confirmation: 914-765-3781]; (v) if to the Co-Owner
Trustee, [Bankers Trust Company, 3 Park Plaza, 16th Floor, Irvine, California
92714, Attention: 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.
SECTION 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.
SECTION 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.
SECTION 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 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.
SECTION 11.8. COVENANTS OF THE COMPANY. In the event that (a) the
Certificate Principal Balance shall be reduced by Realized Losses and (b) any
litigation with claims in excess of $1,000,000 to which the Company is a party
which shall be reasonably likely to result in a material judgment against the
Company that the Company will not be able to satisfy shall be commenced by an
Owner, during the period beginning nine months following the commencement of
such litigation and continuing until such litigation is dismissed or otherwise
terminated (and, if such litigation has resulted in a final judgment against the
Company, such judgment has been satisfied), the Company shall not pay any
dividend to the Transferor, or make any distribution on or in respect of its
capital stock to the Transferor, or repay the principal amount of any
indebtedness of the Company held by the Transferor, unless (i) after giving
effect to such payment, distribution or repayment, the Company's liquid assets
shall not be less than the amount of actual damages claimed in such litigation
or (ii) the Rating Agency Condition shall have been satisfied with respect to
any such payment, distribution or repayment [and the Securities Insurer]
consents to such payment. The Company will not at any time institute against the
Trust any bankruptcy proceedings 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 Basic
Documents.
SECTION 11.9. 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,
the Depositor or the Trust, or join in any institution against 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 Basic Documents.
SECTION 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 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 Basic
Documents.
SECTION 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.
SECTION 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.
SECTION 11.13. CERTIFICATE AND RESIDUAL INTEREST TRANSFER
RESTRICTIONS. Neither the Certificates nor the Residual Interest 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.
[SECTION 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 Section 5.06 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 and for
the guarantee of the Certificates by the [Securities Insurer] pursuant to the
Guaranty Policy, the holders of the Residual Interest hereby grant to the
[Securities Insurer] the right to act as the holder of 100% of the Residual
Interest 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 Section
5.06 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 11.16.
(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 Certificate Principal 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.]
[SECTION 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.]
[SECTION 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..
(b) At such time as either (i) the Certificate Principal Balance 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.
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.
PREFERRED SECURITIZATION CORPORATION
Depositor
By:
Name:
Title:
PREFERRED MORTGAGE SPC FUNDING CORP.
By:
Name:
Title:
<PAGE>
[WILMINGTON TRUST COMPANY,] not in its individual capacity but solely
as Owner Trustee
By:
Name:
Title:
[BANKERS TRUST COMPANY,] not in its
individual capacity but solely as
Co-Owner Trustee and Paying Agent
By:
Name:
Title:
<PAGE>
EXHIBIT A
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
[DEPOSITORY TRUST COMPANY,] A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [DTC] (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF PREFERRED SECURITIZATION CORPORATION, PREFERRED CREDIT
CORPORATION OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT TO
THE EXTENT DESCRIBED BELOW.
[PREFERRED CREDIT OWNER TRUST 199_-_]
[____% 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 PREFERRED
SECURITIZATION CORPORATION.
NUMBER:____ FRACTIONAL UNDIVIDED INTEREST: ________/
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
[PREFERRED CREDIT OWNER TRUST 199_-_] (the "Trust") formed by PREFERRED
SECURITIZATION CORPORATION, a Delaware corporation (the "Seller").
The Trust was created pursuant to a Trust Agreement dated as of [ ]
(as amended and supplemented from time to time, the "Trust Agreement"), among
the Seller, PREFERRED MORTGAGE SPC FUNDING CORP., a Delaware corporation (the
"Company"), [Wilmington Trust Company,] as owner trustee (the "Owner Trustee")
and Bankers Trust Company, 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 [ ] (as amended and supplemented from time to time, the
"Sale and Servicing Agreement"), among the Trust, the Seller, Advanta Mortgage
Corp. U.S.A., as servicer (the "Servicer") and the Co-Owner Trustee, as
applicable.
This Certificate is one of the duly authorized Certificates designated
as ["Preferred Credit Asset Backed Certificates, Series 199_-_"] (herein called
the "Certificates") issued under the Trust Agreement. Also issued under an
Indenture dated as of [ ,] between the Trust and [Bankers Trust Company,] as
Indenture Trustee, are the [eight] classes of Notes designated as ["Preferred
Asset Backed Notes, Series 199_-_, Class A-1, Class A- 2, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7 and Class A-8] (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 principal and interest on this Certificate shall be made
by [Bankers Trust Company,] 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 20th day
of each month or, if such 25th day is not a Business Day, the next Business Day,
(each, a "Distribution Date"), commencing in [ ,] 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 5.06 of the Sale and Servicing
Agreement; provided however, that no principal will be distributed to the
Certificateholders until on or after the Distribution Date on which the Class
A-8 Notes have been paid in full.
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 Income, 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 Basic 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]
<PAGE>
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.
[PREFERRED CREDIT OWNER TRUST 199_-_]
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.
[BANKERS TRUST COMPANY,]
as Authenticating Agent
By:
Authorized Signatory
<PAGE>
(REVERSE OF TRUST CERTIFICATE)
The Certificates do not represent an obligation of, or an interest in,
the Seller, the Servicer, the Company, 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 Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and to limited in
right of payment to certain collections with respect to the Home Loans (and
certain other amounts), all as more specifically set forth herein and in the
Sale and Servicing Agreement. The Certificates are limited in right of payment
to certain collections and recoveries respecting the Home Loans, all as more
specifically set forth in the Sale and Servicing Agreement and 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 and the portion of the
Regular Principal Distribution 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 Certificate
Principal Balance. 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 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
Company may at its 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 15% of the Pool
Principal Balance of the Initial Home Loans and the Subsequent Home Loans
conveyed to the Trust as of the respective Cut-off Dates.
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.
<PAGE>
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 Now York Stock Exchange or a commercial bank
or trust company.
<PAGE>
EXHIBIT A-2
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE ISSUED TO THE COMPANY)
<PAGE>
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, FIRSTPLUS RESIDUAL HOLDINGS,
INC. AND FIRSTPLUS FINANCIAL, INC. ) 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.
<PAGE>
[PREFERRED CREDIT OWNER TRUST 199_-_]
RESIDUAL INTEREST CERTIFICATE
No. _____
THIS CERTIFIES THAT __________________________________ (the "Owner")
is the registered owner of a _____% residual interest in [PREFERRED CREDIT OWNER
TRUST 199_-_] (the "Trust") existing under the laws of the State of Delaware and
created pursuant to the Trust Agreement dated as of [ ] (the "Trust Agreement")
between PREFERRED SECURITIZATION CORPORATION, as Depositor, PREFERRED MORTGAGE
SPC FUNDING CORP., 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 [Bankers Trust Company,] 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.
<PAGE>
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.
[PREFERRED CREDIT OWNER TRUST 199_-_]
By: [Wilmington Trust Company,] not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement
By: ---------------------------
DATED: [ ] Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Residual Interest referred to in the within-
mentioned Agreement.
[BANKERS TRUST COMPANY,]
as Authenticating Agent
By: ______________________________
Authorized Signatory
<PAGE>
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 Now York Stock Exchange or a commercial bank
or trust company.
<PAGE>
EXHIBIT B-2
TO THE TRUST AGREEMENT
(FORM OF RESIDUAL INTEREST ISSUED TO THE COMPANY)
<PAGE>
EXHIBIT C
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
[PREFERRED CREDIT OWNER TRUST 199_-_]
THIS Certificate of Trust of [PREFERRED CREDIT OWNER TRUST 199_-_]
(the "Trust"), dated as of [ ], 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 [PREFERRED
CREDIT OWNER TRUST 199_-_
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 [ ].
By: --------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
TO THE TRUST AGREEMENT
(Form of Certificate Depository Agreement)
Exhibit 4.5
FORM OF ADMINISTRATION AGREEMENT
Dated as of _____________, 199__
among
PREFERRED CREDIT OWNER TRUST 199_-__
(the "Issuer")
and
PREFERRED CREDIT CORPORATION
(the "Administrator")
and
[Bankers Trust Company,] as Indenture Trustee
(the "Indenture Trustee")
<PAGE>
ADMINISTRATION AGREEMENT dated as of __________, 199__, among
PREFERRED CREDIT OWNER TRUST 199_-__, a Delaware business trust (the "Issuer"),
PREFERRED CREDIT CORPORATION, a California corporation, as administrator (the
"Administration"), and [Bankers Trust Company], a [New York] banking
corporation, not in its individual capacity but solely as Indenture Trustee (the
"Indenture Trustee").
W I T N E S S E T H:
WHEREAS the Issuer is issuing the Class A-1 ___% Asset Backed Notes,
the Class A-2 ___% Asset Backed Notes and the Class A-3 ___% Asset Backed Notes
(collectively, the "Notes") pursuant to the Indenture dated as of ________, 199_
(as amended and supplemented from time to time, the "Indenture"), between the
Issuer and the Indenture Trustee (capitalized terms used herein and not defined
herein shall have the meanings assigned such terms in the Indenture);
WHEREAS the Issuer has entered into certain agreements in connection
with the issuance of the Notes and of certain beneficial ownership interests of
the Issuer, including (i) a Sale and Servicing Agreement dated as of ________,
199__ (as amended and supplemented from time to the "Sale and Servicing
Agreement"), among the Issuer, PREFERRED CREDIT CORPORATION, a California
corporation, as transferor, ADVANTA MORTGAGE CORP. USA as servicer, and
PREFERRED SECURITIZATION CORPORATION, a Delaware corporation, as seller (the
"Seller"), (ii) a Letter of Representations dated _______, 199__ (as amended and
supplemented from time to time, the "Note Depository Agreement"), among the
Issuer, the Indenture Trustee and The Depository Trust Company relating to the
Notes, (iii) a Letter of Representations dated _____, 199__ (as amended and
supplemented from time to time, the "Certificate Depository Agreement"), among
the Issuer, the Administrator and The Depository Trust Company (the Certificate
Depository Agreement, together with the Note Depository Agreement, the
"Depository Agreements") and (iv) the Indenture (the Sale and Servicing
Agreement, the Depository Agreements and the Indenture being hereinafter
referred to collectively as the "Related Agreements");
WHEREAS, pursuant to the Related Agreements, the Issuer and the Owner
Trustee are required to perform certain duties in connection with (a) the Notes
and the collateral therefor pledged pursuant to the Indenture (the "Collateral")
and (b) the beneficial ownership interests in the Issuer (the registered holders
of such interests being referred to herein as the "Owners");
WHEREAS the Issuer and the Owner Trustee desire to have the
Administrator perform certain of the duties of the Issuer and the Owner Trustee
referred to in the preceding clause, and to provide such additional services
consistent with the terms of this Agreement and the Related Agreements as the
issuer and the Owner Trustee may from time to time request; and
WHEREAS the Administrator has the capacity to provide the services
required hereby and is willing to perform such services for the Issuer and the
Owner Trustee on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
Section 1. Duties of the Administrator.
(a) Duties with Respect to the Depository Agreements and the
Indenture.
(i) The Administrator agrees to perform all its duties as
Administrator and the duties of the Issuer under the Depository Agreements. In
addition, the Administrator shall consult with the Owner Trustee regarding the
duties of the Issuer under the Indenture and the Depository Agreements. The
Administrator shall monitor the performance of the Issuer and shall advise the
Owner Trustee when action is necessary to comply with the Issuer's duties under
the Indenture and the Depository Agreements. The Administrator shall prepare for
execution by the Issuer or shall cause the preparation by other appropriate
persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture and the Depository Agreements. In furtherance of the
foregoing, the Administrator shall take all appropriate action that is the duty
of the Issuer to take pursuant to the Indenture including, without limitation,
such of the foregoing as are required with respect to the following matters
under the Indenture (references are to sections of the Indenture):
(A) the duty to cause the Note Register to be kept and to
give the Indenture Trustee notice of any appointment of a new Note
Registrar and the location, or change in location, of the Note
Register (Section 2.4);
(B) the notification of Noteholders of the final principal
payment on their Notes (Section 2.7(b));
(C) the fixing or causing to be fixed of any specified
record date and the notification of the Indenture Trustee and
Noteholders with respect to special payment dates, if any (Section
2.7(c));
(D) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes and delivery of
the same to the Indenture Trustee (Section 2.2);
(E) the preparation, obtaining or filing of the instruments,
opinions and certificates and other documents required for the release
of collateral (Section 2.9) ;
(F) the maintenance of an office in the Borough of
Manhattan, City of New York, for registration of transfer or exchange
of Notes (Section 3.2);
(G) the duty to cause newly appointed Paying Agents, if any,
to deliver to the Indenture Trustee the instrument specified in the
Indenture regarding funds held in trust (Section 3.3);
(H) the direction to the Indenture Trustee to deposit moneys
with Paying Agents, if any, other than the Indenture Trustee (Section
3.3);
(I) The obtaining and preservation of 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 Collateral and each
other instrument and agreement included in the Trust Estate (Section
3.4);
(J) the preparation of all supplements, amendments,
financing statements, continuation statements, instruments of further
assurance and other instruments, in accordance with Section 3.5 of the
Indenture, necessary to protect the Trust Estate (Section 3.5);
(K) the delivery of the Opinion of Counsel on the Closing
Date and the annual delivery of Opinions of Counsel, in accordance
with Section 3.6 of the Indenture, as to the Trust Estate, and the
annual delivery of the Officers' Certificate and certain other
statements, in accordance with Section 3.9 of the Indenture, as to
compliance with the Indenture (Sections 3.6 and 3.9);
(L) the identification to the Indenture Trustee in an
Officers' Certificate of a Person with whom the issuer has contracted
to perform its duties under the Indenture (Section 3.7(b));
(M) the notification of the Indenture Trustee and the Rating
Agencies of a Servicer Default pursuant to the Sale and Servicing
Agreement and, if such Servicer Default arises from the failure of the
Servicer to perform any of its duties under the Sale and Servicing
Agreement, the taking of all reasonable steps available to remedy such
failure (Section 3.7(d));
(N) the preparation and obtaining of documents and
instruments required for the release of the, Issuer from its
obligations under the Indenture (Section 3.10(b));
(O) the delivery of notice to the Indenture Trustee of each
Event of Default and each default by the Servicer or the Seller under
the Sale and Servicing Agreement (Section 3.19);
(P) the monitoring of the Issuer's obligations as to the
satisfaction and discharge of the Indenture and the preparation of an
Officer's Certificate and the obtaining of the Opinion of Counsel and
the Independent Certificate relating thereto (Section 4.1);
(Q) the compliance with any written directive of the
Indenture Trustee with respect to the sale of the Trust Estate in a
commercially reasonable manner if an Event of Default shall have
occurred and be continuing (Section 5.4);
(R) the preparation and delivery of notice to Noteholders of
the removal of the Indenture Trustee and the appointment of a
successor Indenture Trustee (Section 6.8);
(S) the preparation of any written instruments required to
confirm more fully the authority of any co-trustee or separate trustee
and any written instruments necessary in connection with the
resignation or removal of any co-trustee or separate trustee (Sections
6.8 and 6.10);
(T) the furnishing of the Indenture Trustee with the names
and addresses of Noteholders during any period when the Indenture
Trustee is not the Note Registrar (Section 7.1);
(U) the preparation and, after execution by the Issuer, the
filing with the Commission, any applicable state agencies and the
Indenture Trustee of documents required to be filed on a periodic
basis with, and summaries thereof as may be required by rules and
regulations prescribed by, the Commission and any applicable state
agencies and the transmission of such summaries as necessary, to the
Noteholders (Section 7.3);
(V) the opening of one or more accounts Trust's name, the
preparation of Issuer Orders, Officers' Certificates and Opinions of
Counsel and all other actions necessary with respect to investment and
reinvestment of funds in the Trust Accounts (Sections 8.2 and 8.3);
(W) the preparation of an Issuer Request and Officers'
Certificate and the obtaining of an opinion of Counsel and Independent
Certificates, if necessary, for the release of the Trust Estate as
defined in the Indenture (Sections 8.4 and 8.5);
(X) the preparation of Issuer Orders and the obtaining of
Opinions of Counsel with respect to the execution of supplemental
indentures and the mailing to the Noteholders of notices with respect
to such supplemental indentures (Sections 9.1, 9.2 and 9.3);
(Y) the execution and delivery of new Notes conforming to
any supplemental indenture (Section 9.6);
(Z) the notification of Noteholders of redemption of the
Notes or the duty to cause the Indenture Trustee to provide such
notification (Section 10.2);
(AA) the preparation of all Officers' Certificates, Opinions
of Counsel and Independent Certificates with respect to any requests
by the issuer to the Indenture Trustee to take any action under the
Indenture (Section 11.1(a));
(BB) the preparation and delivery of Officers' Certificates
and the obtaining of Independent Certificates, if necessary, for the
release of property from the lien of the Indenture (Section 11.1(b));
(CC) the notification of the Rating Agencies, upon the
failure of the Indenture Trustee to give such notification, of the
information required pursuant to Section 11.4 of the Indenture
(Section 11.4);
(DD) the preparation and delivery to Noteholders and the
Indenture Trustee of any agreements with respect to alternate payment
and notice provisions (Section 11.6);
(EE) the recording of the Indenture, if applicable (Section
11.15); and
(FF) the preparation of Reserve Account Definitive Notes and
other Notes and arranging the exchanges thereof (Section 2.12(b)).
(ii) The Administrator will:
(A) pay the Indenture Trustee from time to time reasonable
compensation for all services rendered by the Indenture Trustee under
the Indenture (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an
express trust);
(B) except as otherwise expressly provided in the Indenture,
reimburse the Indenture Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Indenture
Trustee in accordance with any provision of the Indenture (including
the reasonable compensation, expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may
be attributable to its negligence or bad faith;
(C) indemnify the Indenture Trustee and its agents for, and
to hold them harmless against, any losses, liability or expense
incurred without negligence or bad faith on their part, arising out of
or in connection with the acceptance or administration of the
transactions contemplated by the Indenture, including the reasonable
costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of
their powers or duties under the Indenture; and
(D) indemnify the Owner Trustee and its agents for, and to
hold them harmless against, any losses, liability or expense incurred
without negligence or bad faith on their part, arising out of or in
connection with the acceptance or administration of the transactions
contemplated by the Trust Agreement, including the reasonable costs
and expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of their powers or
duties under the Trust Agreement.
(b) Additional Duties.
(i) In addition to the duties of the Administrator set forth above,
the Administrator shall perform such calculations, and shall prepare for
execution by the Issuer or the Owner Trustee or shall cause the preparation by
other appropriate persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the Owner
Trustee to prepare, file or deliver pursuant to the Related Agreements, and at
the request of the Owner Trustee shall take all appropriate action that it is
the duty of the Issuer or the Owner Trustee to take pursuant to the Related
Agreements. Subject to Section 5 of this Agreement, and in accordance with the
directions of the Owner Trustee, the Administrator shall administer, perform or
supervise the performance of such other activities in connection with the
Collateral (including the Related Agreements) as are not covered by any of the
foregoing provisions and as are expressly requested by the Owner Trustee and are
reasonably within the capability of the Administrator.
(ii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for promptly
notifying the Owner Trustee in the event that any withholding tax is imposed on
the Trust's payments (or allocations of income) to an Owner as contemplated in
Section 5.2(c) of the Trust Agreement. Any such notice shall specify the amount
of any withholding tax required to be withheld by the Owner Trustee pursuant to
such provision.
(iii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for
performance of the duties of the Owner Trustee set forth in Section 5.5(a), (b),
(c) and (d) of the Trust Agreement with respect to, among other accounting and
reports to Owners; provided, however, that the Owner Trustee shall retain
responsibility for the distribution of the Schedule K-1s necessary to enable
each owner to prepare its federal and state income tax returns.
(iv) The Administrator shall satisfy its obligations with respect to
clauses (ii) and (iii) above by retaining, at the expense of the Trust payable
by the Administrator, a firm of independent public accountants (the
"Accountants") acceptable to the Owner Trustee which shall perform the
obligations of the Administrator thereunder. In connection with paragraph (ii)
above, the Accountants will provide prior to _______, 199__, a letter in form
and substance satisfactory to the Owner Trustee as to whether any tax
withholding is then required and, if required, the procedures to be followed
with respect thereto to comply with the requirements of the Code. The
Accountants shall be required to update the letter in each instance that any
additional tax withholding is subsequently required or any previously required
tax withholding shall no longer be required.
(v) The Administrator shall perform the duties of the Administrator
specified in Section 10.2 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any other
duties expressly required to be performed by the Administrator under the Trust
Agreement.
(vi) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into transactions
with or otherwise deal with any of its affiliates; provided, however, that the
terms of any such transactions or dealings shall be in accordance with any
directions received from the Issuer and shall be, in the Administrator's
opinion, no less favorable to the Issuer than would be available from
unaffiliated parties.
(c) Non-Ministerial Matters.
(i) With respect to matters that in the reasonable judgment of the
Administrator are non-ministerial, the Administrator shall not take any action
unless within a reasonable time before the taking of such action the
Administrator shall have notified the Owner Trustee of the proposed action and
the Owner Trustee shall not have withheld consent or provided an alternative
direction. For the purpose of the preceding sentence, "non-ministerial matters"
shall include, without limitation:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or
against the Issuer (other than in connection with the collection
of the Home Loans);
(C) the amendment, change or modification of the Related
Agreements;
(D) the appointment of successor Note Registrars, successor
Paying Agents and successor Indenture Trustees pursuant to the
Indenture or the appointment of successor Administrators or
successor Servicers, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee of its obligations,
under the Indenture; and
(E) the removal of the Indenture Trustee.
(ii) Notwithstanding anything to the contrary in this Agreement, the
Administrator shall not be obligated to, and shall not, (x) make any payments to
the Noteholders under the Related Agreements, (y) sell the Trust Estate pursuant
to Section 5.4 of the Indenture or (z) take any other action that the Issuer
directs the Administrator not to take on its behalf.
Section 2. Records. The Administrator shall maintain appropriate books
of account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Issuer and the
Company at any time during normal business hours.
Section 3. Compensation. As compensation for the performance of the
Administrator's obligations under this Agreement and as reimbursement for its
expenses related thereto, the Administrator shall be entitled to a fee of
$_______ per month which shall be solely an obligation of the Company.
Section 4. Additional Information to be Furnished to the Issuer. The
Administrator shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall, reasonably request.
Section 5. Independence of the Administrator. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Owner Trustee with respect to
the manner in which it accomplishes the performance of its obligations
hereunder. Unless expressly authorized by the Issuer, the Administrator shall
have no authority to act for or represent the Issuer or the Owner Trustee in any
way and shall not otherwise be deemed an agent of the Issuer or the Owner
Trustee.
Section 6. No Joint Venture. Nothing contained in this Agreement (i)
shall constitu te the Administrator and either of the Issuer or the Owner
Trustee as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
Section 7. Other Activities of Administrator. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Owner
Trustee or the Indenture Trustee.
Section 8. Term of Agreement; Resignation and Removal of
Administrator.
(a) This Agreement shall continue in force until the dissolution of
the Issuer, upon which event this Agreement shall automatically terminate.
(b) Subject to Section 8(e), the Administrator may resign its duties
hereunder by providing the Issuer with at least 60 days' prior written notice.
(c) Subject to Section 8(e), the Issuer may remove the Administrator
without cause by providing the Administrator with at least 60 days' prior
written notice.
(d) Subject to Section 8(e), at the sole option of the Issuer, the
Administrator may be removed immediately upon written notice of termination from
the Issuer to the Administrator if any of the following events shall occur:
(i) the Administrator shall default in the performance of any of its
duties under this Agreement and, after notice of such default, shall not cure
such default within ten days (or, if such default cannot be cured in such time,
shall not give within ten days such assurance of cure as shall be reasonably
satisfactory to the Issuer);
(ii) a court having jurisdiction in the premises shall enter a decree
or order for relief, decree or order shall not have been vacated within 60 days,
in respect of the Administrator in any involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect or
appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar officially for the Administrator or any substantial part of its property
or order the winding-up or liquidation of its affairs; or
(iii) the Administrator shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar official for
the Administrator or any substantial part of its property, shall consent to the
taking of possession by any such official of any substantial part of its
property, shall make any general assignment for the benefit of creditors or
shall fail generally to pay its debts as they become due.
The Administrator agrees that if any of the events specified in
clauses (ii) or (iii) of this Section shall occur, it shall give written notice
thereof to the Issuer and the Indenture Trustee within seven days after the
happening of such event.
(e) No resignation or removal of the Administrator pursuant to this
Section shall be effective until (i) a successor Administrator shall have been
appointed by the Issuer and (ii) such successor Administrator shall have agreed
in writing to be bound by the terms of this Agreement in the same manner as the
Administrator is bound hereunder.
(f) The appointment of any successor Administrator shall be effective
only after satisfaction of the Rating Agency Condition with respect to the
proposed appointment.
(g) Subject to Section 8(e) and 8(f), the Administrator acknowledges
that upon the appointment of a Successor Servicer pursuant to the Sale and
Servicing Agreement, the Administrator shall immediately resign and such
Successor Servicer shall automatically become the Administrator under this
Agreement.
Section 9. Action upon Termination, Resignation or Removal. Promptly
upon the effective date of termination of this Agreement pursuant to Section
8(a) or the resignation or removal of the Administrator pursuant to Section 8(b)
or (c), respectively, the Administrator shall be entitled to be paid all fees
and reimbursable expenses accruing to it to the date of such termination,
resignation or removal. The Administrator shall forthwith upon such termination
pursuant to Section 8(a) deliver to the Issuer all property and documents of or
relating to the Collateral then in the custody of the Administrator in the event
of the resignation or removal of the Administrator pursuant to Section 8(b) or
(c), respectively, the Administrator shall cooperate with the Issuer and take
all reasonable steps requested to assist the Issuer in making an orderly
transfer of the duties of the Administrator.
Section 10. Notices. Any notice, report or other communication given
hereunder shall be in writing and addressed as follows:
(a) if to the Issuer or the Owner Trustee, to
PREFERRED CREDIT OWNER TRUST 199_
In care of [Wilmington Trust Company]
___________________________
Attention: ________________
(b) if to the Administrator, to
PREFERRED CREDIT CORPORATION
3347 Michelson Drive, Suite 400
Irvine, California 92012
Attention: ________________
(c) if to the Indenture Trustee, to [Bankers Trust Company]
___________________________
___________________________
Attention: ________________
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand delivered
to the address of such party as provided above.
Section 11. Amendments. This Agreement may be amended from time to
time by a written amendment duly executed and delivered by the Issuer, the
Administrator and the Indenture Trustee, with the written consent of the Owner
Trustee, without the consent of the Noteholders and the Certificateholders, 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 Certificateholders; provided that such amendment
will not, in the Opinion of Counsel satisfactory to the Indenture Trustee,
materially and adversely affect the interest of any Noteholder or
Certificateholder. This Agreement may also be amended by the Issuer, the
Administrator and the Indenture Trustee with the written consent of the Owner
Trustee and the holders of Notes evidencing at least a majority in the
Outstanding Amount of the Notes and the holders of Certificates evidencing at
least a majority of the Certificate Balance 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 Noteholders or the
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments in respect of the Home Loans or distributions that are
required to be made for the benefit of the Noteholders or Certificateholders or
(ii) reduce the aforesaid percentage of the holders of Notes and Certificates
which are required to consent to any such amendment, without the consent of the
holders of all the outstanding Notes and Certificates. Notwithstanding the
foregoing the Administrator may not amend this Agreement without the permission
of the Company, which permission shall not be unreasonably withheld.
Section 12. Successor and Assigns. This Agreement may not be assigned
by the Administrator unless such assignment is previously consented to in
writing by the Issuer and the Owner Trustee and subject to the satisfaction of
the Rating Agency Condition in respect thereof. An assignment with such consent
and satisfaction, if accepted by the assignee, shall bind the assignee hereunder
in the same manner as the Administrator is bound hereunder. Notwithstanding the
foregoing, this Agreement may be assigned by the Administrator without the
consent of the Issuer or the Owner Trustee to a corporation or other
organization that is a successor (by merger, consolidation or purchase of
assets) to the Administrator, provided that such successor organization executes
and delivers to the Issuer, the Owner Trustee and the Indenture Trustee an
agreement in which such corporation or other organization agrees to be bound
hereunder by the terms of said assignment in the same manner as the
Administrator is bound hereunder. Subject to the foregoing, this Agreement shall
bind any successors or assigns of the parties hereto.
Section 13. GOVERNING LAW. THIS AGREEMENT 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.
Section 14. Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
Section 15. Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
Section 16. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall 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.
Section 17. Not Applicable to PREFERRED CREDIT CORPORATION in Other
Capacities. Nothing in this Agreement shall affect any obligation PREFERRED
CREDIT CORPORATION may have in any other capacity.
Section 18. Limitation of Liability of Owner Trustee and Indenture
Trustee.
(a) Notwithstanding anything contained herein to the contrary, this
instrument has been countersigned by [Wilmington Trust Company] not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall [Wilmington Trust Company] in its individual capacity or
any beneficial owner of the Issuer have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder,
as to all of which recourse shall be had solely to the assets of the Issuer. For
all purposes of this Agreement, 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 [Articles VI, VII and VIII] of the
Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by [Bankers Trust Company] not in its
individual capacity but solely as Indenture Trustee and in no event shall
[Bankers Trust Company] have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder or in any of
the certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
Section 19. Third-Party Beneficiary. The Owner Trustee is a
third-party beneficiary to this Agreement and is entitled to the rights and
benefits hereunder and may enforce the provisions hereof as if it were a party
hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
PREFERRED CREDIT LOAN OWNER TRUST 199_
By: [Wilmington Trust Company]
not in its individual capacity but
solely as Owner Trustee,
By: ____________________________
Name:
Title:
PREFERRED CREDIT CORPORATION
as Administrator,
By: ____________________________
Name:
Title:
[BANKERS TRUST COMPANY]
not in its individual capacity but
solely as Indenture Trustee
By: ____________________________
Name:
Title:
Exhibit 10.1
SALE AND SERVICING AGREEMENT
Dated as of [ ]
among
[PREFERRED CREDIT OWNER TRUST 199_-_]
(Issuer)
PREFERRED SECURITIZATION CORPORATION
(Seller)
ADVANTA MORTGAGE CORP. USA
(Servicer)
[PREFERRED CREDIT CORPORATION]
[Transferor]
and
[BANKER TRUST COMPANY]
(Indenture Trustee and Co-Owner Trustee)
PREFERRED CREDIT OWNER TRUST 199_-_
ASSET BACKED SECURITIES
SERIES 199_-_
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS................................................1
Section 1.01 Definitions...........................................1
Addition Notice...................................................1
Affiliated Holder.................................................1
Agreement.........................................................1
Assignment of Mortgage............................................2
Assumed Pool Principal Balance....................................2
Available Collection Amount.......................................2
Available Distribution Amount.....................................2
Business Day......................................................2
Capitalized Interest Account......................................2
Capitalized Interest Account Deposit..............................2
Capitalized Interest Account Requirement..........................2
Capitalized Interest Amount.......................................3
Capitalized Interest Excess.......................................3
Certificate(s)....................................................3
Certificate Distribution Account..................................3
Certificateholder.................................................3
Certificateholders' Distributable Amount..........................3
Certificateholders' Interest Carry-Forward Amount.................3
Certificateholders' Interest Distributable Amount.................3
Certificateholders' Monthly Interest Distributable Amount.........3
Certificateholders' Monthly Principal Distributable Amount........3
Certificateholders' Principal Distributable Amount................4
Certificateholders' Principal Carry-Forward Amount................4
Certificate Principal Balance.....................................4
Class.............................................................4
Class A-1 Note....................................................4
Class A-2 Note....................................................4
Class A-3 Note....................................................4
Class A-4 Note....................................................4
Class A-5 Note....................................................4
Class A-6 Note....................................................5
Class A-7 Note....................................................5
Class A-8 Note....................................................5
Class Pool Factor.................................................5
Class Principal Balance...........................................5
Closing Date......................................................5
Code..............................................................5
Collection Account................................................5
Completion Certificate............................................5
Co-Owner Trustee..................................................5
Credit Support Reduction Date.....................................5
Cut-Off Date......................................................6
Debt Instrument...................................................6
Defaulted Mortgage Loan...........................................6
Defective Mortgage Loan...........................................6
Deficiency Amount.................................................6
Delivery..........................................................6
Deleted Mortgage Loan.............................................7
Determination Date................................................8
Distribution Date.................................................8
DTC...............................................................8
Due Date..........................................................8
Due Period........................................................8
Eligible Account..................................................8
Eligible Servicer.................................................8
Event of Default..................................................8
Excess Overcollateralization Amount...............................8
Excess Reserve Account Amount.....................................8
Excess Spread.....................................................9
Expected Loan Losses..............................................9
FDIC..............................................................9
FHLMC.............................................................9
FICO Score........................................................9
Fidelity Bond.....................................................9
FNMA..............................................................9
Foreclosure Property..............................................9
Funding Period....................................................9
Guaranteed Payment................................................9
Guaranty Insurance Premium........................................9
Guaranty Policy...................................................9
HUD...............................................................9
Indenture........................................................10
Indenture Trustee................................................10
Indenture Trustee Fee............................................10
Indenture Trustee's Mortgage Loan File...........................10
Initial Overcollateralization Amount.............................10
Initial Mortgage Loan............................................10
Initial Pool Principal Balance...................................10
Insurance Agreement..............................................10
Insurance Proceeds...............................................10
Insured Securities...............................................10
Interest Distribution Amount.....................................11
Interest Shortfall...............................................11
Interest Shortfall Rate..........................................11
Interim Required Overcollateralization...........................11
Liquidated Mortgage Loan.........................................11
Liquidation Proceeds.............................................11
Loan Sale Agreement..............................................11
Majority Securityholders.........................................12
Monthly Payment..................................................12
Moody's..........................................................12
Mortgage.........................................................12
Home Improvement Loan............................................12
Mortgage Loan File...............................................12
Mortgage Loan Interest Rate......................................12
Mortgage Loan Pool...............................................12
Mortgage Loan Schedule...........................................12
Mortgaged Property...............................................12
Mortgaged Property States........................................13
Net Liquidation Proceeds.........................................13
Net Loan Losses..................................................13
Note(s)..........................................................13
Note Distribution Account........................................13
Noteholder.......................................................13
Noteholders' Distributable Amount................................14
Noteholders' Interest Carry-Forward Amount.......................14
Noteholders' Interest Distributable Amount.......................14
Noteholders' Monthly Interest Distributable Amount...............14
Noteholders' Monthly Principal Distributable Amount..............14
Noteholders' Principal Distributable Amount......................14
Noteholders' Principal Carry-Forward Amount......................15
Obligor..........................................................15
Officer's Certificate............................................15
Original Certificate Principal Balance...........................15
Original Class Principal Balance.................................16
Overcollateralization Amount.....................................16
Overcollateralization Reduction Amount...........................16
Overcollateralization Stepdown Date..............................16
Ownership Interest...............................................16
Owner Trustee....................................................16
Owner Trustee Fee................................................16
Pass-Through Rate................................................16
Percentage Interest..............................................16
Permitted Investments............................................16
Person...........................................................18
Physical Property................................................18
Pool Principal Balance...........................................18
Post Liquidation Proceeds........................................18
Preference Amount................................................18
Pre-Funded Amount................................................18
Pre-Funding Account..............................................18
Pre-Funding Account Deposit......................................19
Pre-Funding Account Weighted Average Balance.....................19
Pre-Funding Termination Distribution Date........................19
Principal Balance................................................19
Principal Prepayment.............................................19
Projected Interest Shortfall.....................................19
Prospectus.......................................................19
Purchase Price...................................................20
Qualified Substitute Mortgage Loan...............................20
Rating Agency or Rating Agencies.................................20
Ratings..........................................................20
Record Date......................................................20
Regular Principal Distribution Amount............................20
Released Mortgaged Property Proceeds.............................21
Required Credit Support Multiple.................................21
Required Distribution Amount.....................................22
Required Overcollateralization Amount............................22
Reserve Account..................................................23
Reserve Account Initial Deposit..................................23
Reserve Account Requirement......................................23
Residual Interest................................................23
Reserve Account Withdrawal Amount................................23
Responsible Officer..............................................23
Secured Mortgage Loan............................................24
Securities.......................................................24
[Securities Insurer].............................................24
[Securities Insurer] Commitment..................................24
[Securities Insurer] Default.....................................24
[Securities Insurer] Reimbursement Amount........................24
Securityholder...................................................24
Seller...........................................................24
Series or Series 1996_-_.........................................24
Servicer.........................................................24
Servicer's Fiscal Year...........................................24
Servicer's Mortgage Loan Files...................................24
Servicer's Monthly Remittance Report.............................25
Servicer's Monthly Statement.....................................25
Servicing Advances...............................................25
Servicing Advance Reimbursement Amount...........................25
Servicing Compensation...........................................25
Servicing Fee....................................................25
Servicing Officer................................................25
Standard & Poor's................................................25
Subsequent Mortgage Loan.........................................25
Subsequent Purchase Price........................................26
Subsequent Transfer Agreement....................................26
Subsequent Transfer Date.........................................26
Subservicer......................................................26
Subservicing Account.............................................26
Subservicing Agreement...........................................26
Substitution Adjustment..........................................26
Superior Lien....................................................26
Termination Price................................................26
Transferor.......................................................27
Trust............................................................27
Trust Account Property...........................................27
Trust Accounts...................................................27
Trust Agreement..................................................27
Trust Estate.....................................................27
Trust Fees and Expenses..........................................27
Weighted Average Interest Rate...................................28
Section 1.02 Other Definitional Provisions........................29
ARTICLE II. CONVEYANCE OF THE MORTGAGE LOANS.........................30
Section 2.01 Conveyance of the Initial Mortgage Loans.............30
Section 2.02 Conveyance of the Subsequent Mortgage Loans..........30
Section 2.03 Ownership and Possession of Mortgage Loan Files......33
Section 2.04 Books and Records....................................33
Section 2.05 Delivery of Mortgage Loan Documents..................33
Section 2.06 Acceptance by Indenture Trustee of the Mortgage Loans;
Certain Substitutions; Initial Certification
by Custodian..........................................36
ARTICLE III. REPRESENTATIONS AND WARRANTIES...........................38
Section 3.01 Representations and Warranties of the Seller..........38
Section 3.02 Representations, Warranties and Covenants of
the Servicer..........................................40
Section 3.03 Individual Mortgage Loans.............................42
Section 3.04 Subsequent Mortgage Loans.............................49
Section 3.05 Purchase and Substitution.............................50
ARTICLE IV. ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS........53
Section 4.01 Duties of the Servicer................................53
Section 4.02 Liquidation of Mortgage Loans.........................55
Section 4.03 Fidelity Bond; Errors and Omission Insurance..........55
Section 4.04 Title, Management and Disposition of
Foreclosure Property..................................56
Section 4.05 Access to Certain Documentation and Information
Regarding the Mortgage Loans..........................57
Section 4.06 Superior Liens........................................57
Section 4.07 Subservicing..........................................57
Section 4.08 Successor Servicers...................................59
ARTICLE V. ESTABLISHMENT OF TRUST ACCOUNTS............................59
Section 5.01 Collection Account and Note Distribution Account......59
Section 5.02 Claims Under Guaranty Policy..........................63
Section 5.03 Pre-Funding Account...................................64
Section 5.04 Capitalized Interest Account..........................65
Section 5.05 [Reserved..............................................66
Section 5.06 Certificate Distribution Account.......................66
Section 5.07 Reserve Account.......................................68
Section 5.08 Trust Accounts; Trust Account Property.................69
Section 5.09 Allocation of Losses..................................72
ARTICLE VI. STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS......73
Section 6.01 Statements............................................73
Section 6.02 Reports of Foreclosure and Abandonment of
Mortgaged Property....................................76
Section 6.03 Specification of Certain Tax Matters..................76
ARTICLE VII. GENERAL SERVICING PROCEDURE..............................77
Section 7.01 Assumption Agreements.................................77
Section 7.02 Satisfaction of Mortgages and Release of Mortgage
Loan Files..............,.............................78
Section 7.03 Servicing Compensation................................79
Section 7.04 Quarterly Statements as to Compliance.................80
Section 7.05 Annual Independent Public Accountants'
Servicing Report......................................80
Section 7.06 Right to Examine Servicer Records.....................81
Section 7.07 Reports to the Indenture Trustee; Collection
Account Statements....................................81
ARTICLE VIII. REPORTS TO BE PROVIDED BY SERVICER......................81
Section 8.01 Financial Statements..................................81
ARTICLE IX. THE SERVICER..............................................82
Section 9.01 Indemnification; Third Party Claims...................82
Section 9.02 Merger or Consolidation of the Servicer...............83
Section 9.03 Limitation on Liability of the Servicer and Others....84
Section 9.04 Servicer Not to Resign; Assignment....................84
Section 9.05 Relationship of Servicer to Issuer and the
Indenture Trustee.....................................85
ARTICLE X. DEFAULT....................................................85
Section 10.01 Events of Default....................................85
Section 10.02 Indenture Trustee to Act; Appointment of Successor...87
Section 10.03 Waiver of Defaults...................................88
Section 10.04 Accounting Upon Termination of Servicer..............89
ARTICLE XI. TERMINATION...............................................89
Section 11.01 Termination..........................................89
Section 11.02 Optional Termination by Affiliated Holder
or the [Securities Insurer]..........................90
Section 11.03 Notice of Termination................................90
ARTICLE XII. MISCELLANEOUS PROVISIONS.................................91
Section 12.01 Acts of Securityholders..............................91
Section 12.02 Amendment............................................91
Section 12.03 Recordation of Agreement.............................92
Section 12.04 Duration of Agreement................................92
Section 12.05 Governing Law........................................92
Section 12.06 Notices..............................................92
Section 12.07 Severability of Provisions...........................93
Section 12.08 No Partnership.......................................93
Section 12.09 Counterparts.........................................93
Section 12.10 Successors and Assigns...............................93
Section 12.11 Headings.............................................94
Section 12.12 Actions of Securityholders...........................94
Section 12.13 Reports to Rating Agencies...........................94
Section 12.14 Grant of Securityholder Rights to
[Securities Insurer].................................95
Section 12.15 Third Party Beneficiary..............................95
Section 12.16 Suspension and Termination of
[Securities Insurer]'s Rights........................95
EXHIBITS
EXHIBIT A Mortgage Loan Schedule
EXHIBIT B Form of Servicer's Monthly Remittance Report to Trustee
EXHIBIT C Contents of Mortgage Loan File
EXHIBIT D Form of Subsequent Transfer Agreement
<PAGE>
This Sale and Servicing Agreement is entered into effective as of [ ],
among Preferred Credit Owner Trust 199_-_, a Delaware business trust (the
"Issuer" or the "Trust"), PREFERRED SECURITIZATION CORPORATION, a Delaware
corporation, as Seller (the "Seller") (the "Servicer"), ADVANTA MORTGAGE CORP.
USA, a Delaware corporation ("Advanta"), as servicer Preferred Credit
Corporation a California corporation as transferor (the "Transferor") and
[Banker Trust Company,] a national banking association, as Indenture Trustee on
behalf of the Noteholders (in such capacity, the "Indenture Trustee") and as
Co-Owner Trustee on behalf of the Certificateholders (in such capacity, the
"Co-Owner Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Mortgage Loans which
were originated or purchased by the Transferor and sold to the Seller in the
ordinary course of business of the Transferor;
WHEREAS, the Seller is willing to sell such Mortgage Loans to the
Issuer; and
WHEREAS, the Servicer is willing to service such Mortgage 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
Section 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Addition Notice: With respect to the transfer of Subsequent Mortgage
Loans to the Trust pursuant to Section 2.02 of this Agreement, notice of the
Seller's designation of Subsequent Mortgage Loans to be sold to the Issuer and
the aggregate Principal Balance of such Subsequent Mortgage Loans as of the
related Cut-Off Date, which shall be given to the Indenture Trustee [and to the
[Securities Insurer]] not later than three Business Days prior to the related
Subsequent Transfer Date.
Affiliated Holder: PREFERRED MORTGAGE SPC FUNDING CORP., a Delaware
corporation, as the holder of approximately 1% of the Percentage Interest of the
Residual Interest and approximately 1% of the Original Certificate Principal
Balance of the Certificates.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Assignment of Mortgage: With respect to each Mortgage Loan secured by
a Mortgage, an assignment, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the related Mortgage Loan
to the Issuer for the benefit of the Securityholders [and the [Securities
Insurer]].
Assumed Pool Principal Balance: On the Closing Date, the amount equal
to the sum of the Initial Pool Principal Balance, plus the Pre-Funding Account
Deposit, which amount is $-----------.
Available Collection Amount: An amount equal to the sum of: (i) all
amounts received on the Mortgage Loans or required to be paid by the Servicer,
the Transferor or the Seller during the related Due Period (exclusive of amounts
not required to be deposited in the Collection Account and amounts permitted to
be withdrawn by the Indenture Trustee from the Collection Account pursuant to
Section 5.01(d) of this Agreement) as reduced by any portion thereof that may
not be withdrawn therefrom pursuant to an order of a United States bankruptcy
court of competent jurisdiction imposing a stay pursuant to Section 362 of the
United States Bankruptcy Code; (ii) in the case of a Distribution Date relating
to a Due Period that occurs prior to the end of the Funding Period, an amount
from the Capitalized Interest Account sufficient to fund any shortfall in the
Interest Distribution Amount attributable to the amounts in the Pre-Funding
Account; (iii) in the case of the Pre-Funding Termination Distribution Date,
amounts, if any, remaining in the Pre-Funding Account at the end of the Funding
Period (net of reinvestment income, which shall be transferred to the
Capitalized Interest Account); (iv) with respect to the final Distribution Date
or an early redemption or termination of the Offered Securities pursuant to
Section 11.02, the Termination Price, and (v) any and all income or gain from
investments in the Collection Account.
Available Distribution Amount: The amount deposited in the Note
Distribution Account pursuant to Section 5.01(b)(2).
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a
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 are authorized or obligated by law or executive order to be closed.
Capitalized Interest Account: The account established pursuant to
Section 5.04, which account shall contain the Capitalized Interest Amount.
Capitalized Interest Account Deposit: An amount equal to
[$______________.]
Capitalized Interest Account Requirement: On the Closing Date, the
Capitalized Interest Account Requirement will equal the Capitalized Interest
Account Deposit. Thereafter, as determined by the Servicer pursuant to Section
5.04 on any Business Day prior to [ ], the Capitalized Interest Account
Requirement will equal the Projected Interest Shortfall.
Capitalized Interest Amount: The amount on deposit in the Capitalized
Interest Account as of any date of determination, after giving effect to (i)
amounts to be transferred to the Note Distribution Account for distribution on
the next Distribution Date pursuant to Section 5.04(a), (ii) amounts released to
the holders of Residual Interest pursuant to Section 5.04(d), and (iii) any
income and gain, if any, on funds held in the Capitalized Interest Account and
any income and gain, if any, transferred to the Capitalized Interest Account
from funds held in the Pre-Funding Account pursuant to Section 5.03.
Capitalized Interest Excess: As determined by the Servicer pursuant to
Section 5.04, the amount of excess funds on deposit in the Capitalized Interest
Account; on any Business Day occurring prior to [ ], the Capitalized Interest
Excess shall equal the greater of (i) zero and (ii) the Capitalized Interest
Amount less the Capitalized Interest Account Requirement.
Certificate(s): Any one or more Certificate(s) issued pursuant to the
Trust Agreement.
Certificate Distribution Account: The Account established and
maintained pursuant to Section 5.06.
Certificateholder: A holder of any Certificate.
Certificateholders' Distributable Amount: With respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
Certificateholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carry-Forward Amount on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date.
Certificateholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carry-Forward Amount for such Distribution Date.
Certificateholders' Monthly Interest Distributable Amount: With
respect to any Distribution Date and the Certificates, thirty (30) days' accrued
interest at the Pass Through Rate on the Certificate Principal Balance
immediately preceding such Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date), after giving effect to all payments
allocable to the reduction of the Certificate Principal Balance made on or prior
to such immediately preceding Distribution Date.
Certificateholders' Monthly Principal Distributable Amount: With
respect to any Distribution Date prior to the Distribution Date on which the
Notes are paid in full, zero; and with respect to any Distribution Date
commencing on the Distribution Date on which the Notes are paid in full, the sum
of (i) the Regular Principal Distribution Amount (less, on the Distribution Date
on which the Notes are paid in full, any portion thereof payable on the Notes),
plus (ii) for each Distribution Date for which the related Due Period occurred
during the Funding Period and for each Distribution Date thereafter if the
Overcollateralization Amount is less than the Required Overcollateralization
Amount, the Excess Spread, if any.
Certificateholders' Principal Distributable Amount: With respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carry-Forward Amount as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Principal Balance. In addition, on the
Final Scheduled Distribution Date, the principal required to be distributed to
Certificateholders shall not be less than the amount that is necessary (after
giving effect to the other amounts to be deposited in the Certificate
Distribution Account on such Distribution Date and allocable to principal) to
reduce the Certificate Principal Balance to zero.
Certificateholders' Principal Carry-Forward Amount: As of the close of
any Distribution Date, the excess of the (A) Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carry-Forward Amount from the preceding Distribution Date, over (B) the amount
in respect of principal that is actually deposited in the Certificate
Distribution Account.
Certificate Principal Balance: As of any date of determination, the
Original Certificate Principal Balance of the Certificates reduced by all
amounts previously distributed to the Certificateholders in reduction of the
Certificate Principal Balance of the Certificates on all previous Distribution
Dates pursuant Section 5.06 hereof.
Class: With respect to the Notes, all Notes bearing the same class
designation, and with respect to the Certificates, the Certificates.
Class A-1 Note: Any Class A-1 Note in the form attached to the
Indenture as Exhibit A-1.
Class A-2 Note: Any Class A-2 Note in the form attached to the
Indenture as Exhibit A-2.
Class A-3 Note: Any Class A-3 Note in the form attached to the
Indenture as Exhibit A-3.
Class A-4 Note: Any Class A-4 Note in the form attached to the
Indenture as Exhibit A-4.
Class A-5 Note: Any Class A-5 Note in the form attached to the
Indenture as Exhibit A-5.
Class A-6 Note: Any Class A-6 Note in the form attached to the
Indenture as Exhibit A-6.
Class A-7 Note: Any Class A-7 Note in the form attached to the
Indenture as Exhibit A-7.
Class A-8 Note: Any Class A-8 Note in the form attached to the
Indenture as Exhibit A-8.
Class Pool Factor: With respect to each Class of Notes and as of any
date of determination, the then applicable Class Principal Balance of the
respective Class of Notes divided by the Original Class Principal Balance of
such Class. With respect to the Certificates and as of any date of
determination, the then applicable Certificate Principal Balance of the
respective Certificates divided by the Original Certificate Principal Balance of
the Certificates.
Class Principal Balance: With respect to each Class of Notes and as 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 the applicable provisions of Section 8.2(c), of the Indenture
providing for the distribution of principal to the Noteholders.
Closing Date: [ ].
Code: The Internal Revenue Code of 1986, as amended from time to time,
and Treasury Regulations promulgated thereunder.
Collection Account: The account established and maintained by the
Servicer in accordance with Section 5.01.
Completion Certificate: With respect to certain Mortgage Improvement
Loans, a certificate executed by the related Obligor wherein such Obligor states
the related contractor or seller of the property improvement has completed to
such Obligor's satisfaction the improvements for which the related Mortgage Loan
was obtained.
Co-Owner Trustee: [Bankers Trust Company,] a national banking
association, in its capacity as the Co-Owner Trustee under the Trust Agreement
acting on behalf of the Certificateholders, or any successor co-owner trustee
under the Trust Agreement.
Credit Support Reduction Date: The Distribution Date occurring on the
later of: (i) the thirty-sixth (36th) Distribution Date; or (ii) the
Distribution Date on which the Pool Principal Balance is equal to or less than
fifty percent (50%) of the aggregate Principal Balances as of the applicable
Cut-Off Dates of all the Mortgage Loans.
Cut-Off Date: With respect to the Initial Mortgage Loans, the close of
business on [ ] and with respect to each Subsequent Mortgage Loan, the close of
business on the date specified as such in the applicable Subsequent Transfer
Agreement.
Debt Instrument: The note or other evidence of indebtedness evidencing
the indebtedness of an Obligor under a Mortgage Loan.
Defaulted Mortgage Loan: With respect to the calculation of the
Required Credit Support Multiple, or the waiver or modification of a Mortgage
Loan pursuant to Section 4.01(c), during a Due Period, any Mortgage Loan,
including without limitation any Liquidated Mortgage Loan, with respect to which
any of the following occurs: (a) foreclosure or similar proceedings have been
commenced; (b) any portion of a Monthly Payment becomes 180 days past due by the
related Obligor; or (c) the Servicer or any Subservicer has determined in good
faith and in accordance with customary servicing practices that such Mortgage
Loan is uncollectible; provided, further, that with respect to a Defaulted
Mortgage Loan that is repurchased or substituted pursuant to Section 3.05 or a
Defaulted Mortgage Loan that is modified, waived or varied pursuant to Section
4.01(c), such Defaulted Mortgage Loan shall continue to be included in the
calculation of the Required Credit Support Multiple.
Defective Mortgage Loan: As defined in Section 3.05 hereof.
Deficiency Amount: As of any Distribution Date, the amount by which
the Interest Distribution Amount for the Notes and the Certificates and the
Regular Distribution Amount payable on the related Security on such Distribution
Date exceeds the Available Collection Amount (less the Trust Fees and Expenses),
plus all amounts on deposit in the Reserve Account in respect of the Securities.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105(1)(i) of
the UCC and are susceptible of physical delivery, transfer thereof to
the Indenture Trustee or its nominee by physical delivery to the
Indenture Trustee or its nominee endorsed to, or registered in the
name of, the Indenture Trustee or its nominee 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 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 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 (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 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 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 (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; 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,
consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury, the
Federal Mortgage Loan Mortgage Corporation or by the Federal National
Mortgage Association 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 of the
purchase by the Indenture Trustee or its nominee 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 and
indicating that such Indenture Trustee holds such Trust Account
Property solely as agent for the Indenture Trustee or its nominee; 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, 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 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.
Deleted Mortgage Loan: A Mortgage Loan replaced by or to be replaced
by a Qualified Substitute Mortgage Loan pursuant to Section 3.05 or 2.06(c)
hereof.
Determination Date: The day of each month which is five (5) Business
Days prior to the related 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 [ ].
[DTC: The Depository Trust Company.]
Due Date: The day of the month on which the Monthly Payment is due
from the Obligor on a Mortgage Loan.
Due Period: With respect to each Distribution Date, the calendar month
immediately preceding the month in which such Distribution Date occurs with the
first Due Period commencing on [ ].
Eligible Account: At any time, an account which is any of the
following: (i) an account maintained with a depository institution (A) the
long-term debt obligations of which are at such time rated by each Rating Agency
in one of their two highest long-term rating categories, or (B) the short-term
debt obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) an account or accounts the deposits in which
are fully insured by either the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC; (iii) a trust account (which shall be a "segregated
trust account") maintained with the corporate trust department of a federal or
state chartered depository institution or trust company with trust powers and
acting in its fiduciary capacity for the benefit of the Indenture Trustee and
the Issuer, which depository institution or trust company shall have capital and
surplus of not less than $50,000,000; or (iv) an account that will not cause any
Rating Agency to downgrade or withdraw its then-current rating(s) assigned to
the Notes or the Certificates, as evidenced in writing by such Rating Agency.
(Each reference in this definition of "Eligible Account" to the Rating Agency
shall be construed as a reference to Standard & Poor's and Moody's.)
Eligible Servicer: A Person who is qualified to act as Servicer of the
Mortgage Loans under applicable federal and state laws and regulations.
Event of Default: As described in Section 10.01 hereof.
Excess Overcollateralization Amount: As calculated with respect to any
Distribution Date occurring after the Funding Period ends, the excess of, if
any, (x) the Overcollateralization Amount on such Distribution Date over (y) the
Required Overcollateralization Amount on such Distribution Date (after all
distributions for such Distribution Date have been made but excluding any
distributions of the Overcollateralization Reduction Amounts for such
Distribution Date).
Excess Reserve Account Amount: As defined in Section 5.07(c).
Excess Spread: With respect to any Distribution Date, as determined in
accordance with Section 5.01(c) an amount equal to the portion, if any, of the
Available Collection Amount for the related Due Period that remains after
payment of (a) the Trust Fees and Expenses; (b) the Noteholders' Interest
Distributable Amount; (c) the Regular Principal Distribution Amount; (d) the
Certificateholders' Interest Distributable Amount; (e) the [Securities Insurer]
Reimbursement Amount; and (f) the Servicing Advance Reimbursement Amount.
Expected Loan Losses: As defined in Section 10.01(a)(vii).
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: The Federal Mortgage Loan Mortgage Corporation and any
successor thereto.
FICO Score: The credit evaluation scoring methodology developed by
Fair, Issac and Company.
Fidelity Bond: As described in Section 4.03 hereof.
FNMA: The Federal National Mortgage Association and any successor
thereto.
Foreclosure Property: Any real property or personal property securing
a Mortgage Loan that has been acquired by the Servicer through foreclosure, deed
in lieu of foreclosure or similar proceedings in respect of the related Mortgage
Loan.
Funding Period: The period beginning on the Closing Date and ending on
the earlier of (a) the date on which the amount on deposit in the Pre-Funding
Account is reduced below $25,000 and the Transferor directs that the Funding
Period end, (b) the close of business on [ ;] provided, however, that the
Funding Period shall end upon the occurrence of an Event of Default.
[Guaranteed 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.]
[Guaranty Insurance 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].
[Guaranty Policy. That certain guaranty insurance policy for the
Offered Securities, [number _________ dated ,] and issued by the [Securities
Insurer] to the Indenture Trustee and guaranteeing payment of any Guaranteed
Payment.]
HUD: The United States Department of Housing and Urban Development and
any successor thereto.
Indenture: The Indenture, dated as of [ ,] between the Issuer and the
Indenture Trustee.
Indenture Trustee: [Banker Trust Company,] a national banking
association, as Indenture Trustee under the Indenture and this Agreement acting
on behalf of the Noteholders, or any successor indenture trustee under the
Indenture or this Agreement.
Indenture Trustee Fee: The annual fee payable to the Indenture
Trustee, calculated and payable monthly on each Distribution Date, equal to the
per annum percentage (as set forth in the Indenture Trustee Fee Agreement) the
Pool Principal Balance as of the immediately preceding Determination Date,
except with respect to the first Distribution Date such monthly amount shall be
pro rated based on four (4) days for the first Due Period.
Indenture Trustee's Mortgage Loan File: As defined in Section 2.05(d).
Initial Overcollateralization Amount: Zero.
Initial Mortgage Loan: An individual Mortgage 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 [ ] Cutoff Date, the Initial Mortgage Loans subject
to this Agreement being identified on the Mortgage Loan Schedule annexed hereto
as Exhibit A.
Initial Pool Principal Balance: [$ ,] which is the Pool Principal
Balance as of the [ ]Cut-Off Date.
[Insurance Agreement: The Insurance and Indemnification Agreement,
dated as of [ ,] between the [Securities Insurer], as [Securities Insurer], the
Servicer as Servicer, the Transferor, as Transferor, the Seller, as Seller, the
Issuer, as Trust, the Affiliated Holder, as Affiliated Holder, and the Indenture
Trustee, as Indenture Trustee and Co-Owner Trustee.]
Insurance Proceeds: With respect to any Mortgage Loan, the proceeds
paid to the Servicer by any insurer pursuant to any insurance policy covering a
Mortgage Loan, Mortgaged Property or Foreclosure Property or any other insurance
policy that relates to a Mortgage Loan, net of any expenses which are incurred
by the Servicer in connection with the collection of such proceeds and not
otherwise reimbursed to the Servicer, other than Guaranteed Payments and
proceeds of any insurance policy that are to be applied to the restoration or
repair of the Mortgaged Property or released to the Obligor in accordance with
customary mortgage loan servicing procedures applicable to the respective loan
type, including Home Improvement Loans.
[Insured Securities: Each of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes, the Class A-5 Notes, the Class A-6
Notes, the Class A-7 Notes, the Class A-8 Notes and the Certificates].
Interest Distribution Amount: On any Distribution Date, the sum of the
Noteholders' Interest Distributable Amount for each Class of Notes and the
Certificateholders' Interest Distributable Amount for such Distribution Date.
Interest Shortfall: As to any Distribution Date prior to the end of
the Funding Period, the amount of the shortfall in interest on the Securities
arising as a result of the utilization of the Pre- Funding Account for the
purchase by the Issuer of Subsequent Mortgage Loans after the Closing Date. With
respect to the [ ] Distribution Date, the Interest Shortfall is equal to thirty
(30) days' interest on the Pre-Funding Account Deposit computed at a per annum
rate equal to the Weighted Average Interest Rate, based on the respective Class
Principal Balances on the Closing Date. With respect to the [_______________,]
[_________________] and [_______________] Distribution Dates, the Interest
Shortfall will be equal to 30 days' interest on the average daily balance in the
Pre-Funding Account (net of interest and investment earnings) during the related
Due Period, computed at a per annum rate equal to the Weighted Average Interest
Rate as of the immediately preceding Distribution Date (after distributions).
Interest Shortfall Rate: The per annum rate equal to ___________%.
Interim Required Overcollateralization: means an amount equal to __%
of the aggregate Principal Balances as of the applicable Cut-Off Dates of the
Mortgage Loans.
Liquidated Mortgage Loan: Any Mortgage Loan or Foreclosure Property in
respect of a Mortgage Loan on which a Monthly Payment is in excess of 30 days
past due and as to which the Servicer has determined that all amounts which it
reasonably and in good faith expects to collect have been recovered from or on
account of such defaulted Mortgage Loan or the related Foreclosure Property;
provided that, in any event, such defaulted Mortgage Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore deemed a
Liquidated Mortgage Loan upon the earlier of: (a) the liquidation of the related
Foreclosure Property, (b) the determination by the Servicer in accordance with
customary servicing practices that no further amounts are collectible from the
Mortgage Loan and any related Mortgaged Property, or (c) the date on which any
portion of a Monthly Payment on any Mortgage Loan is in excess of 300 days past
due.
Liquidation Proceeds: With respect to a Liquidated Mortgage Loan, any
cash amounts received in connection with the liquidation of such Liquidated
Mortgage Loan, whether through trustee's sale, foreclosure sale or other
disposition, and any other amounts required to be deposited in the Collection
Account pursuant to Section 4.02 or 4.04, in each case other than Insurance
Proceeds and Released Mortgaged Property Proceeds.
Loan Sale Agreement: Individually or collectively, as the context in
which this term is used may require, any or all of the following: (i) the loan
sale agreement between the Transferor, as seller, and the Seller, as purchaser,
pursuant to which the Seller has acquired any of the Mortgage Loans; and (ii)
each loan sale agreement entered into by the Transferor, as purchaser, pursuant
to which the Transferor has acquired any of the Mortgage Loans and which shall
include all of the rights and benefits of the Transferor thereunder with respect
to such Mortgage Loans, subject to any limitations thereunder regarding
assignment by the Transferor.
Majority Securityholders: Subject to Section 12.14, (i) until such
time as the sum of the Class Principal Balances of all Classes of Notes have
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 Certificate Principal Balance of the Certificates.
Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by an Obligor on the related Mortgage Loan, as set
forth in the related Debt Instrument.
Moody's: Moody's Investors Service, Inc. or any successor thereto.
Mortgage: If applicable, the mortgage, deed of trust or other security
instrument creating a lien in accordance with applicable law on a Mortgaged
Property to secure the Debt Instrument which evidences a secured Mortgage Loan.
Mortgage Loan: A Mortgage Loan, the net proceeds of which were or will
be used by the Obligor to finance property improvements.
Mortgage Loan File: As defined in Section 2.05.
Mortgage Loan Interest Rate: The fixed annual rate of interest borne
by a Debt Instrument, as shown on the related Mortgage Loan Schedule.
Mortgage Loan Pool: The pool of Initial Mortgage Loans and Subsequent
Mortgage Loans.
Mortgage Loan Schedule: The schedule of Initial Mortgage Loans
attached hereto as Exhibit A, as amended or supplemented from time to time,
including any schedules of Subsequent Mortgage Loans attached as exhibits to any
Subsequent Transfer Agreement, such schedules identifying each Mortgage Loan by
address of the related Mortgaged Property, if any, and the name(s) of each
Obligor and setting forth as to each Mortgage Loan the following information:
(i) the Principal Balance as of the applicable Cut-Off Date, (ii) the account
number, (iii) the original principal amount, (iv) the Due Date, (v) the Mortgage
Loan Interest Rate, (vi) the first date on which a Monthly Payment is due under
the related Note, (vii) the Monthly Payment, (viii) the maturity date of the
related Debt Instrument, and (ix) the remaining number of months to maturity as
of the applicable Cut-Off Date.
Mortgaged Property: If applicable, the property (real, personal or
mixed) encumbered by the Mortgage which secures the Debt Instrument evidencing a
secured Mortgage Loan.
Mortgaged Property States: Each state in which any Mortgaged Property
securing an Initial Mortgage Loan is located as set forth in the Mortgage Loan
Schedule, any other state wherein a Mortgaged Property securing any Subsequent
Mortgage Loan may be located as set forth in the applicable Mortgage Loan
Schedule, and in the case of an unsecured Mortgage Loan the principal residence
of the Obligor.
Net Liquidation Proceeds: Liquidation Proceeds net of any
reimbursements to the Servicer made therefrom for any unreimbursed Servicing
Advances made and any other fees and expenses paid in connection with the
foreclosure, conservation and liquidation of the related Mortgage Loan or
Foreclosure Property pursuant to Sections 4.02 and 4.04 hereof.
Net Loan Losses: On each Distribution Date, the sum of (A) with
respect to the Mortgage Loans that become Liquidated Mortgage Loans during the
immediately preceding Due Period, an amount (but not less than zero) determined
as of the related Determination Date equal to:
(i) the aggregate uncollected Principal Balances of such Liquidated
Mortgage Loans as of the last day of such Due Period and without the
application of any amounts included in clause (ii) below, minus
(ii) the aggregate amount of any recoveries attributable to
principal from whatever source received during any Due Period, with
respect to such Liquidated Mortgage Loans, including any subsequent
Due Period, and including without limitation any Net Liquidation
Proceeds, any Insurance Proceeds, any Released Mortgaged Property
Proceeds, any payments from the related Obligor and any payments made
pursuant to Section 3.05 less the amount of any expenses incurred in
connection with such recoveries; and (B) with respect to any Defaulted
Mortgage Loan that is subject to a modification by the Servicer, an
amount equal to the portion of the Principal Balance, if any, released
in connection with such modification
provided, however, that for purposes of determining the Required Credit Support
Multiple, all of the preceding references to "Liquidated Mortgage Loans" shall
be replaced with "Defaulted Mortgage Loans".
Note(s): One or more of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class A-5 Notes, the Class A-6 Notes,
the Class A-7 Notes or the Class A-8 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, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, the excess of (A) the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Noteholders' Interest Carry-Forward Amount on such preceding Distribution Date,
over (B) the amount in respect of interest that is actually deposited in the
Note Distribution Account on such preceding Distribution Date.
Noteholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carry-Forward
Amount for such Distribution Date.
Noteholders' Monthly Interest Distributable Amount: With respect to
each Distribution Date and each Class of Notes, the aggregate 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 such Distribution Date.
Noteholders' Monthly Principal Distributable Amount: With respect to
each Distribution Date, the sum of (i) the Regular Principal Distribution
Amount, plus (ii) for each Distribution Date for which the related Due Period
occurred during the Funding Period and for each Distribution Date thereafter if
the Overcollateralization Amount is less than the Required Overcollateralization
Amount, the Excess Spread, if any, plus (iii) if the remaining amount in the
Pre-Funding Account at the end of the Funding Period is less than or equal to
$50,000, then such remaining amount.
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 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; (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; (v) the Noteholders' Principal
Distributable Amount on the Class A-5 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-5 Notes to zero; (vi) the Noteholders' Principal
Distribution Amount on the Class A-6 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-6 Notes to zero; (vii) the Noteholders' Principal Distributable Amount
on the Class A-7 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-7
Notes to zero; and (viii) the Noteholders' Principal Distributable Amount on the
Class A-8 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-8 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 Date, over (B) the amount in respect of
principal that is actually deposited in the Note Distribution Account.
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 _____%; the Note
Interest Rate with respect to the Class A-2 Notes is equal to ____%; the Note
Interest Rate with respect to the Class A-3 Notes is equal to _____%; the Note
Interest Rate with respect to the Class A-4 Notes is equal to ____%; the Note
Interest Rate with respect to the Class A-5 Notes is equal to ____%; the Note
Interest Rate with respect to the Class A-6 Notes is equal to ____%; the Note
Interest Rate with respect to the Class A-7 Notes is equal to ____%; and the
Note Interest Rate with respect to the Class A-8 Notes is equal to ____%.
Obligor: Each obligor on a Debt Instrument.
Officer's Certificate: A certificate delivered to the Indenture
Trustee or the Issuer signed by the President or a Vice President or an
Assistant Vice President of the Seller, the Servicer or the Transferor, in each
case, as required by this Agreement.
Original Certificate Principal Balance: _____________.
Original Class Principal Balance: In the case of the Class A-1 Notes,
[$_____________;] in the case of the Class A-2 Notes, [$_____________;] in the
case of the Class A-3 Notes, [$____________;] in the case of the Class A-4
Notes, [$_____________;] in the case of the Class A-5 Notes, [$_____________;]
in the case of the Class A-6 Notes, [$_____________;] in the case of the Class
A-7 Notes, [$____________;] and in the case of the Class A-8 Notes,
[$------------.]
Overcollateralization Amount: As to any Determination Date after the
Funding Period ends, the amount (exclusive of any distributions of
Overcollateralization Reduction Amounts) equal to the excess of (A) the Pool
Principal Balance over (B) the sum of the Class Principal Balances of the Notes
and the Certificate Principal Balance of the Certificates.
Overcollateralization Reduction Amount: With respect to any
Distribution Date which is not an Overcollateralization Stepdown Date, zero;
with respect to any Distribution Date on an Overcollateralization Stepdown Date,
the lesser of (x) the Excess Overcollateralization Amount on such Distribution
Date (after giving effect to all other distributions on such Distribution Date)
and (y) the Regular Principal Distribution Amount (as determined without the
deduction of the Overcollateralization Reduction Amount therefrom) on such
Distribution Date.
Overcollateralization Stepdown Date: Any Distribution Date with
respect to which the Required Overcollateralization Amount is reduced as a
result of a reduction in the Required Credit Support Multiple.
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 [$2,500.00] payable to the Owner
Trustee on the Distribution Date occurring in September each year during the
term of this Agreement commencing in [ ;] provided that the initial Owner
Trustee Fee shall be paid on the Closing Date.
Pass-Through Rate: With respect to the Certificates, the per annum
rate of [___%.]
Percentage Interest: As defined in the Trust Agreement.
Permitted Investments: Each of the following:
(i) obligations of, or guaranteed as to principal and interest
by, the United States or any agency or instrumentality thereof when
such obligations are backed by the full faith and credit of the United
States;
(ii) a repurchase agreement that satisfies the following criteria
and is acceptable to the [Securities Insurer]: (1) must be between the
Indenture Trustee and either (a) primary dealers on the Federal
Reserve reporting dealer list which are rated in one of the two
highest categories for long-term unsecured debt obligations by each
Rating Agency, or (b) banks rated in one of the two highest categories
for long-term unsecured debt obligations by each Rating Agency; and
(2) the written repurchase agreement must include the following: (a)
securities which are acceptable for the transfer and are either (I)
direct U.S. governments obligations, or (II) obligations of a Federal
agency that are backed by the full faith and credit of the U.S.
government, or FNMA or FHLMC; (b) a term no greater than 60 days for
any repurchase transaction; (c) the collateral must be delivered to
the Indenture Trustee or a third party Indenture Trustee acting as
agent for the Indenture Trustee by appropriate book entries and
confirmation statements, with a copy to the [Securities Insurer], and
must have been delivered before or simultaneous with payment (i.e.,
perfection by possession of certificated securities); and (d) the
securities sold thereunder must be valued weekly, marked-to-market at
current market price plus accrued interest and the value of the
collateral must be equal to at least 104% of the amount of cash
transferred by the Indenture Trustee under the repurchase agreement
and if the value of the securities held as collateral declines to an
amount below 104% of the cash transferred by the Indenture Trustee
plus accrued interest (i.e. a margin call), then additional cash
and/or acceptable securities must be transferred to the Indenture
Trustee to satisfy such margin call; provided, however, that if the
securities used as collateral are obligations of FNMA or FHLMC, then
the value of the securities held as collateral must equal at least
105% of the cash transferred by the Indenture Trustee under such
repurchase agreement;
(iii) certificates of deposit, time deposits and bankers
acceptances of any United States depository institution or trust
company incorporated under the laws of the United States or any state,
including the Indenture Trustee; provided that the debt obligations of
such depository institution or trust company at the date of the
acquisition thereof have been rated by each Rating Agency in one of
its two highest long-term rating categories;
(iv) deposits, including deposits with the Indenture Trustee,
which are fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, as the case may be;
(v) commercial paper of any corporation incorporated under the
laws of the United States or any state thereof, including corporate
affiliates of the Indenture Trustee, which at the date of acquisition
is rated by each Rating Agency in its highest short-term rating
category and which has an original maturity of not more than 365 days;
(vi) debt obligations rated by each Rating Agency at the time at
which the investment is made in its highest long-term rating category
(or those investments specified in (iii) above with depository
institutions which have debt obligations rated by each Rating Agency
in one of its two highest long-term rating categories);
(vii) money market funds which are rated by each Rating Agency at
the time at which the investment is made in its highest long-term
rating category, any such money market funds which provide for demand
withdrawals being conclusively deemed to satisfy any maturity
requirements for Permitted Investments set forth in this Agreement; or
(viii) any other demand, money market or time deposit obligation,
security or investment as may be acceptable to each Rating Agency and
the [Securities Insurer] at the time at which the investment is made;
provided that no instrument described in the foregoing subparagraphs shall
evidence either the right to receive (a) only interest with respect to the
obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument where the interest
and principal payments with respect to such instrument provide a yield to
maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described in
the foregoing subparagraphs may be purchased at a price greater than par if such
instrument may be prepaid or called at a price less than its purchase price
prior to stated maturity.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to 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: The aggregate Principal Balances of the
Mortgage Loans as of any Determination Date.
Post Liquidation Proceeds: As defined in Section 4.02(b).
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.
Pre-Funded Amount: With respect to any Distribution Date, the amount
then on deposit in the Pre-Funding Account as of the end of the related Due
Period.
Pre-Funding Account: The account established and maintained pursuant
to Section 5.03.
Pre-Funding Account Deposit: An amount equal to [$___________.]
Pre-Funding Account Weighted Average Balance: For purposes of
computing the Projected Interest Shortfall, on any date of determination, with
respect to the calculation of the weighted average balance of the amount on
deposit on a daily basis in the Pre-Funding Account for the Due Period in which
such date of determination occurs, (x) the total of (A) the sum of the actual
amount on deposit in the Pre-Funding Account on each day in such Due Period
prior to such date of determination plus (B) the product of (i) the amount on
deposit in the Pre-Funding Account on such date of determination and (ii) the
number of days remaining in such Due Period including the date of determination
(but assuming a 30 day month), divided by (y) thirty (30) days or, with respect
to the first Due Period, four (4) days.
Pre-Funding Termination Distribution Date: The first Distribution Date
following the Due Period in which the Funding Period ends.
Principal Balance: With respect to any Mortgage Loan or related
Foreclosure Property, (i) at the applicable Cut-Off Date, the outstanding unpaid
principal balance of the Mortgage Loan as of such Cut-Off Date and (ii) with
respect to any Due Period after such Cut-Off Date, the outstanding unpaid
principal balance of the Mortgage Loan as of the last day of such Due Period
(after giving effect to all payments received thereon and the allocation of any
Net Loan Losses with respect thereto for a Liquidated Mortgage Loan or a
Defaulted Mortgage Loan which relates to such Due Period), without giving effect
to amounts received in respect of such Mortgage Loan or related Foreclosure
Property after such day. Any Liquidated Mortgage Loan shall have a Principal
Balance of zero.
Principal Prepayment: With respect to any Mortgage Loan and with
respect to any Due Period, any principal amount received on a Mortgage Loan in
excess of the scheduled principal amount included in the Monthly Payment due on
the Due Date in such Due Period.
Projected Interest Shortfall: In connection with the calculation of
the Capitalized Interest Account Requirement pursuant to Section 5.04 as
determined by the Servicer on any Business Day prior to [ ,] the Projected
Interest Shortfall shall be the amount equal to the sum of (A) with respect to
the Due Period in which such date of determination occurs the Interest Shortfall
Rate, multiplied by the Pre-Funding Account Weighted Average Balance, multiplied
by the number of days in such Due Period, and divided by 360 days, plus (B) with
respect to any Due Period thereafter ending on or before [ ,] the Interest
Shortfall Rate, multiplied by the balance in the Pre- Funding Account as of such
date of determination, multiplied by the number of days in such Due Period
thereafter ending on or before [ ,] and divided by 360 days; assuming in the
case of each Due Period other than the first Due Period, a 360-day year
consisting of twelve 30-day months.
Prospectus: The final Prospectus, dated as of [ ,] as supplemented by
the related Prospectus Supplement, dated as of [ ,] prepared by the Transferor
and the Seller in connection with the issuance and sale of the Securities.
Purchase Price: As defined in Section 3.05 herein.
Qualified Substitute Mortgage Loan: A Mortgage Loan or Mortgage Loans
substituted for a Deleted Mortgage Loan pursuant to Section 2.06 or 3.05, which
(i) has or have an interest rate or rates of not less than one percentage point
and not more than one percentage point than the Mortgage Loan Interest Rate for
the Deleted Mortgage Loan, (ii) matures or mature not more than one year later
than and not more than one year earlier than the Deleted Mortgage Loan, (iii)
has or have a principal balance or principal balances (after application of all
payments received on or prior to the date of substitution) equal to or less than
the Principal Balance of the Deleted Mortgage Loan as of such date, (iv) with
respect to a Secured Mortgage Loan has or have a lien priority no lower than the
Deleted Mortgage Loan, [(v) has a borrower with a comparable credit grade
classification to the credit grade classification of the borrower with respect
to the Deleted Mortgage Loans, including a FICO Score that is no more than 10
points below that of such Deleted Mortgage Loan]; and (vi) complies or comply as
of the date of substitution with each representation and warranty set forth in
Section 3.03 and is not more than 29 days delinquent as of the date of
substitution for such loan. For purposes of determining whether multiple
mortgage loans proposed to be substituted for one or more Deleted Mortgage Loans
pursuant to Section 2.06 or 3.05 are in fact "Qualified Substitute Mortgage
Loans" as provided above, the criteria specified in clauses (i), (ii) and (iii)
above may be considered on an aggregate or weighted average basis, rather than
on a loan-by-loan basis (e.g., so long as the weighted average Mortgage Loan
Interest Rate of any loans proposed to be substituted is not less than (and not
more than two percentage points more than) the Mortgage Loan Interest Rate for
the designated Deleted Mortgage Loan or Mortgage Loans, the requirements of
clause (i) above would be deemed satisfied).
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 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: The close of business on the last Business Day of the
month immediately preceding the month in which a Distribution Date occurs.
Regular Principal Distribution Amount: On each Distribution Date, an
amount equal to the lesser of:
(A) the sum of the aggregate Class Principal Balance of the Notes and
the Certificate Principal Balance of the Certificates immediately prior to such
Distribution Date; and
(B) the greater of (1) the sum of (i) each scheduled payment of
principal collected by the Servicer in the related Due Period, (ii) all partial
and full principal prepayments applied by the Servicer during such related Due
Period, (iii) the principal portion of all Net Liquidation Proceeds, Insurance
Proceeds and Released Mortgaged Property Proceeds received during the related
Due Period, (iv) (a) that portion of the purchase price of any repurchased
Mortgage Loan which represents principal and (b) the principal portion of any
Substitution Adjustments required to be deposited in the Collection Account as
of the related Determination Date, (v) the amount of any Net Loan Losses equal
to the amount on deposit in the Reserve Account until such amount is reduced to
zero, and (vi) if the Overcollateralization Amount is zero, the amount of any
Net Loan Losses minus the sum of (a) the amount included in clause (v) above for
such Distribution Date and (b) the amount of Net Loan Losses allocated to reduce
the Overcollateralization Amount to zero on such Distribution Date pursuant to
Section 5.09, and (2) the amount by which (i) the aggregate principal balance of
the Offered Securities as of the preceding Distribution Date (after giving
effect to all payments of principal on such preceding Distribution Date) exceeds
(ii) the Pool Principal Balance plus funds on deposit in the Pre-Funding
Account, each as of the immediately preceding Determination Date; provided,
however, that if such Distribution Date is an Overcollateralization Stepdown
Date, then with respect to the distribution of principal to the Noteholders and
Certificateholders the foregoing amount in each case, will be reduced (but not
less than zero) by the Overcollateralization Reduction Amount, if any, for such
Distribution Date.
Released Mortgaged Property Proceeds: With respect to any secured
Mortgage Loan, proceeds received by the Servicer in connection with (i) a taking
of an entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (ii) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which in either case are not released to the Obligor in accordance with
applicable law, customary second mortgage servicing procedures and this
Agreement.
Required Credit Support Multiple: On each Distribution Date, as of the
related Determination Date the amount calculated as follows: (i) if less than
___% (by Principal Balance) of the Mortgage Loans are more than 30 days
delinquent, and if less than ___% (by Principal Balance) of the Mortgage Loans
are more than 60 days delinquent, and if less than ___% (by Principal Balance)
of the Mortgage Loans have become Defaulted Mortgage Loans, then such amount
will be 1.0; (ii) if less than ___% (by Principal Balance) of the Mortgage Loans
are more than 30 days delinquent, and if less than ___% (by Principal Balance)
of the Mortgage Loans are more than 60 days delinquent, and if less than ___%
(by Principal Balance) of the Mortgage Loans have become Defaulted Mortgage
Loans, then such amount will be 1.25; (iii) if less than ____% (by Principal
Balance) of the Mortgage Loans are more than 30 days delinquent, and if less
than ___% (by Principal Balance) of the Mortgage Loans are more than 60 days
delinquent, and if less than ____% (by Principal Balance) of the Mortgage Loans
have become Defaulted Mortgage Loan, then such amount will be 1.5; (iv) if ___%
or more (by Principal Balance) of the Mortgage Loans are more than 30 days
delinquent, or if ___% or more (by Principal Balance) of the Mortgage Loans are
more than 60 days delinquent, or if ___% or more (by Principal Balance) of the
Mortgage Loans have become Defaulted Mortgage Loans then such amount will be
2.5; or (v) if ____% or more (based on Net Loan Losses) of the Mortgage Loans
have become Defaulted Mortgage Loans on a cumulative basis on or prior to the
first anniversary of the [ ] Cut-Off Date, or if ___% or more (based on Net Loan
Losses) of the Mortgage Loans have become Defaulted Mortgage Loans on a
cumulative basis on or prior to the second anniversary of the [ ] Cut-Off Date,
or if ___% or more (based on Net Loan Losses) of the Mortgage Loans have become
Defaulted Mortgage Loans on a cumulative basis on or prior to the third
anniversary of the [ ] Cut-Off Date, or if ___% or more (based on Net Loan
Losses) of the Mortgage Loans have become Defaulted Mortgage Loans on a
cumulative basis on or prior to the fourth anniversary of the [ ] Cut-Off Date
and thereafter, then such amount will be 2.5; provided, however, that such 2.5
multiple in clause (v) shall be reduced to an amount equal to 1.25, if the
Mortgage Loans (based on Net Loan Losses) that have become Defaulted Mortgage
Loans on a cumulative basis are determined to be less than the foregoing
percentages of ___%, ____%, ___% and ___% during the relevant time periods in
such clause (v) and if the rolling three month delinquency and default multiple
in clauses (i) through (iv) results in an amount of either 1.0 or 1.25. Except
with respect to the calculations on a cumulative basis in clause (v) and the
proviso clause of the preceding sentence, the above delinquency percentages for
clauses (i) through (iv) will be calculated as the average of the ratios for the
immediately preceding three Due Periods based on the outstanding aggregate
Principal Balances for all Mortgage Loans which are 30 or 60 days or more
delinquent, respectively, over the outstanding aggregate Principal Balance for
all Mortgage Loans, and such default percentages will be calculated on an
annualized basis as the average of the ratios for the immediately preceding
three Due Periods where such ratio equals the quotient of (A) 12 times the
aggregate Net Loan Losses for such Mortgage Loans that became Defaulted Mortgage
Loans, over (B) the aggregate outstanding Principal Balance of such Mortgage
Loans as of the beginning of the related Due Period. The cumulative default
percentages for clause (v) and the proviso clause above shall be calculated
after giving effect to any recovery of proceeds received by the Servicer with
respect to such Defaulted Mortgage Loans in accordance with the definition of
Net Loan Losses, however, the calculations of the Principal Balance of the
Defaulted Mortgage Loans in clauses (i) through (iv) shall not give effect to
any recovery of proceeds received by the Servicer with respect to such Defaulted
Mortgage Loans. Notwithstanding the preceding, in the event that the Subsequent
Mortgage Loans violate or fail to conform or comply in all material respects
with the conditions and requirements for delivery thereof as set forth herein
and in the [Securities Insurer] Commitment, then, upon written notice to each of
the other parties hereto and the Rating Agencies, the [Securities Insurer], in
its sole discretion, may modify the preceding definition, without the
requirement of an amendment of this Agreement, for a sixty (60) day period after
the last day of the Due Period in which the Funding Period ends.
Required Distribution Amount: As of any Distribution Date, the sum of
the Interest Distribution Amount, the Regular Principal Distribution Amount, the
Noteholders' Principal Carry-Forward Amount and Certificateholders' Principal
Carry-Forward Amount, in each case, for such Distribution Date.
Required Overcollateralization Amount: On each Distribution Date after
the expiration of the Funding Period, as of the related Determination Date the
amount equal to the greater of (1) ___% of the sum of the aggregate Principal
Balances as of the applicable Cut-Off Dates of the Mortgage Loans (the "Required
OC Floor"), and (2) the product of (x) the Required Credit Support Multiple and
(y) ___% of the aggregate Principal Balances as of the applicable Cut-Off Dates
of the Mortgage Loans; provided, however, that on each Distribution Date on or
after the Credit Support Reduction Date on which the rolling three month
delinquency and default multiple set forth in clause (i) of the definition of
the Required Credit Support Multiple is equal to 1.0, as of the related
Determination Date, the amount equal to the greater of (1) the Required OC
Floor, and (2) the product of (x) the Required Credit Support Multiple and (y)
the lesser of (A) ___% of the aggregate Principal Balances as of the applicable
Cut-Off Dates of the Mortgage Loans and (B) ___% of the aggregate outstanding
Principal Balances of the Mortgage Loans; provided further, however, that the
Required OC Level shall not be reduced pursuant to the preceding proviso clause
if the rolling three month delinquency and default multiple in clauses (i)
through (iv) of the definition of Required Credit Support Multiple results in an
amount greater than 1.0 and the cumulative default multiple in clause (v) and
the proviso of such definition results in an amount greater than 1.25.
Notwithstanding the preceding, in the event that the Subsequent Mortgage Loans
violate or fail to conform or comply in all material respects with the
conditions and requirements for delivery thereof as set forth herein and in the
[Securities Insurer] Commitment, then, upon written notice to each of the other
parties hereto and the Rating Agencies, the [Securities Insurer], in its sole
discretion, may modify the preceding definition, without the requirement of an
amendment of this Agreement, for a sixty (60) day period after the last day of
the Due Period in which the Funding Period ends.
Reserve Account: The account established and maintained by the
Indenture Trustee pursuant to Section 5.07 hereof.
Reserve Account Initial Deposit: [$ ].
Reserve Account Requirement: On the Closing Date, an amount equal to
[$ ] but on any Distribution Date occurring after the Funding Period ends and if
the Overcollateralization Amount exceeds the Interim Required
Overcollateralization such amount shall be reduced pursuant to Section 5.07.
Residual Interest: The interest which represents the right to amounts
after all required distributions have been made for the Trust Fees and Expenses
and on the Notes and the Certificates on each Distribution Date and certain
other rights to receive amounts hereunder and under the Trust Agreement.
Reserve Account Withdrawal Amount: With respect to any Distribution
Date, an amount equal to the lesser of (i) the total amount on deposit in the
Reserve Account or (if any) available for call or drawdown under the limited
guaranty or letter of credit referred to in Section 5.07, and (ii) the excess of
(A) the sum of the Trust Fees and Expenses and the Required Distribution Amount
over (B) the Available Collection Amount.
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 Seller, the Transferor or
the Servicer, the President or any Vice President, Assistant Vice President, or
any Secretary or Assistant Secretary.
Secured Mortgage Loan: A Mortgage Loan that is secured by Mortgaged
Property.
Securities: [The Notes and/or the Certificates, as applicable.
[[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 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.]
[[Securities Insurer] Reimbursement Amount: At any time, an amount
owed to the [Securities Insurer] for any unreimbursed Guaranteed Payments made
under the Guaranty Policy, together with interest thereon at the rate specified
in the Insurance Agreement and any other amounts then owing to the [Securities
Insurer] under the Insurance Agreement, which have not previously been
reimbursed.]
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: PREFERRED SECURITIZATION CORPORATION, a Delaware corporation,
and any successor thereto.
Series or Series 199_-_: [Preferred Credit Asset Backed Securities,
Series 199_-_].
Servicer: Advanta Mortgage Corp. U.S.A., in its capacity as the
servicer hereunder, or any successor appointed as herein provided.
Servicer's Fiscal Year: [January 1st through December 1st of each
year.]
Servicer's Mortgage Loan Files: In respect of each Mortgage Loan, all
documents customarily included in the servicer's loan file for the related type
of Mortgage Loan in accordance with the servicing standard set forth in Section
4.01.
Servicer's Monthly Remittance Report: A report prepared and computed
by the Servicer in substantially the form of Exhibit B attached hereto.
Servicer's Monthly Statement: As defined in Section 6.01.
Servicing Advances: Subject to Section 4.01(b), all reasonable,
customary and necessary "out of pocket" costs and expenses advanced or paid by
the Servicer with respect to the Mortgage Loans in accordance with the
performance by the Servicer of its servicing obligations hereunder, including,
but not limited to, the costs and expenses for (i) the preservation, restoration
and protection of the Mortgaged Property, including without limitation advances
in respect of real estate taxes and assessments, (ii) any collection,
enforcement or judicial proceedings, including without limitation foreclosures,
collections and liquidations pursuant to Section 4.02, (iii) the conservation,
management and sale or other disposition of an Foreclosure Property pursuant to
Section 4.04, (iv) the preservation of the security for a Mortgage Loan if any
lienholder under a Superior Lien has accelerated or intends to accelerate the
obligations secured by such Superior Lien pursuant to Section 4.06; provided
that such Servicing Advances are reimbursable to the Servicer to the extent
provided in Section 5.06(c)(vi) or deducted or retained in calculating Net
Liquidation Proceeds hereunder.
Servicing Advance Reimbursement Amount: As defined in Section 5.01(c).
Servicing Compensation: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Sections 7.01 and 7.03.
Servicing Fee: As to each Mortgage Loan (including any Mortgage Loan
that has been foreclosed and has become a Foreclosure Property, but excluding
any Liquidated Mortgage Loan), the fee payable monthly to the Servicer on each
Distribution Date, which shall be the product of 0.75% (75 basis points) times
the Principal Balance of such Mortgage Loan as of the beginning of the
immediately preceding Due Period, divided by 12. The Servicing Fee includes any
servicing fees owed or payable to any Subservicer which fees shall be paid from
the Servicing Fee.
Servicing Officer: Any officer of the Servicer or Subservicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appears on a list of servicing officers
annexed to an Officer's Certificate furnished by the Servicer or the
Subservicer, respectively, to the Issuer and the Indenture Trustee, on behalf of
the Securityholders and the [Securities Insurer], as such list may from time to
time be amended.
Standard & Poor's: Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
Subsequent Mortgage Loan: An individual Mortgage Loan that is conveyed
to the Issuer and pledged to the Indenture Trustee on a Subsequent Transfer
Date, pursuant to a Subsequent Transfer Agreement, together with the rights and
obligations of a holder thereof and payments thereon and proceeds therefrom, the
Subsequent Mortgage Loans subject to this Agreement will be identified on a
schedule attached as an exhibit to the related Subsequent Transfer Agreement;
provided, that such Mortgage Loan shall not be more than 29 days delinquent as
of the related Cut-Off Date.
Subsequent Purchase Price: The Principal Balance of any Subsequent
Mortgage Loans as of the applicable Cut-Off Date.
Subsequent Transfer Agreement: With respect to any Subsequent Mortgage
Loan, the agreement pursuant to which Subsequent Mortgage Loans are transferred
to the Trust by the Seller, substantially in the form of Exhibit D hereto.
Subsequent Transfer Date: The date specified in each Subsequent
Transfer Agreement, but no later than [_______________].
Subservicer: Any Person with whom the Servicer has entered into a
Subservicing Agreement and who is an Eligible Servicer and who satisfies any
requirements set forth in Section 4.07(a) in respect of the qualifications of a
Subservicer.
Subservicing Account: An account established by a Subservicer pursuant
to a Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all
Mortgage Loans as provided in Section 4.07(a), copies of which shall be made
available, along with any modifications thereto, to the Issuer, the Indenture
Trustee and to the [Securities Insurer].
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Sections 2.06 or 3.05, the amount, if any, by which (a) the sum of
the aggregate principal balance (after application of principal payments
received on or before the date of substitution) of any Qualified Substitute
Mortgage Loans as of the date of substitution plus any accrued interest and
unpaid thereon that is scheduled to be paid after the date of substitution and
during the Due Period in which such substitution occurs, is less than (b) the
sum of the aggregate of the Principal Balances, together with accrued and unpaid
interest thereon to the date of substitution, of the related Deleted Mortgage
Loans.
Superior Lien: With respect to any secured Mortgage Loan which is
secured by other than a first priority lien, the mortgage loan(s) relating to
the corresponding Mortgaged Property having a superior priority lien.
Termination Price: As of any date of determination, an amount without
duplication equal to the sum of (i) the aggregate Class Principal Balance of the
Notes as of such date, (ii) the sum of any outstanding Noteholders' Interest
Carry-Forward Amount and accrued and unpaid interest on the aggregate Class
Principal Balance of the Notes as of such date, computed at the respective Note
Interest Rates of the Notes then outstanding; (iii) the Certificate Principal
Balance of the Certificates as of such date; (iv) the sum of any outstanding
Certificateholders' Interest Carry-Forward Amount and accrued and unpaid
interest on the Certificate Principal Balance of the Certificates as of such
date, computed at the Pass-Through Rate of the Certificates; (v) any [Securities
Insurer] Reimbursement Amount and (vi) any Trust Fees and Expenses owing as of
such date.
Transferor: [Preferred Credit Corporation] in its capacity as the
transferor hereunder.
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, the Reserve Account, the Pre-
Funding Account and the Capitalized Interest Account.
Trust Agreement: The Trust Agreement dated as of [ ,] among the
Seller, the Affiliated Holder, the Co-Owner Trustee and the Owner Trustee.
Trust Estate: The assets subject to this Agreement, the Trust
Agreement and the Indenture and assigned to the Trust, which assets consist of:
(i) such Mortgage Loans as from time to time are subject to this Agreement,
including both the Initial Mortgage Loans and any Subsequent Mortgage Loans
conveyed to the Trust Estate during the Funding Period as listed in the Mortgage
Loan Schedule, as the same may be amended or supplemented from time to time
including the removal of Deleted Mortgage Loans and the addition of Qualified
Substitute Mortgage Loans, together with the Servicer's Mortgage Loan Files and
the Trustee's Mortgage Loan Files relating thereto and all proceeds thereof,
(ii) all payments received on or with respect to the Mortgage Loans after the
applicable Cut-off Dates, (iii) such assets as from time to time are identified
as Foreclosure Property, (iv) such assets and funds as are from time to time
deposited in the Collection Account, the Note Distribution Account, the
Certificate Distribution Account, the Pre- Funding Account, the Capitalized
Interest Account and the Reserve Account, including amounts on deposit in such
accounts which are invested in Permitted Investments, (v) the Issuer's rights
under all insurance policies with respect to the Mortgage Loans and any
Insurance Proceeds, (vi) Net Liquidation Proceeds and Released Mortgaged
Property Proceeds, (vii) all right, title and interest of the Transferor in and
to the obligations of any seller pursuant to each Loan Sale Agreement in which
the Transferor acquired any Mortgage Loans, (viii) all right, title and interest
of the Seller in and to the obligations of the Transferor under that certain
Loan Sale Agreement in which the Seller acquired any Mortgage Loans from the
Transferor, (ix) all right, title and interest of the Issuer, as purchaser,
under each Subsequent Transfer Agreement, and (x) all right, title and interest
of the Servicer and the Transferor in and to the rights and obligations of any
Subservicer, pursuant to any Subservicing Agreement.
Trust Fees and Expenses: As of each Distribution Date, an amount equal
to the Servicing Compensation, [Guaranty Insurance Premium,] the Indenture
Trustee Fee and the Owner Trustee Fee.
Weighted Average Interest Rate: As of any particular date of
determination, the sum (expressed as a percentage) of:
(i) the product of (A) the Class Principal Balance of the Class
A-1 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-1
Notes;
(ii) the product of (A) the Class Principal Balance of the Class
A-2 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-2
Notes;
(iii) the product of (A) the Class Principal Balance of the Class
A-3 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-3
Notes;
(iv) the product of (A) the Class Principal Balance of the Class
A-4 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-4
Notes;
(v) the product of (A) the Class Principal Balance of the Class
A-5 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-5
Notes;
(vi) the product of (A) the Class Principal Balance of the Class
A-6 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-6
Notes;
(vii) the product of (A) the Class Principal Balance of the Class
A-7 Notes divided by the sum of (x) the aggregate Class Principal
Balances of the Notes plus (y) the Certificate Principal Balance of
the Certificates, and (B) the Note Interest Rate for such Class A-7
Notes.
(viii) the product of (A) the Class Principal Balance of the
Class A-8 Notes divided by the sum of (x) the aggregate Class
Principal Balances of the Notes plus (y) the Certificate Principal
Balance of the Certificates, and (B) the Note Interest Rate for such
Class A-8 Notes.
(ix) the product of (A) the Certificate Principal Balance of the
Certificates divided by the sum of (x) the aggregate Class Principal
Balances of the Notes and (y) the Certificate Principal Balance of the
Certificates, and (B) the Pass-Through Rate for the Certificates;
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.
ARTICLE II.
CONVEYANCE OF THE MORTGAGE LOANS
Section 2.01 Conveyance of the Initial Mortgage Loans.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes, Certificates and Residual Interest Instruments to the Seller or its
designee, upon the order of the Seller, the Seller, 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 Seller 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
Seller, the Transferor 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 Seller all right, title and interest of
the Seller in and to the Trust Estate, receipt of which is hereby acknowledged
by the Issuer. 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 Seller 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 Seller, 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 and the Residual Interest to the Seller or its
designee, upon the order of the Seller.
Section 2.02 Conveyance of the Subsequent Mortgage Loans.
(a) On or before the last day of the Funding Period, the Seller shall
convey to the Issuer, and the Issuer shall purchase pursuant to this Section
2.02 the lesser of: (i) Mortgage Loans then in the possession of the Seller that
satisfy the requirements of this Section 2.02 or (ii) the maximum principal
balance of Mortgage Loans that satisfies the requirements of this Section 2.02,
with respect to which the aggregate Subsequent Purchase Price does not exceed
the Pre- Funding Account Deposit. Subject to the conditions set forth in this
Section 2.02, in consideration of the Issuer's delivery on the related
Subsequent Transfer Dates to the Seller or its designee, or upon the order of
the Seller, of the Subsequent Purchase Price of the related Subsequent Mortgage
Loans from amounts on deposit in the Pre-Funding Account, the Seller shall, from
time to time, on any Subsequent Transfer Date 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 Seller in and to each Mortgage Mortgage Loan (including all interest and
principal thereon received after the related Cut-Off Date) identified on the
Mortgage Loan Schedule attached to the related Subsequent Transfer Agreement and
delivered by the Seller on such Subsequent Transfer Date and all items in the
related Indenture Trustee's Mortgage Loan File. The sale, transfer, assignment,
set over, conveyance and grant by the Seller of the Subsequent Mortgage Loans to
the Issuer does not and is not intended to result in a creation or an assumption
by the Issuer of any obligation of the Seller, the Transferor or any other
person in connection with the Subsequent Mortgage Loans or under any agreement
or instrument relating thereto except as specifically set forth herein.
(b) The amount released from the Pre-Funding Account on any Subsequent
Transfer Date in connection with any conveyance of Subsequent Mortgage Loans
shall be equal to the aggregate of the Subsequent Purchase Prices for such
Subsequent Mortgage Loans, which amount shall not exceed the amount then on
deposit in the Pre-Funding Account. If the Subsequent Purchase Price for such
Subsequent Mortgage Loans is less than the amount required to obtain the release
of the interest of any third party (including any lienholder therein), then the
Transferor or the Seller shall cause the delivery of immediately available funds
equal to such insufficiency to the Issuer in escrow (which funds shall not be
property of the Trust) and the Issuer, in turn, shall remit such immediately
available funds, together with funds from the Pre- Funding Account equal to the
Subsequent Purchase Price, to the third party designated by the Transferor or
the Seller that is releasing its interest in such Subsequent Mortgage Loans.
On the related Subsequent Transfer Date, the Seller shall transfer to
the Issuer the Subsequent Mortgage Loans and the other property and rights
related thereto described in (a) above only upon the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Subsequent Mortgage Loans to be conveyed on a given
Subsequent Transfer Date must have an aggregate Principal Balance as
of the related Cut-Off Date of not less than $5,000,000, except in the
case of the final Subsequent Transfer Date when no minimum Principal
Balance requirement shall be applicable;
(ii) the Transferor and/or Seller shall provide the Issuer, the
Indenture Trustee and the [Securities Insurer] with an Addition Notice
and shall provide any information reasonably requested by the Issuer,
the Indenture Trustee [or the [Securities Insurer]] with respect to
the Subsequent Mortgage Loans;
(iii)the Seller shall deliver to the Issuer, the Indenture Trustee and
the [Securities Insurer] a duly executed Subsequent Transfer
Agreement, including all exhibits listed therein;
(iv) the Servicer shall deposit in the Collection Account all
collections in respect of the Subsequent Mortgage Loans received on or
after the related Cut-Off Date;
(v) the Transferor and the Seller shall certify to the [[Securities
Insurer],] the Indenture Trustee and the Issuer that, as of the
Subsequent Transfer Date, the Transferor and the Seller, respectively,
were not insolvent nor were they made insolvent by such transfer nor
were they aware of any such pending insolvency;
(vi) the Transferor and the Seller shall certify that such addition of
Subsequent Mortgage Loans will not result in a material adverse tax
consequence to the Issuer or the Securityholders;
(vii) the Funding Period shall not have terminated; and
(viii) as at the related subsequent Transfer Date the Transferor
shall make the representations and warranties set forth in Section
3.02and Section 3.04(a) hereof and shall reconfirm the accuracy of the
representations and warranties set forth in Section 3.03 hereof,
including with respect to all Subsequent Mortgage Loans.
(c) In addition, the Transferor and/or Seller will provide the
[[Securities Insurer],] the Indenture Trustee and the Issuer with data regarding
all Subsequent Mortgage Loans transferred to the Issuer on the related
Subsequent Transfer Date, which data shall be delivered at least three Business
Days prior to such Subsequent Transfer Date. No later than the end of the
Funding Period, the following obligations shall have been satisfied with respect
to all Subsequent Mortgage Loans transferred to the Issuer on any Subsequent
Transfer Date:
(i) the Transferor and Seller shall have delivered to the Issuer,
the Indenture Trustee and the [[Securities Insurer]] an Officer's
Certificate confirming the satisfaction of each condition precedent
specified in this Section 2.02 and in the related Subsequent Transfer
Agreements;
(ii) the Transferor and/or Seller shall have delivered to the
[[Securities Insurer]] and the Indenture Trustee opinions of counsel
with respect to the transfer of all of the Subsequent Mortgage Loans
to the Issuer on any Subsequent Transfer Date substantially in the
form of the opinions of counsel delivered to the Issuer, the Indenture
Trustee and the [Securities Insurer] on the Closing Date (as to
certain bankruptcy, corporate, securities and tax law matters);
(iii) the Issuer shall pledge the Subsequent Mortgage Loans to
the Indenture Trustee under the Indenture;
(iv) the Issuer shall deliver to the [[Securities Insurer] and
the] Seller an opinion of counsel with respect to each of the
Subsequent Transfer Agreements substantially in the form of the
opinion of counsel delivered to the Seller [and the [Securities
Insurer]] on the Closing Date;
(v) the Transferor and Seller shall make the representations and
warranties set forth in Section 3.04(b) hereof; and
[(vi) the [[Securities Insurer]] shall deliver to the Seller, the
Indenture Trustee and the Issuer a written notice confirming the
[Securities Insurer]'s consent and approval to the addition of all
Subsequent Mortgage Loans purchased by the Issuer on any Subsequent
Transfer Date.]
(d) [Reserved]
Section 2.03 Ownership and Possession of Mortgage Loan Files. Upon the
issuance of the Securities, with respect to the Initial Mortgage Loans, and upon
payment of the related Subsequent Purchase Price, with respect to the Subsequent
Mortgage Loans, the ownership of each Debt Instrument, the related Mortgage and
the contents of the related Servicer's Mortgage Loan File and the Indenture
Trustee's Mortgage Loan File shall be vested in the Indenture Trustee for the
benefit of the Securityholders and the [Securities Insurer], although possession
of the Servicer's Mortgage Loan Files (other than items required to be
maintained in the Indenture Trustee's Mortgage Loan Files) on behalf of and for
the benefit of the Securityholders and the [Securities Insurer] shall remain
with the Servicer, and the Indenture Trustee shall take possession of the
Indenture Trustee's Mortgage Loan Files as contemplated in Section 2.06.
Section 2.04 Books and Records.
The sale of each Mortgage Loan shall be reflected on the Seller's
balance sheets and other financial statements as a sale of assets by the Seller
under generally accepted accounting principles ("GAAP"). The Servicer shall be
responsible for maintaining, and shall maintain, a complete set of books and
records for each Mortgage Loan which shall be clearly marked to reflect the
ownership of each Mortgage Loan by the Indenture Trustee for the benefit of the
Securityholders and the [Securities Insurer].
Section 2.05 Delivery of Mortgage Loan Documents.
(a) With respect to each Initial Mortgage Loan, on the Closing Date
the Transferor and the Seller have delivered or caused to be delivered, and with
respect to each Subsequent Mortgage Loan, on the related Subsequent Transfer
Dates, the Transferor and the Seller will deliver or will cause to be delivered,
to the Indenture Trustee each of the following documents (collectively, the
"Mortgage Loan Files"):
(i) The original Debt Instrument, endorsed "PAY TO THE ORDER OF
[BANKER TRUST COMPANY,] AS INDENTURE TRUSTEE FOR THE [PREFERRED CREDIT
ASSET BACKED SECURITIES, SERIES 199_-_,] WITHOUT RECOURSE" and signed,
by facsimile or manual signature, in the name of the Seller by a
Responsible Officer thereof, together with all intervening
endorsements that evidence a complete chain of title from the
originator thereof to the Transferor; provided that any of the
foregoing endorsements may be contained on an allonge which shall be
firmly affixed to such Debt Instrument;
(ii) With respect to each Debt Instrument for a Secured Mortgage
Loan, either: (A) the original Mortgage, with evidence of recording
thereon, (B) a copy of the Mortgage certified as a true copy by a
Responsible Officer of the Transferor or by the closing attorney, if
the original has been transmitted for recording but has not, at the
time of delivery of this Agreement, been returned or (C) a copy of the
Mortgage certified by the public recording office in those instances
where the original recorded Mortgage has been lost or has been
retained by the public recording office;
(iii) With respect to each Debt Instrument for a Secured Mortgage
Loan, either (A) the original Assignment of Mortgage assigned to
["BANKERS TRUST COMPANY,] AS INDENTURE TRUSTEE FOR THE PREFERRED
CREDIT ASSET BACKED SECURITIES, SERIES 199_-_"] and signed in the name
of the Transferor by a Responsible Officer with evidence of recording
thereon, (B) a copy of the Assignment of Mortgage, certified as a true
copy by a Responsible Officer of the Transferor where the original has
been transmitted for recording but has not, at the time of delivery of
this Agreement, been returned or (C) a copy of the Assignment of
Mortgage certified by the public recording office in those instances
where the original recorded Assignment of Mortgage has been lost or
has been retained by the public recording office (provided, however,
that where the original Assignment of Mortgage is not being delivered
to the Indenture Trustee, such Responsible Officer may complete one or
more blanket certificates attaching copies of one or more Assignments
of Mortgage relating thereto); provided that any such Assignments of
Mortgage may be made by blanket assignments for Mortgage Loans secured
by Mortgaged Properties located in the same county, if permitted by
applicable law; provided, however, that the recordation of such
Assignment of Mortgage shall not be required in the States (i) in
which a legal opinion is delivered to the Indenture Trustee and the
[Securities Insurer] in accordance with subsection (c) below and (ii)
that are approved by the Rating Agencies.
(iv) With respect to each Debt Instrument for a Secured Mortgage
Loan, either: (A) originals of all intervening assignments of the
Mortgage, with evidence of recording thereon, (B) if the original
intervening assignments have not yet been returned from the recording
office, a copy of the originals of such intervening assignments
together with a certificate of a Responsible Officer of the Transferor
or the closing attorney certifying that the copy is a true copy of the
original of such intervening assignments or (C) a copy of the
intervening assignment certified by the public recording office in
those instances where the original recorded intervening assignment has
been lost or has been retained by the public recording office;
provided that the chain of intervening recorded assignments shall not
be required to match the chain of intervening endorsements of the Debt
Instrument, so long as the chain of intervening recorded assignments,
if applicable, evidences one or more assignments of the Mortgage from
the original mortgage ultimately to the person who has executed the
Assignment of Mortgage referred to in clause (iii) above; and
(v) Originals of all assumption and modification agreements, if
any, or a copy certified as a true copy by a Responsible Officer of
the Transferor if the original has been transmitted for recording
until such time as the original is returned by the public recording
office.
(b) The Seller agrees to deliver or cause to be delivered on or before
the applicable Subsequent Transfer Date to the Indenture Trustee each of the
documents identified in paragraphs (i) through (v) of subsection (a) above with
respect to any Subsequent Mortgage Loans.
(c) With respect to each Secured Mortgage Loan, the Transferor shall,
within five Business Days after the receipt thereof, and in any event, within
nine (9) months of the Closing Date (in the case of the Initial Mortgage Loans)
or the related Subsequent Transfer Date (in the case of the Subsequent Mortgage
Loans), deliver or cause to be delivered to the Indenture Trustee: (i) the
original recorded Mortgage in those instances where a copy thereof certified by
the Transferor was delivered to the Indenture Trustee; (ii) the original
recorded Assignment of Mortgage, except in the States in which a legal opinion
is delivered to the Indenture Trustee and [Securities Insurer] as provided below
and that are approved by the Rating Agencies; (iii) any original recorded
intervening assignments of Mortgage in those instances where copies thereof
certified by the Transferor were delivered to the Indenture Trustee; and (iv)
the original recorded assumption and modification agreement in those instances
in which a copy was delivered. Notwithstanding anything to the contrary
contained in this Section 2.05, in those instances where the public recording
office retains the original Mortgage or, if applicable, the Assignment of
Mortgage, the intervening assignments of the Mortgage or the original recorded
assumption and modification agreement after it has been recorded, or where any
such original has been lost or destroyed, the Seller and Transferor shall be
deemed to have satisfied their respective obligations hereunder upon delivery to
the Indenture Trustee of a copy, as certified by the public recording office to
be a true copy of the recorded original of such Mortgage or, if applicable, the
Assignment of Mortgage, intervening assignments of Mortgage or assumption and
modification agreement, respectively. With respect to each Secured Mortgage Loan
in respect of which the Mortgaged Property is located in the State of California
Transferor and the Seller shall have the right to deliver to the Indenture
Trustee [and the [Securities Insurer]] a legal opinion for each State providing
that the recordation of the Assignment of Mortgage in such State is not
necessary to transfer the related Secured Mortgage Loans in respect of which the
Mortgaged Property is located in such State, provided such legal opinion is in a
form that is reasonably acceptable to the Indenture Trustee and the [Securities
Insurer] and such legal opinion is delivered on or before [ .] Upon the delivery
and acceptance by the Indenture Trustee [and the Securities Insurer] of the
foregoing legal opinion for each such State and the approval of the Rating
Agencies, the Transferor and the Seller shall not be required to record
Assignment of Mortgages for the related Secured Mortgage Loans in respect of
which the relevant Mortgaged Properties are located in such State and the
delivery of the Assignments of Mortgages for such State to the Indenture Trustee
in recordable form on the Closing Date or Subsequent Transfer Date, as
applicable, shall constitute full compliance with subsection (a)(iii) above and
the Transferor, in its capacity as Servicer, shall retain record title to such
Mortgages on behalf of the Indenture Trustee and the holders of the Offered
Securities. If the foregoing legal opinion is not delivered and accepted by the
Indenture Trustee and [Securities Insurer] and the Rating Agencies for any of
the foregoing States, then the Assignments of Mortgage relating to any such
State shall be recorded in accordance with the first sentence of this subsection
(c). Notwithstanding the preceding provisions allowing for the non-recordation
of Assignments of Mortgage in certain States, if an Event of Default occurs
pursuant to clause (a)(vii) of Section 10.01 or the Transferor, as the Servicer,
is terminated hereunder, then the Transferor, in its capacity as the Servicer or
predecessor Servicer, shall be required in respect of Secured Loans to record
all Assignments of Mortgage in those States in which the Transferor had
previously been allowed not to record such Assignments of Mortgage.
Section 2.06 Acceptance by Indenture Trustee of the Mortgage Loans;
Certain Substitutions .
(a) The Indenture Trustee agrees to execute and deliver on the Closing
Date an acknowledgment of receipt of the Indenture Trustee's Mortgage Loan File
for each Initial Mortgage Loan, and the Indenture Trustee agrees to execute and
deliver on any Subsequent Transfer Date an acknowledgment of receipt of the
Indenture Trustee's Mortgage Loan File for each Subsequent Mortgage Loan. The
Indenture Trustee declares that it will hold such documents and any amendments,
replacements or supplements thereto, as well as any other assets included in the
Trust Estate and delivered it to in trust, upon and subject to the conditions
set forth herein for the benefit of the Securityholders [and the [Securities
Insurer].] The Indenture Trustee agrees, for the benefit of the Securityholders
[and the [Securities Insurer],] to review each Indenture Trustee's Mortgage Loan
File within 45 days after the Closing Date (or, with respect to any Qualified
Substitute Mortgage Loan or Subsequent Mortgage Loan, within 45 days after the
receipt by the Indenture Trustee thereof) and to deliver to the Transferor, the
Seller, the Issuer, [the [Securities Insurer]] and the Servicer a certification
to the effect that, as to each Mortgage Loan listed in the Mortgage Loan
Schedule and as to each Subsequent Mortgage Loan Listed in a Subsequent Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or any Mortgage 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), (ii) all documents
delivered by the Seller and the Transferor to the Indenture Trustee pursuant to
Section 2.05 have been reviewed by the Indenture Trustee 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 Mortgage Loan, (iii) based on the examination of the
Indenture Trustee on behalf of the Indenture Trustee, and only as to the
foregoing documents, the information set forth on the Mortgage Loan Schedule
accurately reflects the information set forth in the Indenture Trustee's
Mortgage Loan File and (iv) each Debt Instrument has been endorsed as provided
in Section 2.05. Neither the Issuer nor the Indenture Trustee 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 Mortgage Loan File should include any of the documents
specified in Section 2.05(a)(v).
(b) If the Indenture Trustee, during the process of reviewing the
Indenture Trustee's Mortgage Loan Files, finds any document constituting a part
of an Indenture Trustee's Mortgage Loan File which is not executed, has not been
received, is unrelated to any Mortgage Loan identified in the Mortgage Loan
Schedule, does not conform to the requirements of Section 2.05 or does not
conform, in all material respects, to the description thereof as set forth in
the Mortgage Loan Schedule, then the Indenture Trustee shall promptly so notify
the Transferor, the Servicer, the Indenture Trustee, the Issuer, [the Securities
Insurer] and the Seller. In performing any such review, the Indenture Trustee
may conclusively rely on the Seller and the Transferor as to the purported
genuineness of any such document and any signature thereon. It is understood
that the scope of the Indenture Trustee's review of the Indenture Trustee's
Mortgage Loan Files is limited solely to confirming that the documents listed in
Section 2.05 have been received and further confirming that any and all
documents delivered pursuant to Section 2.05 have been executed and relate to
the Mortgage Loans identified in the Mortgage Loan Schedule and to the
Subsequent Mortgage Loans listed in the Subsequent Mortgage Loan Schedule.
Neither the Issuer nor the Indenture Trustee shall have any responsibility for
determining whether any document is valid and binding, whether the text of any
assignment or endorsement is in proper or recordable form, whether any document
has been recorded in accordance with the requirements of any applicable
jurisdiction, or whether a blanket assignment is permitted in any applicable
jurisdiction. If a material defect in a document constituting part of a
Indenture Trustee's Mortgage Loan File is discovered, then the Seller and
Transferor shall comply with the cure, substitution and repurchase provisions of
Section 3.05 hereof.
(c) (1) Subject to (3) below, each of the Seller and the Transferor
shall have the option exercisable in its sole discretion, to remove a Mortgage
Loan (including a Mortgage Loan for which the current Monthly Payment is not
more than 30 days delinquent, but excluding a Mortgage Loan which is a Defective
Mortgage Loan, a Defaulted Mortgage Loan or a Mortgage Loan for which the
current Monthly Payment is more than 30 days past due) from the Trust and
substitute therefor a Qualified Substitute Mortgage Loan in the manner and
subject to the conditions set forth in Section 3.05 applicable to substitutions
made by the Transferor and subject to the condition that the Seller and/or the
Transferor may only effect substitutions under this Section 2.06(c) (1) which,
in the aggregate, amount to not more than 1.0% (as measured by the aggregate
Principal Balance of the Deleted Mortgage Loans) of the aggregate Cut-Off Date
Principal Balances of the Mortgage Loans [without [Securities Insurer] approval
and in any event may only effect substitutions under this Section 2.06(c) (2)
which exceed such 1% with [Securities Insurer] approval (except as otherwise
provided in Sections 2.06(c)(2) and 3.05(a).]
(2) Subject to (3) below, each of the Seller and the Transferor shall
have the option during the first 90 days after the Closing Date, exercisable in
its sole discretion, to remove a Mortgage Loan (including a Mortgage Loan for
which the current Monthly Payment is not more than 30 days delinquent, but
excluding a Mortgage Loan which is a Defective Mortgage Loan, a Defaulted
Mortgage Loan or a Mortgage Loan for which the current Monthly Payment is more
than 30 days past due) from the Trust and substitute therefor a Qualified
Substitute Mortgage Loan in the manner and subject to the conditions set forth
in Section 3.05 applicable to substitutions made by the Transferor, and subject
to the conditions that the Seller and/or the Transferor (i) may only effect
substitutions under this Section 2.06(c) (2) which, in the aggregate, amount to
not more than 10% (as measured by the aggregate Principal Balance of the Deleted
Mortgage Loans) of the aggregate Cut-Off date Principal Balances of the Mortgage
Loans; and in any event (ii) may only effect substitutions which exceed 5% of
the aggregate CutOff Date Principal Balances of the Mortgage Loans with
[Securities Insurer] approval.
(3) No substitution referred to in (1) and (2) above shall be
undertaken unless and until the Issuer and the Indenture Trustee shall have
received written assurances from each Rating Agency that such substitution once
effected would not result in the ratings assigned to any Class of the Securities
being downgraded and an Officer's Certificate from the Transferor or the Seller,
as applicable, stating that the Qualified Substitute Mortgage Loan complies with
the definition hereof and the substitution is not being effected for the primary
purpose of recognizing gains or decreasing losses resulting from market value
changes in the Deleted Mortgage Loans and Qualified Substitute Mortgage Loans
included in such substitution; provided that with respect to any substitution
under this Section 2.06(c) which, in the aggregate, amount exceeds 5.0% or more
of the aggregate Cut-Off Date Principal Balances of the Mortgage Loans, the
Issuer, the Indenture Trustee and the [Securities Insurer] shall have received
an opinion of counsel, which opinion of counsel shall be acceptable to the
[Securities Insurer] and the Indenture Trustee, that such substitution once
effected would not cause the Trust to become an "investment company" as defined
under the Investment Company Act of 1940.
(d) Upon receipt by the Issuer of a certification of a Servicing
Officer to the effect that such substitution has occurred and that the
Substitution Adjustment (if any) has been credited to the Collection Account
pursuant to Section 3.05 and remitted to the Indenture Trustee for deposit into
the Note Distribution Account or the Certificate Distribution Account, as
applicable, the Issuer shall (i) release to the Servicer for release to the
Seller or the Transferor, as the case may be, the related Indenture Trustee's
Mortgage Loan File for each Deleted Mortgage Loan and (ii) execute, without
recourse, representation or warranty, and deliver such instruments of transfer
presented to it by the Servicer as shall be necessary to transfer such Deleted
Mortgage Loan to the Seller or the Transferor, as the case may be.
(e) On the Distribution Date in [________] of each year commencing in
[____,] the Issuer shall deliver (or cause the Indenture Trustee to deliver) to
the Seller, the [Securities Insurer], the Indenture Trustee and the Servicer a
certification listing all Indenture Trustee's Mortgage Loan Files held by the
Indenture Trustee on behalf of the Issuer on such Distribution Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants with and to the
Issuer, the Indenture Trustee, the Servicer, the [Securities Insurer] and the
Securityholders as of the Closing Date:
(a) The Seller 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 and is licensed,
qualified and in good standing in each Mortgaged Property State if the laws of
such state require licensing or qualification in order to conduct business of
the type conducted by the Seller and perform its obligations as Seller
hereunder; the Seller 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 Seller and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action of the Seller; this Agreement evidences the valid, binding and
enforceable obligation of the Seller; and all requisite action has been taken by
the Seller to make this Agreement valid, binding and enforceable upon the Seller
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) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Seller makes no such representation or warranty) that
are necessary in connection with the purchase and sale of the Securities and the
execution and delivery by the Seller of this Agreement and the other related
documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either the
time within which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal therefrom
taken, and are adequate to authorize the consummation of the transactions
contemplated by this Agreement and such other documents on the part of the
Seller and the performance by the Seller of its obligations as Seller under this
Agreement and such other documents to which it is a party;
(c) 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 Seller, (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 Seller, or its
property is subject, or (iii) the violation of any law, rule, regulation, order,
judgment or decree to which the Seller or its respective property is subject;
(d) Neither this Agreement nor the Prospectus nor any statement, report or
other document prepared by the Seller and furnished or to be furnished pursuant
to this Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading;
(e) There is no action, suit, proceeding or investigation pending or, to
the best of the Seller's knowledge, threatened against the Seller which, either
in any one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or assets of
the Seller or in any material impairment of the right or ability of the Seller
to carry on its business substantially as now conducted, or in any material
liability on the part of the Seller or which would draw into question the
validity of this Agreement or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of the Seller contemplated herein, or
which would be likely to impair materially the ability of the Seller to perform
under the terms of this Agreement;
(f) The Seller 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 Seller or its properties or might have consequences that would
materially and adversely affect its performance hereunder;
(g) As of the Closing Date, the Issuer will have good and marketable title
to each Initial Mortgage Loan and such other items comprising the corpus of the
Trust free and clear of any lien, mortgage, pledge, charge, security interest or
other encumbrance;
(h) As of any Subsequent Transfer Date, the Issuer will have good and
marketable title to each Subsequent Mortgage Loan transferred on such date and
such other items comprising the corpus of the Trust free and clear of any lien,
mortgage, pledge, charge, security interest or other encumbrance; and
(i) The transfer, assignment and conveyance of the Mortgage Loans, the
Debt Instruments and the Mortgages by the Seller pursuant to this Agreement or
any Subsequent Transfer Agreement are not subject to the bulk transfer laws or
any similar statutory provisions in effect in any applicable jurisdiction.
(j) The Seller shall provide each Rating Agency and the [Securities
Insurer] with notice and a copy of any amendment to the Articles of
Incorporation of the Seller promptly after the filing thereof.
Section 3.02 Representations, Warranties and Covenants of the
Servicer.
The Servicer as such and in its capacity as the Transferor hereby
represents, warrants and covenants with and to the Seller, the Issuer, the
Indenture Trustee, the [Securities Insurer] and the Securityholders as of the
Closing Date:
(a) The Servicer 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 and is
licensed, qualified and in good standing in each Mortgaged Property State if the
laws of such state require licensing or qualification in order to conduct
business of the type conducted by the Servicer and perform its obligations as
Servicer hereunder; the Servicer 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 Servicer and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action of the Servicer; this Agreement evidences the
valid, binding and enforceable obligation of the Servicer; and all requisite
action has been taken by the Servicer to make this Agreement valid, binding and
enforceable upon the Servicer 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) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Servicer makes no such representation or warranty)
that are necessary in connection with the execution and delivery by the Servicer
of this Agreement and the other related documents to which it is a party, have
been duly taken, given or obtained, as the case may be, are in full force and
effect, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review thereof may
be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and such other
documents on the part of the Servicer and the performance by the Servicer of its
obligations as Servicer under this Agreement and such other documents to which
it is a party;
(c) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of the
charter or by-laws of the Servicer, (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 Servicer or its property is
subject, or (iii) the violation of any law, rule, regulation, order, judgment or
decree to which the Servicer or its property is subject;
(d) Neither this Agreement nor the Prospectus nor any statement,
report or other document prepared by the Servicer and furnished or to be
furnished pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the best of the Servicer's knowledge, threatened against the Servicer which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties or
assets of the Servicer or in any material impairment of the right or ability of
the Servicer to carry on its business substantially as now conducted, or in any
material liability on the part of the Servicer or which would draw into question
the validity of this Agreement or the Mortgage Loans or of any action taken or
to be taken in connection with the obligations of the Servicer contemplated
herein, or which would be likely to impair materially the ability of the
Servicer to perform under the terms of this Agreement;
(f) The Servicer 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 Servicer or its properties or might have consequences that
would materially and adversely affect its performance hereunder;
(g) So long as Advanta is the Servicer of the Mortgage Loans
hereunder, the Servicer's Mortgage Loan Files will be maintained at [16875 West
Bernardo Drive, San Diego, California 92127], or, if Advanta Mortgage Corp.
U.S.A. is no longer the Servicer hereunder or if Advanta changes the location of
the Servicer's Mortgage Loan Files, the Servicer's Mortgage Loan Files shall be
maintained at such address as may be indicated on an Officer's Certificate
executed by a Servicing Officer and delivered to the Issuer, the Indenture
Trustee, [the Securities Insurer] and the Seller;
(h) The Servicer shall not solicit any refinancing of any of the
Mortgage Loans; provided, that this covenant shall not prevent or restrict
either (1) the Servicer from making general solicitations, by mail,
advertisement or otherwise of the general public or persons on a targeted list,
so long as the list was not generated from the Mortgage Loan Schedule or (2) any
refinancing in connection with an Obligor's unsolicited request for refinancing;
and
(i) The Servicer shall not sell, transfer, assign or otherwise dispose
of a customer or similar list comprised of the names of the Obligors under the
Mortgage Loans to any third party.
Section 3.03 Individual Mortgage Loans.
The Transferor hereby represents and warrants to the Seller, the
Issuer, the Indenture Trustee, [the Securities Insurer] and the Securityholders,
with respect to each Initial Mortgage Loan, as of the Closing Date and, with
respect to each Subsequent Mortgage Loan, as of the related Subsequent Transfer
Date:
(a) Mortgage Loan Information. The information with respect to each
Mortgage Loan set forth in the Mortgage Loan Schedule is true and correct in all
material respects as of the applicable Cut-Off Date.
(b) Delivery of Mortgage Loan Documents. All of the original or
certified documentation required to be delivered to the Indenture Trustee on or
prior to the Closing Date or the Subsequent Transfer Date, as applicable, or as
otherwise provided in this Agreement has or will be so delivered.
(c) Payments Current. As of the applicable Cut-off Date, no more than
____% (by aggregate Cut-off Date Principal Balance) of the Initial Mortgage
Loans are more than 30 days but not more than 60 days delinquent, based on the
terms under which the related Mortgages, if applicable, and Debt Instruments
have been made and none of the Mortgage Loans are more than 60 days delinquent.
The Transferor has not advanced funds, or induced, solicited or knowingly
received any advance of funds from a party other than the related Obligor,
directly or indirectly, for the payment of any amount required by any Mortgage
Loan.
(d) No Waiver or Modification. The terms of each Debt Instrument and
Mortgage, if applicable, have not been impaired, waived, altered or modified in
any respect, except by written instruments reflected in the Indenture Trustee's
Mortgage Loan File and no provision of any Mortgage, if applicable, or Debt
Instrument has been "whited out" or erased unless such modification has been
initialed by each of the parties to the related Mortgage Loan. No instrument of
waiver, alteration, modification or assumption has been executed except for the
instruments that are part of the Indenture Trustee's Mortgage Loan File and the
terms of which are reflected in the Indenture Trustee's Mortgage Loan File.
(e) No Defenses. No Debt Instrument or Mortgage, if applicable, is
subject to any set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of any Debt Instrument or Mortgage,
if applicable, 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 in any proceeding or was asserted in any state or federal
bankruptcy or insolvency proceeding at the time the related Mortgage Loan was
originated.
(f) Compliance with Laws. Any and all requirements of any federal,
state or local law applicable to each Mortgage Loan have been complied with
including, without limitation, all consumer, usury, truth-in-lending, consumer
credit protection, equal credit opportunity or disclosure laws applicable to
each Mortgage Loan; each Mortgage Loan was originated in compliance with all
applicable laws and no fraud or misrepresentation was committed by any Person in
connection therewith.
(g) No Satisfaction or Release of Lien satisfied, canceled,
subordinated or rescinded, in whole or in part. No Mortgaged Property has been
released from the lien of the related Mortgage, if applicable, in whole or in
part, nor has any instrument been executed that would effect any such release,
cancellation, subordination or rescission, other than the subordination of the
lien of such Mortgage securing a Mortgage Loan with respect to which a related
Superior Lien was released in connection with the refinancing of the mortgage
loan relating to such Superior Lien.
(h) Valid Lien. With respect to each Debt Instrument that is secured
by a Mortgage, if applicable, such Mortgage is or creates a valid, subsisting
and enforceable lien on the related Mortgaged Property, including, in the case
of a Mortgage securing a Home Improvement Loan, the land and all buildings on
the related Mortgaged Property.
(i) Validity of Mortgage Loan Documents. Each Debt Instrument and each
Mortgage, if applicable, is genuine and each is the legal, valid and binding
obligation of the Obligor thereof, enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights in general and
by general principles of equity. All parties to each Debt Instrument and each
Mortgage, if applicable, had legal capacity at the time to enter into the
related Mortgage Loan and to execute and deliver such Debt Instrument and
Mortgage, and such Debt Instrument and Mortgage have been duly and properly
executed by such parties.
(j) Full Disbursement of Proceeds. As of the applicable Cut-Off Date,
the proceeds of each Mortgage Loan have been fully disbursed and there is no
requirement for future advances thereunder, all costs, fees and expenses
incurred in making or closing each Mortgage Loan and the recording of the
Mortgage, if applicable, were disbursed, the Obligor is not entitled to any
refund of any amounts paid or due under the Debt Instrument or any related
Mortgage and any and all requirements set forth in the related Mortgage Loan
documents have been complied with.
(k) Ownership. Immediately prior to the conveyance thereof to the
Seller, the Transferor had good and marketable title to each Mortgage Loan, Debt
Instrument and Mortgage, if applicable, was the sole owner thereof and had full
right to sell each Mortgage Loan, Debt Instrument and Mortgage to the Seller and
upon the conveyance thereof by the Transferor to the Seller, the Seller became
the sole owner of each Mortgage Loan, Debt Instrument and Mortgage, if
applicable, free and clear of any encumbrance, equity, lien, pledge, charge,
claim or security interest.
(l) Ownership of Mortgaged Property. With respect to each Mortgage
Loan that is secured by a Mortgaged Property, the related Servicer's Mortgage
Loan File contains a title document reflecting that title to such Mortgaged
Property is held at least 50% by the Obligor under such Mortgage Loan.
(m) No Defaults. Except with respect to any delinquent scheduled
payment set forth in subsection (c) above, there is no default, breach,
violation or event of acceleration existing under any Mortgage, if applicable,
or any Debt Instrument and, to the best of the Transferor's knowledge, there is
no event which, with the passage of time or with notice and/or the expiration of
any grace or cure period, would constitute such a default, breach, violation or
event of acceleration and neither the Transferor nor its predecessors have
waived any such default, breach, violation or event of acceleration, except as
set forth in an instrument of waiver, alteration, modification or assumption
that is included in the Indenture Trustee's Mortgage Loan File.
(n) No Condemnation or Damage. To the best of the Transferor's
knowledge, the physical condition of each Mortgaged Property has not
deteriorated since the date of origination of the related Mortgage Loan (normal
wear and tear excepted) and there is no proceeding pending for the total or
partial condemnation of any Mortgaged Property.
(o) Mortgage Remedies Adequate. Each Mortgage, if applicable, contains
customary and enforceable provisions such as to render the rights and remedies
of the holder thereof adequate for the realization against the related Mortgaged
Property of the benefits of the security provided thereby, including, (i) in the
case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii)
otherwise, by judicial foreclosure.
(p) Underwriting of Mortgage Loans. Each Mortgage Loan has been
underwritten by the originator thereof in accordance with such originator's then
current underwriting guidelines.
(q) Terms of Mortgage Loans. Each Mortgage Loan is a fixed rate loan;
each Debt Instrument has an original term to maturity of not less than 24 months
nor more than 25 years and three months from the date of origination; each Debt
Instrument is payable in monthly installments of principal and interest, with
interest payable in arrears, and requires a monthly payment which is sufficient
to amortize the original principal balance over the original term and to pay
interest at the related Mortgage Loan Interest Rate; and no Debt Instrument
provides for any extension of the original term.
(r) Security. No Debt Instrument is, or has been, secured by any
collateral except the lien of the related Mortgage, if applicable.
(s) Deed of Trust. If a Mortgage for a Secured Mortgage Loan
constitutes a deed of trust, a trustee, duly qualified under applicable law to
serve as such, has been properly designated and currently so serves as such and
is named in such Mortgage, or a valid substitution of trustee has been recorded
or may be recorded and no extraordinary fees or expenses are, or will become,
payable by the Transferor to the trustee under the deed of trust, except in
connection with default proceedings and a trustee's sale after default by the
related Obligor.
(t) Types of Mortgage Loans. Each Mortgage Loan whether or not a
Secured Loan is either (i) a Home Improvement Loan, (ii) a Debt Consolidation
Loan, (iii) a Combination Loan, or (iv) a first or junior lien purchase money
loan. No Mortgage Loan was originated for the express purpose of purchasing a
manufactured home.
(u) Completion of Improvements. With respect to all Home Improvement
Loans that have been originated through a home improvement contractor, all
improvements to be made to each Mortgaged Property with the proceeds of the
related Mortgage Loan have been completed.
(v) Origination Practices. The origination practices used by each
originator of the Mortgage Loans and the servicing and collection practices used
by the Transferor with respect to each Mortgage Loan have been in all material
respects legal, proper, prudent and customary with respect to the loan
origination and servicing business as applicable to the respective loan type.
(w) Servicing Practices. Each Mortgage Loan has been serviced in
accordance with all applicable laws and, to the best of the Transferor's
knowledge, no fraud or misrepresentation was committed by any Person in
connection therewith.
(x) No Bulk Transfer. The sale, transfer, assignment, conveyance and
grant of the Debt Instruments and the Mortgages, if applicable, by the
Transferor to the Seller were not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
(y) Delinquencies. As of the applicable Cut-Off Date, no more than
____% of the Mortgage Loans (by outstanding principal balance) were 31 days or
more delinquent.
(z) Relief Act Matters. No Obligor has notified the Transferor, and no
relief has been requested or allowed to an Obligor under the Soldiers' and
Sailors' Civil Relief Act of 1940.
(aa) Selection Criteria. The Mortgage Loans were not selected by the
Transferor for sale to the Seller or the Issuer on any basis intended to
adversely affect the Seller or the Issuer.
(bb) Superior Lien Delinquencies. No Superior Lien was more than 30
days past due at the time of origination of the related Mortgage Loan.
(cc) Treasury Regulation Section 301.7701. On the Closing Date and on
each Subsequent Transfer Date, [55%] or more (by aggregate principal balance) of
the Mortgage Loans do not constitute "real estate mortgages" for the purpose of
Treasury Regulation Section 301.7701 under the Code. For this purpose a Mortgage
Loan does not constitute a "real estate mortgage" if:
(i) The Mortgage Loan is not secured by an interest in real
property, or
(ii) The Mortgage 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 the test set out in paragraph (1) or the test set out in
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 or Subsequent
Transfer Date, as applicable. 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 more than 66- 2/3% of the gross
proceeds.
(dd) Good Repair. To the best of the Transferor's knowledge, the
related Mortgaged Property described in each Debt Instrument is free of damage
and in good repair or will be free of damage and in good repair following the
completion of any improvements or repairs to be financed by the related Mortgage
Loan.
(ee) Mortgage Loan Interest Method. Interest for each Mortgage Loan is
calculated at a rate of interest computed by the simple interest method or the
actuarial method.
(ff) Retail Installment Contracts. Some of the Mortgage Loans are
retail installment contracts for goods or services, and some of the Mortgage
Loans are home improvement loans for goods or services, which are either
"consumer credit contracts" or "purchase money loans" as such terms are defined
in 16 C.F.R. Part 433.1.
(gg) Inspections to Improvements; and No Encroachment. To the best of
the Transferor's knowledge, all required inspections, licenses and certificates
with respect to the improvements and the use and occupancy of all occupied
portions of all property securing the Mortgages, if applicable, have been made,
obtained or issued as applicable. To the best of the Transferor's knowledge, all
improvements which were considered in determining the appraised value of the
property securing each Mortgage, if applicable, lay wholly within the boundaries
and building restrictions lines of the related property and no improvements on
adjoining properties encroach upon such property and no improvement located on
or being a part of such property is in violation of any applicable zoning laws
or regulation.
(hh) Remedies Against Originators. In the event that any Mortgage Loan
was originated by an entity (such entity, the "Originator") other than the
Transferor and to the extent that the Transferor has failed to fulfill or is not
capable of fulfilling its obligations to cure, substitute or repurchase such
Mortgage Loan as required hereunder, then the [[Securities Insurer]] or the
Indenture Trustee on behalf of the Securityholders may enforce any remedies for
breach of representations and warranties made by the Originator with respect to
such Mortgage Loan.
(ii) Consent of Senior Lien. With respect to each Mortgage Loan that
is not a first mortgage loan, either (i) no consent for the Mortgage 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.
(jj) Flood Insurance. If required by federal or state law, each
property securing a Mortgage Loan is covered by flood insurance with a standard
mortgagee clause and extended coverage in an amount which is not less than the
value of such property. All such insurance policies meet the requirements of the
current guidelines of the Federal Insurance Administration, conform to the
requirements of the FNMA Sellers' Guide and the FNMA Servicers' Guide, and are
of standard type and quality for the locale where the related property is
located. All acts required to be performed to preserve the rights and remedies
of the Indenture Trustee in any such insurance policies have been performed
including, without limitation, any necessary notifications of insurers and
assignments of policies or interests therein.
(kk) No Fraudulent Conveyance. The Mortgage Loans are not being
transferred with any intent to hinder, delay or defraud any creditors.
(ll) Value and Marketability. To the best of the Transferor's
knowledge, there do not exist any circumstances, conditions or information with
respect to the Mortgage Loan, the related Mortgaged Property securing same, the
Obligor the Obligor's credit standing that reasonably can be expected to cause
private institutional investors investing in same type of Mortgage Loan to
regard such Mortgage Loan as an unacceptable investment, to increase the
likelihood that such Mortgage Loan will become delinquent, or adversely affect
the value or marketability of the Mortgage Loan.
(mm) Environmental Compliance. To the best of the Transferor's
knowledge, the Mortgaged Property is free from any and all toxic or hazardous
substances and there exists no violation of any local, state or federal
environmental law, rule or regulation.
(nn) Description Conforms to Prospectus Supplement. Each Initial
Mortgage Loan conforms, and all Initial Mortgage Loans in the aggregate conform,
in all material respects to the description thereof set forth in the Prospectus
Supplement.
(oo) No Buydown, GPM or Shared Appreciation Loans. No Mortgage Loan
contains any provisions pursuant to which principal and interest payments are
paid or partially paid with funds deposited in any separate account established
by the Transferor, the Obligor or anyone else on behalf of the Obligor, or paid
by any source other than the Obligor. No Mortgage Loan contains any other
similar provision which may constitute a "buydown" provision. No Mortgage Loan
is a graduated payment mortgage loan. No Mortgage Loan has a shared appreciation
or other contingent interest feature.
(pp) No Chattel Paper. Each Debt Instrument is comprised of one
original promissory note and each such promissory note constitutes an
"instrument" for purposes of Section 9- 105(1)(i) of the UCC. No Debt Instrument
constitutes or is comprised of "chattel paper" as such term is defined in
Section 9-105(1)(b) of the UCC. Each Debt Instrument has been delivered to the
Indenture Trustee.
(qq) Entire Agreement. The Debt Instrument and the Mortgage, if
applicable, contain the entire agreement between the related Obligor and the
lender and all obligations of the lender under the related Mortgage Loan, and no
other agreement defines, modifies, or expands the obligations of the lender
under the Mortgage Loan, except for any assumptions or modifications included in
the Indenture Trustee's Mortgage Loan File pursuant to Section 2.05(a)(v).
In light of the Transferor's underwriting guidelines, the Transferor
has reviewed all of the documents constituting each Servicer's Mortgage Loan
File and each Indenture Trustee's Mortgage Loan File and has made such inquiries
as it deems reasonable under the circumstances to make and confirm the accuracy
of the representations set forth herein.
Section 3.04 Subsequent Mortgage Loans.
(a) The Transferor shall represent and warrant to the Seller, the
Issuer, the Indenture Trustee, the [Securities Insurer] and the Securityholders
that as of each Subsequent Transfer Date:
(i) No Subsequent Mortgage Loan provides for negative
amortization;
(ii) No Subsequent Mortgage Loan has a Cut-Off Date or a
Subsequent Transfer Date later than [ ;]
(iii) No Subsequent Mortgage Loan has a maturity date later than
[--------------;]
(iv) To the best of the Transferor's knowledge, the acquisition
of the Subsequent Mortgage Loans as of such Subsequent Transfer Date
will not result in a downgrading in any rating of the Securities;
(v) The Subsequent Mortgage Loans have not been acquired by the
Issuer for the primary purpose of recognizing gains or decreasing
losses resulting from market value changes in such Subsequent Mortgage
Loans;
(vi) Each of the representations and warranties set forth in
Section 3.03 is true and correct with respect to each of the
Subsequent Mortgage Loans being transferred to the Issuer; and
[(vii) To the extent applicable to each Subsequent Mortgage Loan
being transferred to the Issuer, the quantitative criteria set forth
in paragraph 25 of that certain Commitment to Issue a Financial
Guaranty Insurance Policy ([Application No. ] dated as of [ )] (the
"[Securities Insurer] Commitment") issued by the [Securities Insurer]
have been satisfied.]
(b) The Transferor shall represent and warrant to the Seller, the
Issuer, the Indenture Trustee, [the Securities Insurer] and the Securityholders
that as of the end of the Funding Period, the Mortgage Loans have satisfied all
of the criteria set forth in paragraph 25 of the [Securities Insurer] Commitment
(as defined in (a)(vii) above).
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and
warranties set forth in Sections 3.03 and 3.04, shall survive the conveyance of
the Mortgage Loans to the Issuer, the Grant of the Mortgage Loans to the
Indenture Trustee and the delivery of the Securities to the Securityholders.
Upon discovery by the Seller, the Servicer, the Transferor, 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 Mortgage 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
Mortgage Loan in the case of a representation and warranty relating to a
particular Mortgage Loan (notwithstanding that such representation and warranty
was made to the Transferor's best knowledge), the party discovering such breach
shall give prompt written notice to the others. The Transferor shall within 60
days of the earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, promptly cure such breach in all material respects.
If, however, within 60 days after the notice to the Transferor respecting such
breach the Transferor has not remedied the breach and the breach materially and
adversely affects the interests of the Securityholders [or the Securities
Insurer] generally or in the related Mortgage Loan (the "Defective Mortgage
Loan"), the Seller shall cause the Transferor on or before the Determination
Date next succeeding the end of such 60 day period either (i) to remove such
Defective Mortgage Loan from the Trust (in which case it shall become a Deleted
Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans in
the manner and subject to the conditions set forth in this Section 3.05 or (ii)
to purchase such Defective Mortgage Loan at a purchase price equal to the
Purchase Price (as defined below) by depositing such Purchase Price in the
Collection Account. In addition, the Transferor shall indemnify the Trust [and
the Securities Insurer] for any losses incurred in excess of the proceeds
received from the repurchase or substitution of any such Defective Mortgage
Loan. In the event the Seller or the Transferor is notified that any Mortgaged
Property for a secured Mortgage Loan is not free of damage or not in good
repair, regardless of the Transferor's knowledge, the Seller shall cause the
Transferor to (x) substitute or purchase the related Mortgage Loan in accordance
with clauses (i) and (ii), respectively, above or (y) repair any such Mortgaged
Property such that such Mortgaged Property is free of damage and in good repair.
The Transferor shall provide the Servicer, the [Securities Insurer] the
Indenture Trustee and the Issuer with a certification of a Responsible Officer
on the Determination Date next succeeding the end of such 60 day period
indicating whether the Transferor is purchasing the Defective Mortgage Loan or
substituting in lieu of such Defective Mortgage Loan a Qualified Substitute
Mortgage Loan. With respect to the purchase of a Defective Mortgage Loan
pursuant to this Section, the "Purchase Price" shall be equal to the Principal
Balance of such Defective Mortgage Loan as of the date of purchase, plus all
accrued and unpaid interest on such Defective Mortgage Loan to but not including
the Due Date in the Due Period most recently ended prior to such Determination
Date computed at the applicable Mortgage Loan Interest Rate, plus the amount of
any unreimbursed Servicing Advances made by the Servicer with respect to such
Defective Mortgage Loan, which Purchase Price shall be deposited in the
Collection Account (after deducting therefrom any amounts received in respect of
such repurchased Defective Mortgage Loan and being held in the Collection
Account for future distribution to the extent such amounts represent recoveries
of principal not yet applied to reduce the related Principal Balance or interest
(net of the Servicing Fee) for the period from and after the Due Date in the Due
Period most recently ended prior to such Determination Date).
Any substitution of Mortgage Loans pursuant to this Section 3.05(a)
and Section 2.06(c) shall be accompanied by payment by the Transferor of the
Substitution Adjustment, if any, to be deposited in the Collection Account. For
purposes of calculating the Available Collection Amount for any Distribution
Date, amounts paid by the Transferor pursuant to this Section 3.05 in connection
with the repurchase or substitution of any Defective Mortgage Loan that are on
deposit in the Collection Account as of the Determination Date for such
Distribution Date shall be deemed to have been paid during the related Due
Period and shall be transferred to the Note Distribution Account to be retained
therein or transferred to the Certificate Distribution Account pursuant to
Section 5.01(c) on the Determination Date for such Distribution Date.
As to any Deleted Mortgage Loan for which the Transferor substitutes a
Qualified Substitute Mortgage Loan or Loans, the Transferor shall effect such
substitution by delivering to the Issuer (i) a certification executed by a
Responsible Officer of the Transferor to the effect that the Substitution
Adjustment has been credited to the Collection Account and remitted to the
Indenture Trustee for deposit into the Note Distribution Account and/or the
Certificate Distribution Account, and (ii) the documents constituting the
Indenture Trustee's Loan File for such Qualified Substitute Mortgage Loan or
Loans.
In addition to the preceding repurchase obligations, each of the
Seller and the Transferor shall have the option, exercisable in its sole
discretion at any time, to repurchase, or to substitute one or more Qualified
Substitute Mortgage Loans for, any Mortgage Loan from the Issuer in the event
that such Mortgage Loan is in foreclosure, default or imminent default; provided
that any repurchase or substitution pursuant to this paragraph is conducted in
the same manner as the repurchase or substitution, respectively, of a Defective
Mortgage Loan pursuant to this Section 3.05.
(b) The Servicer shall deposit in the Collection Account all payments
received in connection with such Qualified Substitute Mortgage Loan or Loans
after the date of such substitution. Monthly Payments received with respect to
Qualified Substitute Mortgage Loans on or before the date of substitution will
be retained by the Transferor. The Issuer will be entitled to all payments
received on the Deleted Mortgage Loan on or before the date of substitution, and
the Transferor shall thereafter be entitled to retain all amounts subsequently
received in respect of such Deleted Mortgage Loan. The Transferor shall give
written notice to the Issuer, the Servicer (if the Transferor is not then acting
as such), the Indenture Trustee and the [Securities Insurer] that such
substitution has taken place and shall amend the Mortgage Loan Schedule to
reflect (i) the removal of such Deleted Mortgage Loan from the terms of this
Agreement and (ii) the substitution of the Qualified Substitute Mortgage Loan.
The Transferor shall promptly deliver to the Issuer, the Servicer (if the
Transferor is not then acting as such), the Indenture Trustee and the
[Securities Insurer] a copy of the amended Mortgage Loan Schedule. Upon such
substitution, such Qualified Substitute Mortgage Loan or Loans shall be subject
to the terms of this Agreement in all respects, and the Transferor shall be
deemed to have made with respect to such Qualified Substitute Mortgage Loan or
Loans, as of the date of substitution, the covenants, representations and
warranties set forth in Section 3.03. On the date of such substitution, the
Transferor will deposit into the Collection Account an amount equal to the
related Substitution Adjustment, if any. In addition, on the date of such
substitution, the Issuer shall cause the Indenture Trustee to release the
Deleted Mortgage Loan from the lien of the Indenture and the Issuer will cause
such Qualified Substitute Mortgage Loan to be pledged to the Indenture Trustee
under the Indenture as part of the Trust Estate.
(c) It is understood and agreed that the obligations of the Transferor
set forth in this Section 3.05 to cure, purchase or substitute for a Defective
Mortgage Loan (and to indemnify the Trust and the [Securities Insurer] for
certain losses as described herein in connection with a Defective Mortgage Loan)
constitute the sole remedies of the Issuer, the Indenture Trustee, the
Securityholders and the [Securities Insurer] hereunder respecting a breach of
the representations and warranties contained in Sections 3.03 and 3.04. Any
cause of action against the Seller relating to or arising out of a defect in a
Indenture Trustee's Mortgage Loan File as contemplated by Section 2.06 or
against the Transferor relating to or arising out of a breach of any
representations and warranties made in Sections 3.03 or 3.04 shall accrue as to
any Mortgage Loan upon (i) discovery of such defect or breach by any party and
notice thereof to the Seller or the Transferor, as applicable, or notice thereof
by the Transferor or the Seller, as applicable, to the Issuer and the
[Securities Insurer], (ii) failure by the Transferor or the Seller, as
applicable, to cure such defect or breach or purchase or substitute such
Mortgage Loan as specified above, and (iii) demand upon the Transferor or the
Seller, as applicable, by the Issuer, the [Securities Insurer] or the Majority
Securityholders for all amounts payable in respect of such Mortgage Loan.
(d) Neither the Issuer nor the Indenture Trustee shall have any duty
to conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Mortgage Loan pursuant to this Section or the eligibility of
any Home Mortgage for purposes of this Agreement.
ARTICLE IV.
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor, shall
service and administer the Mortgage Loans and shall have full power and
authority, acting alone, to do any and all things in connection with such
servicing and administration which the Servicer may deem necessary or desirable
and consistent with the terms of this Agreement. Notwithstanding anything to the
contrary contained herein, the Servicer, in servicing and administering the
Mortgage Loans, shall employ or cause to be employed procedures (including
collection, foreclosure, liquidation and Foreclosure Property management and
liquidation procedures) and exercise the same care that it customarily employs
and exercises in servicing and administering loans of the same type as the
Mortgage Loans for its own account, all in accordance with accepted servicing
practices of prudent lending institutions and servicers of loans of the same
type as the Mortgage Loans and giving due consideration to the Securityholders'
and the [Securities Insurer]'s reliance on the Servicer. The Servicer has and
shall maintain the facilities, procedures and experienced personnel necessary to
comply with the servicing standard set forth in this subsection (a) and the
duties of the Servicer set forth in this Agreement relating to the servicing and
administration of the Mortgage Loans.
(b) Servicing Advances. In accordance with the preceding general servicing
standard, the Servicer, or any Subservicer on behalf of the Servicer, shall make
all Servicing Advances in connection with the servicing of each Mortgage Loan
hereunder. Notwithstanding any provision to the contrary herein, neither the
Servicer, nor any Subservicer on behalf of the Servicer, shall have any
obligation to advance its own funds for any delinquent scheduled payments of
principal and interest on any Mortgage Loan or to satisfy or keep current the
indebtedness secured by any Superior Liens on the related Mortgaged Property. No
costs incurred by the Servicer or any Subservicer in respect of Servicing
Advances shall, for the purposes of distributions to Securityholders, be added
to the amount owing under the related Mortgage Loan. Notwithstanding any
obligation by the Servicer to make a Servicing Advance hereunder with respect to
a Mortgage Loan, before making any Servicing Advance that is material in
relation to the outstanding principal balance thereof, the Servicer shall assess
the reasonable likelihood of (i) recovering such Servicing Advance and any prior
Servicing Advances for such Mortgage Loan, and (ii) recovering any amounts
attributable to outstanding interest and principal owing on such Mortgage Loan
for the benefit of the Securityholders and the [Securities Insurer] in excess of
the costs, expenses and other deductions to obtain such recovery, including
without limitation any Servicing Advances therefor and, if applicable, the
outstanding indebtedness of all Superior Liens. The Servicer shall only make a
Servicing Advance with respect to a Mortgage Loan to the extent that the
Servicer determines in its reasonable, good faith judgment that such Servicing
Advance would likely be recovered as aforesaid.
(c) Waivers, Modifications and Extensions. Consistent with the terms of
this Agreement, the Servicer may waive, modify or vary any provision of any
Mortgage Loan or consent to the postponement of strict compliance with any such
provision or in any manner grant indulgence to any Obligor if in the Servicer's
reasonable determination such waiver, modification, postponement or indulgence
is not materially adverse to the interests of the Securityholders or the
[Securities Insurer]; provided, however, unless the Obligor is in default with
respect to the Mortgage Loan, or such default is, in the judgment of the
Servicer, reasonably foreseeable, the Servicer may not permit any modification
with respect to any Mortgage Loan that would change the Mortgage Loan Interest
Rate, defer (subject to the following paragraph) or forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan) or extend the final maturity date on the Mortgage Loan. The
Servicer may grant a waiver or enter into a subordination agreement with respect
to the refinancing of a Superior Lien on the related Mortgaged Property,
provided that the Obligor is in a better financial or cash flow position as a
result of such refinancing, which may include a reduction in the Obligor's
scheduled monthly payment on the indebtedness secured by such Superior Lien. The
Servicer shall notify the Issuer, the [Securities Insurer] and the Indenture
Trustee of any modification, waiver or amendment of any provision of any
Mortgage Loan and the date thereof, and shall deliver to the Indenture Trustee
for deposit in the related Indenture Trustee's Mortgage Loan File, an original
counterpart of the agreement relating to such modification, waiver or amendment
promptly following the execution thereof. Notwithstanding the preceding
provisions of this subsection (c), (1) with respect to any Mortgage Loan that is
not a Defaulted Mortgage Loan if the Mortgage Loans that have been waived,
modified or varied, in the aggregate, equal or exceed two percent (2%) of the
aggregate Principal Balances of the Initial Mortgage Loans as of the related
Cut-Off Date, then any waiver, modification or variance of any Mortgage Loan
thereafter shall be subject to the prior written consent of the [Securities
Insurer]; and (2) with, respect to any Mortgage Loan that is a Defaulted
Mortgage Loan, the Servicer may modify, vary or waive such defaulted Mortgage
Loan in a manner that in the reasonable judgment of the Servicer will be likely
to maximize the net proceeds realizable from such Defaulted Mortgage Loan under
the circumstances, including, without limitation, the deferment or forgiveness
of any principal or interest payments due or to become due thereon; provided,
however, that with respect to the preceding clauses (1) and (2), no such
modification, waiver or variation of a Mortgage Loan pursuant to this subsection
(c) shall involve the execution by the related Obligor of a new Debt Instrument
or a new Mortgage.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of each Mortgage Loan and the related
Debt Instrument and Mortgage, if applicable. Consistent with the foregoing, the
Servicer may in its discretion waive or permit to be waived any late payment
charge, prepayment charge or assumption fee or any other fee or charge which the
Servicer would be entitled to retain hereunder as Servicing Compensation and
extend the due date for payments due on a Debt Instrument for a period.
(d) Instruments of Satisfaction or Release. Without limiting the
generality of the foregoing, the Servicer is hereby authorized and empowered to
execute and deliver on behalf of the Issuer, the Indenture Trustee, each
Securityholder and the [Securities Insurer], all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Mortgage Loans and with respect to the related
Mortgaged Properties. If reasonably required by the Servicer, the Issuer and the
Indenture Trustee shall furnish the Servicer with any powers of attorney and
other documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under this Agreement.
Section 4.02 Liquidation of Mortgage Loans.
(a) In the event that any payment due under any Mortgage Loan and not
postponed pursuant to Section 4.01(c) is not paid when the same becomes due and
payable, or in the event the Obligor fails to perform any other covenant or
obligation under the Mortgage Loan and such failure continues beyond any
applicable grace period, the Servicer shall, in accordance with the standard of
care specified in Section 4.01(a), take such action as it shall deem to be in
the best interest of the Securityholders and the [Securities Insurer] to collect
or liquidate such Mortgage Loan in default in a manner that in the reasonable
judgment of the Servicer will be likely to maximize the net proceeds realizable
therefrom under the circumstances (including, but without limitation, the resale
or substitution of such Mortgage Loan pursuant to Section 3.05, or, if no
Superior Liens exist on the related Mortgaged Property, foreclose or otherwise
comparably effect ownership in such Mortgaged Property in the name of the Issuer
for the benefit of Securityholders and the [Securities Insurer]). The Servicer
shall give the Indenture Trustee notice of the election of remedies made
pursuant to this Section 4.02. The Servicer shall not be required to satisfy the
indebtedness secured by any Superior Liens on the related Mortgaged Property or
to advance funds to keep the indebtedness secured by such Superior Liens
current. In connection with any collection or liquidation activities, the
Servicer shall exercise collection or liquidation procedures with the same
degree of care and skill as it would exercise or use under the circumstances in
the conduct of its own affairs.
(b) During any Due Period occurring after a Mortgage Loan becomes a
Liquidated Mortgage Loan, the Servicer shall deposit into the Collection Account
any proceeds received by it with respect to such Liquidated Mortgage Loan or the
related Foreclosure Property ("Post Liquidation Proceeds").
(c) After a Mortgage Loan has become a Liquidated Mortgage Loan, the
Servicer shall promptly prepare and forward to the Issuer, the Indenture
Trustee, the [Securities Insurer] and, upon request of any Securityholder, to
such Securityholder a Liquidation Report detailing the following: (i) the Net
Liquidation Proceeds, Insurance Proceeds or Released Mortgaged Property Proceeds
received in respect of such Liquidated Mortgage Loan; (ii) expenses incurred
with respect thereto; (iii) any Net Loan Losses incurred in connection
therewith; and (iv) any Post Liquidation Proceeds.
Section 4.03 Fidelity Bond; Errors and Omission Insurance.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy in
such amounts as required by, and satisfying any other requirements of, the FHA
and the FHLMC, with broad coverage on all officers, employees or other persons
acting in any capacity requiring such persons to handle funds, money, documents
or papers relating to the Mortgage Loans ("Servicer Employees"). Any such
fidelity bond and errors and omissions insurance shall protect and insure the
Servicer against losses, including losses resulting from forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts (including acts
relating to the origination and servicing of loans of the same type as the
Mortgage Loans) of such Servicer Employees. Such fidelity bond shall also
protect and insure the Servicer against losses in connection with the release or
satisfaction of a Mortgage Loan without having obtained payment in full of the
indebtedness secured thereby. In the event of any loss of principal or interest
on a Mortgage Loan for which reimbursement is received from the Servicer's
fidelity bond or errors and omissions insurance, the proceeds from any such
insurance will be deposited in the Collection Account. No provision of this
Section 4.03 requiring such fidelity bond and errors and omissions insurance
shall diminish or relieve the Servicer from its duties and obligations as set
forth in this Agreement. Upon the request of the Issuer, the Indenture Trustee
or the [Securities Insurer], the Servicer shall cause to be delivered to
requesting party a certified true copy of such fidelity bond and insurance
policy. On the Closing Date, such fidelity bond and insurance is maintained by
the Servicer with Reliance Insurance Company of Illinois.
Section 4.04 Title, Management and Disposition of Foreclosure
Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (a "Foreclosure Property"), the
deed or certificate of sale shall be taken in the name of the Indenture Trustee
for the benefit of the Securityholders and the [Securities Insurer].
The Servicer shall manage, conserve, protect and operate each
Foreclosure Property for the Indenture Trustee, the Securityholders and the
[Securities Insurer] solely for the purpose of its prudent and prompt
disposition and sale. The Servicer shall, either itself or through an agent
selected by the Servicer, manage, conserve, protect and operate the Foreclosure
Property in the same manner that it manages, conserves, protects and operates
other foreclosure property for its own account, and in the same manner that
similar property in the same locality as the Foreclosure Property is managed.
The Servicer shall attempt to sell the same (and may temporarily lease the same)
on such terms and conditions as the Servicer deems to be in the best interest of
the Securityholders and the [Securities Insurer].
The disposition of Foreclosure Property shall be carried out by the
Servicer at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Indenture Trustee, the Securityholders
and the [Securities Insurer] and, as soon as practicable thereafter, the
expenses of such sale shall be paid. The Net Liquidation Proceeds or Post
Liquidation Proceeds, as applicable, from the conservation, disposition and sale
of the Foreclosure Property shall be promptly deposited by the Servicer in the
Collection Account in accordance with Section 5.01 of this Agreement and the
Indenture, which Net Liquidation Proceeds or Post Liquidation Proceeds, as
applicable, shall equal all cash amounts received with respect thereto less the
amounts retained and withdrawn by the Servicer for any related unreimbursed
Servicing Advances and any other fees and expenses incurred in connection with
such Foreclosure Property.
Section 4.05 Access to Certain Documentation and Information Regarding
the Mortgage Loans.
The Servicer shall provide to the Issuer, the Indenture Trustee, the
Securityholders, the [Securities Insurer] and the supervisory agents and
examiners of each of the foregoing access to the documentation regarding the
Mortgage Loans required by applicable state and federal regulations, such access
being afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer designated by it.
Section 4.06 Superior Liens.
(a) The Servicer shall file (or cause to be filed) of record a request
for notice of any action by a lienholder under a Superior Lien for the
protection of the Issuer's interest, where permitted by local law and whenever
applicable state law does not require that a junior lienholder be named as a
party defendant in foreclosure proceedings in order to foreclose such junior
lienholder's equity of redemption.
(b) If the Servicer is notified that any lienholder under a Superior
Lien has accelerated or intends to accelerate the obligations secured by such
Superior Lien, or has declared or intends to declare a default under the related
mortgage or promissory note secured thereby, or has filed or intends to file an
election to have any Mortgaged Property sold or foreclosed, the Servicer shall
take, on behalf of the Issuer and the Indenture Trustee, all reasonable actions
that are necessary to protect the interests of the Securityholders and the
[Securities Insurer], and/or to preserve the security of the related Mortgage
Loan, including making any Servicing Advances that are necessary to cure the
default or reinstate the Superior Lien. The Servicer shall immediately notify
the Issuer and the Indenture Trustee of any such action or circumstances. Any
Servicing Advances by the Servicer pursuant to its obligations in this Section
4.06 shall comply with requirements set forth in Section 4.01(b) hereof.
Section 4.07 Subservicing.
(a) The Servicer may, with the prior written consent of the
[Securities Insurer] and the Indenture Trustee, enter into Subservicing
Agreements for any servicing and administration of Mortgage Loans with any
institution which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Subservicing Agreement and is an
Eligible Servicer. The Servicer shall give prior written notice to the Issuer,
the Indenture Trustee and the [Securities Insurer] of the appointment of any
Subservicer. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and to either directly service the related Mortgage Loans or enter
into a Subservicing Agreement with a successor subservicer which qualifies
hereunder.
(b) Notwithstanding any Subservicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Subservicer or reference to actions taken through a Subservicer or
otherwise, the Servicer shall remain obligated and primarily liable to the
Issuer, the Indenture Trustee, the [Securities Insurer] and Securityholders for
the servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Subservicing Agreements or arrangements or by virtue of
indemnification from the Subservicer and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Mortgage Loans. For purposes of this Agreement, the Servicer shall be deemed
to have received payments on Mortgage Loans when the Subservicer has actually
received such payments and, unless the context otherwise requires, references in
this Agreement to actions taken or to be taken by the Servicer in servicing the
Mortgage Loans include actions taken or to be taken by a Subservicer on behalf
of the Servicer. The Servicer shall be entitled to enter into any agreement with
a Subservicer for indemnification of the Servicer by such Subservicer, and
nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
(c) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the successor Servicer,
on behalf of the Issuer, the Indenture Trustee, the [Securities Insurer] and the
Securityholders pursuant to Section 4.08, shall thereupon assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into, unless the successor Servicer elects to
terminate any Subservicing Agreement in accordance with its terms. The successor
Servicer shall be deemed to have assumed all of the Servicer's interest therein
and to have replaced the Servicer as a party to each Subservicing Agreement to
the same extent as if the Subservicing Agreements had been assigned to the
assuming party, except that the Servicer shall not thereby be relieved of any
liability or obligations under the Subservicing Agreements. The Servicer at its
expense and without right of reimbursement therefor, shall, upon request of the
successor Servicer, deliver to the assuming party all documents and records
relating to each Subservicing Agreement and the Mortgage Loans then being
serviced and an accounting of amounts collected and held by it and otherwise use
its best efforts to effect the orderly and efficient transfer of the
Subservicing Agreements to the assuming party.
(d) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Issuer, the Indenture Trustee, the [Securities Insurer] and
the Securityholders, shall enforce the obligations of each Subservicer under the
related Subservicing Agreement. Such enforcement, including, without limitation,
the legal prosecution of claims and the pursuit of other appropriate remedies,
shall be in such form and carried out to such an extent and at such time as the
Servicer, in its good faith business judgment, would require were it the owner
of the related Mortgage Loans. The Servicer shall pay the costs of such
enforcement at its own expense, and shall be reimbursed therefor only (i) from a
general recovery resulting from such enforcement to the extent, if any, that
such recovery exceeds all amounts due in respect of the related Mortgage Loan or
(ii) from a specific recovery of costs, expenses or attorneys fees against the
party against whom such enforcement is directed.
(e) Any Subservicing Agreement that may be entered into and any other
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone and none of the Issuer, the Indenture
Trustee, the Securityholders or the [Securities Insurer] shall be deemed parties
thereto or shall have any claims, rights, obligations, duties or liabilities
with respect to the Subservicer in its capacity as such except as set forth in
Section 4.07(c) above.
Section 4.08 Successor Servicers. In the event that the Servicer is
terminated pursuant to Section 10.01 hereof, or resigns pursuant to Section 9.04
hereof or otherwise becomes unable to perform its obligations under this
Agreement, the Indenture Trustee will become the successor servicer or will
appoint a successor servicer in accordance with the provisions of Section 10.02
hereof; provided that any successor servicer, including the Indenture Trustee,
shall satisfy the requirements of an Eligible Servicer and shall be approved by
the Rating Agencies and the [Securities Insurer].
ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.
(a)(1) Establishment of Collection Account. The Servicer, for
the benefit of the Securityholders and the [Securities Insurer], shall cause to
be established and maintained one or more Collection Accounts, which shall be
separate Eligible Accounts, which may be interest-bearing, entitled "COLLECTION
ACCOUNT, BANKERS TRUST COMPANY, AS INDENTURE TRUSTEE, IN TRUST FOR THE FIRSTPLUS
ASSET BACKED SECURITIES, SERIES 199_-_". The Collection Account may be
maintained with the Indenture Trustee or any other depository institution which
satisfies the requirements set forth in the definition of Eligible Account. The
creation of any Collection Account other than one maintained with the Indenture
Trustee shall be evidenced by a letter agreement between the Servicer and the
depository institution acceptable to the [Securities Insurer]. A copy of such
letter agreement shall be furnished to the Indenture Trustee, the [Securities
Insurer] and, upon request of any Securityholder, to such Securityholder. Funds
in the Collection Account shall be invested in accordance with Section 5.08.
The Collection Account shall be established, as of the Closing Date,
with [ ] as an Eligible Account pursuant to the definition
thereof. The Collection Account may, upon written notice to the Issuer and the
Indenture Trustee, be transferred to a different depository institution upon
prior written consent of the [Securities Insurer] so long as such transfer is to
an Eligible Account.
(a)(2) Establishment of Note Distribution Account. No later than the
Closing Date, the Servicer, for the benefit of the Securityholders, shall cause
to be established and maintained with the Indenture Trustee one or more Note
Distribution Accounts, which shall be separate Eligible Accounts, which may be
interest-bearing and which shall be entitled "NOTE DISTRIBUTION ACCOUNT,
[BANKERS TRUST COMPANY,] AS INDENTURE TRUSTEE, IN TRUST FOR THE ["PREFERRED
CREDIT ASSET BACKED SECURITIES, SERIES 199_-_". Funds in the Note Distribution
Account shall be invested in accordance with Section 5.08.
(b)(1) Deposits to Collection Account. The Servicer shall use its best
efforts to deposit or cause to be deposited (without duplication) within one (1)
Business Day, and shall in any event deposit within two (2) Business Days, of
receipt thereof in the Collection Account and retain therein in trust for the
benefit of the Securityholders and the [Securities Insurer]:
(i) all payments on account of principal on the Mortgage Loans
collected after the applicable Cut-Off Date;
(ii) all payments on account of interest on the Mortgage Loans
collected after the applicable Cut-Off Date;
(iii) all Net Liquidation Proceeds and Post Liquidation Proceeds
pursuant to Sections 4.02 or 4.04;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase of any
Mortgage Loan and the amount of any Substitution Adjustment pursuant
to Sections 2.06 and 3.05;
(vii) any amount required to be deposited in the Collection
Account pursuant to the receipt of proceeds from any fidelity bond or
errors and omission insurance under Section 4.03 or the deposit of the
Termination Price under Section 11.02; and
(viii) interest and gains on funds held in the Collection
Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received with respect to a Mortgage Loan that
constitute additional servicing compensation pursuant to Section 7.03, and such
amounts retained by the Servicer during a Due Period shall be excluded from the
calculation of the Servicing Compensation that is distributable to the Servicer
from the Note Distribution Account on the next Distribution Date following such
Due Period.
(b)(2) Deposits to Note Distribution Account. On the third Business
Day prior to the Distribution Date, the Indenture Trustee (based on information
contained in the Servicer's Monthly Remittance Report for such Distribution
Date) shall make the following withdrawals from the Collection Account, the
Pre-Funding Account, the Capitalized Interest Account and the Reserve Account,
as applicable, and deposit into the Note Distribution Account for such
Distribution Date:
(i) the Available Collection Amount; and
(ii) the Reserve Account Withdrawal Amount, if any.
(c) Withdrawals from 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 (based on the
information contained in the Servicer's Monthly Remittance Report for such
Distribution Date) shall either (1) retain funds in the Note Distribution
Account for distribution on such Distribution Date or (2) make the following
withdrawals from the Note Distribution Account and deposits into the other Trust
Accounts as indicated by 11:00 a.m. (New York City time), in the following order
of priority:
(i) to retain in the Note Distribution Account for distribution
on such Distribution Date pursuant to the Indenture in the following
order, (a) to the Servicer, an amount equal to the Servicing
Compensation (net of any amounts retained prior to deposit into the
Collection Account pursuant to subsection (b)(1) above) and all unpaid
Servicing Compensation from prior Due Periods, (b) to the [Securities
Insurer], an amount equal to the Guaranty Insurance Premium and all
unpaid Guaranty Insurance Premiums from prior Due Periods, (c) to the
Indenture Trustee, an amount equal to the Indenture Trustee fee and
all unpaid Indenture Trustee Fees from prior Due Periods, (d) to the
Owner Trustee, an amount equal to the Owner Trustee Fee and all unpaid
Owner Trustee Fees from prior Due Periods, and (e) to the Indenture
Trustee, an amount equal to the Indenture Trustee Fee and all unpaid
Indenture Trustee Fees from prior Due Periods;
(ii) to retain in the Note Distribution Account for distribution
pursuant to the Indenture on such Distribution Date and to the
Certificate Distribution Account for distribution pursuant to Section
5.06, pro rata, any amounts remaining from the Pre-Funding Account
Deposit at the end of the Funding Period, which will be distributed in
reduction, on a pro rata basis, of the Class Principal Balances of
each Class of Notes and the Certificate Principal Balance of the
Certificates as provided in Section 8.2(c)(ii) of the Indenture and
Section 5.06(c)(i) hereof; provided, however, that if such remaining
amount is less than or equal to $50,000, such amount will be included
in the Noteholders' Monthly Principal Distributable Amount and
deposited only in the Note Distribution Account;
(iii) to retain in the Note Distribution Account for distribution
pursuant to the Indenture on such Distribution Date, from the
Available Distribution Amount remaining after the application of
clause (i) through (ii), the Noteholders' Interest Distributable
Amount;
(iv) to retain in the Note Distribution Account for distribution
pursuant to the Indenture on such Distribution Date, from the
Available Distribution Amount remaining after the application of
clauses (i) through (iii) above the Noteholders' Principal
Distributable Amount;
(v) to the Certificate Distribution Account for distribution
pursuant to Section 5.06 on such Distribution Date, from the Available
Distribution Amount remaining after the application of clauses (i)
through (iv) above, the Certificateholders' Interest Distributable
Amount;
(vi) to the Certificate Distribution Account for distribution
pursuant to Section 5.06 on such Distribution Date, from the Available
Distribution Amount remaining after the application of clauses (i)
through (v) above, the Certificateholders' Principal Distributable
Amount;
(vii) to the Certificate Distribution Account, for distribution
pursuant to Section 5.06 on such Distribution Date to the [Securities
Insurer], from the Available Distribution Amount after application of
clauses (i) through (vi) above the [Securities Insurer] Reimbursement
Amount;
(viii) on an Overcollateralization Stepdown Date, to the
Certificate Distribution Account, for distribution pursuant to Section
5.06 on such Distribution Date to the holders of the Residual Interest
from the Available Distribution Amount, after application of clauses
(i) through (vii) above the Overcollateralization Reduction Amount;
(ix) to the Certificate Distribution Account, for distribution
pursuant to Section 5.06 on such Distribution Date to the Servicer,
from the Available Distribution Amount, after application of clauses
(i) through (viii) above an amount equal to any Servicing Advances
previously made by the Servicer and not previously reimbursed (the
"Servicing Advance Reimbursement Amount"); and
(x) if the Excess Overcollateralization Amount equals or exceeds
zero, to the Certificate Distribution Account, for distribution on
such Distribution Date to the holders of the Residual Interest from
any remaining Available Distribution Amount after application of
clauses (i) through (ix) above, the Excess Spread, if any.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Collection Account and
the Note Distribution Account hereunder until the Certificate Principal Balance
is reduced to zero.
(d) Additional Withdrawals from Collection Account. The Indenture
Trustee, at the direction of the Servicer shall also make the following
withdrawals from the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error; and
(ii) to clear and terminate the Collection Account in connection
with the termination of this Agreement.
The Servicer shall not retain any cash or investment in the Collection
Account for a period in excess of 12 months and cash therein shall be considered
transferred to the Note Distribution Account on a first-in, first- out basis.
Section 5.02 Claims Under Guaranty Policy.
(a) 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 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 the Certificates.
(b)(i) If for any Distribution Date a Deficiency Amount exists, the
Indenture Trustee shall complete a notice in the form set forth as Exhibit A to
the Guaranty Policy (the "Notice") and shall submit such Notice to the Fiscal
Agent no later than 12:00 noon, New York time, on the second Business Day
preceding such Distribution Date. The Notice shall constitute a claim for a
Guaranteed Payments pursuant to the Guaranty Policy for an amount equal to such
Deficiency Amount. Upon receipt of the Guaranteed Payments, at or prior to the
latest time payments of the Guaranteed Payments are to be made by the
[Securities Insurer] pursuant to the Guaranty Policy, on behalf of the
Noteholders and Certificateholders, the Indenture Trustee shall distribute such
Guaranteed Payments as part of the Noteholders' Distributable Amount under the
Indenture to the extent such Guaranteed Payments relate to the Notes and as part
of the Certificateholders' Distributable Amount under this Agreement to the
extent such Guaranteed Payments relate to the Certificates.
(b)(ii) In addition, if the Indenture Trustee has notice that any of
the Securityholders have been required to disgorge payments of interest or
principal on the related Notes or the related Certificates pursuant to a final
judgment by a court of competent jurisdiction that such payment constitutes a
voidable preference to such Securityholders within the meaning of any applicable
bankruptcy laws, then the Indenture Trustee shall notify the [Securities
Insurer] as set forth in the Guaranty Policy for making a claim for a Preference
Amount. Such payment for a Preference Amount shall be disbursed to the receiver
or trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Securityholder and not to any Securityholder
directly unless such Securityholder has returned principal or interest paid on
the Securities to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Securityholder.
[(c) The [Securities Insurer] is entitled to the benefit of the
following provisions in the event that a Guaranteed Payment has been made.
Notwithstanding any other provision hereof:
(i) The Indenture Trustee shall immediately apply all moneys
constituting a Guaranteed 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
Guaranteed Payments payable on the related Class of Notes or in the
Certificate Distribution Account for Guaranteed Payments payable on
the related 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 Guaranteed Payment shall be discharged to the
extent funds equal to the applicable Guaranteed 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 the
Guaranteed Payment does not relieve any of the parties hereto of any
obligation hereunder or any of the Basic 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 Notes and the Certificates,
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 Guaranteed 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 5.06(c), and the Indenture Trustee
and Co-Owner Trustee shall otherwise treat the [Securities Insurer] as
the owner of such rights to distributions of any [Securities Insurer]
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 Notes and Certificates, 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 Guaranteed Payments distributable to the
Certificateholders as part of Certificateholders' Distributable Amount under
this Agreement.]
Section 5.03 Pre-Funding Account.
(a) Establishment and Withdrawals. No later than the Closing Date, the
Servicer, for the benefit of the Securityholders, shall establish and maintain
with the Indenture Trustee one or more separate Eligible Accounts entitled
"PRE-FUNDING ACCOUNT, [BANKERS TRUST COMPANY,] AS INDENTURE TRUSTEE, IN TRUST
FOR THE [PREFERRED CREDIT ASSET BACKED SECURITIES, SERIES 199_-_". On the
Closing Date, the Pre-Funding Account Deposit shall be deposited into the
Pre-Funding Account from the proceeds of the sale of the Securities. On any
Subsequent Transfer Date, the Servicer shall instruct the Indenture Trustee to:
(i) withdraw from the Pre-Funding Account an amount equal to the Subsequent
Purchase Price for the Subsequent Mortgage Loans sold to the Issuer on such
Subsequent Transfer Date pursuant to a Subsequent Transfer Agreement; and (ii)
pay such amount to or upon the order of the Seller upon satisfaction of the
conditions set forth in Section 2.02 of this Agreement with respect to such
transfer. Funds in the Pre-Funding Account shall be invested in accordance with
Section 5.08. On or before each Distribution Date, all interest and any other
investment earnings on funds held in the Pre-Funding Account shall be deposited
into the Capitalized Interest Account.
(b) [Reserved]
(c) Remaining Balance. If the Pre-Funding Account has not been reduced
to zero by the close of business on the date on which the Funding Period ends,
the Servicer shall direct the Indenture Trustee to deposit any amounts remaining
in the Pre-Funding Account (net of reinvestment earnings which shall be
transferred to the Capitalized Interest Account) (as appropriate) into the Note
Distribution Account and the Certificate Distribution Account on the third
Business Day immediately preceding the Pre- Funding Termination Distribution
Date for distribution to the Securityholders pro rata based on the Class
Principal Balance of the Notes and the Certificate Principal Balance of the
Certificates, provided always that in the event that such amounts remaining in
the Pre-Funding Account are less than or are equal to $50,000, all such amounts
shall be deemed to form part of the Noteholder's Monthly Principal Distributable
Amount and shall be transferred to the Note Distribution Account to be
distributed sequentially to each Class of Notes in ascending order of their
respective Class designations in reduction of the respective Class Principal
Balances thereof.
Section 5.04 Capitalized Interest Account.
(a) Establishment and Withdrawal. No later than the Closing Date, the
Servicer, for the benefit of the Securityholders, shall cause to be established
and maintained with the Indenture Trustee one or more separate Eligible Accounts
entitled "CAPITALIZED INTEREST ACCOUNT, [BANKERS TRUST COMPANY,] AS INDENTURE
TRUSTEE, IN TRUST FOR [PREFERRED CREDIT ASSET BACKED SECURITIES, SERIES
199_-_".] On the Closing Date, the Capitalized Interest Account Deposit shall be
deposited into the Capitalized Interest Account from the proceeds of the sale of
the Securities. The Indenture Trustee shall hold the Capitalized Interest
Account Deposit for the benefit of the Securityholders and the [Securities
Insurer]. On the third Business Day preceding each Distribution Date during the
Funding Period and on the first Distribution Date occurring after the Due Period
in which the Funding Period ends, the Servicer shall instruct the Indenture
Trustee to withdraw from the Capitalized Interest Account and deposit into the
Note Distribution Account and/or the Certificate Distribution Account the
Interest Shortfall, if any, with respect to such Distribution Date. Funds in the
Capitalized Interest Account shall be invested in accordance with Section 5.08.
(b) [Reserved]
(c) [Reserved]
(d) Excess to Residual Interest. On any Business Day occurring prior
to the last Business Day of each Due Period that occurs prior to [ ,] the
Transferor and the Seller may request the Servicer to calculate the amount, if
any, of the Capitalized Interest Excess. If the Capitalized Interest Excess is
greater than zero on any such Business Day prior to [ ,] such Capitalized
Interest Excess will be released to the holder of the Residual Interest on the
following Distribution Date. On the Distribution Date following the Due Period
in which the Funding Period ends, the Servicer shall instruct the Indenture
Trustee to release and distribute to the holder of Residual Interest the
Capitalized Interest Amount, if any, that remains after the distribution of any
Interest Shortfall on such Distribution Date.
Section 5.05 [Reserved]
Section 5.06 Certificate Distribution Account.
(a) Establishment. No later than the Closing Date, the Servicer, for
the benefit of the Securityholders and the [Securities Insurer], will establish
and maintain with [Bankers Trust Company] for the benefit of the Owner Trustee
or Co-Owner Trustee on behalf of the Certificateholders and the [Securities
Insurer] one or more separate Eligible Accounts, which while the Co- Owner
Trustee holds such Trust Account shall be entitled "CERTIFICATE DISTRIBUTION
ACCOUNT, [BANKERS TRUST COMPANY,] AS CO-OWNER TRUSTEE, IN TRUST FOR THE
[PREFERRED CREDIT ASSET BACKED SECURITIES, SERIES 199_- _".] Funds in the
Certificate Distribution Account shall be invested in accordance with Section
5.08.
(b) [Reserved]
(c) Distributions. No later than the second Business Day before 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
Certificateholders in respect of the Certificates to the extent of amounts due
and unpaid on the Certificates for principal and interest and to the other
parties specified below in the amounts and in the following order of priority:
(i) only to the extent of funds withdrawn from the Pre-Funding
Account attributable to the remaining amount therein and deposited in
the Certificate Distribution Account by the Indenture Trustee pursuant
to Section 5.01(c), pro rata, to the Certificateholders;
(ii) to the Certificateholders, the Certificateholders' Interest
Distributable Amount; 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;
(iii) to the Certificateholders, on or after the Distribution
Date on which the Class Principal Balance of the Class A-8 Notes has
been reduced to zero, the Certificateholders' Principal Distributable
Amount until the Certificate Principal Balance thereof is reduced to
zero;
(iv) to the [Securities Insurer], from any remaining amounts in
the Certificate Distribution Account after the distributions pursuant
to items (i) through (iii) above, the [Securities Insurer]
Reimbursement Amount;
(v) on an Overcollateralization Stepdown Date, to the holders of
the Residual Interest, from any remaining amounts in the Certificate
Distribution Account after the distributions pursuant to items (i)
through (iv) above, the Overcollateralization Reduction Amount;
(vi) to the Servicer, from any remaining amounts in the
Certificate Distribution Account after the distributions pursuant to
items (i) through (v) above, an amount equal to the Servicing Advance
Reimbursement Amount; and
(vii) if the Excess Overcollateralization Amount equals or
exceeds zero, to the holders of the Residual Interest, from any
remaining amounts in the Certificate Distribution Account after the
distributions pursuant to items (i) through (vi) above, the Excess
Spread, if any.
(d) 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 next 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 which have original denominations aggregating at
least $250,000 and shall have so notified the Owner Trustee or Co-Owner Trustee,
and otherwise by check mailed to the address of such Certificateholder appearing
in the Certificate Register. 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.
(e) All distributions made on the Residual Interest on each
Distribution Date will be made on a pro rata basis among the Residual Interest
holders of record on the next preceding Record Date based on the Percentage
Interest represented by their respective Residual Interest, 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
holder, if such Residual Interest Holder shall own of record Residual Interest
which have original denominations aggregating at least $250,000 and shall have
so notified the Owner Trustee or Co-Owner Trustee, and otherwise by check mailed
to the address of such Residual Interest Holder appearing in the Certificate
Register. The final distribution on each Residual Interest Instrument will be
made in like manner, but only upon presentment and surrender of such Residual
Interest Instrument at the location specified in the notice to Residual Interest
Holders of such final distribution.
Section 5.07 Reserve Account.
(a) Establishment. No later than the Closing Date, the Servicer, for
the benefit of the Securityholders and the [Securities Insurer], shall cause to
be established and maintained with the Indenture Trustee one or more separate
Eligible Accounts entitled "RESERVE ACCOUNT, [BANKERS TRUST COMPANY,] AS
INDENTURE TRUSTEE, IN TRUST FOR THE [PREFERRED CREDIT ASSET BACKED SECURITIES,
SERIES 199_-_". On the Closing Date, the Issuer will deposit, the Reserve
Account Initial Deposit into the Reserve Account from the net proceeds of the
sale of the Notes and the Certificates. On the Closing Date, the Reserve Account
Initial Deposit will be equal to the Reserve Account Requirement. Funds in the
Reserve Account shall be invested in accordance with Section 5.08.
(b) Substitution. On any Business Day occurring after the Closing
Date, the majority of the holders of Residual Interest may deposit with the
Indenture Trustee a limited guaranty or a letter of credit in an amount not to
exceed 50% of the Reserve Account Requirement as of any date of determination
occurring prior to such Business Day, provided that such limited guaranty or
such letter of credit is in a form approved by the [Securities Insurer] and the
Rating Agencies prior to deposit in the Reserve Account. The Indenture Trustee
shall notify the [Securities Insurer] of the receipt of any such limited
guaranty or letter of credit.
(c) Release of Excess. If the amount on deposit in the Reserve Account
on any Distribution Date (after giving effect to all deposits thereto or
withdrawals therefrom on such Distribution Date) is greater than the Reserve
Account Requirement for such Distribution Date (such amount "the Excess Reserve
Account Amount"), the Servicer shall first instruct the Indenture Trustee to
cause a reduction in the amount available under the limited guaranty or letter
of credit, if any, until (A) the Excess Reserve Account Amount is reduced to
zero or (B) the amount available under the limited guaranty or letter of credit
is reduced to zero. After any limited guaranty or letter of credit has been
reduced to zero, the Servicer shall instruct the Indenture Trustee to distribute
any Excess Reserve Account Amount to the holders of the Residual Interest until
the Excess Reserve Account Amount is reduced to zero.
(d) Reduction of Requirement. After the Overcollateralization Amount
reaches the Interim Required Overcollateralization, the Reserve Account
Requirement shall be reduced incrementally (i.e., dollar-for-dollar) each time
the Overcollateralization Amount is increased as a result of the application of
Excess Spread to the principal amount of the Securities until the
Overcollateralization Amount equals the Required Overcollateralization Amount
and the Reserve Account Requirement is reduced to zero. On each occasion that
the Reserve Account Requirement is reduced, the Servicer shall direct the
Indenture Trustee to distribute to the holder of the Residual Interest any
amounts in the Reserve Account in excess of the reduced Reserve Account
Requirement. Once the Reserve Account Requirement is reduced to zero, the
Servicer shall direct the Indenture Trustee to distribute any amounts remaining
in the Reserve Account to the holder of the Residual Interest.
(e) Following the payment in full of the aggregate outstanding
Principal Balance of the Notes and the Certificates and of all other amounts
owing or to be distributed hereunder or under the Indenture or the Trust
Agreement to the Securityholders and the termination of the Trust, any amount
remaining on deposit in the Reserve Account shall be distributed to the holder
of the Residual Interest and any Permitted Investments in the Reserve Account
shall be transferred to the holder of the Residual Interest.
(f) [Reserved]
(g) Withdrawals. Subject to the total amount on deposit in the Reserve
Account with respect to each Distribution Date the Indenture Trustee shall
withdraw funds from such Reserve Account and deposit in the Note Distribution
Account an amount equal to the excess (the "Reserve Account Withdrawal Amount")
of (A) the sum of the Trust Fees and Expenses and the Required Distribution
Amount, over (B) the Available Collection Amount.
Section 5.08 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 (including all income thereon)
and all such funds, investments, proceeds and income 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 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 or Co-Owner Trustee shall possess all right, title and interest for the
benefit of the Certificateholders 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 their acceptance hereof, that such Certificate
Distribution Account shall be subject to the sole and exclusive custody and
control of the Owner Trustee and 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 5.06(c) 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 fails to distribute such amounts in accordance with
Section 5.06(c).
The 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 or Owner Trustee or Co-Owner Trustee
to make withdrawals and payments from the Trust Accounts for the purpose of
permitting the Servicer to carry out its respective duties hereunder or
permitting the Indenture Trustee or Owner Trustee or Co-Owner Trustee to carry
out its duties herein or under the Indenture or the Trust Agreement, as
applicable.
(b)(1) Investment of Funds. So long as no Event of Default shall have
occurred and be continuing, the funds held in any Trust Account may be invested
(to the extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed by the Affiliated Holder in writing or by
telephone or facsimile transmission confirmed in writing by the Servicer or the
Affiliated Holder. In any case, funds in any Trust Account must be available for
withdrawal without penalty, and any Permitted Investments must mature or
otherwise be available for withdrawal, not later than three (3) Business Days
(except with respect to the Note Distribution Account, Pre-Funding Account and
Certificate Distribution Account, which shall be invested on a one (1) Business
Day basis) 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 5.08(b)(2) below. 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 ["BANKERS TRUST COMPANY,] AS INDENTURE
TRUSTEE, IN TRUST FOR THE [PREFERRED CREDIT ASSET BACKED SECURITIES, SERIES
199_-_". 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 ["BANKER TRUST
COMPANY,] AS CO- OWNER TRUSTEE, IN TRUST FOR THE [PREFERRED CREDIT ASSET BACKED
SECURITIES, SERIES 199_-_".]
(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 5.08.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then the Affiliated
Holder 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 or, to the extent that the
Affiliated Holder fails to deposit any portion of such amount, the Servicer
shall deposit any insufficiency from such failure in such Trust Account. 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
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:
(i) any Trust Account Property that is held in deposit accounts
shall be held solely in the Eligible Accounts, subject to the last
sentence of Section 5.08(a); 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;
(ii) 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;
(iii) 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
(iv) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (C) 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.
(e) The Servicer shall have the power, revocable by the Indenture
Trustee or by the Issuer with the consent of the Indenture Trustee, to instruct
the Indenture Trustee to make withdrawals and payments from the Trust Accounts
for the purpose of permitting the Servicer or the Issuer to carry out its
respective duties hereunder or permitting the Indenture Trustee to carry out its
duties under the Indenture.
Section 5.09 Allocation of Losses.
(a) In the event that Net Liquidation Proceeds, Insurance Proceeds or
Released Mortgaged Property Proceeds on a Liquidated Mortgage Loan are less than
the related Principal Balance plus accrued interest thereon, or any Obligor
makes a partial payment of any Monthly Payment due on a Mortgage Loan, such Net
Liquidation Proceeds, Insurance Proceeds, Released Mortgaged Property Proceeds
or partial payment shall be applied to payment of the related Debt Instrument,
first to interest accrued at the Mortgage Loan Interest Rate and then to
principal.
(b) On any Distribution Date, any Net Loan Losses attributable to any
Mortgage Loans which became Liquidated Mortgage Loans during the immediately
preceding Due Period shall be allocated as follows: (1) until the Reserve
Account is reduced to zero, such Net Loan Losses will be included in the
calculation of the Regular Principal Distribution Amount; (2) after the Reserve
Account is reduced to zero, and until the Overcollateralization Amount is
reduced to zero, such Net Loan Losses (minus any amount allocated pursuant to
clause (1) to reduce the Reserve Account to zero on such Distribution Date) will
be allocated to the principal attributable to the holders of the Residual
Interest to reduce the Overcollateralization Amount, and (3) thereafter, such
Net Loan Losses will be included in the calculation of the Regular Principal
Distribution Amount in an amount equal to such Net Loan Losses minus any amounts
allocated pursuant to clauses (1) and (2) on such Distribution Date.
ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee [and the [Securities Insurer]], by facsimile, the
receipt and legibility of which shall be confirmed telephonically, and with hard
copy thereof to be delivered no later than one (1) Business Day after such
Determination Date, the Servicer's Monthly Remittance Report, setting forth the
date of such Report (day, month and year), the name of the Issuer (i.e.
["Preferred Credit Owner Trust 199_-_")], the Series designation of the
Securities (i.e. ["Series 199_-_")], and the date of this Agreement.
Furthermore, no later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee and the [Securities Insurer] a magnetic tape or
computer disk providing such information regarding the Servicer's activities in
servicing the Mortgage Loans during the related Due Period as the Indenture
Trustee [and the [Securities Insurer]] may reasonably require.
(b) Subject to the modification of the Servicer's Monthly Statement by
the Servicer with the prior written consent of the [Securities Insurer] and the
Indenture Trustee, on each Distribution Date, the Servicer shall prepare and the
Indenture Trustee shall distribute a monthly statement (the "Servicer's Monthly
Statement") to the Seller, the Securityholders, [the [Securities Insurer]] and
the Rating Agencies, stating the date of original issuance of the Securities
(day, month and year), the name of the Issuer (i.e. ["Preferred Credit Owner
Trust 199_-_")], the series designation of the Notes and Certificates (i.e.
["Series 199_-_"),] the date of this Agreement and the following information:
(i) the Available Collection Amount and Required Distribution
Amount for the related Distribution Date;
(ii) the amount, if any, on deposit in the Pre-Funding Account
and the Capitalized Interest Account on such Distribution Date;
(iii) the Class Principal Balance of each Class of Notes, the
Certificate Principal Balance of the Certificates, and the Pool
Principal Balance (including, until the Funding Period ends, the
amount remaining in the Pre-Funding Account and the Capitalized
Interest Account as of such Distribution Date) as of the first day of
the related Due Period and after giving effect to distributions made
to the holders of such Securities on such Distribution Date;
(iv) the Class Pool Factor with respect to each Class of Notes
then outstanding and the Certificate Pool Factor with respect to the
Certificates then outstanding;
(v) the amount of principal and interest received on the Mortgage
Loans during the related Due Period;
(vi) the Noteholders' Distributable Amount and the
Certificateholders' Distributable Amount;
(vii) the amount, if any, of the Excess Overcollateralization
Amount and, if applicable, the Overcollateralization Reduction Amount
or any other amount to be distributed to the Securityholders or the
holder of the Residual Interest on such Distribution Date;
(viii) the Servicing Compensation, the Indenture Trustee Fee, the
Owner Trustee Fee, [and the Guaranty Insurance Premium] for such
Distribution Date;
(ix) the Overcollateralization Amount on such Distribution Date,
the Required Overcollateralization Amount as of such Distribution
Date, the Net Loan Losses incurred during the related Due Period and
the cumulative Net Loan Losses as of such Distribution Date;
(x) the Reserve Account Requirement and the amount remaining on
deposit in the Reserve Account on such Distribution Date after giving
effect to the distributions made to Securityholders on such
Distribution Date;
(xi) the weighted average maturity of the Mortgage Loans and the
weighted average Mortgage Loan Interest Rate of the Mortgage Loans;
(xii) certain performance information, including delinquency and
foreclosure information with respect to the Mortgage Loans, as set
forth in the Servicer's Monthly Remittance Report;
[(xiii) the amount of any Guaranteed Payment included in the
amounts distributed to the Noteholders and/or Certificateholders on
such Distribution Date;]
[(xiv) as identified with respect to the each Insured Security,
the amount of any [Securities Insurer] Reimbursement Amount to be
distributed to the [Securities Insurer] on such Distribution Date and
the amount of any [Securities Insurer] Reimbursement Amount remaining
unsatisfied following such distribution;]
(xv) the number of and aggregate Principal Balance of all
Mortgage Loans in foreclosure proceedings (other than any Mortgage
Loans described in clause (xvi)) and the percent of the aggregate
Principal Balances of such Mortgage Loans to the aggregate Principal
Balances of all Mortgage Loans, all as of the close of business on the
first day of the related Due Period;
(xvi) the number of and the aggregate Principal Balance of the
Mortgage Loans in bankruptcy proceedings (other than any Mortgage
Loans described in clause (xvii)) and the percent of the aggregate
Principal Balances of such Mortgage Loans to the aggregate Principal
Balances of all Mortgage Loans, all as of the close of business on the
first day of the related Due Period;
(xvii) the number of Foreclosure Properties, the aggregate
Principal Balance of the related Mortgage Loans, the book value of
such Foreclosure Properties and the percent of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal Balances of
all Mortgage Loans, all as of the close of business on the first day
of the related Due Period;
(xviii) during the related Due Period, the aggregate Principal
Balance of Mortgage Loans for each of the following: (A) that became
Defaulted Mortgage Loans, (B) that became Liquidated Mortgage Loans,
(C) that became Deleted Mortgage Loans pursuant to Section 3.05(c) as
a result of such Deleted Mortgage Loans being Defective Mortgage
Loans, and (D) that became Deleted Mortgage Loans pursuant to Section
3.05(c) as a result of such Deleted Mortgage Loans being Defaulted
Mortgage Loans or a Mortgage Loan in default or imminent default,
(xix) the cumulative aggregate Principal Balance of Mortgage
Loans that became Defaulted Mortgage Loans and the cumulative
aggregate Principal Balance of Mortgage Loans that became Liquidated
Mortgage Loans from the Closing Date through the most current Due
Period; and
(xx) the scheduled principal payments and the principal
prepayments received with respect to the Mortgage Loans during the Due
Period.
All reports prepared by the Servicer of the withdrawals from and
deposits in the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar
year, the Servicer shall prepare and direct the Indenture Trustee to distribute
to each Person who at any time during the calendar year was a Securityholder,
such information as is reasonably necessary to provide to such Person a
statement containing the information set forth in subclauses (b)(iv) and (v)
above, aggregated for such calendar year or applicable portion thereof during
which such Person was a Securityholder. Such obligation of the Indenture Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Servicer to the Securityholders
pursuant to any requirements of the Code as are in force from time to time.
(d) On each Distribution Date, the Indenture Trustee shall forward to
the holder of the Residual Interest a copy of the Servicer's Monthly Statement
in respect of such Distribution Date and a statement setting forth the amounts
actually distributed to such holder of the Residual Interest on such
Distribution Date, together with such other information as the Indenture Trustee
deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar
year, the Servicer shall prepare and direct the Indenture Trustee to distribute
to each Person who at any time during the calendar year was a holder of Residual
Interest, if requested in writing by such Person, such information as is
reasonably necessary to provide to such Person a statement containing the
information provided pursuant to the previous paragraph aggregated for such
calendar year or applicable portion thereof during which such Person was a
holder of Residual Interest. Such obligation of the Indenture Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Servicer to the holder of Residual Interest
pursuant to any requirements of the Code as are in force from time to time.
(f) Upon reasonable advance notice in writing, the Servicer will
provide to each Securityholder which is a savings and loan association, bank or
insurance company access to information and documentation regarding the Mortgage
Loans sufficient to permit such Securityholder to comply with applicable
regulations of the FDIC or other regulatory authorities with respect to
investment in such Securities.
(g) The Servicer or its agent shall furnish to the Indenture Trustee,
who in turn shall forward to each Securityholder and the holder of Residual
Interest, during the term of this Agreement, such periodic, special, or other
reports, including information tax returns or reports required with respect to
the Securities and the Residual Interest, including Internal Revenue Service
Forms 1099 and (if instructed in writing by the Seller on the basis of the
advice of legal counsel) Form 1066, Schedule Q and other similar reports that
are required to be filed by the Servicer or its agent and the holder of Residual
Interest, whether or not provided for herein, as shall be necessary, reasonable,
or appropriate with respect to the Securityholders or the holder of Residual
Interest, or otherwise with respect to the purposes of this Agreement, all such
reports or information to be provided by and in accordance with such applicable
instructions and directions as the Securityholders or the holder of Residual
Interest may reasonably require.
(h) Reports and computer tapes furnished by the Servicer and the
Indenture Trustee pursuant to this Agreement shall be deemed confidential and of
proprietary nature, and shall not be copied or distributed except in connection
with the purposes and requirements of this Agreement. No Person entitled to
receive copies of such reports or tapes shall use the information therein for
the purpose of soliciting the customers of the Seller or the Servicer or for any
other purpose except as set forth in this Agreement.
Section 6.02 Reports of Foreclosure and Abandonment of Mortgaged
Property.
Each year beginning in 1997 the Servicer, at its expense, shall make
the reports of foreclosures and abandonments of any Mortgaged Property required
by Section 6050J of the Code. The reports from the Servicer shall be in form and
substance sufficient to meet the reporting requirements imposed by such Section
6050J of the Code.
Section 6.03 Specification of Certain Tax Matters.
Each Securityholder shall provide the Indenture Trustee with a
completed and executed Form W-9 prior to purchasing a Security. The Indenture
Trustee shall comply with all requirements of the Code, and applicable state and
local law, with respect to the withholding from any distributions made to any
Securityholder of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
ARTICLE VII.
GENERAL SERVICING PROCEDURE
Section 7.01 Assumption Agreements.
When a Mortgaged Property has been or is about to be conveyed by the
Obligor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Debt Instrument; provided, however, that the Servicer shall not
exercise any such right if the "due-on-sale" clause, in the reasonable belief of
the Servicer, is not enforceable under applicable law. In such event or in the
event the related Mortgage and Debt Instrument do not contain a "due-on- sale"
clause, the Servicer shall enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Debt Instrument and,
unless prohibited by applicable law or the Mortgage Documents, the Obligor
remains liable thereon. The Servicer is also authorized to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Debt Instrument. The Servicer shall notify
the Indenture Trustee that any such substitution or assumption agreement has
been completed by forwarding to the Indenture Trustee the original of such
substitution or assumption agreement, which original shall be added by the
Indenture Trustee to the related Indenture Trustee's Mortgage Loan File and
shall, for all purposes, be considered a part of such Indenture Trustee's
Mortgage Loan File to the same extent as all other documents and instruments
constituting a part thereof. In connection with any assumption or substitution
agreement entered into pursuant to this Section 7.01, the Servicer shall not
change the Mortgage Loan Interest Rate or the Monthly Payment, defer or forgive
the payment of principal or interest, reduce the outstanding principal amount or
extend the final maturity date on such Mortgage Loan. Any fee collected by the
Servicer for consenting to any such conveyance or entering into an assumption or
substitution agreement shall be retained by or paid to the Servicer as
additional Servicing Compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 7.02 Satisfaction of Mortgages and Release of Mortgage Loan
Files.
Subject to the provisions of sections 4.01 and 4.02, the Servicer
shall not grant a satisfaction or release of a Mortgage without having obtained
payment in full of the indebtedness secured by the Mortgage or otherwise
prejudice any right the Securityholders or the [Securities Insurer] may have
under the mortgage instruments. The Servicer shall maintain the fidelity bond
and errors and omissions insurance as provided for in Section 4.03 insuring the
Servicer against any loss it may sustain with respect to any Mortgage Loan not
satisfied in accordance with the procedures set forth herein.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Servicer will immediately notify the Indenture
Trustee by an Officers' Certificate (which certificate shall include a statement
to the effect that all amounts received or to be received in connection with
such payment which are required to be deposited in the Collection Account
pursuant to Section 5.01(b) have been or will be so deposited) of a Servicing
Officer and shall request delivery to it of the Indenture Trustee's Mortgage
Loan File. Upon receipt of such certification and request and in accordance with
Section 2.9 of the Indenture, the Indenture Trustee shall promptly release the
related Indenture Trustee's Mortgage Loan File to the Servicer. Expenses
incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be payable only from and to the extent of Servicing
Compensation and shall not be chargeable to the Collection Account, the Note
Distribution Account, or the Certificate Distribution Account. Upon receipt by
the Indenture Trustee of the certification of a Servicing Officer with respect
to the release of the Indenture Trustee's Mortgage Loan File for any Mortgage
Loan or any documents included therein, the Indenture Trustee shall release to
the Servicer such Indenture Trustee's Mortgage Loan File and shall deliver such
instruments of transfer presented to it by the Servicer as shall be necessary or
appropriate for the release of such Indenture Trustee's Mortgage Loan File in
accordance with such certification of the Servicing Officer. The release to the
Servicer of an Indenture Trustee's Mortgage Loan File pursuant to such
certification shall not require or be subject to the prior approval of the
Indenture Trustee in the case of a release in connection with the following: (1)
the satisfaction or release of a Mortgage upon the payment in full of the
Mortgage Loan or upon such Mortgage Loan becoming a Liquidated Mortgage Loan;
(2) a Mortgage Loan in default for which the Servicer is or will be pursuant
foreclosure or another method of liquidation pursuant to Section 4.02; or (3)
the correction of documentation in the Indenture Trustee's Mortgage Loan File
for errors and ambiguities, provided that such corrections shall be performed
and returned to the Indenture Trustee in a prompt manner, and provided further
that no more than 100 Indenture Trustee's Mortgage Loan Files shall be released
and held by the Servicer at any one time.
The Indenture Trustee shall execute and deliver to the Servicer any
court pleadings, requests for trustee's sale or other documents necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal
action brought to obtain judgment against any Obligor on the Debt Instrument or
Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or
rights provided by the Debt Instrument or Mortgage or otherwise available at law
or in equity. Together with such documents or pleadings, the Servicer shall
deliver to the Indenture Trustee a certificate of a Servicing Officer requesting
that such pleadings or documents be executed by the Indenture Trustee and
certifying as to the reason such documents or pleadings are required and that
the execution and delivery thereof by the Indenture Trustee will not invalidate
or otherwise affect the lien of the Mortgage, except for the termination of such
a lien upon completion of the foreclosure or trustee's sale. The Indenture
Trustee shall, upon receipt of a written request from a Servicing Officer,
execute any document provided to the Indenture Trustee by the Servicer or take
any other action requested in such request that is, in the opinion of the
Servicer as evidenced by such request, required by any state or other
jurisdiction to discharge the lien of a Mortgage upon the satisfaction thereof
and the Indenture Trustee will sign and post, but will not guarantee receipt of,
any such documents to the Servicer, or such other party as the Servicer may
direct, within five Business Days, or more promptly if needed, of the Indenture
Trustee's receipt of such certificate or documents. Such certificate or
documents shall establish to the Indenture Trustee's satisfaction that the
related Mortgage Loan has been paid in full by or on behalf of the Obligor and
that such payment has been deposited in the Collection Account.
Subject to any other applicable terms and conditions of this
Agreement, the Indenture Trustee and Servicer shall be entitled to approve an
assignment in lieu of satisfaction with respect to any Mortgage Loan, provided
the obligee with respect to such Mortgage Loan following such proposed
assignment provides the Indenture Trustee and Servicer with a "Certification for
Assignment of Mortgage Loan" in form and substance satisfactory to the Indenture
Trustee and Servicer, providing the following: (i) that the Mortgage Loan is
secured by Mortgaged Property located in a jurisdiction in which an assignment
in lieu of satisfaction is required to preserve lien priority, minimize or avoid
mortgage recording taxes or otherwise comply with or facilitate a refinancing
under the laws of such jurisdiction; (ii) that the substance of the assignment
is, and is intended to be, a refinancing of such Mortgage Loan and that the form
of the transaction is solely to comply with or facilitate the transaction under
such local laws; (iii) that the Mortgage Loan following the proposed assignment
will have a rate of interest at least 0.25 percent below or above the rate of
interest on such Mortgage Loan prior to such proposed assignment; and (iv) that
such assignment is at the request of the borrower under the related Mortgage
Loan. Upon approval of an assignment in lieu of satisfaction with respect to any
Mortgage Loan, the Servicer shall receive cash in an amount equal to the unpaid
principal balance of and accrued interest on such Mortgage Loan and the Servicer
shall treat such amount as a Principal Prepayment with respect to such Mortgage
Loan for all purposes hereof.
Section 7.03 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be
entitled to receive from the Collection Account, the Servicing Fee out of which
the Servicer shall pay any servicing fees owed or payable to any Subservicer.
Additional servicing compensation in the form of assumption and other
administrative fees, amounts remitted pursuant to Section 7.01 and late payment
charges shall be part of the Servicing Compensation payable to the Services
hereunder and shall be paid either by the Servicer retaining such additional
servicing compensation prior to deposit in the Collection Account pursuant to
Section 5.01(b)(1) or if deposited into the Collection Account as part of the
Servicing Compensation withdrawn from the Note Distribution Account pursuant to
Section 8.2(c) of the Indenture.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The Servicer
also agrees to pay (i) all reasonable costs and expenses incurred by the
Indenture Trustee, the Owner Trustee or the Seller in investigating the
Servicer's activities hereunder when, in the reasonable opinion of the Indenture
Trustee, the Owner Trustee or the Seller, such investigation is warranted on the
basis of adverse information about the Servicer obtained from a reasonably
reliable source, (ii) all reasonable costs and expenses incurred by any
successor servicer or the Indenture Trustee in replacing the Servicer in the
event of a default by the Servicer in the performance of its duties under the
terms and conditions of this Agreement, and (iii) the annual Rating Agency
monitoring fees.
Section 7.04 Quarterly Statements as to Compliance.
Not later than the last day of the second month following the end of
each quarter of the Servicer's Fiscal Year, beginning in [ ,] the Servicer will
deliver to the Indenture Trustee, the Issuer, the [Securities Insurer] and to
each Securityholder, an Officer's Certificate stating that (i) the Servicer has
fully complied with the provisions of Articles V and VII, (ii) a review of the
activities of the Servicer during the preceding quarter and of performance under
this Agreement has been made under such officer's supervision, and (iii) to the
best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under this Agreement throughout such quarter, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officers and the nature and status
thereof and the action being taken by the Servicer to cure such default.
Section 7.05 Annual Independent Public Accountants' Servicing Report.
On or before 120 days after the end of each of the Servicer's fiscal
years elapsing during the term of its appointment under this Agreement,
beginning with the first fiscal year ending after the Closing Date, the
Servicer, at its expense, shall furnish to the Seller, the Indenture Trustee,
the Issuer, the Securityholders, the [Securities Insurer] and the Rating
Agencies (i) an opinion by a firm of independent certified public accountants on
the financial position of the Servicer at the end of the relevant fiscal year
and the results of operations and changes in financial position of the Servicer
for such year then ended on the basis of an examination conducted in accordance
with generally accepted auditing standards, and (ii) if the Servicer is then
servicing any Mortgage Loans, a statement from such independent certified public
accountants to the effect that based on an examination of certain specified
documents and records relating to the servicing of the Servicer's loan portfolio
conducted substantially in compliance with the audit program for mortgages
serviced for the United States Department of Housing and Urban Development
Mortgage 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 (a) such exceptions as such firm shall believe
to be immaterial and (b) such other exceptions as shall be set forth in such
statement.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, the Indenture Trustee, the Issuer, [the
[Securities Insurer]] and each of their respective agents shall have the right
upon reasonable prior notice, during normal business hours and as often as
reasonably required, to examine, audit and copy, at the expense of the Person
making such examination, any and all of the books, records or other information
of the Servicer (including without limitation any Subservicer to the extent
provided in the related Subservicing Agreement) whether held by the Servicer or
by another on behalf of the Servicer, which may be relevant to the performance
or observance by the Servicer of the terms, covenants or conditions of this
Agreement. Each Securityholder, the Indenture Trustee, the Issuer [and the
[Securities Insurer]] agree that any information obtained pursuant to the terms
of this Agreement shall be held confidential.
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements.
If the Collection Account is not maintained with the Indenture
Trustee, then not later than 25 days after each Record Date, the Servicer shall
forward to the Indenture Trustee and the [Securities Insurer] a statement,
certified by a Servicing Officer, setting forth the status of the Collection
Account as of the close of business on the preceding Record Date and showing,
for the period covered by such statement, the aggregate of deposits into the
Collection Account for each category of deposit specified in Section 5.01(b),
the aggregate of withdrawals from the Collection Account for each category of
withdrawal specified in Section 5.01(b)(2) and (d) and the aggregate amount of
permitted withdrawals not made in the related Due Period in each case, for the
related Due Period.
ARTICLE VIII.
REPORTS TO BE PROVIDED BY SERVICER
Section 8.01 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Securities, Securityholders may request that the Servicer make available to the
Securityholders, to prospective Securityholders and the [Securities Insurer]
annual audited financial statements of the Servicer for one or more of the most
recently completed five fiscal years for which such statements are available,
which request shall not be unreasonably denied.
The Servicer also agrees to make available on a reasonable basis to
the Securityholders, any prospective Securityholder [and the Securities Insurer]
a knowledgeable financial or accounting officer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the Securityholders, any
prospective Securityholder [and the Securities] Insurer to inspect the
Servicer's servicing facilities during normal business hours for the purpose of
satisfying the Securityholders and such prospective Securityholder [and the
Securities Insurer] that the Servicer has the ability to service the Mortgage
Loans in accordance with this Agreement.
ARTICLE IX.
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer agrees to indemnify and hold the Indenture Trustee, the
Issuer, the Seller, the [Securities Insurer] and each Securityholder harmless
from and against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Indenture Trustee, the Issuer, the Seller, [the [Securities Insurer]]
or any Securityholder may sustain directly resulting from the negligence or
willful misconduct of the Servicer in the performance of its duties hereunder or
in the servicing of the Mortgage Loans in compliance with the terms of this
Agreement. IT IS THE EXPRESS INTENTION OF THE PARTIES TO THIS AGREEMENT THAT THE
INDEMNIFICATION AND HOLD HARMLESS OBLIGATIONS OF THE SERVICER SET FORTH IN THE
PRECEDING SENTENCE SHALL APPLY FULLY TO CLAIMS, LOSSES, ETC. RESULTING FROM ACTS
OR OMISSIONS THAT MAY CONSTITUTE ORDINARY NEGLIGENCE ON THE PART OF THE
SERVICER. The Servicer shall not be liable or responsible for any of the
representations, covenants, warranties, responsibilities, duties or liabilities
of any prior Servicer. The Servicer shall immediately notify the Indenture
Trustee, the Issuer, the Seller, [the Securities Insurer] and each
Securityholder if a claim is made by a third party with respect to this
Agreement, and the Servicer shall assume (with the consent of the Indenture
Trustee and the Issuer) the defense of any such claim and advance all expenses
in connection therewith, including reasonable counsel fees, and promptly advance
funds to pay, discharge and satisfy any judgment or decree which may be entered
against the Servicer, the Indenture Trustee, the Issuer, the Seller, [the
Securities Insurer] and/or any Securityholder in respect of such claim.
(b) The Seller agrees to indemnify and hold the Indenture Trustee, the
Issuer, the Servicer, [the Securities Insurer] and each Securityholder harmless
from and against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Indenture Trustee, the Issuer, the Servicer, [the Securities Insurer]
or any Securityholder may sustain directly resulting from the negligence or
willful misconduct of the Seller in the performance of its duties hereunder or
in compliance with the terms of this Agreement. IT IS THE EXPRESS INTENTION OF
THE PARTIES TO THIS AGREEMENT THAT THE INDEMNIFICATION AND HOLD HARMLESS
OBLIGATIONS OF THE SELLER SET FORTH IN THE PRECEDING SENTENCE SHALL APPLY FULLY
TO CLAIMS, LOSSES, ETC. RESULTING FROM ACTS OR OMISSIONS THAT MAY CONSTITUTE
ORDINARY NEGLIGENCE ON THE PART OF THE SELLER. The Seller shall immediately
notify the Indenture Trustee, the Issuer, the Servicer, [the Securities Insurer]
and each Securityholder if a claim is made by a third party with respect to this
Agreement, and the Seller shall assume (with the consent of the Indenture
Trustee and the Issuer) the defense of any such claim and advance all expenses
in connection therewith, including reasonable counsel fees, and promptly advance
funds to pay, discharge and satisfy any judgment or decree which may be entered
against the Seller, the Servicer, the Indenture Trustee, the Issuer, the
[Securities Insurer] and/or any Securityholder in respect of such claim.
(c) The Transferor agrees to indemnify and hold the Indenture Trustee, the
Issuer, the Servicer, [the [Securities Insurer]] and each Securityholder
harmless from and against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indenture Trustee, the Issuer, the Servicer, [the
Securities Insurer] or any Securityholder may sustain directly resulting from
the negligence or willful misconduct of the Transferor in the performance of its
duties hereunder or in compliance with the terms of this Agreement. IT IS THE
EXPRESS INTENTION OF THE PARTIES TO THIS AGREEMENT THAT THE INDEMNIFICATION AND
HOLD HARMLESS OBLIGATIONS OF THE TRANSFEROR SET FORTH IN THE PRECEDING SENTENCE
SHALL APPLY FULLY TO CLAIMS, LOSSES, ETC. RESULTING FROM ACTS OR OMISSIONS THAT
MAY CONSTITUTE ORDINARY NEGLIGENCE ON THE PART OF THE TRANSFEROR. The Transferor
shall immediately notify the Indenture Trustee, the Issuer, the Servicer, [the
Securities Insurer] and each Securityholder if a claim is made by a third party
with respect to this Agreement, and the Transferor shall assume (with the
consent of the Indenture Trustee and the Issuer) the defense of any such claim
and advance all expenses in connection therewith, including reasonable counsel
fees, and promptly advance funds to pay, discharge and satisfy any judgment or
decree which may be entered against the Transferor, the Servicer, the Indenture
Trustee, the Issuer, [the Securities Insurer] and/or any Securityholder in
respect of such claim.
(d) The obligations of the Servicer, the Seller and the Transferor under
this Section 9.01 shall survive the termination of this Agreement.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits, in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans and to perform its
duties under this Agreement.
Any Person into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee, the Issuer
[and the Securities Insurer].
Section 9.03 Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
Section 9.01 herein, the Servicer shall have no obligation to appear with
respect to, prosecute or defend any legal action which is not incidental to the
Servicer's duty to service the Mortgage Loans in accordance with this Agreement.
Section 9.04 Servicer Not to Resign; Assignment.
(a) The Servicer shall not resign from the obligations and duties
hereby imposed on it except by mutual consent of the Servicer, the Seller, the
Indenture Trustee, the Issuer, [the [Securities Insurer]] and the Majority
Securityholders, or upon the determination that the Servicer's duties hereunder
are no longer permissible under applicable law and such incapacity cannot be
cured by the Servicer. Any such determination permitting the resignation of the
Servicer shall be evidenced by a written opinion of counsel (who may be an
employee of the Servicer) to such effect delivered to the Indenture Trustee, the
Issuer, [the [Securities Insurer]] and the Seller, which opinion of counsel
shall be in form and substance acceptable to the Indenture Trustee, the Issuer
and the [Securities Insurer]. No such resignation shall become effective until
the Indenture Trustee or a successor servicer has assumed the Servicer's
responsibilities and obligations hereunder in accordance with Section 10.02.
(b) The Servicer shall not assign this Agreement or any of its
obligations, rights and duties hereunder without the prior written consent the
Seller, the Indenture Trustee, the Issuer, the [Securities Insurer] and the
Majority Securityholders; provided, however, the Servicer may assign this
Agreement without the prior written consent of the Seller, the Indenture Trustee
and the Issuer, but with the prior written consent of the [Securities Insurer]
and the Majority Securityholders to (i) the Indenture Trustee or (ii) any Person
that (A) is satisfactory to the Indenture Trustee, the Issuer, [the Securities
Insurer] and the Majority Securityholders, (B) services not less than
$25,000,000 in aggregate outstanding principal amount of loans similar in type
to the Mortgage Loans, (C) has a net worth of not less than $2,500,000, (D) has
a blanket fidelity bond and errors and omissions insurance coverage satisfying
the requirements set forth in Section 4.03 and (E) will not cause any rating of
any Class of the Securities in effect immediately prior to such assignment to be
qualified, downgraded or withdrawn, as evidenced by a letter from each Rating
Agency to such effect. Any such assignment to a successor servicer (other than
the Indenture Trustee) shall be effective only upon delivery to the Indenture
Trustee, the Issuer and the [Securities Insurer] of an agreement, duly executed
by the Servicer and such successor servicer in a form reasonably satisfactory to
the Indenture Trustee and the Issuer, in which such successor servicer shall
assume the due and punctual performance of each covenant and condition to be
performed or observed by the Servicer hereunder.
Section 9.05 Relationship of Servicer to Issuer and the Indenture
Trustee.
The relationship of the Servicer (and of any successor to the 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.
ARTICLE X.
DEFAULT
Section 10.01 Events of Default.
(a) In case one or more of the following Events of Default by the
Servicer shall occur and be continuing, that is to say:
(i) any failure by the Servicer to deposit in the Collection
Account in accordance with Section 5.01(b) any payments in respect of
the Mortgage Loans received by the Servicer no later than the second
Business Day following the day on which such payments were received;
or
(ii) failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of
the Servicer as set forth in this Agreement, which failure continues
unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied and stating
that such notice is a "Notice of Default" hereunder, shall have been
given (a) to the Servicer by the Indenture Trustee or the Issuer, or
(b) to the Servicer, the Indenture Trustee or the Issuer by any
Securityholder or the [Securities Insurer]; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Servicer and such decree or order shall have remained in
force, undischarged or unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings
of or relating to the Servicer or of or relating to all or
substantially all of the Servicer's property; or
(v) the Servicer shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors, or voluntarily suspend payment of
its obligations; or
(vi) the Majority Securityholders [or the Securities Insurer] (A)
shall receive notice from the Servicer that the Servicer is no longer
able to discharge its duties under this Agreement or (B) shall
determine, in their reasonable judgment and based upon published
reports (including wire services), which they reasonably believe in
good faith to be reliable, that the Servicer
(1) has experienced a material adverse change in its
business, assets, liabilities, operations, condition (financial
or otherwise) or prospects,
(2) has defaulted on any of its material obligations, or
(3) has ceased to conduct its business in the ordinary
course; or
(vii) as of any Determination Date, the total Expected Loan
Losses (as defined below) exceed (1) commencing in [___________] up to
the fifth (5th) anniversary of the [___________] Cut-Off Date, ___% of
the sum of the Initial Pool Principal Balance and the aggregate
Principal Balance as of the applicable Cut-Off Dates of all Subsequent
Mortgage Loans conveyed to the Issuer, or (2) thereafter up to the
tenth (10th) anniversary of the [__________] Cut-Off Date, ___% of the
sum of the Initial Pool Principal Balance and the aggregate Principal
Balance as of the applicable Cut-Off Dates of all Subsequent Mortgage
Loans conveyed to the Issuer (where the "Expected Loan Losses" shall
be the sum of (A) the cumulative Net Loan Losses, plus (B) the
cumulative accrued and uncollected interest on the Liquidated Mortgage
Loans, plus (C) __% of the aggregate Principal Balance of the Mortgage
Loans which are then more than 30 but less than 60 days delinquent,
plus (D) __% of the aggregate Principal Balance of the Mortgage Loans
which are then more than 60 but less than 90 days delinquent, plus (E)
___% of the aggregate Principal Balance of the Mortgage Loans which
are then more than 90 days delinquent).
(b) then, and in each and every such case, so long as an Event of
Default shall not have been remedied, the Majority Securityholders, [the
Securities Insurer,] the Indenture Trustee or the Issuer by notice in writing to
the Servicer may, in addition to whatever rights such Person may have at law or
equity to damages, including injunctive relief and specific performance, [and
with the consent of the [Securities Insurer] (which consent shall not be
unreasonably withheld),] terminate all the rights and obligations of the
Servicer under this Agreement and in and to the Mortgage Loans and the proceeds
thereof, as servicer under this Agreement. Upon receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Mortgage Loans or otherwise, shall, subject to
Section 10.02, pass to and be vested in a successor servicer acceptable to the
[Securities Insurer], or the Indenture Trustee if a successor servicer cannot be
retained in a timely manner, and the successor servicer, or Indenture Trustee,
[as applicable,] is hereby authorized and empowered to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and do or cause to be done all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
including, but not limited to, the transfer and endorsement or assignment of the
Mortgage Loans and related documents. The Servicer agrees to cooperate with the
successor servicer in effecting the termination of the Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to the successor servicer for administration by it of all amounts which
shall at the time be credited by the Servicer to each Collection Account or
thereafter received with respect to the Mortgage Loans.
Section 10.02 Indenture Trustee to Act; Appointment of Successor.
On and after the date the Servicer receives a notice of termination
pursuant to Section 10.01, or the Indenture Trustee receives the resignation of
the Servicer evidenced by an opinion of counsel or accompanied by the consents
required by Section 9.04, or the Servicer is removed as servicer pursuant to
this Article X, then, subject to Section 4.08, the Indenture Trustee shall
appoint a successor servicer acceptable to the [Securities Insurer] to be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof; provided, however,
that the successor servicer shall not be liable for any actions of any servicer
prior to it; provided further, however, that if a successor servicer cannot be
retained in a timely manner, the Indenture Trustee shall act as successor
servicer. In the event the Indenture Trustee assumes the responsibilities of the
Servicer pursuant to this Section 10.02, the Indenture Trustee will make
reasonable efforts consistent with applicable law to become licensed, qualified
and in good standing in each Mortgaged Property State the laws of which require
licensing or qualification, in order to perform its obligations as Servicer
hereunder or, alternatively, shall retain an agent who is so licensed, qualified
and in good standing in any such Mortgaged Property State. The successor
servicer shall be obligated to make Servicing Advances hereunder. As
compensation therefor, the successor servicer appointed pursuant to the
following paragraph, shall be entitled to all funds relating to the Mortgage
Loans which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01(c) as if the Servicer had continued to act as
servicer hereunder, together with other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in Sections 7.01
and 7.03. The Servicer shall not be entitled to any termination fee if it is
terminated pursuant to Section 10.01, but shall be entitled to any accrued and
unpaid Servicing Fee to the date of termination.
Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
Indenture Trustee or, at the direction of the Indenture Trustee, to the
successor servicer. The compensation of any successor servicer (including,
without limitation, the Indenture Trustee) so appointed shall be the Servicing
Fees, together with other Servicing Compensation provided for herein. In the
event the Indenture Trustee is required to solicit bids to appoint a successor
servicer, the Indenture Trustee shall solicit, by public announcement, bids from
housing and home finance institutions, banks and mortgage servicing institutions
meeting the qualifications set forth in Section 9.04(b)(ii) above. Such public
announcement shall specify that the successor servicer shall be entitled to the
full amount of the Servicing Fees and Servicing Compensation provided for
herein. Within thirty days after any such public announcement, the Indenture
Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualified party
submitting the highest qualifying bid. The Indenture Trustee shall deduct from
any sum received by the Indenture Trustee from the successor to the Servicer in
respect of such sale, transfer and assignment all costs and expenses of any
public announcement and of any sale, transfer and assignment of the servicing
rights and responsibilities hereunder and the amount of any unreimbursed
Servicing Advances made by the Indenture Trustee. After such deductions, the
remainder of such sum shall be paid by the Indenture Trustee to the Servicer at
the time of such sale, transfer and assignment to the Servicer's successor. The
Indenture Trustee, the Issuer, any Indenture Trustee, the Servicer and any such
successor servicer shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. The Servicer agrees to
cooperate with the Indenture Trustee and any successor servicer in effecting the
termination of the Servicer's servicing responsibilities and rights hereunder
and shall promptly provide the Indenture Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Indenture Trustee or such successor servicer, as applicable, all amounts
which then have been or should have been deposited in the Collection Account by
the Servicer or which are thereafter received with respect to the Mortgage
Loans. Neither the Indenture Trustee nor any other successor servicer shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Indenture Trustee to each Securityholder, the
Issuer, the Seller and the [Securities Insurer] and, except in the case of the
appointment of the Indenture Trustee as successor to the Servicer (when no
consent shall be required), the Seller, the Majority Securityholders, the Issuer
[and the Securities Insurer] shall have consented thereto.
Pending appointment of a successor to the Servicer hereunder, the
Indenture Trustee shall act as servicer hereunder as hereinabove provided. In
connection with such appointment and assumption, the Indenture Trustee may make
such arrangements for the compensation of such successor servicer out of
payments on the Mortgage Loans as it and such successor servicer shall agree;
provided, however, that no such compensation shall be in excess of that
permitted the Servicer pursuant to Section 7.03, together with other Servicing
Compensation in the form of assumption fees, late payment charges or otherwise
as provided in this Agreement.
Section 10.03 Waiver of Defaults.
The Majority Securityholders may with the prior consent of the
[Securities Insurer], on behalf of all Securityholders, waive any events
permitting removal of the Servicer as servicer pursuant to this Article X,
provided, however, that the Majority Securityholders may not waive a default in
making a required distribution on a Security or Residual Interest without the
consent of the related Securityholder or holder of the Residual Interest. Upon
any waiver of a past default, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer
shall, at its own expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Collection Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee all Mortgage Loan Files and related
documents and statements held by it hereunder and a Mortgage Loan portfolio
computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee, the Issuer, [the Securities Insurer] and
the Securityholders a full accounting of all funds, including a statement
showing the Monthly Payments collected by it and a statement of monies held in
trust by it for payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer under this
Agreement.
ARTICLE XI.
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either: (a) the later of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.1 of the Indenture or (ii) the disposition of all funds
with respect to the last Mortgage 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 Indenture
Trustee [and the Securities Insurer]; or (b) the mutual consent of the Servicer,
the Seller, the Transferor, [the Securities Insurer] and all Securityholders in
writing.
Section 11.02 Optional Termination by Affiliated Holder or the
[Securities Insurer].
(a) The Affiliated Holder may, at its option, effect an early
redemption or termination of the Offered Securities on or after any Distribution
Date on which the Pool Principal Balance declines to ___% or less of the Pool
Principal Balance of the Initial Mortgage Loans and Subsequent Mortgage Loans
conveyed to the Trust as of the respective Cut-Off Dates. The Affiliated Holder
shall effect such early redemption or termination by providing notice thereof to
the Indenture Trustee, Owner Trustee [and Securities Insurer] and by directing
the Indenture Trustee to sell all of the Mortgage Loans to a person that is not
affiliated with the Affiliated Holder, the Seller, or the Servicer at a price
not less than the Termination Price.
(b) In addition, the Affiliated Holder may, at its option, effect an
early redemption or termination of the Offered Securities on or after any
Distribution Date on which the Pool Principal Balance declines to 5% or less of
the Pool Principal Balance of the Initial Mortgage Loans and Subsequent Mortgage
Loan conveyed to the Trust as of the respective Cut-Off Dates. The Affiliated
Holder shall effect such early redemption or termination by providing notice
thereof to the Indenture Trustee, Owner Trustee [and Securities Insurer] and by
paying into the Collection Account in the manner described below an amount equal
to the Termination Price.
Any such early redemption and termination by the Affiliated Holder [or
the [Securities Insurer], as applicable,] shall be accomplished by depositing
into the Collection Account on the Determination Date immediately preceding the
Distribution Date on which the purchase is to occur the amount of the
Termination Price to be paid. The Termination Price and any amounts then on
deposit in the Collection Account (other than any amounts not required to have
been deposited therein pursuant to Section 5.01(b)(i) and any amounts
withdrawable therefrom by the Indenture Trustee pursuant to Section 5.01(d))
shall be transferred to the Note Distribution Account pursuant to Section
5.01(b)(2) for distribution to Securityholders [and the Securities Insurer] on
the Final Distribution Date; and any amounts received with respect to the
Mortgage Loans and Foreclosure Properties subsequent to the Due Period
immediately preceding such Final Distribution Date shall belong to the purchaser
thereof, if under Section 11.02(a), or the Affiliated Holder [or the Securities
Insurer], as applicable. For purposes of calculating the Required Distribution
Amount for the Final Distribution Date, amounts transferred to the Note
Distribution Account immediately preceding such final Distribution Date shall in
all cases be deemed to have been received during the related Due Period, and
amounts so transferred shall be applied pursuant to Section 5.01(c).
Section 11.03 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 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 Seller, the
Servicer, the Transferor 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, to add any other provisions with
respect to matters or questions arising under this Agreement or to provide for
the substitution of a limited guaranty and/or letter of credit into the Reserve
Account pursuant to Section 5.07; provided, however, that such action will not
adversely affect in any material respect the interests of the Securityholders.
An amendment described above shall be deemed not to adversely affect in any
material respect the interests of the Securityholders if either (i) an opinion
of counsel is obtained to such effect, and (ii) the party requesting the
amendment obtains a letter from each of the Rating Agencies confirming that the
amendment, if made, would not result in the downgrading or withdrawal of the
rating then assigned by the respective Rating Agency to any Class of Securities
then outstanding. Notwithstanding the preceding, the [Securities Insurer] shall
have the right to modify the definitions relating to the calculation of the
Required Overcollateralization Amount without the requirement of an amendment to
this Agreement.
(b) This Agreement may also be amended from time to time by the
Seller, the Servicer, the Transferor and the Issuer by written agreement, with
the prior written consent of 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 Mortgage 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 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 Mortgage 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 Seller, Preferred Securitization Corporation, 3347 Michelson
Drive, Suite 400 Irvine California 92612, Attention: Todd A. Rodriquez, or such
other addresses as may hereafter be furnished to the Securityholders and the
other parties hereto in writing by the Seller, (ii) in the case of the Issuer,
[Preferred Credit Owner Trust 199_-_,] 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 Servicer,
Advanta Mortgage Corp., U.S.A., 16875 Bernardo Drive, San Diego, California
92127, Attention: [__________,] or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Servicer, (iv) in the case of the Transferor, Preferred Credit Corporation, 3347
Michelson Drive, Suite 400, Irvine, California 92616, [(v) in the case of a
claim under the Guaranty Policy, [State Street Bank and Trust Company, as Fiscal
Agent, 61 Broadway, 15th Floor, New York, New York, 10006, Attention: Municipal
Registrar,] or such other address as may be furnished to the Securityholders and
the other parties hereto in writing by such Fiscal Agent or the [Securities
Insurer],] [(vi) in the case of the [Securities Insurer], [MBIA Insurance
Corporation, 113 King Street, Armonk, New York 10504, Attention: Insured
Portfolio Management - Structured Finance (IPM- SF),]] (vii) in the case of the
Indenture Trustee or Co-Owner Trustee, [Bankers Trust Company, 3 Park Plaza 16th
Floor, Irvine, CA 92714, Attention: Corporate Trust Department], and (viii) 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
Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Seller, the Issuer 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 Seller, the Servicer or the Issuer. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Agreement and conclusive in favor of the Seller, the
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
Seller, the Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Seller, the Servicer, the Issuer or the [Securities Insurer] in reliance
thereon, whether or not notation of such action is made upon such Security.
(d) The Seller, the Servicer or the Issuer may require additional
proof of any matter referred to in this Section 12.12 as it shall deem
necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Servicer shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Mortgage
Loans;
(iii) notice of any termination, replacement, succession, merger
or consolidation of either the Servicer, [the Indenture Trustee] 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 7.05, and copies of any compliance reports
delivered by the Servicer hereunder including Section 7.04; and
(vii) copies of any Servicer's Monthly Statement pursuant to
Section 6.02(b); and
(b) With respect to the requirement of the Servicer 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, (ii) if to
Moody's, 99 Church Street, Corporate Department - 4th Floor, New York, New York
10007, Attention: Residential Mortgage Monitoring Department, or (iii) if to
DCR, 55 East Monroe Street, Chicago, Illinois, 60603, Attention: Asset-Backed
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 5.06 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 Guaranteed 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 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 Majority Certificateholders; 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 11.01 to consent to the termination of this Agreement and Section
12.02 to consent to any amendment of this Agreement.
(b) At such time as either (i) the Class Principal Balances of each
Class of Notes and the Certificate Principal Balance of the Certificates have
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 Securityholders (including in certain
instances the Majority Securityholders) 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 Securityholders (including the Majority Securityholders).]
IN WITNESS WHEREOF, the Servicer, the Transferor, the Issuer and the
Seller 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.
PREFERRED CREDIT OWNER TRUST 199_-_,]
By: [Wilmington Trust Company,]
as Owner Trustee
By:
Name:
Title:
PREFERRED SECURITIZATION CORPORATION, as
Seller
By:
Name: Todd A. Rodriguez
Title:
ADVANTA MORTGAGE CORP. USA., as Servicer
By:
Name:
Title:
[PREFERRED CREDIT CORPORATION, as Transferor]
By:
Name: Todd A. Rodriguez
Title:
[BANKERS TRUST COMPANY], as
Indenture Trustee and Co-Owner Trustee
By:
Name:
Title:
<PAGE>
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Emmett R. Harmon, 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 PREFERRED CREDIT
OWNER TRUST 199_-_, 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 OFFICE, this the _________ of
- -------------.
Notary Public, State of New York
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
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 PREFERRED SECURITIZATION CORPORATION, as the
Seller, 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 OFFICE, this the __________ of
- ---------------.
Notary Public, State of New York
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
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 ADVANTA MORTGAGE CORP. USA., a Delaware
corporation, as the Servicer, and that he executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the __________________.
Notary Public, State of New York
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
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 [BANKERS TRUST COMPANY,] a national banking
association, as the Indenture Trustee, and that he 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 OFFICE, this the ________________.
Notary Public, State of New York
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
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 [PREFERRED CREDIT CORPORATION, a California
corporation as the Transferor] a national banking association, as the Indenture
Trustee, and that he 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 OFFICE, this the ________________.
Notary Public, State of New York
Exhibit 99.1
SUBJECT TO COMPLETION, DATED _____ _, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________ __, 199_)
$-------------
--------------------------
PREFERRED CREDIT
CORPORATION
--------------------------
PREFERRED CREDIT CORPORATION
(Seller)
PREFERRED SECURITIZATION CORPORATION
(Depositor)
Preferred Consumer Loan Asset Backed Certificates, Series
199__-__
$ % Class A-1 Certificates
$ % Class A-2 Certificates
$ % Class A-3 Certificates
$ % Class A-4 Certificates
$ % Class A-5 Certificates
$ % Class A-6 Certificates
(Principal and interest payable on the twenty-fifth day of each
month, beginning in , 199_).
----------------------
The Preferred Consumer Loan Asset Backed Certificates, Series 199_-_ (the
"Certificates") will represent beneficial interests in a trust, the assets of
which will consist primarily of a pool of fixed rate, closed-end no or low
equity loans secured by mortgages, which are generally subordinate liens, on
residential one-to-four-family properties (the "Mortgage Loans" and together
with all other assets of the trust fund, including any funds on deposit in the
Capitalized Interest Account (as defined herein) and the Pre-Funding Account (as
defined herein), the "Trust Fund") originated or purchased by Preferred Credit
Corporation (the "Seller") in the ordinary course of its business and conveyed,
together with certain related property described herein, by the Seller to
Preferred Securitization Corporation (the "Depositor") and then conveyed by the
Depositor to the Trust Fund. The Trust Fund will be created and the Certificates
will be issued pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") among the Depositor, the Seller, Advanta Mortgage Corp.
USA, as servicer (the "Servicer") and , as Trustee. See "Description of the
Certificates" herein.
The Depositor has caused (the "Certificate Insurer") to issue a certificate
guaranty insurance policy (the "Certificate Insurance Policy") for the benefit
of the Class A Certificateholders pursuant to which it will guarantee certain
payments to the Class A Certificateholders as described herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE HEREIN AND ON PAGE OF THE ACCOMPANYING PROSPECTUS.
-------------------
THE CLASS A CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE TRUSTEE, THE SELLER, THE SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE CLASS A CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proceeds
Price to Underwriting to the
Public(1) Discount Depositor(1)(2)
--------- ------------ ---------------
Class A-1 Certificates........
Class A-2 Certificates........
Class A-3 Certificates........
Class A-4 Certificates........
Class A-5 Certificates........
Class A-6 Certificates........
Total.........................
- -------------------------
(1) Plus accrued interest, if any, at the applicable Pass-Through Rate from ,
199 .
(2) Before deducting expenses payable by the Depositor, estimated to be $ .
--------------------
The Class A Certificates are offered by (the "Underwriter") when, as and if
delivered to and accepted by the Underwriter, subject to prior sale, withdrawal
or modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A Certificates will be delivered
through the Same Day Funds Settlement system of The Depository Trust Company,
Cedel Bank, societe anonyme and the Euroclear System on or about , .
-------------------
The date of this Prospectus Supplement is , 199 .
<PAGE>
(Continued from the cover page)
The Certificates will consist of six classes of senior Certificates
(respectively, the "Class A-1 Certificates," the "Class A-2 Certificates," the
"Class A-3 Certificates," the "Class A-4 Certificates," the "Class A-5
Certificates" and the "Class A-6 Certificates" and collectively the "Class A
Certificates"), and one or more classes of subordinate Certificates,
(collectively, the "Subordinate Certificates"), which term includes any REMIC
"residual interests" (a "Residual Certificate")). Only the Class A Certificates
are being offered hereby.
The Class A Certificates will have an initial aggregate principal balance of
$___________, and the Subordinate Certificates will have an initial aggregate
principal balance of approximately $__________. The Class A Certificates will
initially evidence a _____% undivided interest in the principal of the Mortgage
Loans and a ___% undivided interest in the Pre-Funding Account. The Subordinate
Certificates will initially evidence a ____% interest in the principal of the
Initial Mortgage Loans, together with certain excess interest. The Seller
considers the underwriting policy under which the Mortgage Loans are
underwritten to be analogous to credit lending, rather than equity lending,
since its underwriting decisions are based primarily on the borrower's ability
and willingness to repay and only secondarily on the potential value of the
collateral upon foreclosure. Approximately ____% of the Initial Mortgage Loans
by aggregate principal balance as of the Cut-off Date (as defined herein) are
secured by Mortgaged Properties located in California. See "Risk
Factors--Geographic Concentration" in this Prospectus Supplement (the
"Prospectus Supplement") and "Risk Factors--Underwriting Standards May Affect
Performance" and "The Seller--Underwriting Standards" in the accompanying
Prospectus.
Additional mortgage loans (the "Subsequent Mortgage Loans") may be purchased by
the Trust Fund from time to time on or before ________ __, 199_ from funds on
deposit in the pre-funding account (the "Pre-Funding Account"). On the Closing
Date aggregate cash amounts of approximately $__________ and approximately
$_________, respectively, from the proceeds of the sale of the Class A
Certificates will be deposited with the Trustee in the Pre-Funding Account and
the Capitalized Interest Account (as defined herein), respectively.
Distributions in respect of interest will be made on the 25th day of each month
or, if the 25th day is not a Business Day, on the next succeeding Business Day,
commencing on _______ __, 199_ (each, a "Distribution Date"), to the holders of
the Class A Certificates to the extent described herein. On each Distribution
Date, the amount of interest distributed in respect of the Class A Certificates
will equal the interest accrued on the Certificate Principal Balance (as defined
herein) of the Class A Certificates immediately prior to such Distribution Date
at the applicable Class A Pass-Through Rate during the calendar month
immediately preceding the month in which such Distribution Date occurs and will
be calculated on the basis of a 360-day year assumed to consist of twelve 30-day
months.
One or more real estate mortgage investment conduit ("REMIC") elections will be
made with respect to certain assets of the Trust Fund for federal income tax
purposes. As described more fully herein, the Class A Certificates and
Subordinate Certificates (other than the Residual Certificates) will constitute
"regular interests" in a REMIC and the Residual Certificates will constitute a
"residual interest" in a REMIC. See "Summary--Federal Income Tax Consequences"
and "Federal Income Tax Consequences" herein.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF EACH CLASS OF
CLASS A CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
The Certificates will be part of a separate series of Consumer Loan Asset Backed
Certificates being offered by the Depositor from time to time pursuant to a
Prospectus dated ________ __, 199_ (the "Prospectus"), of which this Prospectus
Supplement is a part and which accompanies this Prospectus Supplement. The
Prospectus contains important information about the offering of the Class A
Certificates that is not contained herein, and prospective investors are urged
to read both this Prospectus Supplement and the Prospectus in full. Sales of the
Class A Certificates may not be consummated unless the purchaser has received
both this Prospectus Supplement and the Prospectus.
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein that are not otherwise
defined shall have the meanings ascribed thereto elsewhere in this Prospectus
Supplement or in the Prospectus. See the Index of Principal Terms for the
location herein of certain principal terms.
Securities Issued.................... Preferred Consumer Loan Asset Backed
Certificates, Series 199_ (the
"Certificates") will be issued
pursuant to a pooling and servicing
agreement, to be dated as of
________ __, 199_ (the "Pooling and
Servicing Agreement"), among
Preferred Securitization Corporation,
as depositor (the "Depositor"), Preferred
Credit Corporation (in its capacity as the
seller to the Depositor, the "Seller"),
Advanta Mortgage Corp. USA ("Advanta," or
in its capacity as servicer, the
"Servicer") and ______________, a
___________ (the "Trustee").
The Certificates will consist of six
classes (each, a "Class") of senior
Certificates (respectively, the "Class A-1
Certificates," the "Class A-2
Certificates," the "Class A-3
Certificates," the "Class A-4
Certificates," the "Class A-5
Certificates," and the "Class A-6
Certificates" (collectively, the "Class A
Certificates")) and one or more Classes of
subordinate Certificates (the "Subordinate
Certificates," which term includes any
REMIC "residual interests" (a "Residual
Certificate")).
The Certificates will be issued in the
amounts (with respect to each Class, the
"Initial Certificate Principal Balance")
and bear the pass-through rates (with
respect to each Class, the "Pass-Through
Rate") set forth below:
PASS
INITIAL CERTIFICATE THROUGH
CLASS PRINCIPAL BALANCE RATE
----- ------------------- -------
Class A-1
Certificates $ %
Class A-2
Certificates $ %
Class A-3
Certificates $ %
Class A-4
Certificates $ %
Class A-5
Certificates $ %
Class A-6
Certificates $ %
Securities Offered................... The Class A Certificates are the only
Certificates being offered hereby.
The Class A Certificates will be
issued in book-entry form in minimum
denominations of [$1,000] and
integral multiples of [$1] in excess
thereof. The Class A Certificates
initially will be represented by
certificates registered in the name
of Cede & Co., as the nominee of The
Depository Trust Company ("DTC").
Certificates representing the Class
A Certificates will be issued in
definitive form only under the
limited circumstances described
herein. All references herein to
"holders" or "holders of the Class A
Certificates" shall reflect the
rights of beneficial owners of Class
A Certificates issued in book- entry
form ("Certificate Owners") as they
may indirectly exercise such rights
through DTC in the United States, or
Cedel Bank, societe anonyme ("Cedel")
or the Euroclear System
("Euroclear") in Europe, and
participating members thereof,
except as otherwise specified
herein. See "Risk Factors--Limited
Liquidity and Fluctuation in Value
from Market Conditions--Book Entry
Registration" and "Description of
the Securities--Book Entry
Registration" in the accompanying
Prospectus.
The Class A Certificates will evidence
undivided interests in the Mortgage Loans
and together with all other assets of the
trust fund, including any funds on deposit
in the Capitalized Interest Account (as
defined herein) and the Pre-Funding
Account (as defined herein) (collectively,
the "Trust Fund"). The undivided
percentage interest (the "Percentage
Interest") of a Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class
A- 6 Certificate in distributions on the
related Class of Certificates will equal
the percentage obtained from dividing the
denomination of such Certificate by the
Initial Class A-1, Initial Class A-2,
Initial Class A-3, Initial Class A-4,
Initial Class A-5 or Initial Class A-6
Certificate Principal Balance, as the case
may be.
The Class A Certificates will not
represent interests in or obligations of
the Depositor, the Seller, the Servicer,
the Trustee or any of their respective
affiliates. Neither the Class A
Certificates nor the underlying Mortgage
Loans will be insured or guaranteed by any
governmental agency or instrumentality.
Cut-Off Date......................... The opening of business on ,
199 .
Statistical Calculation The close of business on ,
Date................................. 199 .
Closing Date......................... On or about , 199 (the
"Closing Date").
Distributions........................ Distributions to the holders of the
Certificates of a Class on each
Distribution Date will be made in an
amount equal to their respective
Percentage Interests multiplied by
the aggregate amount distributed on
such Class of Certificates on such
Distribution Date. So long as the
Class A Certificates are registered
in the name of Cede & Co., as
nominee of DTC, distributions on each
Distribution Date will be made to
the holders of record of the related
Class A Certificates (the
"Certificateholders") as of the close
of business on the last Business
Day of the month immediately
preceding the month in which such
Distribution Date occurs (each, a
"Record Date"). As more fully
described herein under "Description
of the Certificates--Payment of
Available Funds," distributions to
Certificateholders generally will be
applied first to the payment of
interest and interest shortfalls,
second to any unpaid principal and
third, if any principal is then due,
to the payment of principal of the
related Class of Certificates.
Distributions on the Certificates
will be made on the 25th day of each
month (or, if such 25th day is not a
Business Day, on the next succeeding
Business Day) (each, a "Distribution
Date"). "Business Day" shall mean
any day other than (i) a Saturday or
Sunday, or (ii) any day on which the
Certificate Insurer or banking
institutions located in the States of
New York or California are
authorized or obligated by law or
executive order to close.
Description of the The Certificates will represent the
Certificates......................... entire beneficial ownership interest
in the Trust Fund. The assets of the Trust
Fund will consist primarily of a pool of
closed end loans (the "Mortgage Loans")
secured by mortgages or deeds of trust on
residential one-to-four-family properties,
including townhouses and individual units
in condominiums and planned unit
developments (such properties, the
"Mortgaged Properties" and such pool, the
"Mortgage Pool"). See "Description of the
Mortgage Loans" herein. In addition, the
Depositor has caused (the "Certificate
Insurer") to issue a certificate guaranty
insurance policy (the "Certificate
Insurance Policy") relating to the Class A
Certificates for the benefit of the Class
A Certificateholders, pursuant to which it
will guarantee certain payments to the
Trustee for the benefit of the Class A
Certificateholders, as described herein.
The Trust Fund will be formed and the
Certificates will be issued pursuant to
the Pooling and Servicing Agreement.
The Subordinate Certificates will have an
original principal balance of
approximately $ , but such amount will
increase by an amount equal to % of the
principal balance of the Subsequent
Mortgage Loans, if any.
The Subordinate Certificates are not being
offered hereby, and any information
contained herein with respect to the
Subordinate Certificates is provided only
to permit a better understanding of the
cash flow mechanics and subordination
provisions of the Trust Fund, insofar as
such mechanics and provisions are relevant
to the Class A Certificates.
The Mortgage Pool.................... The statistical information presented
in this Prospectus Supplement
concerning the pool of Initial
Mortgage Loans is based on the pool
as of the close of business on
, 199 (such date, the
"Statistical Calculation Date"). The pool
aggregated $ , as of the Statistical
Calculation Date. The Seller expects that
the actual pool as of the Closing Date
will represent approximately $ in Initial
Mortgage Loans. Initial Mortgage Loans
will represent Mortgage Loans acquired or
to be acquired by the Seller on or prior
to the Closing Date. In addition, with
respect to the pools as of the Statistical
Calculation Date as to which statistical
information is presented herein, some
amortization of the pools will occur prior
to the Closing Date. Moreover, certain
loans included in the pools as of the
Statistical Calculation Date may prepay in
full, or may be determined not to meet the
eligibility requirements for the final
pools, and may not be included in the
final pools. As a result of the foregoing,
the statistical distribution of
characteristics as of the Closing Date for
the final Initial Mortgage Loan pool will
vary somewhat from the statistical
distribution of such characteristics as of
the Statistical Calculation Date as
presented in this Prospectus Supplement,
although such variance will not be
material. Unless otherwise noted, all
statistical percentages in this Prospectus
Supplement are measured by the aggregate
principal balance of the Mortgage Pool as
of the Statistical Calculation Date.
The Mortgage Loans to be included in the
Trust Fund will be closed-end, fixed rate
no or low equity loans secured by
mortgages or deeds of trust, which are
first or subordinate liens, on one-to-four
family residential properties, ____% of
which, as of the Statistical Calculation
Date, are located in the State of
California, and all of which have original
terms to stated maturity of approximately
ten through twenty years. The Monthly
Payments for each Mortgage Loan are due on
the dates of the month specified in the
related Mortgage Note (as defined
herein)(each, a "Due Date"). See
"Description of the Mortgage Loans"
herein. The Mortgage Loans were
underwritten in accordance with the
underwriting standards of the Seller. See
"Risk Factors-Geographic Concentration"
herein and "--Underwriting Standards May
Affect Performance" in the accompanying
Prospectus.
The related process of the Mortgage Loans
are generally used to finance (i) debt
consolidation, (ii) property
improvements, (iii) the acquisition of
personal property such as home appliances
or furnishings, (iv) the purchase or
refinancing of residential one- to
four-family properties, and (v) a
combination of debt consolidation,
property improvements and other consumer
purposes.
In addition to the Mortgage Loans acquired
by the Trust Fund on the Closing Date
(such Mortgage Loans, the "Initial
Mortgage Loans"), the Trust Fund may
acquire up to approximately $________ in
additional Mortgage Loans, (the
"Subsequent Mortgage Loans") during the
three-month period commencing on the
Closing Date. The Subsequent Mortgage
Loans, if available, will be originated by
the Seller, sold by the Seller to the
Depositor and then sold by the Depositor
to the Trust Fund. The Subsequent Mortgage
Loans, as well as all Mortgage Loans, must
conform to certain specified
characteristics. See "Pre-Funding Feature"
below.
Prepayment and Yield
Considerations....................... In general, the Mortgage Loans may be
prepaid at any time without penalty
and, accordingly, the rate of
principal payments thereon is likely
to vary from time to time. The Class
A Certificates may be sold at a
discount to their principal amounts.
A slower than anticipated rate of
principal payments on the Mortgage
Loans is likely to result in a lower
than anticipated yield on the Class A
Certificates if they are purchased
at a discount. See "Prepayment and
Yield Considerations" herein and
"Risk Factors--Negative Effect of
Prepayments on Average Life" in the
accompanying Prospectus.
Pre-Funding Feature.................. On the Closing Date, approximately
$__________ (the "Original
Pre-Funded Amount") will be deposited
with the Trustee and used by the
Trust Fund to purchase the
Subsequent Mortgage Loans.
The Trust Fund will be obligated, subject
to the satisfaction of certain conditions
described herein, to purchase the
Subsequent Mortgage Loans from time to
time during the Pre-Funding Period defined
below, subject to the availability
thereof. In connection with each purchase
of Subsequent Mortgage Loans, the Trust
Fund will be required to pay to the
Depositor a cash purchase price of _____%
of the principal amount thereof from the
Pre- Funding Account; the remaining ____%
will be evidenced by an increase in the
Subordinate Certificate Principal Balance;
as a result of the foregoing, the Trust
Fund may acquire up to approximately
$_________ in aggregate principal balance
of Subsequent Mortgage Loans, based on the
original cash deposit of approximately
$_________ to the Pre-Funding Account. The
Depositor will designate as a cut-off date
(each a "Subsequent Cut-Off Date") (i) the
last day of the month preceding the month
in which Subsequent Mortgage Loans will be
conveyed by the Depositor to the Trust
Fund or (ii) the date of origination, if
any such Subsequent Mortgage Loan is
originated in the month of conveyance by
the Depositor to the Trust Fund (each a
"Subsequent Transfer Date") occurring
during the Pre- Funding Period (as defined
herein). The Trust Fund may purchase the
Subsequent Mortgage Loans only from the
Depositor and not from any other person.
See "Description of the Mortgage Loans."
The "Pre-Funding Period" is the period
from the Closing Date until the earliest
of (i) the date on which the amount on
deposit in the Pre-Funding Account is less
than [$50,000], (ii) the date on which an
Event of Default occurs under the Pooling
and Servicing Agreement or (iii)
__________ __, 199__. The amount on
deposit in the Pre-Funding Account will be
reduced during the Pre-Funding Period by
the amount thereof used to purchase
Subsequent Mortgage Loans. Any amount
remaining in the Pre-Funding Account at
the end of the Pre-Funding Period will be
distributed to the Class A Certificates as
an additional distribution of principal on
the Distribution Date which follows the
end of the Pre-Funding Period.
Capitalized Interest On the Closing Date, the Trustee,
Account.............................. from amounts received from the
Depositor, will be required to deposit a
portion of the proceeds of the sale of the
Class A Certificates in an account (the
"Capitalized Interest Account") in the
name of the Trustee on behalf of the Trust
Fund. The amount deposited therein will be
used, as necessary, by the Trustee during
the Pre-Funding Period to fund the
negative arbitrage on the Pre-Funding
Account monies. Any amounts remaining in
the Capitalized Interest Account on the
Distribution Date which follows the end of
the Pre-Funding Period and not used for
such purpose on such Distribution Date
are required to be paid directly to the
holders of the Subordinate Certificates
on such Distribution Date.
Mortgage Interest Rate............... The "Mortgage Interest Rate" of each
Mortgage Loan is the per annum
interest rate required to be paid by
the mortgagor under the terms of the
related mortgage note (the "Mortgage
Note"). The Mortgage Interest Rate
borne by each Mortgage Loan is fixed
on the related Mortgage Note.
Interest Distributions............... On each Distribution Date, the
holders of the Class A Certificates
will be entitled to receive, to the
extent of amounts available for
distribution as described herein,
interest distributions in an amount
equal to the sum of (i) interest
accrued for the related Accrual
Period (as defined herein) on the
related Class A Principal Balance
immediately prior to such
Distribution Date at the applicable
Class A Pass-Through Rate and (ii)
the portion of the related Class A
Carry-Forward Amount (as defined
herein), allocable to interest (the
"Class A Interest Distribution
Amount").
Interest on the Class A Certificates will
accrue at the applicable Class A
Pass-Through Rate during the calendar
month immediately preceding the month in
which such Distribution Date occurs (each,
an "Accrual Period"). See "Description of
the Certificates" herein.
Principal Distributions.............. The "Class A Principal Balance"
represents the maximum specified
dollar amount of principal to which
the Holders of the Class A
Certificates are entitled on the
assets in the Trust Fund. The "Class
A Principal Balance" at any time is
equal to the Class A Principal
Balance as of the Cut- Off Date (the
"Original Class A Principal Balance")
minus the aggregate, cumulative
amounts actually distributed as
principal to the Class A
Certificateholders. See "Description
of the Certificates--Payment of
Available Funds" and "The
Certificate Insurance Policy and The
Certificate Insurer" herein.
For purposes of receiving distributions
with respect to principal, the Class A
Certificates have been divided into six
"sequential paying" classes. On each
Distribution Date until the Class A-1
Principal Balance has been reduced to
zero, the Holders of the Class A-1
Certificates will be entitled to receive
100% of the distribution with respect to
the Class A Principal Distribution Amount
on such Distribution Date. After the Class
A-1 Certificate Principal Balance has been
reduced to zero, the Holders of the Class
A-2 Certificates will be entitled to
receive 100% of such distributions with
respect to principal until the Class A-2
Certificate Principal Balance has been
reduced to zero. After the Class A-2
Certificate Principal Balance has been
reduced to zero, the Holders of the Class
A-3 Certificates will be entitled to
receive 100% of such distributions with
respect to principal until the Class A-3
Certificate Principal Balance has been
reduced to zero. After the Class A-3
Certificate Principal Balance has been
reduced to zero, the Holders of the Class
A-4 Certificates shall be entitled to
receive 100% of such distributions with
respect to principal until the Class A-4
Certificate Principal Balance has been
reduced to zero. After the Class A-4
Certificate Principal Balance has been
reduced to zero, the Holders of the Class
A-5 Certificates shall be entitled to
receive 100% of such distributions with
respect to principal until the Class A-5
Certificate Principal Balance has been
reduced to zero. After the Class A-5
Certificate Principal Balance has been
reduced to zero, the Holders of the Class
A-6 Certificates shall be entitled to
receive 100% of remaining distributions of
principal.
Holders of the Class A Certificates will
be entitled to receive on each
Distribution Date, to the extent of
amounts available for distribution (as
described herein) remaining after interest
on the Class A Certificates is
distributed, the "Senior Principal
Distribution Amount," which will generally
reflect principal collections on the
Mortgage Loans with respect to the prior
calendar month (the "Collection Period"),
together with an amount (which may not, on
any particular Distribution Date, be the
full necessary amount) necessary to
increase the actual Overcollateralization
Amount to its Required
Overcollateralization Level, and minus an
amount intended to reduce any excess
Overcollateralization Amount.
Specifically, the "Class A Principal
Distribution Amount" for a
Distribution Date will equal:
(a) the sum, without
duplication, of:
(i) the portion of the Class A
Carry-Forward Amount which relates
to a shortfall in a distribution of a
related Overcollateralization
Deficit,
(ii) all scheduled and
unscheduled amounts relating to principal
with respect to the Mortgage Loans
received by the Servicer during the prior
Collection Period to the extent actually
received by the Trustee,
(iii) the Principal Balance of
each Mortgage Loan that either was
repurchased by the Seller or by the
Depositor to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments
(as defined herein) delivered by the
Depositor or the Seller on the related
Servicer Remittance Date in connection
with a substitution of a Mortgage Loan, to
the extent such Substitution Adjustments
are actually received by the Trustee,
(v) the net Liquidation Proceeds
(as defined herein) collected by the
Servicer of all the Mortgage Loans during
the prior calendar month (to the extent
such net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any monies released from the
Pre-Funding Account as a prepayment of
Class A Certificates on the Distribution
Date which immediately follows the end of
the Pre-Funding Period,
(vii) the proceeds received by
the Trustee of any termination of the
Trust Fund (to the extent such proceeds
related to principal),
(viii) the amount of any
Overcollateralization Deficit (as
defined herein) for such Distribution
Date,
(ix) without duplication of
amounts distributed under clause (viii)
above, the amount of any related
Overcollateralization Increase Amount (as
defined herein) for such Distribution
Date; minus
(b) the amount of any
Overcollateralization Reduction
Amount (as defined herein) for such
Distribution Date.
In no event will the Class A Principal
Distribution Amount with respect to any
Distribution Date be less than zero or
greater than the Class A Principal Balance
of the Class A Certificates.
The actual amount distributed with respect
to the Class A Certificates on any
Distribution Date is the "Class A
Distribution Amount" for such Distribution
Date.
Upon the earlier of (a) the date on which
any payment due or portion thereof with
respect to a Mortgage Loan has become
delinquent for a period of 180 consecutive
days, (b) the time at which a Mortgage
Loan becomes a Liquidated Loan or (c) the
date on which the Holder of the
Subordinate Certificates repurchases such
Mortgage Loan as described under
"Servicing of the Mortgage
Loans--Realization Upon a Sale of
Defaulted Mortgage Loans" herein, such
Mortgage Loan will become a "Charged-off
Loan." Once a Mortgage Loan becomes a
Charged-off Loan, its Principal Balance,
for purposes of the Trust Fund, will
thereafter be considered to be zero.
A "Liquidated Loan" is a Mortgage Loan as
to which the Servicer, in its reasonable,
good faith business judgment in accordance
with Accepted Servicing Practices (as
defined herein), has determined that all
amounts which will be recovered with
respect to such Mortgage Loan have been so
recovered (exclusive of any possibility of
a deficiency judgment).
An amount to cover any loss on a
Charged-off Loan may or may not be
distributed to the Holders of the Class A
Certificates on the Distribution Date
which immediately follows such Mortgage
Loan becoming a Charged-off Loan. However,
the Holders of the Class A Certificates
are entitled to receive ultimate recovery
of any loss on the Mortgage Loans which
receipt will be no later than the
Distribution Date occurring after
cumulative losses on Charged-off Loans
result in an Overcollateralization
Deficit.
Credit Enhancement................... The credit enhancement provided for
the benefit of the Class A
Certificateholders consists of (a)
the Overcollateralization provided
by the Subordinate Certificate
Principal Balance, as thereafter
augmented by the acceleration
feature described below, which
together with the subordination
mechanics utilize the internal cash
flows of the Mortgage Loans, and (b)
the Certificate Insurance Policy.
See "Description of the
Certificates--Overcollateralization,
Subordination Provisions and Support
Features" herein.
A. Overcollateralization............ The Overcollateralization feature of
the Trust Fund is a result of the
aggregate debt service requirements
of the Class A Certificates being
less than the Trust Fund's aggregate
expected revenues, such revenues
being the expected collections and
recoveries on the Mortgage Loans.
The Overcollateralization is
evidenced by the Subordinate
Certificates, which represent the
right to receive excess principal
(which initially equals the
Overcollateralization Amount (as
defined below) on the Cut-off Date)
and excess interest (the excess of
interest collections on the Mortgage
Loans over Class A Certificate
interest, plus fees).
The Pooling and Servicing Agreement
defines the "Overcollateralization Amount"
to be, as of the end of the related
Collection Period, the excess of the sum
of (i) the amount then on deposit in the
Pre-Funding Account and (ii) the then
outstanding aggregate Principal Balance of
the Mortgage Loans over the then
outstanding Class A Principal Balance.
Following the Closing Date, the
Overcollateralization provisions will
result in a limited acceleration of the
Class A Certificates relative to the
amortization of the Mortgage Loans in the
early months of the transaction. The
accelerated amortization is achieved by
the application of 100% of principal
payments on the Mortgage Loans and certain
excess interest (i.e., the cash flows
otherwise payable to the Subordinate
Certificates) to the payment of the Class
A Principal Balance until the
Overcollateralization Amount reaches a
target level (the "Required
Overcollateralization Level") mandated by
the Certificate Insurer. Once the Required
Overcollateralization Level is reached,
and subject to the provisions described in
the next paragraph, the acceleration
feature will cease, unless necessary to
maintain the actual Overcollateralization
Amount at the Required
Overcollateralization Level in effect at
that time.
The Pooling and Servicing Agreement
provides that, subject to certain trigger
tests, the Required Overcollateralization
Level may increase or decrease over time.
An increase would result in a temporary
period of accelerated amortization of the
related Class A Certificates to increase
the actual Overcollateralization Amount to
the Required Overcollateralization Level;
a decrease would result in a temporary
period of decelerated amortization to
reduce the actual Overcollateralization
Amount to the Required
Overcollateralization Level.
B. Subordination..................... The rights of the holders of the
Subordinate Certificates to receive
distributions with respect to the
Mortgage Loans in the Trust Fund
will be subordinated, to the extent
described herein, to such rights of
the holders of the Class A
Certificates. This subordination is
intended to enhance the likelihood
of regular receipt by the holders of
the Class A Certificates of the full
amount of their principal and
scheduled monthly payments of
interest and to afford such holders
protection against losses on the
Mortgage Loans.
The protection afforded to the holders of
the Class A Certificates by means of the
subordination of the Subordinate
Certificates will be accomplished by the
preferential right of the Class A
Certificateholders to receive, prior to
any distribution being made on a
Distribution Date in respect of the
Subordinate Certificates, the amounts of
interest and principal due them on each
Distribution Date out of the Available
Funds on such date in the Certificate
Account and, if necessary, by the right of
such Class A Certificateholders to receive
future distributions of Available Funds
that would otherwise be payable to the
holders of the Subordinate Certificates.
See "Description of the
Certificates--Overcollateralization,
Subordination Provisions and Support
Features" herein.
C. The Certificate Insurance
Policy.......................... The Certificate Insurer will issue a
certificate guaranty insurance
policy (the "Certificate Insurance
Policy") with respect to the Class A
Certificates, pursuant to which it
will irrevocably and unconditionally
guarantee payment to the Trustee for
the benefit of the Holders of the
Class A Certificates as further
described herein, an amount that will
insure that the full amount of the
Insured Distribution Amount is
available for distribution by the
Trustee to the Class A
Certificateholders on such
Distribution Date. The "Insured
Distribution Amount" for a
Distribution Date equals the sum of
(i) the Class A Interest Distribution
Amount and (ii) the Overcollateralization
Deficit. The Certificate Insurance Policy
does not guarantee the Class A
Certificates any specified rate of
prepayments. A payment by the Certificate
Insurer under the Certificate Insurance
Policy is referred to herein as an
"Insured Payment." The Certificate Insurer
will be entitled to reimbursement for all
Insured Payments together with interest
thereon. See "The Certificate Insurance
Policy and The Certificate Insurer"
herein.
Mandatory Prepayment of
Class A Certificates................. The Original Pre-Funded Amount may be
used to acquire Subsequent Mortgage
Loan If by the end of the Pre-Funding
Period, not all of the Original
Pre-Funded Amount has been used to
acquire Subsequent Mortgage Loans,
then the Class A Certificates will
be prepaid in part on the
Distribution Date which follows the
end of the Pre-Funding Period, from
and to the extent of such remaining
funds.
The Certificate Insurer.............. (the "Certificate
Insurer"). See "The Certificate
Insurance Policy and The Certificate
Insurer" herein.
Servicing of the Mortgage The Servicer has agreed to service
Loans................................ the Mortgage Loans on a
"scheduled/actual" basis (i.e., the
Servicer is responsible for advancing
scheduled payments of interest to the
extent described in "--Delinquency
Interest Advances and Compensating
Interest" below) in accordance with the
Pooling and Servicing Agreement and to
cause the Mortgage Loans to be serviced
with the same care as it customarily
employs in servicing and administering
mortgage loans of the same type for its
own account in accordance with accepted
mortgage servicing practices of prudent
lending institutions.
Credit Quality of Loans.............. The Seller considers the underwriting
policy under which the Mortgage
Loans are underwritten to be
analogous to credit lending, rather
than equity lending, since its
underwriting decisions are based
primarily on the borrower's ability
and willingness to repay and only
secondarily on the potential value of
the collateral upon foreclosure.
Loan decisions are based primarily on
an analysis of the prospective
borrower's documented cash flow and
credit history and supplemented by a
collateral evaluation.
The Mortgage Loans originated or purchased
by the Seller will have been made to
borrowers that typically have limited
access to traditional mortgage financing
for a variety of reasons, such as
insufficient home equity value, high
levels of debt service-to-income, a post
credit experience or a limited credit
history. See "Risk Factors-Underwriting
Standards and "The Seller" in the
accompanying Prospectus.
Delinquency Interest
Advances and Compensating........... The Servicer will be obligated to
make Interest. Delinquency Interest
Advances (as defined below) unless it
reasonably believes that the amount of
such Delinquency Interest Advance will
ultimately not be recoverable with respect
to the related Mortgage Loan (exclusive of
any possibility of a deficiency judgment).
Delinquency Interest Advances may be
funded by the Servicer from subsequent
collections on the Mortgage Loans
generally, and are reimbursable from (i)
future collections and (ii) Net
Liquidation Proceeds. "Delinquency
Interest Advances" are amounts deposited
in the Certificate Account by the Servicer
equal to the sum of the interest portions
(net of the Servicing Fees) due, but not
collected with respect to delinquent
Mortgage Loans during the related
Collection Period. Notwithstanding the
Servicer's good faith determination at the
time such Delinquency Interest Advance was
made, that it would not be a
Nonrecoverable Advance, in the event such
Delinquency Interest Advance becomes a
Nonrecoverable Advance, the Servicer will
be entitled to reimbursement therefor from
the Trust Fund. Upon an Event of Default
(as described herein), the Trustee, as
successor servicer, will be obligated to
make any such Delinquency Interest Advance
if the Servicer fails in its obligation to
do so, to the extent provided in the
Pooling and Servicing Agreement. In
addition, the Servicer will also be
required to deposit Compensating Interest
in the Certificate Account with respect to
any full Prepayment received on a Mortgage
Loan during the related Collection Period
out of its own funds without any right of
reimbursement therefor. "Compensating
Interest" is an amount equal to the
difference between (x) 30 days' interest
at the Mortgage Interest Rate (net of the
rate at which the Servicing Fee is
calculated) on the Principal Balance of
such Mortgage Loan as of the first day of
the related Collection Period and (y) to
the extent not previously advanced, the
interest paid by the Mortgagor with
respect to the Mortgage Loan during such
Collection Period. The Servicer will not
be required to pay Compensating Interest
with respect to any Collection Period in
an amount in excess of the aggregate
Servicing Fee received by the Servicer for
such Collection Period. See "Description
of the Certificates--Payments on the
Mortgage Loans" herein.
Servicing Advances................... Subject to the Servicer's good faith
determination that such action would
not constitute a Nonrecoverable
Advance and that a prudent mortgage
lender would make a like advance if
it or an affiliate owned the related
Mortgage Loan, the Servicer is
required to advance amounts with
respect to the Mortgage Loans
("Servicing Advances") constituting
"out- of-pocket" costs and expenses
relating to (a) the preservation and
restoration of the Mortgaged
Property, (b) enforcement
proceedings, including foreclosures,
(c) expenditures relating to the
purchase or maintenance of a senior
lien not included in the Trust Fund
on the Mortgaged Property, and (d)
certain other customary amounts
described in the Pooling and
Servicing Agreement. Such Servicing
Advances by the Servicer are
reimbursable to the Servicer subject
to certain conditions and
restrictions. In the event that,
notwithstanding the Servicer's good
faith determination at the time such
Servicing Advance was made, that it
would not be a Nonrecoverable
Advance, in the event such Servicing
Advance becomes a Nonrecoverable
Advance, the Servicer will be
entitled to reimbursement therefor
from the Fund.
Servicing Fee........................ The Servicer is entitled to a
servicing fee of % per annum of
the Principal Balance of each
Mortgage Loan (the "Servicing Fee"),
calculated and payable monthly. The
Servicer is entitled to other
compensation to the extent described
herein.
Optional Termination................. The Holders of the Residual
Certificates or Servicer may, at
their option (and if neither option
is exercised, the Certificate
Insurer may, at its option) terminate
the Trust Fund on any date on which
the aggregate Principal Balances of
the Mortgage Loans is less than 10%
(if the Holders of the Residual
Certificates are exercising their
option) or is less than 5% (if the
Servicer (or the Certificate Insurer,
if the Servicer fails to exercise
its option) is exercising its
option) of the sum of (a) the
aggregate Principal Balances of the
Initial Mortgage Loans as of the
Cut-Off Date plus (b) the aggregate
Principal Balance of the Subsequent
Mortgage Loans, as of the related
Subsequent Cut-Off Date (such sum,
the "Maximum Collateral Amount"), by
purchasing from the Trust Fund, on
the next succeeding Distribution
Date, all of the property of such
Trust Fund at a price equal to the
sum of (a) the greater of (i) 100% of
the aggregate Principal Balances of
each outstanding Mortgage Loan and
each REO Property and (ii) the fair
market value (disregarding accrued
interest) of the Mortgage Loans and
such REO Properties, determined as
the average of three written bids
(copies of which are to be delivered
to the Trustee and the Certificate
Insurer by the Servicer and the
reasonable cost of which may be
deducted from the final purchase
price so long as such deduction would
not result in a draw on the
Certificate Insurance Policy) made by
nationally-recognized dealers reasonably
acceptable to the Certificate Insurer and
based on a valuation process which would
be used to value comparable mortgage loans
and REO properties, plus (b) the greater
of (x) the aggregate amount of accrued and
unpaid interest on the Mortgage Loans
through the related Collection Period and
(y) 30 days' accrued interest thereon
computed at a rate equal to the related
Mortgage Interest Rate, (c) in the event
the Holders of the Residual Certificates
or the Certificate Insurer exercise such
option, plus any unpaid and accrued
Servicing Fee or in the event the Servicer
exercises such option, net of the
Servicing Fee, and (d) any unreimbursed
amounts due to the Certificate Insurer
under the Pooling and Servicing Agreement
and any accrued and unpaid Insured
Payments, plus interest thereon. The first
date on which the Holders of the Residual
Certificates may exercise their option is
the "Clean-Up Call Date." See "Servicing
of the Mortgage Loans--Termination;
Purchase of Mortgage Loans" herein.
Trustee.............................. , a
with offices located at
. See "The
Trustee" herein.
ERISA Considerations................. The Class A Certificates may not be
purchased by Plans (as defined
below) until the earlier of the (i)
the end of the Pre- Funding Period or
(ii) the date on which the U.S.
Department of Labor amends the
exemption (as defined below) to
permit the use thereunder of
pre-funding accounts as described
herein. On or after the earlier to
occur of such dates, a fiduciary of
any Plan should carefully review with
its legal advisors whether the purchase
or holding of Class A Certificates could
give rise to a transaction prohibited or
not otherwise permissible under ERISA or
the Code. The U.S. Department of Labor has
issued an individual exemption, Prohibited
Transaction Exemption 89-90 to the
Underwriter (the "Exemption"), which
generally exempts from the application of
certain of the prohibited transaction
provisions of ERISA, and the excise taxes
imposed on such prohibited transactions by
Section 4975(a) and (b) of the Code and
Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding
of pass-through certificates such as the
Class A Certificates and the servicing and
operation of asset pools such as the Trust
Fund, provided that certain conditions are
satisfied. See "ERISA Considerations"
herein and in the accompanying Prospectus.
Legal Investment..................... The Class A Certificates will not
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984. See "Legal
Investment" herein.
Federal Income Tax
Consequences......................... For federal income tax purposes, one
or more elections will be made to
treat certain assets of the Trust
Fund as a "real estate mortgage
investment conduit" (a "REMIC"). The
Class A Certificates will be
designated as "regular interests"
issued by a REMIC and will be treated
as debt instruments issued by a
REMIC for federal income tax
purposes. Holders of Class A
Certificates, including Holders that
generally report income on the cash
method of accounting, will be
required to include interest on the
Class A Certificates in income in
accordance with the accrual method
of accounting. See "Federal Income
Tax Consequences" herein and in the
accompanying prospectus.
Certificate Ratings.................. It is a condition to the issuance of
the Class A Certificates that the
Class A Certificates shall have been
rated not lower than by
(" ") and
by (" "
and together with , the "Rating
Agencies"). A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. The ratings do not
address the possibility that Class A
Certificateholders may suffer a lower than
anticipated yield. See "Ratings" and
"Prepayment and Yield Considerations"
herein.
<PAGE>
RISK FACTORS
Prospective investors in the Class A Certificates should consider among
other things the following risk factors in connection with the purchase of the
Class A Certificates.
LIMITED LIQUIDITY
The Underwriter intends to make a secondary market in the Class A
Certificates, but will have no obligation to do so. There can be no assurance
that a secondary market for any Class of Class A Certificates will develop, or
if one does develop, that it will continue or provide sufficient liquidity of
investment or that it will remain for the term of the related Class of Class A
Certificates. See "Legal Investment Considerations" herein and "Risk
Factors--Limited Liquidity and Fluctuation in Value from Market Conditions--Lack
of Secondary Market" in the accompanying Prospectus.
GEOGRAPHIC CONCENTRATION
As of the Statistical Calculation Date, approximately _____% of the Initial
Mortgage Loans are secured by Mortgaged Properties located in the State of
California. Because of the relative geographic concentration of the Mortgage
Loans within California, losses on the Mortgage Loans may be higher than would
be the case if the Mortgage Loans were more geographically diversified. For
example, certain of the Mortgaged Properties may be more susceptible to certain
types of special hazards, such as earthquakes, floods, hurricanes and other
natural disasters and major civil disturbances, than residential properties
located in other parts of the country. In addition, the regional economies of
the areas in which the Mortgage Loans are located may be adversely affected to a
greater degree than the economies of other areas of the country by certain
regional developments. In recent years, property values of residential real
estate generally have declined in California. If the relevant California
residential real estate markets experience an overall decline in property values
after the dates of origination of the respective Mortgage Loans, then the rates
of delinquencies, foreclosures and losses on the Mortgage Loans may be expected
to increase and such increase may be substantial. Further, the State of
California is an "election of remedies" state, which generally means that in the
event of default on Mortgage Loans in that state, the lender, in this case the
Servicer, in the name of and on behalf of the Trustee, must elect either to sue
on the debt or pursue its remedies against the property. If the Servicer chooses
to pursue its remedies against the Borrower, then generally it will not be able
to foreclose against the Mortgaged Property.
THE SUBSEQUENT MORTGAGE LOANS AND THE PRE FUNDING ACCOUNT
There is no assurance that the Depositor will have sufficient Mortgage
Loans to sell to the Trust Fund during the Pre-Funding Period so as to account
for the entire Original Pre-Funded Amount; if the Depositor does not have
sufficient Mortgage Loans, a partial prepayment of principal to Holders of Class
A Certificates will result. In addition, any conveyance of Subsequent Mortgage
Loans is subject to the following conditions, among others: (i) each such
Subsequent Mortgage Loan must satisfy certain specified representations and
warranties; (ii) the Depositor will not select such Subsequent Mortgage Loans in
a manner that it believes is adverse to the interests of the Holders of the
Class A Certificates or the Certificate Insurer; (iii) the Depositor will
deliver certain opinions of counsel with respect to the validity of the
conveyance of such Subsequent Mortgage Loans; and (iv) as of the Subsequent
Cut-Off Date, the Mortgage Loans at that time, including the Subsequent Mortgage
Loans to be conveyed by the Depositor as of such Subsequent Cut-Off Date, will
satisfy the criteria set forth in the Pooling and Servicing Agreement, as
described herein under "Description of the Mortgage Loans--Conveyance of
Subsequent Mortgage Loans."
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the purchase of Subsequent Mortgage Loans by the end of
the Pre-Funding Period, such remaining amount will be applied as a prepayment of
principal paid to the Holders of the Class A Certificates on the Distribution
Date following the end of the Pre-Funding Period (in no event later than the
__________, 199__ Distribution Date). The amount of any such prepayment will be
applied to the Class A Certificates. Although no assurances can be given, it is
anticipated by the Seller that the principal amount of Subsequent Mortgage Loans
sold to the Trust Fund will require the application of substantially all amounts
on deposit in the Pre-Funding Account and that there will be no material
principal prepayment to the Holders of the Class A Certificates.
Subsequent Mortgage Loans may have characteristics different from those of
the related Initial Mortgage Loans. However, each Subsequent Mortgage Loan must
satisfy the eligibility criteria referred to above at the time of its addition
and be underwritten in accordance with the Seller's underwriting criteria. See
"Description of the Mortgage Loans--Conveyance of Subsequent Mortgage Loans"
herein.
Book-Entry Registration
Since transactions in the Class A Certificates can be effected only through
DTC, Cedel, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Certificate Owner of Class A Certificates to
pledge a Class A Certificate to persons or entities that do not participate in
the DTC, Cedel or Euroclear system, or otherwise to take action in respect of
such Class A Certificate, may be limited due to lack of a physical certificate
representing such Class A Certificate.
Certificate Owners of Class A Certificates may experience some delay in
their receipt of distributions of interest and principal on the Class A
Certificates since such distributions will be forwarded by the Trustee to DTC
and DTC will credit such distributions to the accounts of its Participants,
which will thereafter credit them to the accounts of such Certificate Owners
either directly or indirectly through indirect participants. See "Description of
the Securities--Book Entry Registration" and "Risk Factors--Limited Liquidity
and Fluctuation in Value from Market Conditions--Book Entry Registration" in the
accompanying Prospectus.
DESCRIPTION OF THE MORTGAGE LOANS
General
The statistical information regarding the Mortgage Loans (the "Initial
Mortgage Loans") which is presented in this Prospectus Supplement is based upon
the characteristics of the Mortgage Pool as of the close of business on
___________, 199_ (the "Statistical Calculation Date"). Unless otherwise
indicated, all percentages set forth in this Prospectus Supplement are based
upon the aggregate Principal Balances of the Initial Mortgage Loans as of the
Statistical Calculation Date, which was $______________.
The Mortgage Loans to be included in the Trust Fund are evidenced by
mortgage notes (each, a "Mortgage Note") secured by mortgages or deeds of trust
which are generally subordinate liens (the "Mortgages") on one- to four- family
residential properties, including townhouses, individual units in condominiums
and planned unit developments (the "Mortgaged Properties") and have the
additional characteristics described below. Since the Mortgage Loans are
generally subordinate liens which are subordinate to the rights of the mortgagee
under the senior mortgage or mortgages encumbering the related Mortgaged
Property ("Senior Liens"), the proceeds from any foreclosure, liquidation,
insurance or condemnation proceedings will be available to satisfy the
outstanding balance of such subordinate mortgage only to the extent that the
claims of the mortgagees under such Senior Liens have been satisfied in full,
including any related foreclosure costs. In addition, a subordinate mortgagee
may not foreclose on the Mortgaged Property securing a subordinate mortgage
unless it forecloses subject to the Senior Liens, in which case it must either
pay the entire amount due on the Senior Liens to the mortgagees thereof at or
prior to the foreclosure sale or undertake the obligation to make payments on
the Senior Liens in the event the mortgagor is in default thereunder. The Trust
Fund will not have any source of funds to satisfy the Senior Liens or make
payments due to the mortgagees thereof.
The Mortgage Loans have original terms to stated maturity of ten through
twenty years. Generally the original term to stated maturity is 15 years. The
loan application for each Mortgage Loan was approved in the ordinary course of
the Seller's fixed rate closed-end loan program. As of the Statistical
Calculation Date, the average principal balance of the Initial Mortgage Loans
was approximately $_________. As of the Statistical Calculation Date, the
weighted average Mortgage Interest Rate was approximately _____%. The weighted
average Combined Loan-to-Value Ratio (as defined below) of the Initial Mortgage
Loans as of the Statistical Calculation Date is approximately ______%. A
"Combined Loan-to-Value Ratio" on an individual Mortgage Loan is calculated by
dividing the sum of (x) any outstanding senior mortgage balance plus (y) the
original principal balance of the Mortgage Loan, by the appraised value of such
Mortgaged Property. In the instance where more than one appraisal was performed
on the subject property, the lesser of the two values will be used to determine
the Combined Loan-to-Value Ratio. As of the Statistical Calculation Date, the
weighted average remaining term to stated maturity was ______ months and the
latest scheduled maturity of any Initial Mortgage Loan is ____________; however
the actual date on which any Mortgage Loan is paid in full may be earlier than
the stated maturity date due to unscheduled payments of principal.
The related proceeds of the Mortgage Loans are generally used to finance
(i) debt consolidation, (ii) property improvements, (iii) the acquisition of
personal property such as home appliances or furnishings, (iv) the purchase or
refinancing of residential one- to four-family properties, and (v) a combination
of debt consolidation, property improvements and other consumer purposes.
Substantially all of the proceeds of Mortgage Loans with loan-to-value
ratios in excess of a specified percentage, calculated in accordance with the
Treasury regulations pertaining to REMICS, are used to finance improvements on
the related Mortgage Property.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Loans" in the accompanying Prospectus.
The Monthly Payments for each Mortgage Loan are due on the dates of the
month specified in the related Mortgage Note (each a "Due Date"). Each Mortgage
Loan requires the related Mortgagor to make current principal and interest
payments during the life of the Mortgage Loan.
Based on information supplied by the mortgagors in connection with their
loan applications at origination, the Mortgaged Properties will be owner
occupied primary residences.
Pool Statistics
The Mortgage Loans were underwritten by the Seller in accordance with
underwriting standards developed by the Seller described under "The
Seller--Underwriting Standards" in the accompanying Prospectus.
Set forth below is a description of certain additional characteristics of
the Initial Mortgage Loans as of the Statistical Calculation Date (except as
otherwise indicated). Dollar amounts and percentages may not add up to totals
due to rounding.
The statistical information presented in this Prospectus Supplement
concerning the pool of Initial Mortgage Loans is based on the pool as of the
close of business on ___________, 199_ (such date, the "Statistical Calculation
Date"). The pool aggregated $______________ as of the Statistical Calculation
Date. The Seller expects that the actual pool as of the Closing Date will
represent approximately $___________ in Initial Mortgage Loans. Initial Mortgage
Loans will represent Mortgage Loans acquired or to be acquired by the Seller on
or prior to the Closing Date. In addition, with respect to the pools as of the
Statistical Calculation Date as to which statistical information is presented
herein, some amortization of the pools will occur prior to the Closing Date.
Moreover, certain loans included in the pools as of the Statistical Calculation
Date may prepay in full, or may be determined not to meet the eligibility
requirements for the final pools, and may not be included in the final pools. As
a result of the foregoing, the statistical distribution of characteristics as of
the Closing Date for the final Initial Mortgage Loan pool will vary somewhat
from the statistical distribution of such characteristics as of the Statistical
Calculation Date as presented in this Prospectus Supplement, although such
variance will not be material. Unless otherwise noted, all statistical
percentages in this Prospectus Supplement are measured by the aggregate
principal balance of the Mortgage Pool as of the Statistical Calculation Date.
The sum of the percentage columns set forth in the following tables may not
equal 100% due to rounding.
<PAGE>
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Statistical Percentage of
Calculation Statistical
Number of Date Calculation
Initial Aggregate Date
Mortgage Mortgage Unpaid Aggregate
Interest Rates Loans Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
10.000-10.249%........
10.250-10.499..........
10.500-10.749...........
10.750-10.999...........
11.000-11.249...........
11.250-11.499...........
11.500-11.749...........
11.750-11.999...........
12.000-12.249...........
12.250-12.499...........
12.500-12.749...........
12.750-12.999...........
13.000-13.249...........
13.250-13.499...........
13.500-13.749...........
13.750-13.999...........
14.000-14.249...........
14.250-14.499...........
14.500-14.749...........
14.750-14.999...........
15.000-15.249...........
15.250-15.499...........
15.500-15.749...........
15.750-15.999...........
16.000-16.249...........
16.250-16.499...........
16.500-16.749...........
16.750-16.999...........
17.000-17.250...........
----------------------- --------------------------- ----------------------------
TOTAL.................
</TABLE>
The weighted average Mortgage Interest Rate of the Initial Mortgage
Loans is approximately ____% per annum.
<PAGE>
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Statistical Percentage of
Calculation Date Statistical
Number of Aggregate Calculation Date
Remaining Months Initial Mortgage Unpaid Aggregate
to Loans Principal Unpaid
Stated Maturity Balance Principal
Balance
<S> <C> <C> <C>
106.....................
162.....................
163.....................
164.....................
165.....................
166.....................
167.....................
168.....................
169.....................
170.....................
171.....................
172.....................
173.....................
174.....................
175.....................
176.....................
177.....................
178.....................
179.....................
180.....................
240.....................
----------------------- --------------------------- ---------------------------
TOTAL.................
</TABLE>
The weighted average remaining term to stated maturity of the Initial
Mortgage Loans is approximately _____ months. The latest scheduled maturity of
the Initial Mortgage Loans is October _______.
<PAGE>
ORIGINAL MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Original Months Initial Mortgage Aggregate Calculation Date
to Stated Loans Unpaid Aggregate
Maturity Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
120....................
179.....................
180.....................
240.....................
TOTAL................
</TABLE>
<PAGE>
ORIGINATION MONTH
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Initial Mortgage Aggregate Calculation Date
Origination Month Loans Unpaid Aggregate
Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
TOTAL.................
</TABLE>
The earliest month and year of origination of any Initial Mortgage Loan
is __________ and the latest month and year of origination is __________.
<PAGE>
COMBINED LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Combined Initial Mortgage Aggregate Calculation Date
Loan-to-Value Loans Unpaid Aggregate
Ratios Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
20.00-24.99%..........
25.00-29.99...........
35.00-39.99...........
45.00-49.99...........
50.00-54.99...........
55.00-59.99...........
60.00-64.99...........
65.00-69.99...........
70.00-74.99...........
75.00-79.99...........
80.00-84.99...........
85.00-89.99...........
90.00-94.99...........
95.00-99.99...........
100.00-104.99...........
105.00-109.99...........
110.00-114.99...........
115.00-119.99...........
120.00-124.99...........
125.00-129.99...........
--------------------------- ---------------------------- ----------------------------
TOTAL.................
</TABLE>
The minimum and maximum Combined Loan-to-Value Ratios of the Initial
Mortgage Loans as of the Statistical Calculation Date are approximately _____%
and _____%, respectively, and the weighted average Combined Loan-to-Value Ratio
as of the Statistical Calculation Date of the Initial Mortgage Loans is
approximately _____%. The "Combined Loan-to-Value Ratio" of a Mortgage Loan is
the ratio, expressed as a percentage, equal to the sum of any outstanding senior
liens mortgage balance plus the original balance of the Mortgage Loan divided by
the appraised value of the Mortgaged Property. In the instance where more than
one appraisal was performed on the subject property, the lesser of the two
values will be used to determine the Combined Loan-to-Value Ratio.
<PAGE>
CREDIT BUREAU RISK SCORES
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Credit Bureau Initial Mortgage Aggregate Calculation Date
Risk Scores Loans Unpaid Aggregate
Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
560-569.......
570-579.......
580-589.......
590-599.......
600-609.......
610-619.......
620-629.......
630-639.......
640-649.......
650-659.......
660-669.......
670-679.......
680-689.......
690-699.......
700-709.......
710-719.......
720-729.......
730-739.......
740-749.......
750-759.......
760-769.......
770-779.......
780-789.......
790-799.......
800-809.......
810-819.......
TOTAL....... --------------------------- --------------------------- ---------------------------
</TABLE>
As of the Statistical Calculation Date, the weighted average Credit Bureau
Risk Score of the Initial Mortgage Loans is ______.
<PAGE>
SUBORDINATE MORTGAGE RATIOS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Subordinate Initial Mortgage Aggregate Calculation Date
Mortgage Loans Unpaid Aggregate
Ratios Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
4.50 to 9.99%.........
10.00 to 19.99..........
20.00 to 29.99..........
30.00 to 39.99..........
40.00 to 49.99..........
50.00 to 59.99..........
60.00 to 69.99..........
70.00 to 79.99..........
80.00 to 89.99..........
90.00 to 99.99..........
TOTAL................. -------------------------- -------------------------- ---------------------------
</TABLE>
As of the Statistical Calculation Date, the weighted average Subordinate
Mortgage Ratio of the Initial Mortgage Loans will be approximately _____%. The
"Subordinate Mortgage Ratio" of a Mortgage Loan which is in a subordinate lien
position is equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the principal balance of any senior liens
(computed at the time of origination of such Mortgage Loan). Senior liens are
not included above.
<PAGE>
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Statistical
Original Calculation Percentage of
Mortgage Loan Number of Date Statistical
Principal Initial Mortgage Aggregate Calculation Date
Balance of the Loans Unpaid Aggregate
Initial Principal Unpaid
Mortgage Balance Principal
Loans Balance
<S> <C> <C> <C>
$ 10,000-14,999.........
15,000-19,999.........
20,000-24,999.........
25,000-29,999.........
30,000-34,999.........
35,000-39,999.........
40,000-44,999.........
45,000-49,999.........
50,000-54,999.........
55,000-59,999.........
60,000-64,999.........
65,000-69,999.........
70,000-74,999.........
75,000-79,999.........
80,000-84,999.........
85,000-89,999.........
90,000-94,999.........
95,000-99,999.........
100,000-104,999........
120,000-124,999.........
130,000-134,999.........
145,000-149,999.........
TOTAL...................
</TABLE>
As of the Statistical Calculation Date, the average Original Principal
Balance of the Initial Mortgage Loans is approximately $__________. The largest
Original Principal Balance of the Initial Mortgage Loans is $________.
<PAGE>
REMAINING MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Remaining Mortgage Number of Date Statistical
Loan Initial Aggregate Calculation Date
Principal Balance Mortgage Unpaid Aggregate Unpaid
of the Loans Principal Principal
Initial Mortgage Balance Balance
Loans
<S> <C> <C> <C>
$ 9,000-9,999.........
10,000-14,999..........
15,000-19,999..........
20,000-24,999..........
25,000-29,999..........
30,000-34,999..........
35,000-39,999..........
40,000-44,999..........
45,000-49,999..........
50,000-54,999..........
55,000-59,999..........
60,000-64,999..........
65,000-69,999..........
70,000-74,999..........
75,000-79,999..........
80,000-139,999..........
TOTAL...................
</TABLE>
As of the Statistical Calculation Date, the average Remaining Principal
Balance of the Initial Mortgage Loans is approximately $_________.
<PAGE>
MORTGAGED PROPERTY TYPES
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Initial Mortgage Aggregate Calculation Date
Property Loans Unpaid Aggregate
Types Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
Single Family...........
Low-rise Condo.........
High-rise Condo.........
PUD.....................
2-Unit..................
3-Unit..................
4-Unit..................
TOTAL.................
DELINQUENCY STATUS OF MORTGAGE LOANS
Statistical Calculation
Date Percentage of Statistical
Number of Initial Aggregate Calculation Date
Number of Mortgage Unpaid Principal Aggregate Unpaid
days delinquent Loans Balance Principal Balance
<S> <C> <C> <C>
Current..........
1-30 days delinquent......
31-59 days delinquent......
TOTAL....................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Statistical
Calculation Percentage of
Number of Date Statistical
Initial Mortgage Aggregate Calculation Date
State Loans Unpaid Aggregate
Principal Unpaid
Balance Principal
Balance
<S> <C> <C> <C>
TOTAL.................
</TABLE>
No more than approximately ____% of the Initial Mortgage Loans are secured
by Mortgaged Properties located in any one zip code.
<PAGE>
The information set forth in the preceding section "Description of the
Mortgage Loans" has been based upon information provided by the Seller and
tabulated by the Depositor. None of the Depositor, the Trustee, the Servicer or
the Certificate Insurer make any representation as to the accuracy or
completeness of such information.
Conveyance of Subsequent Mortgage Loans
The Pooling and Servicing Agreement permits the Trust Fund to acquire
approximately $__________ aggregate principal balance of Subsequent Mortgage
Loans. Accordingly, the statistical characteristics of the Mortgage Loans will
vary as of any Subsequent Cut-Off Date upon the acquisition of
Subsequent Mortgage Loans.
The obligation of the Trust Fund to purchase the Subsequent Mortgage
Loans on a Subsequent Transfer Date is subject to the following requirements
among others: (i) such Subsequent Mortgage Loan may not be more than 30 days
contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the
remaining term to maturity of such Subsequent Mortgage Loan may not exceed 20
years; (iii) such Subsequent Mortgage Loan has a Mortgage Interest Rate of at
least _____%; (iv) the Subsequent Mortgage Loans in the aggregate have a
weighted average CLTV (based on the original appraisal) of no greater than 100%;
(v) such Subsequent Mortgage Loan is a fully amortizing loan with level payments
generally over 15 years; (vi) such Subsequent Mortgage Loan is secured by a
residential dwelling; (vii) the related Trustee's Mortgage File with respect to
such Subsequent Mortgage Loan shall have been delivered to the Trustee; (viii)
no such Subsequent Mortgage Loan is secured by an investor property or
associated with the purchase of a home; and (ix) following the purchase of such
Subsequent Mortgage Loans by the Trust Fund, the Mortgage Loans (including the
Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Interest
Rate of at least ____%; (b) will have a weighted average CLTV (based on the
original appraisal) of not more than ___%; (c) will have no Mortgage Loan with a
Principal Balance in excess of $______; (d) will not have any non-owner occupied
properties; (e) will have a weighted average Subordinate Mortgage Ratio of not
more than ____%; (f) will not have a concentration in a single zip code in
excess of ___% by aggregate Principal Balance; (g) will not have a concentration
in Los Angeles County, California in excess of __% by aggregate Principal
Balance; (h) will not have a concentration in any other county in excess of ___%
by aggregate Principal Balance; (i) will not have a concentration of Credit
Bureau Risk Scores under ___ in excess of ___% by aggregate Principal Balance;
(j) will not have a concentration of Mortgage Loans with self employed
mortgagors in excess of _% by aggregate Principal Balance; (k) will have a
weighted average Credit Bureau Risk Score of at least ___ and a weighted average
DTI of no more than __% and (l) will have a concentration of Mortgage Loans
secured by single family residences of at least __% by aggregate Principal
Balance. The Pooling and Servicing Agreement will provide that any of such
requirements may be waived or modified in any respect upon prior written consent
of the Certificate Insurer and certain other parties.
Mandatory Repurchase or Substitution of Mortgage Loans
The Seller is required, with respect to Mortgage Loans that are found
by the Trustee to have defective documentation, or in respect of which the
Seller has breached a representation or warranty, to repurchase such Mortgage
Loans or substitute such Mortgage Loan with a Qualified Substitute Mortgage
Loan. See "Prepayment and Yield Considerations" and "Description of the
Certificates--Assignment of Mortgage Loans" and "--Representations and
Warranties of the Seller" herein.
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
The table below sets forth the combined delinquency and loss experience of
mortgage loans originated and acquired by the Seller and held for sale or
securitization in the Seller's servicing portfolio and securitized loans
originated by the Seller and serviced by Advanta for the periods indicated.
While the Seller commenced originating mortgage loans approximately two years
before the first period set forth below, prior to 1996 almost all of the
Seller's originations were of a product different than the Mortgage Loans.
Further, such mortgage loans were sold on a servicing released basis. As a
result, the Seller has no information with respect to the delinquency and loss
experience of mortgage loans originated or acquired by it prior to the indicated
periods.
The information set forth in the table below may be affected by the size,
rapid growth and relative lack of seasoning of the mortgage loans Accordingly,
no assurances can be given that the delinquency and loss experience presented in
the table below will be indicative of such experience of the Mortgage Loans.
DELINQUENCY AND LOSS EXPERIENCE
PREFERRED CREDIT CORPORATION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
March 31, June 30 September 30 December 30 March 31
Number of Loans Serviced 1996 1996 1997 1996 1997
Aggregate Principal Balance
of Loans Serviced
30-59 days delinquent
60-89 days delinquent
90 days or more delinquent
Bankruptcies
Total Delinquencies
% of total principal of loans
serviced:
30-59 days delinquent
60-89 days delinquent
90 days or more delinquent
Bankruptcies
Total Delinquencies
Charge offs
Charge offs as a % of principal balance
</TABLE>
<PAGE>
DESCRIPTION OF THE SALE AND PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Trust Fund by the Depositor
will be purchased by the Depositor from the Seller pursuant to the Sale and
Purchase Agreement to be entered into between the Depositor, as purchaser (the
"Purchaser") of the Mortgage Loans, and the Seller, as unaffiliated seller of
the Mortgage Loans. Under the Sale and Purchase Agreement, the Seller will agree
to transfer the Initial Mortgage Loans to the Depositor and the Subsequent
Mortgage Loans to the Trust Fund, as assignee of the Purchaser under the Sale
and Purchase Agreement. Pursuant to the Pooling and Servicing Agreement, the
Mortgage Loans will be immediately transferred by the Depositor to the Trust
Fund, and the Depositor will assign its rights in, to and under the Sale and
Purchase Agreement to the Trust Fund. In the Sale and Purchase Agreement, the
Seller will make representations and warranties with respect to the Mortgage
Loans. In the event of a breach of any such representations and warranties which
has a material adverse effect on the interest of the Certificateholders or the
Certificate Insurer, the Seller will repurchase or substitute for the Mortgage
Loans as described in the Pooling and Servicing Agreement.
The Seller has also agreed to indemnify the Depositor and the Trust
Fund from and against certain losses, liabilities and expenses (including
reasonable attorneys' fees) suffered or sustained pursuant to the Sale and
Purchase Agreement.
Assignment to The Trust Fund
The Seller expressly acknowledges and consents to the Depositor's
transfer of its rights relating to the Mortgage Loans under the Sale and
Purchase Agreement to the Trust Fund. The Seller also agrees to perform its
obligations under the Sale and Purchase Agreement for the benefit of the Trust
Fund.
Termination
The Sale and Purchase Agreement will terminate upon the termination of
the Trust Fund except that any indemnity provided thereunder shall survive such
termination.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will be directly related to the rate
of payment of principal of the Mortgage Loans, including for this purpose
voluntary payment in full of Mortgage Loans prior to stated maturity,
liquidations due to defaults, casualties and condemnations, repurchases of or
substitutions for Mortgage Loans by the Seller as required or permitted under
the Pooling and Servicing Agreement and the number, if any, of Subsequent
Mortgage Loans purchased.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the mortgage loans,
the geographic locations of the properties securing the loans and the extent of
the mortgagors' equity in such properties, and changes in the mortgagors'
housing needs, job transfers and employment.
The rate of prepayment on the Mortgage Loans cannot be predicted.
Subordinate lien mortgage loans similar to the Mortgage Loans as described
herein have been originated in significant volume only during the past few years
and the Seller is not aware of any publicly available studies or statistics on
the rate of prepayment of such Mortgage Loans. Generally, the Mortgage Loans are
not viewed by borrowers as permanent financing. Accordingly, the Mortgage Loans
may experience a higher rate of prepayment than traditional first mortgage
loans. The prepayment experience of the Trust Fund with respect to the Mortgage
Loans may be affected by a wide variety of factors, including economic
conditions, prevailing interest rate levels, the availability of alternative
financing and homeowner mobility and changes affecting the deductibility for
Federal income tax purposes of interest payments on the Mortgage Loans.
Generally, the Mortgage Loans are prepayable by the related Mortgagors without
penalty. All of the Mortgage Loans contain "due-on-sale" provisions, and the
Servicer is required by the Agreement to enforce such provisions, unless such
enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the related
Mortgage Loan. See "Certain Legal Aspects of the Mortgage Loans-Due-on-Sale
Clauses in Mortgage Loans" herein. No assurance can be given as to the level of
prepayments that will be experienced by the Trust Fund and it can be expected
that a portion of borrowers will not prepay their Mortgage Loans to any
significant degree.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates at the time of origination,
mortgage loans may be subject to higher prepayment rates than if prevailing
rates remain at or above those at the time such mortgage loans were originated.
Conversely, if prevailing interest rates rise appreciably above the interest
rates at the time of origination, mortgage loans may experience a lower
prepayment rate than if prevailing rates remain at or below those at the time
such mortgage loans were originated. However, there can be no assurance that the
Mortgage Loans will conform to the prepayment experience of conventional
mortgage loans or to any past prepayment experience or any published prepayment
forecast. No assurance can be given as to the level of prepayments on Mortgage
Loans that the Trust Fund will experience.
As indicated above, if purchased at other than par, the yield to maturity
on a Class A Certificate will be affected by the rate of the payment of
principal of the Mortgage Loans. If the actual rate of payments on the Mortgage
Loans is slower than the rate anticipated by an investor who purchases a Class A
Certificate at a discount, the actual yield to such investor will be lower than
such investor's anticipated yield. If the actual rate of payments on the
Mortgage Loans is faster than the rate anticipated by an investor who purchases
a Class A Certificate at a premium, the actual yield to such investor will be
lower than such investor's anticipated yield.
For purposes of receiving distributions with respect to principal, the
Class A Certificates have been divided into six "sequential paying" classes. On
each Distribution Date until the Class A-1 Certificate Principal Balance has
been reduced to zero, the Holders of the Class A-1 Certificates will be entitled
to receive 100% of the distribution with respect to the Class A Principal
Distribution Amount on such Distribution Date. After the Class A-1 Certificate
Principal Balance has been reduced to zero, the Holders of the Class A-2
Certificates will be entitled to receive 100% of such distributions with respect
to principal until the Class A-2 Certificate Principal Balance has been reduced
to zero. After the Class A-2 Certificate Principal Balance has been reduced to
zero, the Holders of the Class A-3 Certificates will be entitled to receive 100%
of such distributions with respect to principal until the Class A-3 Certificate
Principal Balance has been reduced to zero. After the Class A-3 Certificate
Principal Balance has been reduced to zero, the Holders of the Class A-4
Certificates shall be entitled to receive 100% of such distributions with
respect to principal until the Class A-4 Certificate Principal Balance has been
reduced to zero. After the Class A-4 Certificate Principal Balance has been
reduced to zero, the Holders of the Class A-5 Certificates shall be entitled to
receive 100% of such distributions with respect to principal until the Class A-5
Certificate Principal Balance has been reduced to zero. After the Class A-5
Certificate Principal Balance has been reduced to zero, the Holders of the Class
A-6 Certificates shall be entitled to receive 100% of remaining distributions of
principal.
The tables below were prepared on the basis of the assumptions in the
following paragraphs; there are discrepancies between the characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the weighted
average lives of the Class A Certificates set forth in the tables. In addition,
since the actual Mortgage Loans have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on the Class A Certificates may be made earlier or later than as indicated in
the tables. For the purpose of this table, the Final Scheduled Maturity Date for
the Class A Certificates is expected to be ________, ____, which is [10] months
after the latest possible final stated maturity date of any Mortgage Loan. The
weighted average life of the Class A Certificates is likely to be shorter than
would be the case if payments actually made on the Mortgage Loans conformed to
the foregoing assumption, and the final Distribution Date with respect to any
Class of the Class A Certificates could occur significantly earlier than the
Final Scheduled Maturity Date, because (i) Excess Cashflow will be used to make
accelerated payments of principal (i.e., Overcollateralization Increase Amounts)
to the Class A Certificates, which payments will have the effect of shortening
the weighted average lives of the Class A Certificates, (ii) prepayments
(including, for this purpose, prepayments attributable to foreclosure,
liquidation, repurchase and the like) on Mortgage Loans are likely to occur,
(iii) ten months have been added to obtain the Final Scheduled Maturity Date
above, and (iv) the Seller or the Servicer (or if the Servicer fails to do so,
the Certificate Insurer) may cause a liquidation of the Trust Fund when the
aggregate outstanding Principal Balance of the Mortgage Loans is with respect to
the Seller less than 10% and with respect to the Servicer (or if the Servicer
fails to do so, the Certificate Insurer) less than 5% of the Maximum Collateral
Amount.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security is scheduled to be repaid to an investor. The weighted average
life of the Class A Certificates will be influenced by the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
liquidations due to default). Prepayments on mortgage loans are commonly
measured relative to a prepayment standard or model. The model used in this
Prospectus Supplement is the prepayment assumption (the "Prepayment Assumption")
which represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans for the life of such
mortgage loans. 100% Prepayment Assumption assumes conditional prepayment rates
of 4% per annum of the then outstanding principal balance of the Mortgage Loans
in the first month of the life of the mortgage loans and an additional 1.0% per
annum in each month thereafter until the twelfth month. Beginning in the twelfth
month and in each month thereafter during the life of the mortgage loans, a 100%
Prepayment Assumption assumes a conditional prepayment rate of 15% per annum
each month. As used in the table below, 0% Prepayment Assumption assumes
prepayment rates equal to 0% of the Prepayment Assumption i.e., no prepayments.
Correspondingly, 100% Prepayment Assumption assumes prepayment rates equal to
100% of the Prepayment Assumption, and so forth. The Prepayment Assumption does
not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. The Depositor believes that no existing statistics
of which it is aware provide a reliable basis for holders of Class A
Certificates to predict the amount or the timing of receipt of prepayments on
the Mortgage Loans.
The following table regarding the Class A Certificates has been prepared
assuming that (i) all calculations are done on the basis of a 360-day year
consisting of twelve 30-day months and the interest rate is fixed for the
remaining term to maturity at the weighted average Mortgage Interest Rate noted
in (xiv); (ii) payment dates on each Mortgage Loan are the 1st day of the month;
(iii) all scheduled monthly payments on the Mortgage Loans are made in a timely
fashion and there are no delinquencies; (iv) all prepayments represent
prepayments in full and there are no Prepayment Interest Shortfalls; (v)
distributions on the Class A Certificates are made on the 25th day of each month
regardless of the day on which the Distribution Date actually occurs, commencing
on __________, ____; (vi) the Closing Date is ___________, ____; (vii) the
Mortgage Loans will prepay at the indicated Prepayment Assumptions set forth
below, (viii) none of the Holders of the Class R Certificates, the Servicer or
the Certificate Insurer exercise their right of optional termination, (ix) ____%
(by Principal Balance) of interest losses per annum occur on the synthetic
Mortgage Loans described below, (x) fees are deducted for the Servicer, the
Certificate Insurer and the Trustee, (xi) the initial Class A Principal Balance
is equal to $___________, (xii) the Capitalized Interest Account has sufficient
funds on deposit to cover shortfalls in interest of the Class A Certificates
during the Pre-Funding Period attributable to the pre-funding feature; (xiii)
the Overcollateralization Amount as of the Cut-off Date and the Required
Overcollateralization Level are the amounts specified by the Certificate
Insurer; and (xiv) the Mortgage Pool consists of [seven] synthetic mortgages
having the following characteristics:
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Original Remaining
Term to Term to
Aggregate Weighted Average Maturity Maturity
Principal Mortgage Interest (In Months) (In Months)
Balance Rate
<S> <C> <C> <C>
</TABLE>
SUBSEQUENT MORTGAGE LOANS (ASSUMED TO BE ACQUIRED BY THE TRUST
FUND IN ___________ _______)
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Original Remaining
Term to Term to
Aggregate Weighted Average Maturity Maturity
Principal Mortgage Interest (In Months) (In Months)
Balance Rate
<S> <C> <C> <C>
</TABLE>
The following table indicates the weighted average life of each Class
of Class A Certificates, and sets forth the percentages of the Original
Principal Balance of each such Class of Class A Certificates that would be
outstanding after each of the dates shown at various percentages of the
Prepayment Assumption, based on the assumptions described above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT
THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-1 CLASS A-2 CLASS A-3
<S> <C> <C> <C>
Initial Percentage...
Weighted Average Life In
Years(1)....
</TABLE>
..................
(1) The weighted average life of each of the Class A Certificates is
determined by (a) multiplying the amount of each principal payment by the
number of years from the Closing Date to the related Distribution Date;
(b) adding the results; and (c) dividing the sum by the original Class A
Principal Balance of each Class of Class A Certificates.
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT
THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-4 CLASS A-5 CLASS A-6
<S> <C> <C> <C>
Initial Percentage..
Weighted Average Life In
Years(1)....
..................
</TABLE>
(1) The weighted average life of each of the Class A Certificates is determined
by (a) multiplying the amount of each principal payment by the number of
years from the Closing Date to the related Distribution Date; (b) adding
the results; and (c) dividing the sum by the original Class A Principal
Balance of each Class of Class A Certificates.
<PAGE>
There is no assurance that prepayments will occur or, if they do occur,
that they will occur at any percentage of the Prepayment Assumption.
The Pooling and Servicing Agreement provides that none of the Certificate
Insurer, the Trust Fund, the Trustee, the Depositor or the Servicer will be
liable to any Certificateholder or Holder for any loss or damage incurred by
such Certificateholder or Holder as a result of any difference in the rate of
return received by such Certificateholder or Holder as compared to the
applicable Pass-Through Rate, with respect to any Holder of Class A Certificates
upon reinvestment of the funds received in connection with any premature
repayment of principal on the Certificates, including any such repayment
resulting from any prepayment by the Mortgagor, any liquidation of such Mortgage
Loan, or any repurchase of or substitution for any Mortgage Loan by the Seller.
Mandatory Prepayment
The Original Pre-Funded Amount, funded from the proceeds of the sale of the
Class A Certificates may be used to acquire Subsequent Mortgage Loans. Any
amount remaining in the PreFunding Account at the end of the Pre-Funding Period
will be used to prepay in part the Class A Certificates on the Distribution Date
which follows the end of the Pre-Funding Period, which in no event will be later
than the _______ 199__ Distribution Date.
Although no assurances can be given, it is anticipated by the Seller that
the principal amount of Subsequent Mortgage Loans sold to the Trust Fund will
require the application of substantially all the amount on deposit in the Pre-
Funding Account and that there should be no material principal prepaid to the
holders of the Class A Certificates.
DESCRIPTION OF THE CERTIFICATES
General
The Class A Certificates will be issued by and represent interests in
certain segregated assets of the Trust Fund. In addition to the Class A
Certificates, the Trust Fund will also issue the Subordinate Certificates. The
Subordinate Certificates are not being offered hereby.
Each Class A Certificate represents a certain fractional undivided
ownership interest in the Trust Fund created and held pursuant to the Pooling
and Servicing Agreement described below, subject to the limits and the priority
of distribution described therein. The Trust Fund consists of (a) the Mortgage
Loans, together with (i) all collections thereon and proceeds thereof collected
on and after the Cut-Off Date (other than Monthly Payments due on each Mortgage
Loan up to and including any Due Date occurring prior to the Cut-Off Date), and
(ii) all mortgage files relating thereto, (b) REO Properties and collections
thereon and proceeds thereof, (c) amounts (including Permitted Investments as
may be held from time to time, except as otherwise provided herein) on deposit
in the Collection Account and the Certificate Account, (d) the Trustee's rights
with respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to the Pooling and Servicing Agreement and any insurance
proceeds, (e) Liquidation Proceeds, (f) released mortgaged property proceeds,
(g) amounts (including Permitted Investments as may be held from time to time)
on deposit in the Capitalized Interest Account and the Pre-Funding Account and
(h) all of the income, payments and proceeds of each of the foregoing. The Trust
Fund owns all the Accounts and all collections with respect thereto. In
addition, the Depositor has caused the Certificate Insurer to issue the
Certificate Insurance Policy under which it will guarantee payments to the Class
A Certificateholders as described herein.
Assignment of Mortgage Loans
Pursuant to the Sale and Purchase Agreement, the Seller will sell,
transfer, assign, set over and otherwise convey the Mortgage Loans without
recourse to the Depositor on the Closing Date. Pursuant to the Pooling and
Servicing Agreement, the Depositor will sell, transfer, assign, set over and
otherwise convey without recourse to the Trustee in trust for the benefit of the
Certificateholders and the Certificate Insurer all right, title and interest in
and to each Mortgage Loan. Each such transfer will convey all right, title and
interest in and to the principal due and interest accruing, on the Mortgage
Loans on and after the Cut-Off Date.
In connection with such transfer and assignment, the Depositor will cause
to be delivered to the Trustee on the Closing Date the following documents
(collectively, with respect to each Mortgage Loan, the "Trustee's Mortgage
File") with respect to each Mortgage Loan:
(a) The original Mortgage Note, bearing all intervening endorsements
showing a complete chain of endorsements from the originator of such Mortgage
Loan to the Seller endorsed by the Seller without recourse in the following
form: "Pay to the order of Bankers Trust Company, as Trustee for the benefit of
the Certificateholders and the Certificate Insurer for Preferred Consumer Loan
Asset- Backed Certificates, Series 199__-__, without recourse" and signed in the
name of the Seller by an authorized officer;
(b) The original Mortgage with evidence of recording indicated thereon or
if such Mortgage has not been returned from the applicable recording office, a
copy of the Mortgage certified by an authorized officer of the Seller;
(c) An original assignment of the original Mortgage, in suitable form for
recordation in the jurisdiction in which the related Mortgaged Property is
located, in the name of the Seller signed by an authorized officer (with
evidence of submission for recordation of such assignment in the appropriate
real estate recording office for such Mortgaged Property); provided, however,
that assignments of mortgages shall not be required to be submitted for
recording with respect to any Mortgage Loan which relates to the Trustee's
Mortgage File if the Trustee, each of the Rating Agencies and the Certificate
Insurer shall have received an opinion of counsel at the expense of the Seller
satisfactory to the Trustee, each of the Rating Agencies and the Certificate
Insurer stating that, in such counsel's opinion, the failure to record such
assignment shall not have a materially adverse effect on the security interest
of the Trustee in the Mortgage; or if the related Mortgage has not been returned
from the applicable recording office, then a copy of such assignment certified
by an authorized officer of the Seller shall be delivered;
(d) The original of any intervening assignments of the Mortgage with
evidence of recording thereon showing a complete chain of assignment from the
originator of such Mortgage Loan to the Seller;
(e) The original of any assumption, modification, consolidation or
extension agreements with evidence of recording thereon; and
(f) The title report or policy of title insurance (or a commitment for
title insurance if the policy is being held by the title insurance company
pending recordation of the Mortgage) issued with respect to such Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Trustee agrees to
execute and deliver on or prior to the Closing Date an acknowledgment of receipt
of the Certificate Insurance Policy and, for each Mortgage Loan, the original
Mortgage Note, item (a) above, with respect to the Mortgage Loans (with any
exceptions noted). The Trustee agrees, for the benefit of the Certificateholders
and the Certificate Insurer, to review (or cause to be reviewed) each Trustee's
Mortgage File within 30 days after the Closing Date (or, with respect to any
Qualified Substitute Mortgage Loan, within 30 days after the receipt by the
Trustee thereof) and to deliver a certification generally to the effect that, as
to each Mortgage Loan listed in the Mortgage Loan Schedule, (a) all documents
required to be delivered to it pursuant to the Pooling and Servicing Agreement
are in its possession and (b) each such document has been reviewed by it and has
not been mutilated, damaged, torn or otherwise physically altered, appears
regular on its face and relates to such Mortgage Loan.
If the Trustee or the Certificate Insurer during the process of reviewing
the Trustee's Mortgage Files finds any document constituting a part of a
Trustee's Mortgage File which is not executed, has not been received or is
unrelated to the Mortgage Loans, or that any Mortgage Loan does not conform to
the requirements above or to the description thereof as set forth in the
Mortgage Loan Schedule, the Trustee or the Certificate Insurer, as applicable,
shall promptly so notify the Trustee, the Servicer, the Seller and the
Certificate Insurer. The Seller agrees to use reasonable efforts to cause to be
remedied any material defect in a document constituting part of a Trustee's
Mortgage File of which it is so notified by the Trustee. If, however, within 60
days after the Trustee's notice to it respecting such defect the Seller has not
caused to be remedied the defect and the defect materially and adversely affects
the interest of the Holders in the Mortgage Loan or the interests of the
Certificate Insurer, the Seller will either (i) substitute in lieu of such
Mortgage Loan a Qualified Substitute Mortgage Loan and, if the then outstanding
principal balance of such Qualified Substitute Mortgage Loan is less than the
applicable Principal Balance of such Mortgage Loan as of the date of such
substitution plus accrued and unpaid interest thereon, deliver to the Servicer
as part of the related monthly remittance remitted by the Servicer the amount of
any such shortfall (the "Substitution Adjustment") or (ii) purchase such
Mortgage Loan at a price equal to the outstanding Principal Balance of such
Mortgage Loan as of the date of purchase, plus the greater of (x) all accrued
and unpaid interest thereon or (y) 30 days' interest thereon, computed at the
related Mortgage Interest Rate, plus the amount of any unreimbursed Delinquency
Interest Advances and Servicing Advances made by the Servicer, which purchase
price shall be deposited in the Collection Account on the next succeeding
Determination Date after deducting therefrom any amounts received in respect of
such repurchased Mortgage Loan or Loans and being held in the Collection Account
for future distribution to the extent such amounts have not yet been applied to
principal or interest on such Mortgage Loan (see "--Payment of Available Funds"
below); provided, however, that the Seller may not purchase the Principal
Balance of any Mortgage Loan that is not in default or as to which no default is
imminent pursuant to clause (ii) preceding unless the Seller has theretofore
caused to be delivered to the Trustee and the Certificate Insurer an opinion of
counsel knowledgeable in federal income tax matters which states that such a
purchase would not constitute a prohibited transaction under the Code.
A "Qualified Substitute Mortgage Loan" is defined in the Pooling and
Servicing Agreement as any mortgage loan or mortgage loans which (i) has or have
the same or greater interest rate, (ii) relates or relate to a detached
one-family residence or to the same type of residential dwelling as the deleted
Mortgage Loan and in each case has or have the same or a better lien priority as
the deleted Mortgage Loan with a Borrower having the same or better
traditionally ranked credit status and is an owner- occupied Mortgaged Property,
(iii) matures or mature no later than (and not more than one year earlier than)
the deleted Mortgage Loan, (iv) has or have a Loan-to-Value Ratio or Combined
Loan-to-Value Ratio at the time of such substitution no higher than the
Loan-to-Value Ratio or the Combined Loan-to- Value Ratio, as applicable, of the
deleted Mortgage Loan, (v) has or have a principal balance or principal balances
(after application of all payments received on or prior to the date of
substitution) (which shall be the Principal Balance or Principal Balances
thereof) not substantially less and not more than the Principal Balance of the
deleted Mortgage Loan as of such date, (vi) satisfies or satisfy the criteria
set forth from time to time in the definition of "qualified replacement
mortgage" in Section 860G(a)(4) of the Code (or any successor statute thereto)
and (vii) complies or comply as of the date of substitution with each
representation and warranty set forth in the Pooling and Servicing Agreement.
Representations and Warranties of The Seller
The Seller will make certain representations and warranties with respect to
each Mortgage Loan, as of the Closing Date or the Subsequent Transfer Date, as
applicable.
Pursuant to the Pooling and Servicing Agreement, upon the discovery by any
of the Certificateholders, the Servicer, the Seller, the Certificate Insurer or
the Trustee that any of the representations and warranties contained in the
Pooling and Servicing Agreement have been breached in any material respect as of
the Closing Date, with the result that the interests of the Certificateholders
in the related Mortgage Loan or the interests of the Certificate Insurer were
materially and adversely affected (notwithstanding that such representation and
warranty was made to the Seller's best knowledge), the party discovering such
breach is required to give prompt written notice to the other parties and to the
Certificate Insurer. Subject to certain provisions of the Pooling and Servicing
Agreement, within 60 days of the earlier to occur of the Seller's discovery or
its receipt of written notice of any such breach, the Seller will (a) promptly
cure such breach in all material respects, (b) remove each Mortgage Loan which
has given rise to the requirement for action by the Seller, substitute one or
more Qualified Substitute Mortgage Loans and, if the outstanding principal
amount of such Qualified Substitute Mortgage Loans as of the date of such
substitution is less than the outstanding Principal Balance, plus accrued and
unpaid interest thereon of the deleted Mortgage Loans as of the date of
substitution deliver to the Trust Fund as part of the amounts remitted by the
Servicer on such Distribution Date the amount of such Substitution Adjustment,
or (c) purchase such Mortgage Loan at a price (the "Loan Repurchase Price")
equal to the Principal Balance of such Mortgage Loan as of the date of purchase
plus the greater of (i) all accrued and unpaid interest thereon and (ii) 30
days' interest thereon computed at the Mortgage Interest Rate, plus the amount
of any unreimbursed Delinquency Interest Advances and Servicing Advances made by
the Servicer, and deposit such purchase price into the Collection Account on the
next succeeding Determination Date after deducting therefrom any amounts
received in respect of such repurchased Mortgage Loan or Loans and being held in
the Collection Account or the Certificate Account for future distribution to the
extent such amounts have not yet been applied to principal or interest on such
Mortgage Loan; provided, however, that any substitution of one or more Qualified
Substitute Mortgage Loans pursuant to clause (b) preceding must be effected not
later than two years after the Closing Date unless the Trustee and the
Certificate Insurer receive an opinion of counsel that such substitution would
not constitute a prohibited transaction for purposes of the REMIC provisions of
the Code and, provided, further, that the Seller may not purchase such Mortgage
Loan that is not in default or as to which no default is imminent pursuant to
clause (c) preceding unless the Seller has theretofore caused to be delivered to
the Trustee and to the Certificate Insurer an opinion of counsel knowledgeable
in Federal income tax matters in form and substance satisfactory to the Trustee
and to the Certificate Insurer to the effect that such a purchase would not
constitute a prohibited transaction for purposes of the REMIC provisions of the
Code or cause the Trust Fund to fail to qualify as a REMIC at any time any
Certificates are outstanding. The obligation of the Seller to cure such breach
or to substitute or purchase any Mortgage Loan constitutes the sole remedy
respecting a material breach of any such representation or warranty to the
Certificateholders, the Trustee and the Certificate Insurer.
Payments on The Mortgage Loans
The Pooling and Servicing Agreement provides that the Servicer, for the
benefit of the Certificateholders and the Certificate Insurer, shall establish
and maintain a collection account (the "Collection Account"), and that such
Collection Account will generally be a trust account maintained with a
depository institution acceptable to each Rating Agency and the Certificate
Insurer (any such account, an "Eligible Account"). The Servicer shall have the
right to choose and relocate the Collection Account at any time, provided each
Collection Account shall otherwise comply with the requirements of the preceding
sentence and that there shall be a Collection Account. The Pooling and Servicing
Agreement permits the Servicer to direct any depository institution maintaining
the Collection Account to invest the funds in such Collection Account in one or
more Permitted Investments, as defined below, that mature, unless payable on
demand, no later than the Business Day preceding the date on which the Servicer
is required to transfer any amounts included in such funds from such Collection
Account to the Certificate Account as described below.
The Servicer is obligated to deposit or cause to be deposited in the
Collection Account within two days of receipt, amounts representing the
following payments received and collections on and after the Cut-Off Date (other
than in respect of Monthly Payments on the Mortgage Loans due on each Mortgage
Loan up to and including any Due Date occurring prior to the Cut-Off Date): (i)
all payments on account of principal, including Principal Prepayments and
Curtailments; (ii) all payments on account of interest on the Mortgage Loans,
(iii) all Liquidation Proceeds, Net REO Proceeds and all Insurance Proceeds to
the extent such proceeds are not to be applied to the restoration of the related
Mortgaged Property or released to the related borrower in accordance with the
express requirements of law or in accordance with prudent and customary
servicing practices; (iv) all net revenues with respect to a Mortgaged Property
held by the Trust Fund; (v) all other amounts required to be deposited in the
Collection Account pursuant to the Pooling and Servicing Agreement; and (vi) any
amounts required to be deposited in connection with net losses realized on
investments of funds in the Collection Account.
The Trustee for the benefit of the Certificateholders and the Certificate
Insurer will be obligated to establish and maintain an account (the "Certificate
Account"), which is required to be an Eligible Account, into which the Servicer
will deposit or cause to be deposited the Servicer Remittance Amount in
immediately available funds on the 18th day of each month (the "Servicer
Remittance Date") or if such 18th day is not a Business Day, the Business Day
immediately preceding such 18th day.
The "Servicer Remittance Amount" for a Servicer Remittance Date is equal to
the sum of (i) all scheduled and unscheduled collections of principal on the
Mortgage Loans (including Principal Prepayments, Curtailments, Net REO Proceeds
and Net Liquidation Proceeds, if any) collected by the Servicer during the
related Collection Period and all interest due during such Collection Period and
received on or prior to the fifteenth day of the month in which such Servicer
Remittance Date occurs, (ii) all Delinquency Interest Advances made by the
Servicer with respect to interest payments due to be received on the Mortgage
Loans during the related Collection Period, (iii) the amount of Compensating
Interest due with respect to the related Collection Period, and (iv) any other
amounts which the Pooling and Servicing Agreement requires the Servicer to
deposit in the Collection Account, but excluding the following:
(a) amounts received as late payments of principal or interest and
respecting which the Servicer has previously made any unreimbursed Delinquency
Interest Advances or Servicing Advances;
(b) the portion of Liquidation Proceeds used to reimburse any unreimbursed
Delinquency Interest Advances or Servicing Advances by the Servicer;
(c) the Servicing Fee;
(d) that portion of Liquidation Proceeds and REO Proceeds which represents
any unpaid Servicing Fee;
(e) all income from Permitted Investments that is held in the Collection
Account for the account of the Servicer;
(f) all amounts in respect of late fees, assumption fees, prepayment fees
and similar fees;
(g) certain other amounts which are reimbursable to the Servicer, as
provided in the Pooling and Servicing Agreement; and
(h) that portion of Net Foreclosure Profits otherwise due to the Servicer
as provided in the Pooling and Servicing Agreement.
Servicing Fees and Other Compensation and Payment of Expenses
As compensation for its activities as Servicer under the Pooling and
Servicing Agreement, the Servicer shall be entitled to the Servicing Fee, which
shall be payable monthly from amounts on deposit in the Collection Account. The
"Servicing Fee" shall be an amount equal to one-twelfth of the Servicing Fee
Rate times the aggregate Principal Balance of Mortgage Loans at the beginning of
the applicable Collection Period. The "Servicing Fee Rate" will be ___% per
annum. In addition, the Servicer shall be entitled to receive as additional
servicing compensation, to the extent permitted by applicable law and the
related Mortgage Notes, any late payment charges, assumption fees or similar
items. The Servicer shall also be entitled to withdraw from the Collection
Account any interest or other income earned on deposits therein. The Servicer
shall pay all expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement and shall not be entitled
to reimbursement therefor except as specifically provided in the Pooling and
Servicing Agreement.
The Servicer may recover Delinquency Interest Advances and Servicing
Advances from the Collection Account or the Certificate Account to the extent
permitted by the Pooling and Servicing Agreement and by the terms of the
Mortgage Loans or, if not recovered from the Mortgagor on whose behalf such
Delinquency Interest Advance or Servicing Advance was made, from late
collections, including liquidation proceeds, released mortgaged property
proceeds, insurance proceeds and such other amounts as may be collected by the
Servicer, or, in the case of Delinquency Interest Advances, from late
collections of interest on any Mortgage Loan. In the event a Delinquency
Interest Advance or a Servicing Advance becomes a Nonrecoverable Advance, the
Servicer may be reimbursed for such advance from the Collection Account.
The Servicer shall not be required to make any Delinquency Interest Advance
or Servicing Advance which it determines would be a nonrecoverable Delinquency
Interest Advance or nonrecoverable Servicing Advance (a "Nonrecoverable
Advance"). A Delinquency Interest Advance or Servicing Advance is
"nonrecoverable" if in the good faith judgment of the Servicer, such Delinquency
Interest Advance or Servicing Advance is not ultimately recoverable.
Delinquency Interest Advances and Compensating Interest
The Servicer shall be required, not later than each Servicer Remittance
Date, to deposit into the Certificate Account an amount equal to the sum of the
interest (net of the Servicing Fees) due, but not collected, with respect to
delinquent Mortgage Loans during the prior Collection Period unless the Servicer
determines in good faith that there shall be no further recovery from the
related Mortgage Loan (exclusive of any possibility of a deficiency judgment).
Such amounts are "Delinquency Interest Advances." The Servicer will be permitted
to fund its payment of Delinquency Interest Advances from amounts deposited to
the Collection Account representing collections on the Mortgage Loans relating
to any Collection Period subsequent to the related Collection Period and will be
required to deposit into the Collection Account with respect thereto (i)
collections and (ii) Net Liquidation Proceeds to the extent of the amount of
aggregate Delinquency Interest Advances.
Upon an Event of Default (as described herein), the Trustee, as successor
servicer, will be obligated to make any such Delinquency Interest Advances, if
the Servicer fails in its obligation to do so, to the extent provided in the
Pooling and Servicing Agreement.
A Mortgage Loan is "delinquent" if any payment due thereon is not made by
the close of business on the Due Date.
In addition, the Servicer will also be required to deposit Compensating
Interest in the Certificate Account with respect to any full Prepayment received
on a Mortgage Loan during the related Collection Period out of its own funds
without any right of reimbursement therefor. "Compensating Interest" is an
amount equal to the difference between (x) 30 days' interest at the Mortgage
Interest Rate (net of the rate at which the Servicing Fee is calculated) on the
Principal Balance of such Mortgage Loan as of the first day of the related
Collection Period and (y) to the extent not previously advanced, the interest
paid by the Mortgagor with respect to the Mortgage Loan in connection with such
prepayment. The Servicer will not be required to pay Compensating Interest with
respect to any Collection Period in an amount in excess of the aggregate
Servicing Fee received by the Servicer for such Collection Period.
Overcollateralization, Subordination Provisions and Support Features
Overcollateralization Resulting from Cash Flow Structure. The
Overcollateralization feature of the Trust Fund is a result of the aggregate
debt service requirements of the Class A Certificates being less than the Trust
Fund's aggregate expected revenues, such revenues being the expected collections
and recoveries on the Mortgage Loans. The Overcollateralization is evidenced by
the Subordinate Certificates, which represent the right to receive excess
principal (which initially equals the Overcollateralization Amount on the
Cut-off Date) and excess interest (the excess of interest collections on the
Mortgage Loans over Class A Certificate interest, plus fees).
The Pooling and Servicing Agreement requires that, on each Distribution
Date, the Excess Cashflow, if any, be applied on such Distribution Date as an
accelerated payment of principal on the Class A Certificates, but only to the
limited extent hereafter described. The "Excess Cashflow" for any Distribution
Date is equal to (x) the amount on deposit in the Certificate Account on such
Distribution Date with respect to the Mortgage Loans (such amount, other than
the related Insured Payments and the Trustee's Fee and Certificate Insurer
Premium Amount payable on such Distribution Date, being the related "Available
Funds" for such Distribution Date) minus (y) the sum of (i) the sum of the Class
A Interest Distribution Amount and the Class A Principal Distribution Amount
(calculated for this purpose without regard to any Overcollateralization
Increase Amount or portion thereof included therein) and (ii) any related
Reimbursement Amount (as defined herein) owed to the Certificate Insurer. This
application has the effect of accelerating the amortization of the Class A
Certificates relative to the amortization of the Mortgage Loans.
The Pooling and Servicing Agreement requires that the Excess Cashflows
will be applied as an accelerated payment of principal on the Class A
Certificates until the Overcollateralization Amount has increased to the level
equal to the Required Overcollateralization Level for such Distribution Date.
Any amount of the Excess Cashflow actually applied as an accelerated payment of
principal is an "Overcollateralization Increase Amount." The required level of
the Overcollateralization Amount with respect to a Distribution Date is the
"Required Overcollateralization Level" with respect to such Distribution Date.
Initially, the Required Overcollateralization Level will be set at an amount
equal to a percentage, specified in the Pooling and Servicing Agreement, of the
Maximum Collateral Amount. The Pooling and Servicing Agreement generally
provides that the Required Overcollateralization Level may, over time, decrease
or increase, subject to certain floors, caps and triggers.
In the event that the required level of the Required Overcollateralization
Level is permitted to decrease or "step down" on a Distribution Date in the
future, the Pooling and Servicing Agreement provides that a portion of the
principal which would otherwise be distributed to the Holders of the Class A
Certificates on such Distribution Date shall be distributed to the Holders of
the Subordinate Certificates on such Distribution Date. This has the effect of
decelerating the amortization of the Class A Certificates relative to the
amortization of the Mortgage Loans and of reducing the actual
Overcollateralization Amount. With respect to any Distribution Date, the
difference, if any, between (a) the actual Overcollateralization Amount that
would apply on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (exclusive of any reductions
thereto attributable to Overcollateralization Reduction Amounts (as described
below) on such Distribution Date) and (b) the Required Overcollateralization
Level for such Distribution Date is the related "Excess Overcollateralization
Amount" with respect to such Distribution Date. With respect to any Distribution
Date, an amount equal to the lesser of (a) the Excess Overcollateralization
Amount and (b) the principal collections received by the Servicer with respect
to the prior Collection Period (after taking into account all distributions to
be made on such Distribution Date) is the related "Overcollateralization
Reduction Amount." In addition, due to the cash flow structure of the Trust Fund
as described below, Overcollateralization Reduction Amounts may result even
prior to the occurrence of any decrease or "step down" in the Required
Overcollateralization Level. This is because the Holders of the Class A
Certificates will generally be entitled to receive 100% of collected principal,
even though the Class A Principal Balance will, following the accelerated
amortization resulting from the application of the Excess Cashflow, represent
less than 100% of the Mortgage Loan's principal balance. In the absence of the
provisions relating to Overcollateralization Reduction Amounts, the foregoing
may otherwise increase the Overcollateralization Amounts above their Required
Overcollateralization Level requirements even without the application of any
Excess Cashflow.
In the event that any Mortgage Loan becomes a Charged-off Loan during a
Collection Period, and the net Liquidation Proceeds related thereto and
allocated to principal are less than the Principal Balance of the related
Mortgage Loan; the amount of any such insufficiency is a "Charged-off Loan
Loss." The Pooling and Servicing Agreement provides that the principal balance
of any Mortgage Loan after it becomes a Charged-off Mortgage Loan shall equal
zero. The Pooling and Servicing Agreement does not contain any rule which
requires that the amount of any Charged-Off Loan Loss be distributed to the
Holders of the Class A Certificates on the Distribution Date which immediately
follows the event of loss, i.e., the Pooling and Servicing Agreement does not
require the current recovery of losses. However, the realization of a Charged-
Off Loan Loss will reduce the Overcollateralization Amount, which, to the extent
that such reduction causes the Overcollateralization Amount to be less than the
Required Overcollateralization Level applicable to the related Distribution
Date, will require the payment of an Overcollateralization Increase Amount on
such Distribution Date (or, if insufficient funds are available on such
Distribution Date, on subsequent Distribution Dates, until the
Overcollateralization Amount equals the Required Overcollateralization Level).
The effect of the foregoing is to allocate losses to the Holders of the
Subordinate Certificates by reducing, or eliminating entirely, payments of
Excess Cashflow and of Overcollateralization Reduction Amounts which such
Holders would otherwise receive. Overcollateralization and the Certificate
Insurance Policy. The Pooling and Servicing Agreement defines an
"Overcollateralization Deficit" with respect to a Distribution Date to be the
amount, if any, by which (x) the aggregate Certificate Principal Balance of the
Class A Certificates as of such Distribution Date, following the making of all
distributions to be made on such Distribution Date (except for any payment to be
made as to principal from proceeds of the Certificate Insurance Policy), exceeds
(y) the aggregate Principal Balances of the Mortgage Loans as of the close of
business on the last day of the immediately preceding Collection Period, plus
the amount on deposit, if any, in the Pre-Funding Account as of the close of
business on the last day of the immediately preceding Collection Period. The
Pooling and Servicing Agreement requires the Trustee to make a claim for an
Insured Payment under the Certificate Insurance Policy not later than the third
Business Day prior to any Distribution Date as to which the Trustee has
determined that an Overcollateralization Deficit will occur for the purpose of
applying the proceeds of such Insured Payment as a payment of principal to the
Holders of the Class A Certificates on such Distribution Date. Investors in the
Class A Certificates should realize that, under extreme loss or delinquency
scenarios, they may temporarily receive no distributions of principal.
Subordination. The rights of the holders of the Subordinate Certificates to
receive distributions with respect to the Mortgage Loans in the Trust Fund will
be subordinated, to the extent described herein, to such rights of the holders
of the Class A Certificates. This subordination is intended to enhance the
likelihood of regular receipt by the holders of the Class A Certificates of the
full amount of their scheduled monthly payments of interest and principal and to
afford such holders protection against losses on the Mortgage Loans.
The protection afforded to the holders of the Class A Certificates by means
of the subordination of the Subordinate Certificates will be accomplished by the
preferential right of the Class A Certificateholders to receive, prior to any
distribution being made on a Distribution Date in respect of the Subordinate
Certificates, the amounts due them on such Distribution Date out of the
Available Funds on such date in the Certificate Account and, if necessary, by
the right of such Class A Certificateholders to receive future distributions of
Available Funds that would otherwise be payable to the holders of the
Subordinate Certificates.
Class A Interest Distribution Amounts
On each Distribution Date, holders of the Class A Certificates will be
entitled to receive interest distributions in an amount equal to the sum of (a)
interest accrued for the Accrual Period (as defined below) on the applicable
Class A Principal Balance thereof immediately prior to such Distribution Date at
the related Class A Pass-Through Rate and (b) the portion of the related Class A
Carry-Forward Amount allocable to interest. The Class A Interest Distribution
Amount with respect to the Class A Certificates is calculated on the basis of a
360-day year and a 30-day month.
With respect to any Distribution Date and the Class A Certificates, the sum
of the Class A Interest Distribution Amount and the amount of the
Overcollateralization Deficit, if any, with respect to such Distribution Date is
the "Insured Distribution Amount" for such Distribution Date.
For each Distribution Date, with respect to the Class A Certificates, the
"Accrual Period" is the calendar month immediately preceding the month in which
such Distribution Date occurs.
With respect to the Class A Certificates, the "Class A Carry-Forward
Amount" as of any Distribution Date equals the sum of (a) the amount, if any, by
which (i) the Insured Distribution Amount for the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A Certificates on such Distribution Date in respect thereof
(including, without limitation, amounts paid under a Certificate Insurance
Policy) and (b) 30 days' interest on such amount at the Pass-Through Rate
applicable to the Class A Certificates for such Distribution Date.
The Pass-Through Rate on each of the Class A Certificates is fixed and set
forth on the cover hereof.
As described herein, the Class A Interest Distribution Amount allocable to
the Class A Certificates is based on the Certificate Principal Balances thereof
immediately prior to the related Distribution Date. The Certificate Principal
Balance of any Class A Certificate as of any date of determination is equal to
the initial Certificate Principal Balance thereof, reduced as described herein
with respect to such Certificate.
On any Distribution Date, the amount of the premium (the "Certificate
Insurer Premium Amount") payable to the Certificate Insurer is equal to one-
twelfth of the product of a percentage specified in the Pooling and Servicing
Agreement and the Certificate Principal Balance of the Class A Certificates.
Class A Principal Distribution Amount
Holders of the Class A Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the amounts remaining for
distribution after payments under clauses (a) through (d) under "--Payment of
Available Funds" below, an amount (the "Class A Principal Distribution Amount"),
in reduction of the Certificate Principal Balance thereof as described below,
which equals the sum, without duplication, of (i) the portion of any Class A
Carry-Forward Amount which relates to a shortfall in a distribution of an
Overcollateralization Deficit, (ii) all scheduled and unscheduled amounts
relating to principal with respect to the Mortgage Loans received by the
Servicer during the related Collection Period to the extent actually received by
the Trustee, (iii) the Principal Balance of each Mortgage Loan that either was
repurchased by the Seller or by the Depositor, to the extent actually received
by the Trustee, (iv) any Substitution Adjustments delivered by the Seller or the
Depositor on the Servicer Remittance Date (as defined herein) in connection with
a substitution of a Mortgage Loan, to the extent actually received by the
Trustee, (v) the net Liquidation Proceeds collected by the Servicer of all
Mortgage Loans during the prior calendar month (to the extent such net
Liquidation Proceeds are related to principal) to the extent actually received
by the Trustee, (vi) the amount of any Overcollateralization Deficit for such
Distribution Date, (vii) the proceeds received by the Trustee of any termination
of the Trust Fund (to the extent such proceeds are related to principal), (viii)
without duplication of amounts distributed in clause (vi) above, the amount of
any Overcollateralization Increase Amount for such Distribution Date; (ix) any
monies released from the Pre-Funding Account as a prepayment of Class A
Certificates on the Distribution Date which immediately follows the end of the
Pre-Funding Period, minus (x) the amount of any Overcollateralization Reduction
Amount for such Distribution Date.
In no event will the Class A Principal Distribution Amount with respect to
any Distribution Date be (x) less than zero or (y) greater than the then
outstanding Certificate Principal Balance of the Class A Certificates.
Distributions of the Class A Principal Distribution Amount with respect to
the Class A Certificates will be allocated to the Class A Certificates in
reduction of the Certificate Principal Balance thereof, until such Certificate
Principal Balance has been reduced to zero.
The "Principal Balance" of any Mortgage Loan (or related REO Property) as
of any date of determination is the outstanding principal balance of such
Mortgage Loan as of the Due Date preceding such date of determination, as such
principal balance is specified for such Due Date in the amortization schedule
(before any adjustments to such amortization schedule by reason of any
bankruptcy (other than Deficient Valuations (as defined herein)) or similar
proceeding or any moratorium or similar waiver or grace period), after giving
effect to prepayments received prior to such Due Date, Deficient Valuations
incurred prior to such Due Date, and to the payment of principal due on such Due
Date. The Principal Balance of a Mortgage Loan which becomes a Charged-off Loan
(as defined herein) on or prior to such Due Date shall be zero.
For purposes of receiving distributions with respect to principal, the
Class A Certificates have been divided into six "sequential paying" classes. On
each Distribution Date until the Class A-1 Certificate Principal Balance has
been reduced to zero, the Holders of the Class A-1 Certificates will be entitled
to receive 100% of the distribution with respect to the Class A Principal
Distribution Amount on such Distribution Date. After the Class A-1 Certificate
Principal Balance has been reduced to zero, the Holders of the Class A-2
Certificates will be entitled to receive 100% of such distributions with respect
to principal until the Class A-2 Certificate Principal Balance has been reduced
to zero. After the Class A- 2 Certificate Principal Balance has been reduced to
zero, the Holders of the Class A-3 Certificates will be entitled to receive 100%
of such distributions with respect to principal until the Class A-3 Certificate
Principal Balance has been reduced to zero. After the Class A-3 Certificate
Principal Balance has been reduced to zero, the Holders of the Class A-4
Certificates shall be entitled to receive 100% of such distributions with
respect to principal until the Class A-4 Certificate Principal Balance has been
reduced to zero. After the Class A-4 Certificate Principal Balance has been
reduced to zero, the Holders of the Class A-5 Certificates shall be entitled to
receive 100% of such distributions with respect to principal until the Class A-5
Certificate Principal Balance has been reduced to zero. After the Class A-5
Certificate Principal Balance has been reduced to zero, the Holders of the Class
A-6 Certificates shall be entitled to receive 100% of remaining distributions of
principal.
Payment of Available Funds
On each Distribution Date, the Trustee shall distribute the funds on
deposit in the Certificate Account, together with the amount of any Insured
Payments, as follows:
(a) to the Certificate Insurer, the Certificate Insurer Premium Amount;
(b) to the Trustee, an amount equal to the Trustee's Fees then due to it;
(c) from the Available Funds, to the Certificate Insurer the lesser of (x)
the excess of (i) such Available Funds over (ii) the amount of the Insured
Distribution Amount for such Distribution Date and (y) the amount of all Insured
Payments and other payments made by the Certificate Insurer pursuant to the
Certificate Insurance Policy which have not been previously repaid together with
interest thereon at the rate set forth in the Insurance Agreement (the
"Reimbursement Amount") as of such Distribution Date;
(d) from amounts then on deposit in the Certificate Account (including any
Insured Payments), to each of the Class A Certificateholders an amount equal to
the related Class A Interest Distribution Amount (as described above);
(e) from amounts then on deposit in the Certificate Account (including any
Insured Payments), to each of the Class A Certificateholders an amount equal to
the related Class A Principal Distribution Amount (as described above) as
follows:
(1) to the Class A-1 Certificateholders until the Class A-1 Certificate
Principal Balance has been reduced to zero;
(2) to the Class A-2 Certificateholders until the Class A-2 Certificate
Principal Balance has been reduced to zero;
(3) to the Class A-3 Certificateholders until the Class A-3 Certificate
Principal Balance has been reduced to zero;
(4) to the Class A-4 Certificateholders until the Class A-4 Certificate
Principal Balance has been reduced to zero;
(5) to the Class A-5 Certificateholders until the Class A-5 Certificate
Principal Balance has been reduced to zero; and
(6) to the Class A-6 Certificateholders until the Class A-6 Certificate
Principal Balance has been reduced to zero;
(f) following the making by the Trustee of all allocations, transfers and
disbursements described above, from amounts then on deposit in the Certificate
Account, the Trustee shall distribute to the Holders of the Subordinate
Certificates, the amount remaining in the Certificate Account on such
Distribution Date, if any.
Notwithstanding the foregoing, the aggregate amount on all Distribution Dates to
the Holders of each of the Class A Certificates on account of principal shall
not exceed the Original Class A Principal Balance.
Report to Certificateholders
Pursuant to the Pooling and Servicing Agreement, on each Distribution
Date the Trustee will deliver to the Certificate Insurer, each Certificateholder
and the Depositor a written report containing information, including, without
limitation, the amount of the distribution on such Distribution Date, the amount
of such distribution allocable to principal and allocable to interest, the
aggregate outstanding principal balance of each of the Class A Certificates as
of such Distribution Date, the amount of any Insured Payment included in such
distributions on such Distribution Date and other such information as required
by the Pooling and Servicing Agreement.
Registration of The Class A Certificates
The Class A Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Certificate Owners will hold their Class A Certificates through
the DTC in the United States, or Cedel or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the Class A
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customer's securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customer's securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for Cedel and the
Chase Manhattan Bank will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations of $50,000. Except as described below, no
person acquiring a Book-Entry Certificate will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Class A Certificates will be Cede & Co., as nominee
of DTC. Certificate Owners will not be Certificateholders as that term is used
in the Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise their rights only indirectly through Participants and DTC.
SERVICING OF THE MORTGAGE LOANS
The Servicer
Advanta will act as the Servicer of the Trust Fund. See
"The Servicer."
Collection and Other Servicing Procedures; Mortgage Loan
Modifications
The Servicer will be obligated under the Pooling and Servicing Agreement to
service and administer the Mortgage Loans, on behalf of the Trust Fund, solely
in the best interests of and for the benefit of the Certificateholders and the
Certificate Insurer in accordance with the terms of the Pooling and Servicing
Agreement, and will have full power and authority to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable in accordance with the terms of the Pooling and Servicing Agreement.
The Servicer may perform any of its obligations under the Pooling and
Servicing Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Servicer will remain liable for its servicing
duties and obligations under the Pooling and Servicing Agreement as if the
Servicer alone were servicing the Mortgage Loans. The Servicer will be obligated
under the Pooling and Servicing Agreement to make reasonable efforts to collect
all payments called for under the terms and provisions of the Mortgage Notes and
will be obligated, consistent with the other terms of the Pooling and Servicing
Agreement, to follow such collection procedures as it would normally follow with
respect to mortgage loans comparable to the Mortgage Loans and which are
required to generally conform to the mortgage servicing practices of prudent
mortgage lending institutions which service mortgage loans of the same type as
the Mortgage Loans for their own account in the jurisdictions in which the
related Mortgaged Properties are located ("Accepted Servicing Practices").
Pursuant to the Pooling and Servicing Agreement, the Servicer will be required
to make reasonable efforts to collect all payments called for under the terms of
the related Mortgage Loan. Nonetheless, the Servicer, in determining the type of
action that is reasonable to pursue may consider, among other things, the unpaid
principal balance of a Mortgage Loan against the estimated cost of collection or
foreclosure action, the unpaid balance of the related prior mortgage, if any,
the condition and estimated market value ("as is" and "if repaired"), the
estimated marketability of the related Mortgaged Property and the borrower's
ability to repay. Consistent with the above, the Servicer will be permitted, in
its discretion, to (i) waive any late payment charge or other charge in
connection with any Mortgage Loan, and (ii) arrange a schedule, running for no
more than 180 days after the Due Date of any installment due under the related
Mortgage Note, for the liquidation of delinquent items.
Realization Upon or Sale of Defaulted Mortgage Loans
In an effort to collect upon delinquent Mortgage Loans, the Servicer will
attempt to contact the borrower to determine both ability and intent to pay. In
accordance with the policies and procedures of the Servicer and in accordance
with Accepted Servicing Practices and the REMIC provisions, appropriate action
may be taken at the discretion of the Servicer, including but not limited to,
extended payment arrangements, forbearance and referral for legal actions.
Upon the earlier of (a) the date on which any payment due or portion
thereof with respect to a Mortgage Loan has become delinquent for a period of
180 consecutive days, (b) the time at which a Mortgage Loan becomes a Liquidated
Loan or (c) the date on which the Holder of the Subordinate Certificates
repurchases such Mortgage Loan pursuant to the second succeeding paragraph, such
Mortgage Loan will become a "Charged-off Loan." Once a Mortgage Loan becomes a
Charged-off Loan, its Principal Balance, for purposes of the Trust Fund, will
thereafter be considered to be zero.
A "Liquidated Loan" is a Mortgage Loan as to which the Servicer, in its
reasonable, good faith business judgment, in accordance with Accepted Servicing
Practices has determined that all amounts which will be recovered with respect
to such Mortgage Loan have been so recovered (exclusive of any possibility of a
deficiency judgment).
The Holder of the Subordinate Certificates may have the right to repurchase
(up to 10% of the Maximum Collateral Amount) from the Trust Fund any Charged-
Off Loan (or any Mortgage Loan which will imminently become a Charged-Off Loan)
by depositing an amount equal to the related Loan Repurchase Price in the
Certificate Account.
Except as described below, the Servicer may foreclose upon or otherwise
comparably convert the ownership of properties securing such of the Mortgage
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such foreclosure or other conversion, the Servicer will be required to
follow such procedures as it follows with respect to similar mortgage loans held
in its own portfolio. However, the Servicer shall not be required to expend its
own funds in connection with any foreclosure or to restore any damaged property
unless it shall determine that (i) such foreclosure and/or restoration will
increase the proceeds of liquidation of the Mortgage Loan to Certificateholders
after reimbursement to itself for such expenses in accordance with the Pooling
and Servicing Agreement and (ii) such expenses shall be recoverable to it
through Liquidation Proceeds (respecting which it shall reimburse itself for
such expense prior to the deposit in the Collection Account of such proceeds).
The Servicer will be permitted to foreclose against the Mortgaged Property
securing a defaulted Mortgage Loan either by foreclosure, by sale or by strict
foreclosure, and in the event a deficiency judgment is available against the
Mortgagor or any other person, may proceed for the deficiency.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
will be required to be issued to the Trustee, or to the Servicer in the name of
the Trustee on behalf of the Trustee, the Certificateholders and the Certificate
Insurer. Notwithstanding any such acquisition of title and cancellation of the
related Mortgage Loan, such Mortgage Loan is required to be considered to be a
Mortgage Loan held in the Trust Fund until such time as the related Mortgaged
Property is sold and such Mortgage Loan becomes a Liquidated Mortgage Loan.
Consistent with the foregoing, for purposes of all calculations under the
Pooling and Servicing Agreement, so long as such Mortgage Loan is an outstanding
Mortgage Loan:
(i) It will be assumed that, notwithstanding that the indebtedness
evidenced by the related Mortgage Note shall have been discharged, such Mortgage
Note and the related amortization schedule in effect at the time of any such
acquisition of title (after giving effect to any previous partial prepayments
and before any adjustment thereto by reason of any bankruptcy or similar
proceeding or any moratorium or similar waiver or grace period) remain in
effect, except that such schedule shall be adjusted to reflect the application
of proceeds received in any month pursuant to the succeeding clause.
(ii) Net proceeds (after payment of Servicer's expenses related to
disposition) from such property received in any month shall be deemed to have
been received first in payment of the accrued interest that remained unpaid on
the date that title to the related Mortgaged Property was acquired by the Trust
Fund, with the excess thereof, if any, being deemed to have been received in
respect of the delinquent principal installments that remained unpaid on such
date. Thereafter, net proceeds from such property received in any month shall be
applied to the payment of installments of principal and accrued interest on such
Mortgage Loan deemed to be due and payable in accordance with the terms of such
Mortgage Note and such amortization schedule. If such net proceeds exceed the
then unpaid REO amortization, the excess shall be treated as a partial principal
prepayment received in respect of such Mortgage Loan.
(iii) The amount of that portion of such net proceeds on such a Mortgage
Loan that is allocable to interest to be allocated to the Servicing Fee with
respect thereto shall be determined by multiplying such portion by the ratio of
(A) the total amount of net proceeds allocable to interest as the rate at which
the Servicing Fee is determined to (B) the Mortgage Interest Rate borne by such
Mortgage Loan.
In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, such Mortgaged Property will be required to be disposed of by or
on behalf of the Trust Fund within two years after its acquisition by the Trust
Fund unless (a) the Trustee and the Certificate Insurer shall have received an
opinion of counsel to the effect that the holding by the Trust Fund of such
Mortgaged Property subsequent to two years after its acquisition (and specifying
the period beyond such two-year period for which the Mortgaged Property may be
held) will not cause the Trust Fund to be subject to the tax on prohibited
transactions imposed by Code Section 860F(a)(1), otherwise subject the Trust
Fund to tax or cause the Trust Fund to fail to qualify as a REMIC at any time
that any Certificates are outstanding, or (b) the Trustee (at the Servicer's
expense) or the Servicer shall have applied for, prior to the expiration of such
two-year period, an extension of such two-year period in the manner contemplated
by Code Section 856(e)(3), in which case the two- year period shall be extended
by the applicable period. The Servicer will also be required to ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from non-permitted assets as described in Code Section 860F(a)(2)(B), and that
the Trust Fund does not derive any "net income from foreclosure property" within
the meaning of Code Section 860G(c)(2), with respect to such property.
If the Servicer is aware that any Mortgaged Property may contain hazardous
wastes, the Servicer may not institute a foreclosure proceeding or accept a deed
in lieu of foreclosure without first obtaining the prior consent of the
Certificate Insurer.
In lieu of foreclosing upon any defaulted Mortgage Loan, the Servicer may,
in its discretion, permit the assumption of such Mortgage Loan if, in the
Servicer's reasonable judgment, such default is unlikely to be cured. In
connection with any such assumption, the Mortgage Interest Rate of the related
Mortgage Note and the payment terms will not be permitted to be changed. Any fee
collected by the Servicer for entering into an assumption agreement will be
retained by the Servicer as servicing compensation.
Servicing and Other Compensation and Payment of Expenses
In addition to the Servicing Fee, the Servicer is entitled under the
Pooling and Servicing Agreement to retain additional servicing compensation in
the form of assumption and other administrative fees, release fees, bad check
charges, any other servicing-related fees, Net Liquidation Proceeds not
otherwise required to be deposited in the Certificate Account pursuant to the
Pooling and Servicing Agreement, earnings paid on Permitted Investments and
amounts held on deposit as investment earnings on a Collection Account shall be
retained by or remitted to the Servicer to the extent not required to be
remitted to the Trustee for deposit in the Certificate Account. The Servicer
shall be required to pay all expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement and shall not be
entitled to reimbursement therefor except as specifically provided for therein.
Enforcement of Due-On-sale Clauses
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Mortgage Note; provided, however, that the Servicer shall not
exercise any such right if the "due-on-sale" clause in the reasonable belief of
the Servicer, is not enforceable under applicable law. In such event, the
Servicer may enter into an assumption and modification agreement with the person
to whom such property has been or is about to be conveyed, pursuant to which
such person becomes liable under the Mortgage Note and, unless prohibited by
applicable law or the Mortgage or Mortgage Note, the Mortgagor remains liable
thereon. The Servicer is also authorized, with the prior approval of the
Certificate Insurer, to enter into a substitution of liability agreement with
such person, pursuant to which the original Mortgagor is released from liability
and such person is substituted as Mortgagor and becomes liable under the
Mortgage Note.
Maintenance of Insurance Policies and Errors and Omissions and
Fidelity Coverage
The Servicer is required to cause to be maintained for each Mortgage Loan a
fire and hazard insurance policy with extended coverage on the related Mortgaged
Property in an amount which is not less than (a) the full insurable value of the
Mortgaged Property securing such Mortgage Loan or (b) the unpaid principal
balance of such Mortgage Loan plus the amount of any first lien, whichever is
less. The Servicer will also be required to maintain or cause to be maintained
fire and hazard insurance with extended coverage on each property acquired by
the Trust Fund by foreclosure or by deed in lieu of foreclosure in an amount
which is at least equal to the lesser of (i) the full insurable value of the
improvements which are a part of such property and (ii) the principal balance
owing on such Mortgage Loan at the time of such foreclosure or grant in lieu of
foreclosure plus the amount of any senior lien plus accrued interest and related
liquidation expenses; provided, however, that such insurance may not be less
than the minimum amount required to fully compensate for any loss or damage on a
replacement cost basis. Any cost incurred by the Servicer in maintaining any
such insurance shall not, for the purpose of calculating distributions to
Certificateholders, be added to the unpaid principal balance of the related
Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit.
No earthquake or other additional insurance other than flood insurance is, under
the Pooling and Servicing Agreement, to be required of any Mortgagor or to be
maintained by the Servicer other than pursuant to the terms of the related
Mortgage Note or Mortgage and pursuant to such applicable laws and regulations
as shall at any time be in force and as shall require such additional insurance.
If the Mortgaged Property was located at the time of origination in a
federally designated special flood hazard area, the Servicer will be obligated
to cause to be maintained flood insurance in respect thereof to the extent
available. Such flood insurance shall be in an amount equal to the lesser of (i)
the unpaid principal balance of the related Mortgage Loan plus the amount of any
senior lien and (ii) the maximum amount of such insurance required by the terms
of the related Mortgage Note or Mortgage and as is available for the related
property under the national flood insurance program (assuming that the area in
which such property is located is participating in such program).
Alternatively, the Servicer may obtain, at its own expense, a blanket
insurance policy with an insurer insuring against flood, fire and hazard losses
on all of the Mortgage Loans, which policy may contain a deductible clause, in
which case the Servicer shall, in the event that (i) there shall not have been
maintained on the related Mortgaged Property a policy otherwise complying with
the provisions described above, and (ii) there shall have been one or more
losses which would have been covered by such a policy had it been maintained,
deposit into the Certificate Account from its own funds the amount not otherwise
payable under the blanket policy because of such deductible clause.
The Servicer will also be required under the Pooling and Servicing
Agreement to maintain in force (i) a policy or policies of insurance covering
errors and omissions in the performance of its obligations as Servicer and (ii)
a fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond will, together, be substantially comparable to a
policy or policies and bond otherwise complying with the requirements of FNMA
for persons performing servicing for mortgage loans purchased by FNMA.
No pool insurance policy, special hazard insurance policy, bankruptcy bond
or repurchase bond will be maintained with respect to the Mortgage Loans, nor
will any Mortgage Loan be insured by any government or government agency.
Servicer Reports
The Servicer is required to deliver to the Certificate Insurer, the Trustee
and the Rating Agencies, not later than the last day of the third month
following the end of the Servicer's fiscal year an Officers' Certificate stating
that (i) the Servicer has fully complied with the servicing provisions of the
Pooling and Servicing Agreement, (ii) a review of the activities of the Servicer
during the preceding fiscal year and of performance under the Pooling and
Servicing Agreement has been made under such officers' supervision, and (iii) to
the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under the Pooling and Servicing Agreement for such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such default.
The first such Officer's Certificate shall be delivered by the Servicer in 1997.
Not later than the last day of the third month following the end of the
Servicer's fiscal year, the Servicer, at its expense, is required to cause to be
delivered to the Certificate Insurer, the Trustee and the Rating Agencies from a
firm of independent certified public accountants (who may also render other
services to the Servicer) a statement to the effect that such firm has examined
certain documents and records relating to the servicing of the Mortgage Loans
during the preceding calendar year (or such longer period from the Closing Date
to the end of the following calendar year) and that, on the basis of such
examination conducted substantially in compliance with generally accepted
auditing standards and the requirements of the Uniform Single Attestation
Program for Mortgage Bankers or the Attestation Program for Mortgages serviced
for FHLMC, such servicing has been conducted in compliance with the Pooling and
Servicing Agreement except for such significant exceptions or errors in records
that, in the opinion of such firm, generally accepted auditing standards and the
Uniform Single Attestation Program for Mortgage Bankers or the Attestation
Program for Mortgages serviced for FHLMC require it to report, in which case
such exceptions and errors shall be so reported.
Events of Default
The Trustee, only at the direction of the Certificate Insurer or the
majority Certificateholders, with the consent of the Certificate Insurer (in the
case of any direction of the majority Certificateholders), may remove the
Servicer upon the occurrence and continuation beyond the applicable cure period
of an event described below (each an "Event of Default"):
(a) any failure by the Servicer to remit to the
Trustee any payment required to be made by the Servicer under the terms of the
Pooling and Servicing Agreement which continues unremedied for 2 days; (b) the
failure by the Servicer to make any required Servicing Advance which failure
continues unremedied for a period of 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Servicer by the Trustee or to the Servicer and the Trustee by any
Certificateholder or the Certificate Insurer;
(c) any failure on the part of the Servicer duly
to observe or perform in any material respect any other of the covenants or
agreements on the part of the Servicer contained in the Pooling and Servicing
Agreement, or the failure of any representation and warranty set forth in the
Pooling and Servicing Agreement, which continues unremedied for a period of 30
days after the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Servicer by the Depositor or the
Trustee, or to the Servicer and the Trustee by any Certificateholder or the
Certificate Insurer;
(d) a decree or order of a court or agency or
supervisory authority having jurisdiction in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law or for
the appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer and such decree or order
shall have remained in force, undischarged or unstayed for a period of 60 days;
(e) the Servicer shall consent to the appointment
of a conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to all or substantially all of the
Servicer's property; (f) the Servicer shall admit in writing its inability to
pay its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations; or
(g) the delinquency or loss experience of the Mortgage Loan pool exceeds certain
levels specified in the Pooling and Servicing Agreement.
Removal and Resignation of Servicer
The Servicer may not assign its obligations under the Pooling and
Servicing Agreement nor resign from the obligations and duties thereby imposed
on it except by mutual consent of the Servicer, the Certificate Insurer and the
Trustee, or upon the determination that the Servicer's duties thereunder are no
longer permissible under applicable law and such incapacity cannot be cured by
the Servicer without the incurrence, in the reasonable judgment of the
Certificate Insurer, of unreasonable expense. No such resignation shall become
effective until a successor has assumed the Servicer's responsibilities and
obligations in accordance with the Pooling and Servicing Agreement.
Upon removal or resignation of the Servicer, the Trustee has agreed to be
the Successor Servicer (the "Successor Servicer"). The Trustee, as Successor
Servicer, will be obligated to make Delinquency Interest Advances and Servicing
Advances and certain other advances unless it determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Trustee is
unwilling or unable to act as Successor Servicer, or if the majority
Certificateholders (with the consent of the Certificate Insurer) or the
Certificate Insurer so requests, the Trustee shall appoint, or petition a court
of competent jurisdiction to appoint, in accordance with the provisions of the
Pooling and Servicing Agreement and subject to the approval of the Certificate
Insurer any established mortgage loan servicing institution acceptable to the
Certificate Insurer having a net worth of not less than $15,000,000 as the
Successor Servicer in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer.
The Trustee and any other Successor Servicer in such capacity is entitled
to the same reimbursement for advances and no more than the same servicing
compensation as the Servicer. See "--Servicing and Other Compensation and
Payment of Expenses" above.
Termination; Purchase of Mortgage Loans
The Trust Fund will terminate upon notice to the Trustee and the
Certificate Insurer of either: (a) the later of the distribution to
Certificateholders of the final payment or collection with respect to the last
Mortgage Loan (or Delinquency Interest Advances of same by the Servicer), or the
disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due under the Pooling and Servicing Agreement and the
payment of all amounts due and payable to the Certificate Insurer and the
Trustee or (b) mutual consent of the Servicer, the Certificate Insurer and all
Certificateholders in writing.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the Holders of the Residual
Certificates or Servicer may, at their respective option and at their respective
sole cost and expense (and if such option is not exercised by the Holders of the
Residual Certificates or the Servicer, the Certificate Insurer may, in
accordance with the provisions of the Pooling and Servicing Agreement, at its
option and at its sole cost and expense), terminate the Trust Fund on any date
on which the aggregate Principal Balance of the Mortgage Loans is less than 10%
(with respect to such option of the Holders of the Residual Certificates) and
with respect to the Servicer less than 5% of the Maximum Collateral Amount by
purchasing, on the next succeeding Distribution Date, all of the property of the
Trust Fund at a price equal to the sum of (a) the greater of (i) 100% of the
aggregate Principal Balance of each outstanding Mortgage Loan and each REO
Property and (ii) the fair market value (disregarding accrued interest) of the
Mortgage Loans and REO Properties, determined as the average of three written
bids (copies of which are to be delivered to the Trustee and the Certificate
Insurer by the Servicer and the reasonable cost of which may be deducted from
the final purchase price provided that such deduction does not result in a draw
on the Certificate Insurance Policy) made by nationally recognized dealers
acceptable to the Certificate Insurer and based on a valuation process which
would be used to value comparable mortgage loans and REO property, plus (b) the
greater of (x) the aggregate amount of accrued and unpaid interest on the
Mortgage Loans through the related Collection Period and (y) 30 days' accrued
interest thereon computed at a rate equal to the related Mortgage Interest Rate,
(c) in the event the Holders of the Residual Certificates or the Certificate
Insurer exercise such option, plus any unpaid and accrued Servicing Fee or in
the event the Servicer exercises such option, net of the Servicing Fee, and (d)
any unreimbursed amounts due to the Certificate Insurer under the Pooling and
Servicing Agreement or the Insurance Agreement. No such termination is permitted
without the prior written consent of the Certificate Insurer if it would result
in a draw on the Certificate Insurance Policy and the Certificate Insurer shall
have received an opinion of counsel reasonably satisfactory to it stating that
no amounts paid under the Pooling and Servicing Agreement are subject to
recapture as preferential transfers under the United States Bankruptcy Code, 11
U.S.C. ss.ss. 101 et seq., as amended.
The first date on which the Holders of the Residual Certificates may
exercise their option is the "Clean-Up Call Date."
Amendment
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee by written agreement, upon the prior
written consent of the Certificate Insurer (which consent shall not be withheld
if, in the opinion of counsel addressed to the Trustee and the Certificate
Insurer, failure to amend would adversely affect the interests of the
Certificateholders unless such consent would adversely affect the interests of
the Certificate Insurer), without notice to, or consent of, the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions therein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the Pooling and
Servicing Agreement which shall not be inconsistent with the provisions of the
Pooling and Servicing Agreement, provided that such action shall not, as
evidenced by an opinion of counsel delivered to the Trustee and the Certificate
Insurer, but not obtained at the expense of the Trustee or the Certificate
Insurer, adversely affect in any material respect the interests of any
Certificateholder (or 100% of the Class of Certificateholders so affected shall
have consented); and provided, further, that no such amendment shall reduce in
any manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate, or change the rights or obligations
of any other party to the Pooling and Servicing Agreement without the consent of
such party.
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee with the consent of the Certificate
Insurer (which consent shall not be withheld if, in the opinion of counsel
addressed to the Trustee and the Certificate Insurer, failure to amend would
adversely affect the interests of the Certificateholders unless such consent
would adversely affect the interests of the Certificate Insurer), and the
Holders of the majority of the Percentage Interest in the Class A Certificates
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or of
modifying in any manner the rights of the Holders; provided, however, that no
such amendment shall be made unless the Trustee and the Certificate Insurer
receives an opinion of counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the Trust Fund
as a REMIC or cause a tax to be imposed on the Trust Fund; and provided,
further, that no such amendment shall reduce in any manner the amount of or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate or reduce the percentage for each Class the Holders of which are
required to consent to any such amendment without the consent of the Holders of
100% of each Class of Certificates affected thereby.
The rights of the Certificateholders of the Trust Fund will be determined
pursuant to the Pooling and Servicing Agreement.
THE TRUSTEE
_________________, a _______________________, has been named Trustee
pursuant to the Pooling and Servicing Agreement. The Trustee will serve
initially as the custodian of the Trustee's Mortgage Files. The Pooling and
Servicing Agreement provides that the Trustee shall be entitled to a fee (the
"Trustee Fee") in respect of its services as Trustee.
The Trustee shall at all times be a banking association organized and doing
business under the laws of any State or the United States of America subject to
suspension or examination by federal or state authority, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, whose short-term debt rating is rated "A-1+" by
Standard & Poor's and "P-1" by Moody's and whose long-term deposits, if any, are
rated at least "BBB" by Standard & Poor's and Baa2 by Moody's, or such lower
rating as may be reasonably approved in writing by the Certificate Insurer. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions described in this paragraph, it shall resign immediately in the
manner and with the effect specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by a successor
trustee.
The Trustee, or any trustee or trustees hereafter appointed, may resign at
any time in the manner set forth in the Pooling and Servicing Agreement. Upon
receiving notice of resignation, the Certificate Insurer may and if the
Certificate Insurer fails to, the Servicer shall promptly appoint a successor
trustee or trustees acceptable to the Certificate Insurer and meeting the
eligibility requirements set forth above in the manner set forth in the Pooling
and Servicing Agreement. The Servicer will deliver a copy of the instrument used
to appoint a successor trustee to the Certificateholders, the Certificate
Insurer and the Depositor, and upon acceptance of appointment by a successor
trustee in the manner provided in the Pooling and Servicing Agreement, the
Servicer will give notice thereof to the Certificateholders. If no successor
trustee shall have been appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
If the Trustee fails to perform in accordance with the terms of the Pooling
and Servicing Agreement, the Certificate Insurer or the majority of
Certificateholders with the consent of the Certificate Insurer, may remove the
Trustee under the conditions set forth in the Pooling and Servicing Agreement
and appoint a successor trustee in the manner set forth therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund and to vest in such person or persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
[TO BE PROVIDED]
FEDERAL INCOME TAX CONSIDERATIONS
For federal income tax purposes, one or more elections will be made to
treat certain assets of the Trust Fund as a REMIC. The Class A Certificates will
be treated as "regular interests" in a REMIC. For federal income tax purposes,
regular interests in a REMIC are generally treated as debt instruments issued by
the REMIC on the date on which those interests are created, and not as ownership
interests in the REMIC or its assets. Holders of Class A Certificates that
otherwise report income under a cash method of accounting will be required to
report income with respect to such Class A Certificates under an accrual method.
In general, as a result of being regular interest in a REMIC, (i) Class A
Certificates held by a thrift institution taxed as a "domestic building and loan
association" will constitute "assets" within the meaning of Section
7701(a)(19)(C) of the Code; and (ii) Class A Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of
Section 856(c)(5)(a) of the Code. If less than 95% of the assets comprising the
REMIC are assets qualifying under any of the foregoing sections of the Code,
then the Class A Certificates will be qualifying assets only to the extent that
the assets comprising the REMIC are qualifying assets. Interest on the Class A
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that the Class A Certificates are treated as "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code.
All holders of Class A Certificates should see "Certain Federal Income Tax
Consequences" in the accompanying Prospectus for a general discussion of the
material anticipated federal income tax consequences of the purchase, ownership
and disposition of regular interests in a REMIC.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties-in- Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and
Sav. Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract). ERISA also imposes certain duties
on persons who are fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a Plan and Parties-in-Interest or Disqualified Persons with
respect to such Plans.
The DOL has granted an administrative exemption to __________________
(Prohibited Transaction Exemption _____, the "Exemption") which generally
exempts from the application of the prohibited transaction provisions of Section
406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the
excise taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain
transactions relating to the servicing and operation of asset pools and the
purchase, sale and holding of asset-backed pass-through certificates, including
pass-through certificates evidencing interests in certain secured receivables,
secured loans and other secured obligations, provided that certain conditions
set forth in the Exemption are satisfied. Among the conditions that must be
satisfied for the Exemption to apply are the following:
1. The Acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with an
unrelated party;
2. The rights and interests evidenced by the Class A Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust Fund;
3. The Class A Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic rating
categories from either Standard & Poor's, Moody's, Duff & Phelps Inc. ("D&P") or
Fitch Investor Service, Inc. ("Fitch");
4. The sum of all payments made to the Underwriter in connection with the
distribution of the Class A Certificates represents not more than reasonable
compensation for the placement of the Class A Certificates. The sum of all
payments made to and retained by the Servicer represents not more than
reasonable compensation for the Servicer's services under the Pooling and
Servicing Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith;
5. The Trustee is not an affiliate of any other member of the Restricted
Group (as defined below); and
6. The Plan investing in the Class A Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The Trust Fund also must meet the following requirements:
a. The corpus of the Trust Fund must consist solely of assets of the type
which have been included in other investment pools;
b. Certificates in such other investment pools must have been rated in one
of the three highest rating categories of S&P, Moody's, D&P or Fitch for at
least one year prior to the Plan's acquisition of certificates; and
c. Certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year prior to
any Plan's acquisition of Class A Certificates.
In order for the Exemption to apply to certain self-dealing/conflict of
interest prohibited transactions that may occur when a Plan fiduciary causes the
Plan to acquire Class A Certificates, the Exemption requires, among other
matters, that: (i) in the case of an acquisition in connection with the initial
issuance of Certificates, at least fifty percent of each class of certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least fifty percent of the aggregate interest in the
Trust Fund is acquired by persons independent of the Restricted Group (as
defined below); (ii) such fiduciary (or its affiliate) is an obligor with
respect to 5 percent or less of the fair market value of the obligations
contained in the Trust Fund; (iii) the Plan's investment in Class A Certificates
does not exceed twenty-five percent (25%) of all of the certificates outstanding
at the time of the acquisition and (iv) immediately after the acquisition, no
more than twenty-five percent (25%) of the assets of the Plan are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity.
The Exemption does not apply to certain prohibited transactions in the case
of Plans sponsored by the Underwriter, the Trustee, the Servicer, any obligor
with respect to the Mortgage Loans included in the Trust Fund constituting more
than five percent of the aggregate unamortized principal balance of assets in
the Trust Fund, any entity deemed to be a "sponsor" of the Trust Fund as such
term is defined in the exemption, or any affiliate of any such party (the
"Restricted Group").
Prior to the earlier of (i) the date on which the Pre-Funding Period
expires and (ii) the date on which the DOL amends the Exemption to permit the
use thereunder of pre-funding accounts as described herein, Plans will not be
permitted to purchase the Class A Certificates. On or after the earlier to occur
of such dates, the Exemption may be available for the purchase of Class A
Certificates by Plans. Before purchasing a Class A Certificate, a fiduciary of
an ERISA Plan should make its own determination as to the availability of the
exemptive relief provided in the Exemption and whether the conditions of any
such exemption will be applicable to the Class A Certificates. Any fiduciary of
an ERISA Plan considering whether to purchase a Class A Certificate should also
carefully review with its own legal advisors the applicability of the fiduciary
duty and prohibited transaction provisions of ERISA and the Code to such
investment.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject to
a federal, state, or local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The sale of Certificates to an ERISA Plan is in no respect a representation
by the Depositor or the Placement Agent that this investment meets all relevant
legal requirements with respect to investments by ERISA Plans generally or any
particular ERISA Plan, or that this investment is appropriate for ERISA Plans
generally or any particular ERISA Plan.
LEGAL INVESTMENT
The Class A Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Additionally, institutions subject to the jurisdiction of the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration or state banking or
insurance authorities should review applicable rules, supervisory policies and
guidelines of these agencies before purchasing any of the Class A Certificates,
since such Class A Certificates may be deemed to be unsuitable investments under
one or more of these rules, policies and guidelines and certain restrictions may
apply to such investments. It should also be noted that certain states have
enacted legislation limiting to varying extents the ability of certain entities
(in particular, insurance companies) to invest in mortgage related securities.
Investors should consult with their own legal advisors in determining whether
and to what extent the Class A Certificates constitute legal investments for
such investors. See "Legal Investment" in the Prospectus Supplement.
UNDERWRITING
The Underwriter named below has agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Depositor the respective
principal amounts of the Class A Certificates set forth below.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Class A
Certificates offered hereby if any Class A Certificates are purchased. In the
event of default by the Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the Underwriting Agreement may be terminated.
The Depositor has been advised by the Underwriter that it proposes
initially to offer each Class of Class A Certificates to the public at the
related price set forth herein, and to certain dealers at such price less the
initial concession not in excess of, based on Initial Certificate Principal
Balances, _____% of the Class A-1 Certificates, _____% of the Class A-2
Certificates, _____% of the Class A-3 Certificates, _____% of the Class A-4
Certificates, _____% of the Class A-5 Certificates, and _____% of the Class A-6
Certificates. The Underwriter may allow and such dealers may reallow a
concession not in excess of, based on Initial Certificate Principal Balances,
_____% of the Class A-1 Certificates, _____% of the Class A-2 Certificates,
_____% of the Class A-3 Certificates, _____% of the Class A-4 Certificates,
_____% of the Class A-5 Certificates, and _____% of the Class A-6 Certificates,
to certain other dealers. After the initial public offering of each Class of
Class A Certificates, the public offering price and such concessions for such
Class may be changed.
The Underwriting Agreement provides that the Seller and the Depositor will
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or contribute to payments the
Underwriter may be required to make in respect thereof.
REPORT OF EXPERTS
The consolidated financial statements of the Certificate Insurer as of
___________, ____ and ___________, ____ and for the three years ended
___________, ____ incorporated by reference into this Prospectus Supplement have
been audited by _________________, ______, independent accountants, as set forth
in their report thereon, incorporated by reference herein in reliance upon the
authority of such firm as experts in accounting and auditing.
RATINGS
The Class A Certificates will be rated at their initial issuance "_____" by
____ and "____" by ____________ (the "Rating Agencies").
The Rating Agencies' rating on mortgage loan asset-backed certificates
address the likelihood of the receipt by the Certificateholders of payments
required under the Pooling and the Servicing Agreement. The Rating Agencies'
ratings take into consideration the claims paying ability of the Certificate
Insurer.
The Depositor has not requested a rating on the Class A Certificates by any
rating agency other than the Rating Agencies. However, there can be no assurance
as to whether any other rating agency will rate the Class A Certificates, or, if
it does, what rating would be assigned by any such other rating agency. A rating
on the Class A Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Class A Certificates by the Rating
Agencies.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the rating initially assigned to any of
the Class A Certificates is subsequently lowered for any reason, no person or
entity is obligated to provide any additional support or credit enhancement with
respect to such Class A Certificates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Class A
Certificates will be passed upon by Stroock & Stroock & Lavan LLP, New York, New
York. Certain legal matters relating to the Certificate Insurer and the
Certificate Insurance Policy will be passed upon for the Certificate Insurer by
_________________.
<PAGE>
INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT DEFINITIONS
TERM PAGE
Accepted Servicing Practices...........................................
Accrual Period.........................................................
Advanta................................................................
Advanta Parent.........................................................
Agreement..............................................................
Applicable Federal Rate................................................
Available Funds........................................................
Backup withholding.....................................................
Business Day...........................................................
Capitalized Interest Account...........................................
Cedel..................................................................
Certificate Account....................................................
Certificate Insurance Policy...........................................
Certificate Insurer....................................................
Certificate Insurer Premium Amount.....................................
Certificate Owners.....................................................
Certificateholders.....................................................
Certificates...........................................................
Charged-off Loan.......................................................
Charged-off Loan Loss..................................................
Class..................................................................
Class A Carry-Forward Amount...........................................
Class A Distribution Amount............................................
Class A Interest Distribution Amount...................................
Class A Principal Balance..............................................
Class A Principal Distribution Amount..................................
Class A Certificates...................................................
Class A-1 Certificates.................................................
Class A-2 Certificates.................................................
Class A-3 Certificates.................................................
Class A-4 Certificates.................................................
Class A-5 Certificates.................................................
Class A-6 Certificates.................................................
Class B Certificates...................................................
Clean-Up Call Date.....................................................
Closing Date...........................................................
Collection Account.....................................................
Collection Period......................................................
Combined Loan-to-Value Ratio...........................................
Compensating Interest..................................................
Credit Bureau Risk Score...............................................
Cut-off Date..........................................................
D&P....................................................................
Daily portions.........................................................
Deficiency Amount......................................................
Delinquency Interest Advances..........................................
Depositor..............................................................
Disqualified Persons...................................................
Distribution Date......................................................
DOL....................................................................
DTC....................................................................
DTI....................................................................
Due Date...............................................................
Due-on-Sale............................................................
Eligible Account.......................................................
ERISA..................................................................
Euroclear..............................................................
Event of Default.......................................................
Excess Cashflow........................................................
Excess Overcollateralization Amount....................................
Exemption..............................................................
Fair, Isaac............................................................
FDIC...................................................................
Fiscal Agent...........................................................
Fitch..................................................................
GAAP...................................................................
Garn-St Germain Act....................................................
HUD....................................................................
Initial Certificate Principal Balance..................................
Initial Mortgage Loans.................................................
Insured Distribution Amount............................................
Insured Payment........................................................
Liquidated Loan........................................................
Loan Repurchase Price..................................................
Maximum Collateral Amount..............................................
Memorandum.............................................................
MLA....................................................................
Moody's................................................................
Mortgage Interest Rate.................................................
Mortgage Loans.........................................................
Mortgage Note..........................................................
Mortgage Pool..........................................................
Mortgaged Properties...................................................
Mortgages..............................................................
Non-U.S. Person........................................................
Nonrecoverable Advance.................................................
Notice.................................................................
OID Regulations........................................................
Original Class A Principal Balance.....................................
Original Pre-Funded Amount.............................................
OTS...................................................................
Overcollateralization Amount...........................................
Overcollateralization Deficit..........................................
Overcollateralization Increase Amount..................................
Overcollateralization Reduction Amount.................................
Owner..................................................................
Parties-in-Interest....................................................
Percentage Interest....................................................
Plan...................................................................
Pre-Funding Account....................................................
Pre-Funding Period.....................................................
Preference Amount......................................................
Prepayment Assumption..................................................
Principal Balance......................................................
Pooling and Servicing Agreement........................................
Prospectus.............................................................
Prospectus Supplement..................................................
Qualified Substitute Mortgage Loan.....................................
Rating Agencies........................................................
Record Date............................................................
Residual Certificate...................................................
Regulations............................................................
Reimbursement Amount...................................................
Relief Act.............................................................
REMIC..................................................................
Remittance Date........................................................
Required Overcollateralization Level...................................
Restricted Group.......................................................
S&P....................................................................
Seller.................................................................
Senior Liens...........................................................
Senior Percentage......................................................
Servicer...............................................................
Servicer Remittance Amount.............................................
Servicer Remittance Date...............................................
Servicing Advances.....................................................
Servicing Fee..........................................................
Servicing Fee Rate.....................................................
Similar Law............................................................
SMMEA..................................................................
Standard & Poor's......................................................
Startup Day............................................................
Statistical Calculation Date...........................................
Subordinate Mortgage Ratio.............................................
Subordinate Certificates...............................................
Subsequent Cut-Off Date................................................
Subsequent Mortgage Loans..............................................
Subsequent Transfer Date...............................................
Substitution Adjustment................................................
Successor Servicer....................................................
Title V................................................................
Trust Fund.............................................................
Trustee................................................................
Trustee Fee............................................................
Trustee's Mortgage File................................................
Underwriter............................................................
