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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
The WMF Group, Ltd.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 54-1647759
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1593 Spring Hill Road, Suite 400, Vienna, Virginia 22182
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (703) 610-1400
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Securities to be registered pursuant to Section 12(b) of the Act: None
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
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<S> <C> <C>
1. Business Summary; Risk Factors; The Distribution of Company Common Stock; Management's
Discussion and Analysis of Financial Condition and Results of Operation;
Industry Overview; Business
2. Financial Information Selected Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operation
3. Properties Business
4. Security Ownership of Certain Principal Stockholders of the Company; Risk Factors
Beneficial Owners and Management
5. Directors and Executive Officers Management of the Company; Description of the Company Capital
Stock
6. Executive Compensation Management of the Company; Principal Stockholders of the Company
7. Certain Relationships and Related Summary; Related Party Transactions; The Distribution of Company Common Stock;
Transactions Arrangements between NHP and the Company after the Share
Distribution; Risk Factors
8. Legal Proceedings Business
9. Market Price of and Dividends on the Summary; Risk Factors; The Distribution of Company Common Stock; Management of
Registrant's Common Equity and the Company; Principal Stockholders of the Company; Description of
Related Stockholder Matters Company Capital Stock
10. Recent Sales of Unregistered Not applicable
Securities
11. Description of Registrant's Description of Company Capital Stock; The Distribution of Company Common Stock;
Securities to be Registered Arrangements between NHP and the Company after the Share
Distribution
</TABLE>
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<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
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<S> <C> <C>
12. Indemnification of Directors and Description of Company Capital Stock
Officers
13. Financial Statements and Summary; Summary Financial Information; Capitalization; Selected
Supplementary Data Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operation; Financial Statements
14. Changes in and Disagreements with Independent Public Accountants
Accountants on Accounting and
Financial Disclosure
15. Financial Statements and Exhibits Financial Statements; Index to Exhibits
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement on Form 10 to be signed on its behalf by the undersigned, thereunto
duly authorized.
The WMF Group, Ltd.
By: /s/ SHEKAR NARASIMHAN
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Name: Shekar Narasimhan
Title: President and Chief
Executive Officer
August 1, 1997
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
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<S> <C>
2.1 Rights Agreement dated as of April 21, 1997 by and between NHP Incorporated, NHP Financial Services, Ltd. and The
First National Bank of Boston (1).
3.1 Certificate of Incorporation of The WMF Group, Ltd.
3.2 By-laws of The WMF Group, Ltd.
4.1 Form of certificate representing shares of Common Stock of The WMF Group, Ltd.
8 Tax Opinion of Wilmer, Cutler & Pickering, dated August 1, 1997.
10.1 Mortgage Selling and Servicing Contract between Fannie Mae and the Company, dated December 21, 1990.
10.2 Delegated Underwriting and Servicing Addendum to Mortgage Selling and Servicing Contract between Fannie Mae and the
Company, dated as of March 1, 1994.
10.3 Delegated Underwriting and Servicing Master Loss Sharing Agreement between Fannie Mae and the Company, dated as of
March 1, 1994.
10.4 Delegated Underwriting and Servicing Reserve Agreement among Fannie Mae, State Street Bank and Trust Company and
the Company, dated as of June 4, 1996.
10.5 Credit and Security Agreement between the Company, WMF/Huntoon and Residential Funding Corporation, dated as of
June 14, 1996.
10.6 First Amendment to Credit and Security Agreement between the Company, WMF/Huntoon, Page Associates Limited and
Residential Funding Corporation, dated as of August 8, 1996.
10.7 Second Amendment to Credit and Security Agreement between the Company, WMF/Huntoon, Page Associates Limited and
Residential Funding Corporation, dated as of December 20, 1996.
10.8 Third Amendment to Credit and Security Agreement between the Company, WMF/Huntoon, Page Associates Limited
and Residential Funding Corporation, dated as of May 12, 1997.
10.9 Warehouse Promissory Note between the Company, WMF/Huntoon, Page Associates Limited and Residential Funding
Corporation, dated June 14, 1996.
10.10 Term Loan Promissory Note between the Company, WMF/Huntoon, Page Associates Limited and Residential Funding
Corporation, dated June 14, 1996.
10.11 Servicing Facility Promissory Note between the Company, WMF/Huntoon, Page Associates Limited and Residential
Funding Corporation, dated June 14, 1996.
10.12 Waiver of Section 2.1(b)(5) of the Warehousing Credit and Security Agreement by Residential Funding Corporation,
dated February 27, 1997.
10.13 Letter Agreement dated October 25, 1996 between Washington Mortgage Financial Group and Michael D. Ketcham.
11 Statement re computation of per share earnings.
16 Letter re change in certifying accountant.
21 Subsidiaries of the registrant.
23 Consent of Wilmer, Cutler & Pickering contained in Exhibit 8 hereto.
27 Financial data schedule.
99.1 Information Statement of The WMF Group, Ltd. dated as of August __, 1997.
</TABLE>
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(1) Incorporated by reference to Exhibit 2.2 to Report on Form 8-K of NHP
Incorporated filed April 24, 1997.
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EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NHP FINANCIAL SERVICES, LTD.
(Originally incorporated on October 20, 1992
under the name WMF HOLDINGS LTD.)
This Restated Certificate of Incorporation restates and further amends
the Certificate of Incorporation of this Corporation. The text of the
Certificate of Incorporation as amended or supplemented heretofore is further
amended hereby to read as herein set forth in full:
ARTICLE FIRST
The name of the corporation (herein called the "Corporation") is The
WMF Group, Ltd.
ARTICLE SECOND
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE THIRD
The period of duration is perpetual.
ARTICLE FOURTH
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
law.
ARTICLE FIFTH
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is Thirty-Seven Million Five Hundred
Thousand (37,500,000) shares consisting of (a) Twelve Million Five Hundred
Thousand (12,500,000) shares of Preferred Stock, $.01 par value (the "Preferred
Stock"), and (b) Twenty-Five Million (25,000,000) shares of Common Stock, $.01
par value (the "Common Stock").
The designations, powers preferences and relative participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof in respect of the Preferred Stock and the Common Stock are
as follows:
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1. The Board of Directors may, except as otherwise provided
below, by resolution from time to time classify or reclassify and issue in one
or more series any unissued shares of Preferred Stock and may fix or alter in
one or more respects, from time to time before reissuance of those shares, the
number and designation of any series or classification, liquidation and
dividend rights, preference rights, voting rights, redemption rights,
conversion rights, and any other rights, restrictions and qualifications of and
the terms of any purchase, retirement, or sinking fund which may be provided
for those shares of Preferred Stock.
2. No holder of stock of the Corporation shall be entitled as a
matter of right, preemptive or otherwise, to subscribe for or purchase any part
of any stock authorized to be issued, or shares of stock authorized to be
issued, held in the treasury of the Corporation or securities convertible into
stock, whether issued for cash or other consideration or by way of dividend or
otherwise.
3. The holders of shares of Preferred Stock and the holders of
shares of Common Stock shall possess full voting rights and powers on all
matters voted on by the stockholders of the Corporation (including the election
of Directors), shall be entitled to notice of stockholders' meetings and shall
vote together. Each holder of Common Stock shall be entitled to one vote for
each share of Common Stock held. Each holder of Preferred Stock shall be
entitled to the voting rights fixed by the Board of Directors but in no event
more than one vote for each share of Preferred Stock held.
ARTICLE SIXTH
The number of directors of the Corporation shall be such as from time
to time shall be fixed in the manner provided in the By-laws of the
Corporation. The election of Directors of the Corporation need not be by
ballot unless the By-laws so require.
ARTICLE SEVENTH
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after the date of filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
The Corporation shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify any and all
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persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Any repeal or modification of the foregoing paragraphs by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE EIGHTH
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:
(a) In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered:
(i) to make, alter, amend or repeal the By-laws in any
manner not inconsistent with the laws of the State of Delaware or this Restated
Certificate of Incorporation;
(ii) to determine whether any, and if any, what part, of
the net profits of the Corporation or of its surplus shall be declared in
dividends and paid to the stockholders, and to direct and determine the use and
disposition of any such net profits or such surplus; and
(iii) to fix from time to time the amount of net profits of
the Corporation or of its surplus to be reserved as working capital or for any
other lawful purpose; and
(iv) without the assent or vote of the stockholders, to
authorize and issue securities and obligations of the Corporation, secured or
unsecured, and to include therein such provisions as to redemption, conversion
or other terms thereof as to authorize the mortgaging or pledging, as security
therefor, of any property of the Corporation, real or personal, including
after-acquired property.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the State
of Delaware, of this Restated Certificate of Incorporation and of the By-Laws
of the Corporation.
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(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in such
manner as shall be provided in the By-laws of the Corporation.
(c) From time to time any of the provisions of this Restated
Certificate of Incorporation may be altered, amended or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
Corporation by this Restated Certificate of Incorporation are granted subject
to the provisions of this paragraph (c).
ARTICLE NINTH
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholder or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in an summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourth in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree on any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
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IN WITNESS WHEREOF, this Restated Certificate of Incorporation which
restates and integrates and also further amends the Certificate of
Incorporation of the Corporation having been duly adopted in accordance with
the provisions of Sections 242 and 245 of the General Corporation Law of the
State of Delaware, has been signed by Shekar Narasimhan, its President, and
attested by Barbara Ekstrom, its Secretary, this 14th day of May, 1997.
ATTEST:
/s/ BARBARA EKSTROM /s/ SHEKAR NARASIMHAN
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Barbara Ekstrom Shekar Narasimhan
Secretary President
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EXHIBIT 3.2
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THE WMF GROUP, LTD.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
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BY-LAWS
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AS ADOPTED ON MAY 14, 1997
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1
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BY-LAWS
OF
THE WMF GROUP, LTD.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1 - CERTIFICATES REPRESENTING STOCK.
(a) Form
Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of, the corporation by the
Chairman or Vice Chairman of the Board of Directors, if any, or by the
President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the
corporation. Any and all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
(b) Type
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and
whenever the corporation shall issue any shares of its stock as partly
paid stock, the certificates representing shares of any such class or
series or of any such partly), paid stock shall set forth thereon the
statements prescribed by the General Corporation Law of the State of
Delaware. Any restrictions on the transfer or registration of transfer
of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
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(c) Replacement
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost,
stolen, or destroyed, and the Board of Directors may require the owner
of any lost stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify
the corporation against any claim that may be made against it on
account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such, new certificate.
SECTION 2 - FRACTIONAL SHARE INTERESTS
The corporation may, but shall not be required to, issue fractions of a share.
If the corporation does not issue fractions of a share, it shall (1) arrange
for the disposition of fractional interests by those entitled thereto, (2) pay
in cash the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined, or (3) issue scrip or
warrants in registered or bearer form that shall entitle the holder to receive
a certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing full
shares before a specified date, or subject to the conditions that the shares
for which scrip or warrants are exchangeable may be sold by the corporation and
the proceeds thereof distributed to the holders of scrip or warrants, or
subject to any other conditions that the Board of Directors may impose.
SECTION 3 - STOCK TRANSFERS
Upon compliance with provisions restricting the transfer or registration of
transfer of shares of stock, if any, transfers or registration of transfers of
shares of stock of the corporation shall be made only on the stock ledger of
the corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation or with a transfer agent or a registrar, if any, and on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
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SECTION 4 - RECORD DATE FOR STOCKHOLDERS
For the purpose of determining the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock or for the purpose of any other lawful action,
the directors may fix, in advance, a record date, that shall not be more than
60 days nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed;
and the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at any meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 5 - MEANING OF CERTAIN TERMS
As used herein in respect of the right to notice of a meeting of stockholders
or a waiver thereof or to participate or vote thereat or to consent or dissent
in writing in lieu of a meeting, as the case may be, the term "share" or
"shares," or "share of stock" or "shares of stock," or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a
holder or holders of record of outstanding shares of stock when the corporation
is authorized to issue only one class of shares of stock, and said reference is
also intended to include any outstanding share or shares of stock and any
holder or holders of record of outstanding shares of stock of any class upon
which or upon whom the certificate of incorporation confers such rights where
there are two or more classes or series of shares of stock or upon which or
upon whom the General Corporation Law confers
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such rights notwithstanding that the certificate of incorporation may provide
for more than one class or series of shares of stock, one or more of which are
limited or denied such rights thereunder; provided, however, that no such right
shall vest in the event of an increase or a decrease in the authorized number
of shares of stock of any class or series that is otherwise denied voting
rights under the provisions of the certificate of incorporation, except as any
provision of law may otherwise require.
SECTION 6 - STOCKHOLDER MEETINGS
(a) Time
The annual meeting shall be held on the date and at the time fixed by
the directors provided that an annual meeting shall be held on a date
within 13 months after the date of the preceding annual meeting. A
special meeting shall be held on the date and at the time fixed by the
directors.
(b) Place
Annual meetings and special meetings shall be held at such place
within or out of the State of Delaware, as the directors may, from
time to time fix. Whenever the directors shall fail to fix such place,
the meeting shall be held at the principal place of business and
headquarters of the corporation.
(c) Call
Annual meetings and special meetings may be called by the directors or
by any officer instructed by the directors to call the meeting
(d) Notice or Waiver of Notice
Written notice of all meetings shall be given, stating the place,
date, and hour of the meeting and stating the place within the city or
other municipality or community at which the list of stockholders of
the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors
and for the transaction of other business that may properly come
before the meeting, and shall, (if any other action that could be
taken at a special meeting is to be taken at such annual meeting)
state the purpose or purposes. The notice of a special meeting shall
in all
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instances state the purpose or purposes for which the meeting is
called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents
prescribed by the General Corporation Law of the State of Delaware.
Except as otherwise provided by the General Corporation Law, a copy of
the notice of any meeting shall be given, personally or by mail, not
less than 10 days nor more than 60 days before the date of the
meeting, unless the lapse of the prescribed period of time shall have
been waived, and directed to each stockholder at his record address or
at such other address that he may have furnished by request in writing
to the Secretary of the corporation. Notice by mail shall be deemed to
be given when deposited, with postage thereon prepaid, in the United
States Mail. If a meeting is adjourned to another time, not more than
30 days hence, and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned
meeting. Notice need not be given to any stockholder who submits a
written waiver of notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the
stockholder attends the meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders need be specified in any written
waiver of notice.
(e) Stockholder List
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such
list shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place
within the city or other municipality or community, where the meeting
is to be held, which place shall be specified in the notice of the
meeting or if not so specified, at the place where the meeting is to
be held. The list shall also be produced and kept at the time and
place of the meeting during the
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whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required
by this section or the books of the-corporation, or to vote at any
meeting of stockholders.
(f) Conduct of Meeting
Meetings of the stockholders shall be presided over by one of the
following officers in the order of seniority and if present and
acting--the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice President, or if none of the
foregoing is in office and present and acting, by a chairman to be
chosen by the stockholders. The Secretary of the corporation, or in
his absence, an Assistant Secretary, shall act as secretary of every
meeting, but if neither the Secretary nor an Assistant Secretary is
present the Chairman of the meeting shall appoint a secretary of the
meeting.
(g) Proxy Representation
Every stockholder may authorize another person or persons to act for
him by proxy in all matters in which a stockholder is entitled to
participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a
meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three
years from its date unless such proxy provides for a longer period. A
duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy
may be made irrevocable regardless of whether the interest with which
it is coupled is an interest in the stock itself or an interest in the
corporation generally.
(h) Inspectors
The directors, in advance of any meeting, may, but need not, appoint
one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of
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the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties,
shall take and sign an oath to faithfully execute the duties of
inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors, if any, shall determine the
number of shares of stock outstanding and the voting power of each,
the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as
are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the
inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
(i) Quorum
The holders of twenty-five percent (25%) of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the
meeting in the absence of a quorum.
(j) Voting
Each share of common stock shall entitle the holder thereof to one
vote. Each holder of preferred stock shall be entitled to the voting
rights fixed by the Board of Directors but in no event more than one
vote for each share of Preferred Stock held. In the election of
directors, a plurality of the votes cast shall elect. Any other action
shall be authorized by a majority of the votes cast except where the
General Corporation Law prescribes a different percentage of votes
and/or a different exercise of voting power, and except as may be
otherwise prescribed by the provisions of the certificate of
incorporation and the By-Laws. In the election of directors, and for
any other action, voting need not be by ballot.
SECTION 7 - STOCKHOLDER ACTION WITHOUT MEETINGS
8
<PAGE> 9
Any action required by the General Corporation Law to be taken at any annual or
special meeting of stockholders, or any action that may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted, and shall be delivered to the corporation at its the
principal place of business of the corporation to the attention of the
President and the Secretary of the Corporation. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
SECTION 1 - POWERS
The business and affairs of the corporation shall be managed by or under the
direction of the Board of Directors of the corporation. The Board of Directors
shall have the authority to fix the compensation of the members thereof. The
use of the phrase "whole board" herein refers to the total number of directors
that the corporation would have if there were no vacancies.
SECTION 2 - QUALIFICATIONS AND NUMBER.
A director need not be a stockholder, a citizen of the United States, or a
resident of the State of Delaware. The initial Board of Directors shall consist
of seven (7) persons. Thereafter the number of directors constituting the whole
board shall be at least one. Subject to the foregoing limitation and except
for the first Board of Directors, such number may be fixed from time to time by
action of the stockholders or of the directors, or if the number is not fixed,
the number shall be seven (7). The number of directors may be increased or
decreased by action of the stockholders or directors.
SECTION 3 - ELECTION AND TERM
The first Board of Directors, unless the members thereof shall have been named
in the Certificate of Incorporation, shall be elected by the incorporator or
incorporators
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<PAGE> 10
and shall hold of office until the first annual meeting of stockholders and
until their successors are elected and qualified or until their earlier
resignation or removal. Any director may resign at any time upon written notice
to the corporation. Thereafter, directors who are elected at an annual meeting
of stockholders, and directors who are elected in the interim to fill vacancies
and newly created directorships, shall hold office until the next annual
meeting of stockholders and until their successors are elected and qualified or
until their earlier resignation or removal. In the interim between annual
meetings of stockholders or of special meetings of stockholders called for the
election of directors and/or for the removal of one or more directors and for
the filling of any vacancy in that connection, newly created directorships and
any vacancies in the Board of Directors, including unfilled vacancies resulting
from the removal of directors with or without cause, may be filled by the vote
of a majority of the remaining directors then in office, although less than a
quorum, or by the sole remaining director.
SECTION 4 - MEETINGS
(a) Time
Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
(b) Place
Meetings shall be held at such place within or out of the State of
Delaware as shall be fixed by the Board.
(c) Call
No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, of the President, or of a majority of the directors
in office.
(d) Notice of Actual or Constructive Waiver
No notice shall be required for regular meetings for which the time and place
have been fixed. Written, oral, or any other mode of notice of the time and
place shall be
10
<PAGE> 11
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of notice of such meeting, except
when he attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
(e) Quorum and Action
A majority of the whole Board shall constitute a quorum except when a vacancy
or vacancies prevents such majority, whereupon a majority of the directors in
office shall constitute a quorum provided that such majority shall constitute
at least one-third of the whole Board. A majority of the directors present,
whether or not a quorum is present, may adjourn a meeting to another time and
place. Except as herein otherwise provided, and except as otherwise provided by
the General Corporation Law, the vote of the majority of the directors present
at a meeting which a quorum is present shall be the act of the Board of
Directors. The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions of the General Corporation Law and
these By-Laws that govern a meeting of directors held to fill vacancies and
newly created directorships in the Board or action of disinterested directors.
11
<PAGE> 12
(f) Telecommunications
Any member or members of the Board of Directors or of any committee designated
by the Board, may participate in a meeting of the Board, or any such committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
(g) Chairman of the Meeting
The Chairman of the Board, if any and if present and acting, shall preside at
all meetings. Otherwise, the Vice Chairman of the Board, if any and if present
and acting, or the President, if present and acting, or any other director
chosen by the Board, shall preside.
SECTION 5 - REMOVAL OF DIRECTORS
Except as may otherwise be provided by the General Corporation Law of the State
of Delaware, any director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
SECTION 6 - COMMITTEES.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, including but not limited to an Audit
Committee and a Compensation Committee. Each committee to consist of one or
more of the directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any such committee or committees, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board, shall have and may exercise the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation with the exception of any authority the delegation
of which is prohibited by Section 141 of the General
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<PAGE> 13
Corporation Law, and may authorize the seal of the corporation to be affixed to
all papers that may require it.
SECTION 7 - WRITTEN ACTION
Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
ARTICLE III
OFFICERS
SECTION 1 - EXECUTIVE OFFICERS
The officers of the corporation shall consist of a President, a Secretary, a
Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice Chairman of the Board, one or more
Executive Vice Presidents, one or more other Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other
Officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the Board of Directors choosing him, no officer other than the Chairman or Vice
Chairman of the Board, if any, need be a director. Any number of offices may be
held by the same person, as the directors may determine.
SECTION 2 - TERM
Unless otherwise provided for in the resolution choosing him, each Officer
shall be chosen for a term that shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified, or until his earlier death or
resignation or removal in the manner hereinafter provided. The Board of
Directors may require any officer to give security for the faithful performance
of his duties. Any officer may resign at any time by giving written notice to
the Board of Directors, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or if the time be
not specified, at the time it is accepted by action of the
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<PAGE> 14
Board of Directors. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective. All officers and agents elected
or appointed by the Board of Directors shall be subject to removal at any time
by the Board of Directors or by the stockholders of the corporation with or
without cause.
SECTION 3 - AUTHORITY AND DUTIES
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office
except to the extent that such resolutions may be inconsistent therewith. The
Secretary or an Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of stockholders, directors,
and committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to them. Any vacancy
in any office may be filled by the Board of Directors.
SECTION 4 - THE PRESIDENT
The President shall be the chief executive officer of the Corporation. The
President shall have general and active management and control of the business
and affairs of the Corporation subject to the control of the Board, and shall
see that all orders and resolution of the Board are carried into effect.
SECTION 5 - THE SECRETARY
The Secretary shall, to the extent practicable, attend all meetings of the
Board of Directors and all meetings of the stockholders and shall record all
votes and the minutes of all proceedings in a book to be kept for that purpose.
The Secretary may give, or cause to be given, notice of all meetings of the
stockholders and of the Board, and shall perform such other duties as may be
prescribed by the Board of Directors, or the President, under whose supervision
the Secretary shall act. The Secretary shall keep in safe custody the seal of
the corporation and affix the same to any duly authorized instrument requiring
it and, when so affixed, it shall be attested by signature of the Secretary or
by the signature of the Treasurer or, if appointed, an Assistant Secretary or
an Assistant Treasurer. The Secretary shall keep in safe custody the
certificate books and stockholder records and such other books and
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<PAGE> 15
records as the Board of Directors may direct, and shall perform all other
duties as from time to time may be assigned by the Board of Directors or the
President.
SECTION 6 - THE TREASURER
The Treasurer shall have the care and custody of the corporate funds and other
valuable effects, including securities, and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation,
and shall deposit all moneys and other valuable effects into the name and to
the credit of the corporation in such depositories as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and directors, at their
regular meetings of the Board of Directors, or whenever they may require it, an
account of all transactions and of the financial condition of the corporation,
and shall perform all other duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Board of
Directors, or the President.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
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<PAGE> 16
ARTICLE VI
EXONERATION, INDEMNIFICATION, AND INSURANCE
SECTION 1 - EXONERATION AND INDEMNIFICATION
(a) Exoneration
As provided in the certificate of incorporation, and to the fullest
extent permitted by the General Corporation Laws as the same exists or
may hereafter be amended, a director of this corporation shall not be
personally liable to the corporation or its stockholders for breach of
fiduciary duty as a director.
(b) Indemnification
Without limitation of any right conferred by paragraph (a) of this
Section 1, any person made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceedings, whether
civil, criminal, administrative or investigative, by reason of the
fact that he, his testator or intestate is or was a director, officer,
employee or agent of the corporation, or is or was acting at the
request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, including, without limitation, as a fiduciary of, or
otherwise rendering services to, any employee benefit plan of or
relating to the corporation, shall be indemnified by the corporation
against expenses (including attorneys' fees), judgments, fines, excise
taxes and amount paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, or in
connection with such action, suit or proceeding, in connection with
any appeal therein, or in enforcing this provision; provided, that
such person acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation,
and with respect to a criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful; except that no
indemnification shall be made in the case of an action, suit or
proceeding by or in the right of the corporation in relation to
matters as to which it shall be adjudged in such action, suit or
proceeding that such director, officer, employee or agent is liable to
the corporation, unless a court having
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<PAGE> 17
jurisdiction shall determine that, despite such adjudication, such
person is fairly and reasonably entitled to indemnification.
(c) No Exclusivity
The foregoing rights of exoneration and indemnification shall not be
deemed exclusive of any other rights to which any director, officer,
employee or agent may be entitled, or of any power of the corporation
apart from the provisions of this Section 1.
SECTION 2 - INSURANCE
The Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the corporation, or any
person who is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, to the full extent and in the manner permitted by
the applicable laws of the United States and the State of Delaware from time to
time in effect, whether or not the corporation would have the power to
indemnify such person under Section 1 of this Article VI.
ARTICLE VII
AMENDMENT OF BY-LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
17
<PAGE> 1
EXHIBIT 4.1
- - --------------------------------------------------------------------------------
------------ ------------
NUMBER SHARES
SPECIMEN SPECIMEN
------------ ------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THE WMF GROUP, LTD.
The Corporation is authorized to issue 10,000 Common Shares - Par Value $.01
each
This Certifies that ________________ is the owner of ____________________
_______________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated SPECIMEN
-------------
/s/ SPECIMEN /s/ SPECIMEN
- - ----------------------------------- ----------------------------------
SECRETARY-TREASURER PRESIDENT
- - --------------------------------------------------------------------------------
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- .........Custodian..............(Minor}
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act...................(State)
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
</TABLE>
<TABLE>
<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns and transfers unto ---------------------------------------------
............................................................................. ---------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
...........................................................................................................................
.....................................................................................................................Shares
represented by the within Certificate, and hereby irrevocably constitutes and appoints.....................................
..............................................................................................Attorney to transfer the said
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated,........................
In presence of .......................................................
................................................................
NOTICE: The signature in this assignment must correspond with
the name as written upon the face of the certificate in every
particular without alteration or enlargement, or any change
whatever.
</TABLE>
<PAGE> 1
[WILMER, CUTLER & PICKERING LETTERHEAD]
August 1, 1997
NHP Incorporated
Suite 400
8065 Leesburg Pike
Vienna, VA 22182-2738
Ladies and Gentlemen:
We have acted as tax counsel to NHP Incorporated ("NHPI") in
connection with the preparation and filing with the Securities and Exchange
Commission (the "Commission") of a Registration Statement on Form 10 (the
"Registration Statement") pursuant to Section 12(g) of the Securities Act of
1934, for the registration of Securities, which are described in the
Information Statement that forms a part of the Registration Statement (the
"Information Statement"). All capitalized terms not otherwise defined herein
shall have the same meaning ascribed to such terms in the Information
Statement.
We have examined copies of the following documents: (1) the
Registration Statement, including the Information Statement; (2) the Rights
Agreement; (3) the Merger Agreement; and (4) such other documents as we have
deemed relevant for purposes of the opinion set forth herein.
In our examination of such documents, we have assumed, without
independent inquiry, the genuineness of all signatures, the proper execution of
all documents, the authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as copies, the
authenticity of the originals of any such copies, and the legal capacity of all
natural persons.
Based on and subject to the foregoing, it is our opinion that the
discussion set forth in the Information Statement under the heading "Federal
Income Tax Consequences of the Rights Distribution and the Maturity of the
Rights" constitutes, in all material respects, a fair and accurate summary of
the United States federal income tax consequences of the Rights Distribution
and the Maturity of the Rights to NHPI and NHPI shareholders under current law.
The foregoing opinion is based on relevant provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder,
court decisions, and administrative determinations as currently in effect, all
of which are subject to change, prospectively or retroactively, at any time.
We undertake no obligation to update or supplement this opinion to reflect any
changes in laws that may occur after the date hereof.
This opinion has been prepared solely for your use in connection with
the filing of the Registration Statement and should not be quoted in whole or
in part or otherwise be referred to, nor otherwise be filed with or furnished
to any governmental agency or other person or entity, without our express prior
written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein under the headings
"Federal Income Tax Consequences of the Rights Distribution and the Maturity of
the Rights" and "Legal Matters" in the Information Statement.
Very Truly Yours,
WILMER, CUTLER & PICKERING
By: /s/ Robert B. Stack
-----------------------------
Robert B. Stack
A Partner
<PAGE> 1
EXHIBIT 10.1
MORTGAGE
SELLING AND
SERVICING
CONTRACT
[FANNIE MAE LOGO]
<PAGE> 2
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[FANNIE MAE LOGO] CONTENTS
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<TABLE>
<CAPTION>
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CONTRACT
Page
----
<S> <C> <C> <C>
MORTGAGE I General Information 1
SELLING AND
SERVICING II Eligibility Requirements for Lenders 2
CONTRACT
III Sale of Mortgages and Participation Interests 3
IV Sale of Mortgages and Participation Interests-
Lender's Warranties 4
V Servicing Mortgages 8
VI Assignment, Consideration and Continuance 10
VII Assigning Mortgage Servicing 11
VIII Breaches of Contract 11
IX Termination of Contract 14
X Continuance of Responsibilities or Liabilities 17
XI Participation Interests-Special Provisions 18
XII Notice 20
XIII Prior Agreements 21
XIV Severability and Enforcement 21
XV Captions 21
XVI Scope of Contract 21
XVII Signatures and Date 22
</TABLE>
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[FANNIE MAE LOGO] GENERAL INFORMATION
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<TABLE>
<CAPTION>
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CONTRACT
<S> <C>
MORTGAGE This contract for selling and servicing mortgages (the "Contract") is between the Mortgage Lender (The
SELLING AND "Lender") that signs this document and the Federal National Mortgage Association ("Fannie Mae", "we",
SERVICING "our", "us"), a corporation organized and existing under the laws of the United States.
CONTRACT
I GENERAL INFORMATION
This section contains important basic information about the Contract, which we are permitted to enter into
under authority of Title III of the National Housing Act (12 U.S.C. 1716, et. seq.), which is also known as
the Federal National Mortgage Association Charter Act.
A. The purpose of this Contract is:
PURPOSE OF
CONTRACT - to establish the Lender as an approved seller of mortgages and participation interests to us;
- to provide the terms and conditions of the sales;
- to establish the Lender as an approved servicer of mortgages we have purchased or in which we have
purchased a participation interest; and
- to provide the terms and conditions of servicing.
B. In consideration of the purpose of this Contract and of all the provisions and
CONSIDERATION mutual promises contained in it, the Lender and Fannie Mae agree to all that this Contract contains.
C. We issue Fannie Mae's Guides to Lenders (our "Guides") and furnish them to the Lender. These Guides are:
OUR GUIDES
- Selling;
- Servicing; and
- Multifamily.
Whenever there is a reference to the Guides in this Contract, it means the Guides as they exist now and as
they may be amended or supplemented in writing. We may amend or supplement them, at our sole discretion, by
furnishing amendments or supplementary matter to the Lender.
The term "Guides" also includes anything that, in whole or in part, supersedes or is substituted for the
Guides.
D. Anywhere the words that appear below are used in this Contract, the following
IMPORTANT definitions apply:
DEFINITIONS
1. "MORTGAGE" -- A loan, evidenced by a note, bond or other instrument of indebtedness. The loan is
secured by a mortgage, deed of trust, deed to secure debt or other instrument of security that applies to
property. "Mortgage" includes such instruments of indebtedness and security, together with
- the evidence of title;
- the chattel mortgage or security agreement and financing statement; and
- all other documents, instruments and papers pertaining to the loan.
</TABLE>
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ELIGIBILITY REQUIREMENTS
FOR LENDERS
- - ------------------------
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
CONTRACT
<S> <C>
2. "FHA/VA MORTGAGE" -- A mortgage insured or guaranteed in
whole or in part by the Federal Housing Administration or
Veterans Administration.
3. "CONVENTIONAL MORTGAGE" -- A mortgage other than an FHA/VA
mortgage, which Fannie Mae is authorized to purchase under the
Federal National Mortgage Association Charter Act.
4. "PROPERTY" OR "MORTGAGED PROPERTY" -- The property that is
now subject to a mortgage, or was subject to such mortgage,
where the mortgage has been foreclosed or possession or title
to the property has been taken by Fannie Mae or on our behalf.
5. "PARTICIPATION INTEREST" OR "PARTICIPATION INTEREST IN
MORTGAGES" -- An undivided interest in mortgages, specified
in the applicable participation certificate that is evidence
of such interest. A "participation interest" or
"participation interest in mortgages" consists of a specified
percentage of the principal (and a like percentage of all
rights and benefits of the mortgagee or equivalent party under
such mortgage) together with a specified yield on it.
II ELIGIBILITY REQUIREMENTS FOR LENDERS
For us to purchase mortgages or participation interest from a
Lender, the Lender must meet the eligibility requirements
specified in this section.
A. These are the general requirements the Lender must meet to be
GENERAL eligible to sell us mortgages or participation interests or
REQUIREMENTS service mortgages for us:
1. MEET FANNIE MAE STANDARDS. The Lender must have as two of
its principal business purposes:
- making mortgages of the type that we will purchase entirely
or purchase a participation interest in under this Contract;
and
- servicing such mortgages.
In addition, the Lender, in our judgment, must have at all
times the capacity to originate and sell to us mortgages and
participation interests that meet our purchase standards and
the standards generally imposed by private institutional
mortgage investors, and must at all times have the capacity to
service such mortgages for us under those standards.
2. HAVE QUALIFIED STAFF AND ADEQUATE FACILITIES. The Lender
must, at all times, have employees who are well trained and
qualified to perform the functions required of the Lender
under this Contract.
In addition, the Lender must maintain facilities that are
adequate to perform its functions under this Contract.
3. MAINTAIN FIDELITY BONDS AND ERRORS AND OMISSIONS COVERAGE.
The Lender must maintain, at its own expense, a fidelity bond
and errors and omission insurance, as required by our Guides.
4. REPORT BASIC CHANGES. The Lender must notify us promptly in
writing of any changes that occur in its principal purpose,
activities, staffing or facilities.
</TABLE>
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[FANNIE MAE LOGO] SALE OF MORTGAGES AND
PARTICIPATION INTERESTS
------------------------
<TABLE>
<CAPTION>
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CONTRACT
<S> <C>
B. When we approve a Lender, one of the major considerations is the information the Lender has provided about
OWNERSHIP AND the eligibility, qualifications and financial status of the Lender and its owners.
STATUS OF LENDER
Consequently, the Lender must give us immediate notice of a change in its status or ownership, including any:
- sale or transfer of a majority interest in it;
- merger;
- consolidation; or
- change in legal structure.
C. In order to remain an approved Lender under this Contract, the Lender must meet our current net worth
FINANCES requirements. These requirements are contained in our Guides.
The required net worth must be maintained in the form of assets acceptable to us.
The Lender must give us a copy of its annual financial statements and any other related information that we
may require.
D. The Lender agrees to permit our employees or designated representatives to access to examine or audit
ACCESS TO records or accounts relating to mortgages or participation interests sold or serviced under this Contract.
LENDER'S RECORDS All records relative to the Lender's continued eligibility to sell or service mortgages under this Contract
may also be examined or audited. Any examination or audit made on our behalf will be conducted during
regular business hours unless the Lender agrees otherwise.
III SALE OF MORTGAGES AND PARTICIPATION INTERESTS
This section contains the basic rules governing our purchase of mortgages and participation interests.
A. Purchases of mortgages and participation interests will be governed by:
WHAT GOVERNS
PURCHASES - our written commitment to purchase;
- our Guides, including all amendments in effect on the day we make our written commitment; and
- this Contract.
B. The mortgages or participation interests that we purchase must meet the requirements found in our
WHAT GOVERNS Guides on the day we make our written commitment.
PURCHASE
C. If our Guides require, the Lender will promptly purchase our common stock each time it delivers a mortgage
LENDER'S OBLIGATION or participation interest to us. The amount of stock to be purchased and the procedures for buying it are
TO PURCHASE also found in our Guides.
FANNIE MAE STOCK
D. The fact that we have signed this Contract does not mean that we must make a commitment to purchase any
FANNIE MAE HAS mortgage or participation interest from the Lender.
NO OBLIGATION
TO PURCHASE
</TABLE>
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SALE OF MORTGAGES AND
PARTICIPATION INTERESTS-
LENDER'S WARRANTIES
- - ------------------------
<TABLE>
<CAPTION>
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CONTRACT
IV SALE OF MORTGAGES AND PARTICIPATION INTERESTS -- LENDER'S WARRANTIES
<S> <C>
The Lender makes certain warranties to us.
These warranties:
- apply to each mortgage sold to us in its entirety;
- apply to each mortgage in which a participation interest is sold to us;
- are made as of the date transfer is made to us;
- continue after the purchase of the mortgage or participation interest:
- continue after payment by us of the purchase price to the Lender: and
- are for our benefit as well as the benefit of our successors and assigns.
Warranties may be waived, but only by us in writing.
A. Following are the specific warranties made by the Lender.
SPECIFIC
WARRANTIES 1. MORTGAGE MEETS REQUIREMENTS. The mortgage conforms to all the applicable requirements in our Guides and this
Contract.
2. LENDER AUTHORIZED TO DO BUSINESS. The Lender and any other party that held the mortgage were, at all times
during which the holder held the mortgage, authorized to transact business in the jurisdiction where the property
is located.
However, if the Lender or any other party that held the mortgage was not authorized to do business in the
jurisdiction where the property is located, then the warranty is made that none of the following activities of the
Lender or other parties constituted doing business in that jurisdiction:
- lending the mortgage funds;
- acquiring the mortgage;
- holding the mortgage; or
- transferring the mortgage in whole or to the extent of a participation interest.
3. LENDER HAS FULL RIGHT TO SELL AND ASSIGN. The Lender is the sole owner and holder of the mortgage and has
full right and authority to sell and assign it, or a participation interest in it, to us. In addition, the
Lender's right to sell or assign is not subject to any other party's interest or to an agreement with any other
party.
4. LENDER'S LIEN ON PROPERTY. The mortgage, whether represented by the Lender as the first lien or as the second
lien, is a valid and subsisting lien on the property described in it.
If the mortgage is represented by the Lender as the first lien, the property is free and clear of all encumbrances
and liens having priority over it except for liens for real estate taxes, and liens for special assessments, that
are not yet due and payable.
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If the mortgage is represented by the Lender as the second lien, the property is free and clear of all
encumbrances and liens having priority over it except for one properly recorded first mortgage lien, real
estate taxes and liens of special assessments not yet due and payable.
Any security agreement, chattel mortgage or equivalent document that is related to the mortgage and that is
held by the Lender or delivered to us, is a valid and subsisting lien on the property described in such
document, of the same priority as the mortgage.
The Lender has full right and authority to sell or assign each lien to us or to an extent that is
proportionate to our participation interest.
5. DOCUMENTS ARE VALID AND ENFORCEABLE. The mortgage and any security agreements, chattel mortgages, or
equivalent documents relating to it have been properly signed, are valid, and their terms may be enforced by
us, our successors and assigns, subject only to bankruptcy laws, Soldiers' and Sailors' Relief Acts, laws
relating to administering decedents' estate, and general principles of equity.
6. PROPERTY NOT SUBJECT TO LIENS. The Property is free and clear of all mechanics' liens, materialmen's
liens or similar types of liens. There are no rights outstanding that could result in any of such liens being
imposed on the property.
This warranty is not made if the Lender furnishes us with title insurance that gives us substantially the same
protection as this warranty.
7. TITLE INSURANCE. There is a mortgage title insurance policy, or other title evidence-acceptable to us, on
the property. The title insurance policy is on a current ALTA form (or other generally acceptable form)
issued by a generally acceptable insurance company.
The title insurance insures (or the other title evidence protects) us or the Lender and its successors and
assigns, as holding a lien of the priority warranted in "4. Lender's Lien On Property."
8. MODIFICATION OR SUBORDINATION OF MORTGAGE. The Lender has not done any of the following:
- materially modified the mortgage;
- satisfied or cancelled the mortgage in whole or in part;
- subordinated the mortgage in whole or in part, unless it is represented to us as a second mortgage;
- released the property in whole or in part from the mortgage lien; or
- signed any release, cancellation, modification or satisfaction of the mortgage.
This warranty is not made if any of the things just mentioned have been done but have been expressly brought
to our attention in a letter before we make payment to the Lender. The letter must be acknowledged by us in
writing.
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9. MORTGAGE IN GOOD STANDING. There are no defaults under the mortgage, and all of the following that have become
due and payable have been paid or an escrow of funds sufficient to pay them has been established:
- taxes;
- government assessments;
- insurance premiums;
- water, sewer and municipal charges;
- leasehold payments; or
- ground rents.
10. ADVANCES. The Lender has not made or knowingly received from others, any direct or indirect advance of funds in
connection with the loan transaction on behalf of the borrower except as provided in our Guides. This warranty
does not cover payment of interest from the earlier of:
- the date of the mortgage note; or
- the date on which the mortgage proceeds were disbursed to
- the date one month before the first installment of principal and interest on the mortgage is due.
11. PROPERTY CONFORMS TO ZONING LAWS. The Lender has no knowledge that any improvement to the property is in
violation of any applicable zoning law or regulation.
12. PROPERTY INTACT. The property is not damaged by fire, wind or other cause of loss. There are no proceedings
pending for the partial or total condemnation of the property.
13. IMPROVEMENTS. Any improvements that are included in the appraised value of the property are totally within the
property's boundaries and building restrictIon lines. No improvements on adjoining property encroach on the
mortgaged property unless FHA or VA regulations or our Guides permit such an encroachment.
14. MORTGAGE NOT USURIOUS. The mortgage is not usurious and either meets or is exempt from any usury laws or
regulations.
15. COMPLIANCE WITH CONSUMER PROTECTION LAWS. The Lender has complied with any applicable federal or state laws,
regulations or other requirements on consumer credit, equal credit opportunity and truth-in-lending.
16. PROPERTY IS INSURED. A casualty insurance policy on the property is in effect. It is written by a generally
acceptable insurance company and provides fire and extended coverages for an amount at least equal to the amount
required by our Guides.
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A flood insurance policy is in effect on the property if any part of it is in an area listed in the Federal
Register by the Federal Emergency Management Agency as an area with special flood hazards, and if insurance is
available. The flood insurance is written by a generally acceptable insurance company, meets current
guidelines of the Federal Insurance Administration, and is for an amount at least equal to the amount required
by our Guides.
The Lender will make sure the required insurance is maintained as long as it services the mortgage. Any
policy mentioned in this warranty contains a standard mortgage clause that names us or the Lender and its
successors and assigns as mortgagee.
17. MORTGAGE IS ACCEPTABLE INVESTMENT. The Lender knows of nothing involving the mortgage, the property, the
mortgagor or the mortgagor's credit standing that can reasonably be expected to:
- cause private institutional investors to regard the mortgage as an unacceptable investment;
- cause the mortgage to become delinquent; or
- adversely affect the mortgage's value or marketability.
18. MORTGAGE INSURANCE OR GUARANTY IN FORCE. If the Lender represents that the mortgage is insured or
guaranteed under the National Housing Act as amended, or under the Servicemen's Readjustment Act of 1944 as
amended, or by a contract with a mortgage insurance company, the insurance or guaranty is in full force. In
addition, the Lender has complied with all applicable provisions and related regulations of the Act, or the
insurance contract, that covers the mortgage.
19. ADJUSTABLE MORTGAGES. If the mortgage provides that the interest rate or the principal balance of the
mortgage may be adjusted, all of the terms of the mortgage may be enforced by us, our successors and assigns.
These adjustments will not affect the priority of the lien warranted in "4. Lender's Lien On Property."
20. PARTICIPATION INFORMATION IS CORRECT. All the information and statements in any participation
certificate that the Lender delivers to us are complete, correct and true.
B. We may require the Lender to repurchase a mortgage or participation interest sold to us if any warranty made
CONSEQUENCES OF by the Lender about the mortgage or participation interest is untrue (whether the warranty is in this
UNTRUE WARRANTIES Contract or was made at our specific request).
- - - REPURCHASE
We may require repurchase whether or not the Lender had actual knowledge of the untruth. We may also
enforce any other available remedy.
The Lender must pay us the repurchase price within 30 days of our demand. The repurchase price, as provided
in our Guides, will not be adjusted because the Lender paid us fees or charges or subscribed to our
capital stock.
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C. While untrue warranties about a particular mortgage or participation interest may be the basis for
CONSEQUENCES OF requiring repurchase of the particular mortgage or participation interest, there can be additional
UNTRUE WARRANTIES- consequences. They may also give rise to responsibilities of the Lender under "D. Indemnification For
TERMINATION Breach Of Warranty; Holding Us Harmless." In addition, untrue warranties can, under certain circumstances,
OF CONTRACT be treated as a breach of contract that could result in the withdrawal of our approval of a Lender and
the termination of this Contract (details are contained in Sections VIII and IX).
D. If there is a breach of warranty under this Contract, the Lender, at our request,
INDEMNIFICATION will indemnify us and hold us harmless against any related losses, damages,
FOR BREACH OF judgments or legal expenses.
WARRANTY;
HOLDING US HARMLESS
V SERVICING MORTGAGES
This section contains the basic rules governing the servicing of mortgages that we purchase, or in which we
purchase a participation interest.
A. The servicing duties of the Lender are:
SERVICING DUTIES
OF THE LENDER 1. SCOPE OF DUTIES. The Lender will diligently perform all duties that are
necessary or incident to the servicing of:
- all mortgages it is servicing for us on the date this Contract takes effect; and
- all other mortgages that the Lender is required to service by the terms of this Contract or any other
existing or future agreement between us and the Lender;
2. MORTGAGES TO BE SERVICED. Any mortgage we have purchased from the Lender, or in which we have purchased
a participation interest from the Lender, will be serviced by the Lender for us according to the terms of
this Contract, unless:
- the mortgage is not within any category of those that are required by our Guide to be serviced; or
- we give the Lender written notification or consent that a mortgage to be purchased by us will not be
serviced by the Lender.
3. SERVICE ACCORDING TO GUIDES. Any mortgage serviced under this Contract, which we own or in which we
have purchased a participation interest, must be serviced by the Lender according to the provisions in our
Guides that are in effect on the date of this Contract or as amended in the future. This is true regardless
of when:
- the mortgage was originated;
- the mortgage or a participation interest in it was transferred to us; or
- the Lender began servicing the mortgage.
The Lender will also follow other reasonable instructions we give it and must strictly follow accepted
industry standards when servicing a mortgage for us.
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4. SERVICE AT LENDER'S OWN EXPENSE. The cost of servicing will be the Lender's unless our Guides expressly
provide otherwise.
5. SPECIAL RESPONSIBILITIES IN FORECLOSURES. Among the other duties that may be assigned to the Lender
through our special instructions or under the terms of our Guides is the responsibility to manage and
appropriately dispose of property when a mortgage it is servicing for us has been foreclosed, or possession or
title has been taken by us or on our behalf.
The Lender must manage and dispose of the property according to the terms of the mortgage and our Guides.
6. SERVICE UNTIL NEED ENDS. The Lender must service each mortgage continuously from the date its servicing
duties begin until:
- the mortgage's principal and interest have been paid in full;
- the mortgage has been liquidated and the mortgaged property properly disposed of (if the Lender is required
to do these things); or
- the Lender's servicing duties are terminated according to Section IX of this Contract.
B. The Lender's compensation for servicing mortgages, including the management and disposal of properties,
COMPENSATION under this Contract is specified in our Guides.
We may change the Lender's compensation by modifying our Guides at any time. However, such a change will not
affect mortgages that we have purchased or committed to purchase before the date of the change.
C. All mortgage records reasonably required to document or properly service any mortgage we own in its entirety
OWNERSHIP are our property at all times. This is true whether or not the Lender developed or originated them.
OF RECORDS
The following are considered mortgage records:
- all mortgage documents;
- tax receipts;
- insurance policies;
- insurance premium receipts;
- ledger sheets;
- payment records;
- insurance claim files and correspondence;
- foreclosure files and correspondence;
- current and historical data files; and
- all other papers and records.
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1. LENDER AS CUSTODIAN. The mortgage records belong to us. The Lender can have possession of the mortgage
records only with our approval, and the Lender is acting as our custodian. This is true whether the Lender
receives the mortgage records from an outside source or prepares them itself.
2. DELIVERY. When we ask for any mortgage records in writing, the Lender will deliver them to us or someone
we choose. Then Lender must also send us a list that identifies each mortgage, and must give us other
information we request to identify the mortgages delivered.
We will not be required to sign or deliver any trust receipts before the Lender delivers the mortgage records
we have requested.
If we ask the Lender in writing for reproductions of any mortgage records the Lender microfilmed or condensed,
the Lender will reproduce them promptly at no cost to us or the party to whom we want them delivered.
3. JOINT OWNERSHIP. If we own a participation interest in a mortgage, the other owners and we own the
mortgage records jointly. For these mortgages, the Lender possesses the mortgage records as a custodian for
the joint owners.
If we ask for copies of the mortgage records and servicing information about any such mortgages, the Lender
will furnish them. Or, if we need any mortgage records for legal evidence or other purposes, the Lender will
release them to us for a reasonable time.
D. The Lender will indemnify us and hold us harmless against all losses, damages, judgments or legal expenses
AGREEMENT TO that result from its failure in any way to perform its services and duties in connection with
INDEMNIFY AND servicing mortgages or managing or disposing of property according to this Contract or our Guides.
HOLD HARMLESS
If any private entity or governmental agency sues up, makes a claim against us or starts a proceeding against
us based on the Lender's acts or omissions in servicing mortgages or managing or disposing of property, the
Lender's obligation to indemnify and hold us harmless must be met regardless of whether the suit, claim or
proceeding has merit or not.
The Lender's obligation does not apply, however, if during a suit, claim or proceeding, we give the Lender
express written instructions and as a result of the Lender following them we suffer losses, damages,
judgments or legal expenses.
E. If our Guides require, the Lender will continuously own our common stock in connection with all mortgages
OWNERSHIP OF it services under this Contract. The amount of stock to be owned will be established by our Guides
OUR STOCK as they were in existence on the date the Lender started servicing the applicable mortgages.
VI ASSIGNMENT, CONSIDERATION AND CONTINUANCE
This section describes our requirements covering assignment of, consideration for and continuance of this
Contract.
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A. Because the relationships created by this Contract are personal, the Lender may not, without our prior
ASSIGNMENT written approval, assign:
- this Contract under any circumstances, either voluntarily or involuntarily, by operation of law, or
otherwise; or
- its responsibility for servicing individual mortgages we own or in which we have a participation interest.
(See Section VII of this Contract for required procedures governing assignments of servicing).
B. The Lender acknowledges that it has paid us no monetary consideration for making it an approved mortgage
LIMITED VALUE seller or servicer, except an application fee to reimburse us for the expenses of reviewing its application.
OF CONTRACT
TO LENDER The Lender also agrees that, except for the purchase of mortgages, the servicing of mortgages, or any fee for
the termination of this Contract, this Contract has no value to the Lender.
C. The Lender's right to continue selling and servicing mortgages under this contract depends on, among other
REQUIREMENTS things, its continuing to meet the eligibility requirements in Section II of this Contract.
FOR CONTINUANCE
VII ASSIGNING MORTGAGE SERVICING
The Lender may not assign its responsibility for servicing all or any part of the mortgages that it is
servicing for us without first obtaining our written consent.
Any Lender to which servicing is assigned must:
- be acceptable to us; and
- sign a Mortgage Selling and Servicing Contract with us.
We may require that the Lender and transferee lender sign documents and take other reasonable steps to perfect
the assignment.
VIII BREACHES OF CONTRACT
The Lender's taking certain actions, or failing to take certain actions, can be treated by us as a breach of
contract. A breach of contract can lead to a termination of the Contract. Termination is provided for in
detail in Section IX.
A. Breaches of this Contract include the following:
SPECIFIC
BREACHES OF 1. HARM, DAMAGE, LOSS OR UNTRUE WARRANTIES. It is a breach if any act or omission of the Lender in
CONTRACT connection with the origination and sale to us of any mortgage or participation interest causes us harm,
damage or loss. It is also a breach if the Lender sells us any mortgage or participation interest knowing
that any of the mortgage warranties are untrue (these warranties are listed in Section IV A).
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2. FAILURE TO COMPLY WITH THIS CONTRACT OR OUR GUIDES. It is a breach if the Lender does not comply with
this Contract or our Guides through any act or omission, including, without limitation, the following:
- failure to establish and maintain accounts for our funds or mortgagors' funds as required by our Guides;
- use of our or mortgagors' funds in any manner other than that permitted by our Guides, including the
Lender's failure to deposit all mortgage funds if, when, and to the extent required by our Guides;
- failure to remit all funds due to us within the time periods required by our Guides;
- failure to make or ensure, according to the provisions of each mortgage or of applicable laws or
regulations, proper and timely payment of all:
-- taxes;
-- assessments;
-- leasehold payments;
-- ground rents;
-- insurance premiums (including premiums of casualty, liability and mortgage insurance and other forms of
required insurance);
-- required interest on escrow funds; and
-- other required payments with respect to any mortgage (including mortgaged property) serviced;
unless the Lender is relieved of these responsibilities by the express provisions of our Guides, or by our
written instructions that relate to a particular mortgage or property;
- failure to renew or ensure renewal of any required insurance policy on any mortgage (including mortgaged
property) serviced under this Contract;
- failure to maintain adequate and accurate accounting records and mortgage servicing records for the
mortgages, or to maintain proper identification of the applicable loan files and mortgage records that prove
our outstanding participation interests;
- failure to submit adequate and accurate accounting and mortgage servicing reports within the time required
by our Guides; or
- failure to take prompt and diligent action under applicable law or regulation to collect past due sums on
mortgages, or to take any other diligent action described in our Guides that we reasonably require for
mortgages in default.
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3. FAILURE TO PROPERLY FORECLOSE OR LIQUIDATE. Where a mortgage is in default and the Lender is required
or has decided to foreclose or liquidate it, it is a breach if the Lender fails to take prompt and diligent
action consistent with applicable law or regulations to foreclose on or otherwise appropriately liquidate such
mortgage and to perform all incident actions. It is a breach whether or not the failure results from the acts
or omissions of an attorney, trustee or other person or entity the Lender chooses to effect foreclosure or
liquidation.
4. FAILURE TO PROPERLY MANAGE, DISPOSE OF, OR EFFECT PROPER CONVEYANCE OF TITLE. It is a breach if any
mortgage serviced under this Contract has been foreclosed or the possession or title to the property has been
taken by us or on our behalf, or on behalf of other owners of a participation interest in the mortgage, and
the Lender:
- fails to properly manage, dispose of or effect proper conveyance of title to the mortgaged property; or
- fails to do the above in accordance with this Contract, our Guides, and any pertinent laws, regulations, or
mortgage insurance policies or contracts.
5. LENDER'S FINANCIAL ABILITY IMPAIRED. It is a breach if there is a change in the Lender's financial status
that, in our opinion, materially and adversely affects the Lender's ability to satisfactorily service
mortgages.
Changes of this type include:
- the Lender's insolvency;
- adjudication of the Lender as a bankrupt;
- appointment of a receiver for the Lender; or
- the Lender's execution of a general assignment for the benefit of its creditors.
If any such change does take place:
- no interest in this Contract will be considered an asset or liability of the Lender or of its successors or
assigns; and
- no interest in this Contract will pass by operation of law without our consent.
6. FAILURE TO OBTAIN OUR PRIOR WRITTEN CONSENT. It is a breach if the Lender fails to obtain our prior
written consent for:
- a sale of the majority interest in the Lender; or
- a change in its corporate status or structure.
7. FAILURE TO COMPLY WITH THIS CONTRACT OR OUR GUIDES. It is a breach if the Lender fails at any time to
meet our standards for eligible mortgage sellers or servicers so that, in our opinion, the Lender's ability to
comply with this Contract or our Guides is adversely affected.
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8. COURT FINDINGS AGAINST LENDER OR PRINCIPAL OFFICERS. It is a breach if:
- a court of competent jurisdiction finds that the Lender or any of its principal officers has committed an
act of civil fraud; or
- the Lender or any of its principal officers is convicted of any criminal act related to the Lender's lending
or mortgage selling or servicing activities or that, in our opinion, adversely affects the Lender's
reputation or our reputation or interest.
B. If there is a breach of contract by the Lender, we will have the right to take any
ACTIONS reasonable action to have any breach corrected by the Lender before we exercise
TO CORRECT any right we have to terminate this Contract in whole or in part; however, we are
A BREACH not required to try to have a breach corrected before termination.
Any forbearance by us in exercising our right to terminate this Contract in whole or in part will not be a
waiver of any present or future right we have under this Contract to so terminate it.
IX TERMINATION OF CONTRACT
The reason why this Contract may be terminated and the ways in which this may be done are outlined in this
section. When the Contract is terminated, the entire relationship between the Lender and us ends (with
certain exceptions that are explained in this section).
A. The provisions of this Contract covering the sale of mortgages or participation interests under this Contract
TERMINATION may be terminated by the Lender or by us, with or without cause, by giving notice to the other party.
BY EITHER PARTY Notice of termination may be given at any time but must conform to Section XII of this Contract.
OF MORTGAGE
SELLING Termination is effective immediately upon notice of termination, unless the notice specifies later
ARRANGEMENTS termination.
Termination will not affect any outstanding commitments we have made to purchase mortgages or participation
interests from the Lender. However, if the Lender has breached this Contract, we may declare any or all
outstanding commitments void.
B. The Lender may terminate the provisions of this Contract covering the servicing of mortgages we entirely
TERMINATION own by giving us notice at any time. Notice must conform to Section XII of this Contract.
BY LENDER OF
MORTGAGE Termination is effective the last day of the third calendar month after the calendar month in which
SERVICING notice is given.
ARRANGEMENTS FOR
WHOLLY-OWNED If the Lender terminates this Contract in whole or in part, we will not pay the Lender a termination fee.
MORTGAGES
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C. We may terminate the provisions of this Contract covering the servicing under this Contract of any or all
TERMINATION mortgages that we entirely own. This may be done by following the procedures outlined below.
BY US OF
SERVICING 1. TERMINATION WITHOUT CAUSE. We may terminate servicing for any reason, by giving the Lender notice of the
ARRANGEMENTS termination. If we do so, the provisions of this Contract covering the servicing of the affected mortgages
FOR WHOLLY-OWNED will automatically terminate on the thirtieth day following the day our notice is given. Whenever we do
MORTGAGES this (and the termination is not because of any breach by the Lender as described in Section IX C2) we will
pay the Lender, for each mortgage on which servicing is terminated, a lump-sum termination fee as provided in
a. below. However, whenever we terminate solely in order to transfer the servicing to another Lender, and
there has been no sale of our interest in the affected mortgages, the provisions of b. below will apply.
a. Termination Fee. The termination fee will be an amount equal to twice the Lender's annualized servicing
compensation, at the rate of compensation that is in effect for the mortgage as of the date of the
termination, applied against the unpaid principal balance of the mortgage as of such date.
For purposes of determining the termination fee:
- The Lender's servicing compensation consists of the servicing fee at the Applicable Servicing Rate plus any
previously agreed upon excess yield that the Lender is permitted to retain on the applicable mortgage.
- "Applicable Servicing Rate" means the rate of the servicing fee for the servicing of the mortgage, expressed
as an annualized fractional percentage.
[Refer to appropriate sections of our Guides for more detailed information regarding the computation of
termination fees.]
b. Termination To Effect Transfer. Whenever we terminate servicing solely in order to transfer servicing of
the mortgages to another Lender, and there has been no sale of our interest in the mortgages, we will give the
Lender notice of the required transfer. Within the 90-day period immediately following the date our notice is
given, the Lender may arrange for the sale of the servicing to another Fannie Mae-approved Lender in good
standing that, in our judgment, will properly service the mortgages to be transferred. Within that 90-day
period, the Lender will give notice of any proposed sale to us, together with all related information. The
sale of servicing is conditioned upon our approval, which will not be unreasonably withheld. Any resulting
transfer of servicing will be completed not later than 60 days after our approval of the transfer; and
- the Lender will be entitled to the proceeds of the sale of servicing, and will bear all costs and expenses
related to the sale and transfer of servicing;
- the Lender will not pay us a transfer fee;
- we will not pay the Lender a termination fee;
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- we may require the purchaser of the servicing to assume any or all warranties that were made to us in
connection with the sale to us of the affected mortgages; and
- the purchaser of the servicing will succeed to the Lender's obligations, rights and servicing compensation,
under the provisions of this Contract covering the servicing of the affected mortgages. For all of the
affected mortgages that we purchased under a net-yield contract, the servicing compensation will include the
specified minimum servicing fee, plus the Lender's share of that portion of the yield which exceeds the
stated net yield, as provided under the commitment contract.
[Refer to appropriate sections of our Guides for more detailed information regarding the computation of the
Lender's servicing compensation.]
If at the end of the 90-day period following our notice, the Lender has not arranged to sell and transfer the
servicing of the affected mortgages to another Lender acceptable to us and given us the required notice, the
provisions of this Contract covering the servicing of the mortgages will automatically terminate on the
fifteenth day following the end of the 90-day period, and we will transfer the servicing to a Lender of our
choice. In such a case, we will pay the Lender, for each mortgage on which servicing is terminated, a
termination fee computed as provided under a. above. We deduct from the termination fee paid to the Lender a
transfer fee that is the greater of $500.00 or 1/100 of 1% of the aggregate unpaid principal balance of all of
the affected mortgages on which servicing is transferred.
c. General Criteria For Termination Fees. Notwithstanding anything to the contrary in this Contract, we may
change the amount of termination fee that we pay, or other provisions of this Section IX C1, from time to
time, by changing the appropriate provisions of our Guides. However, such a change will not affect mortgages
that we have purchased or that we have committed to purchase before the date of the change.
Our written tender of the termination fee to the Lender, or its successors or assigns, is complete
compensation for each mortgage serviced by the Lender on which servicing is terminated. Any sums we owe the
Lender for servicing prior to the termination date are not included in the termination fee. When we pay a
termination fee, the Lender will not be entitled to the proceeds for any sale of the servicing involved.
2. TERMINATION WITH CAUSE. We may terminate if the Lender breaches any agreement in this Contract,
including, without limitation, any of those breaches listed in Section VIII A. This may be done by giving the
Lender notice of termination. Notwithstanding anything in this Contract to the contrary, if we terminate for
breach, we may make it effective immediately, and we will not pay the Lender a termination fee or proceeds
from any sale of the servicing involved. Furthermore, we will not pay a servicing termination fee if a
mortgage is repurchased by the Lender because a warranty is untrue.
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RESPONSIBILITIES OR
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D. If the Lender breaches any agreement in this Contract, including, without limitation, any breach listed in
TERMINATION Section VIII A, we may terminate the provisions of this Contract covering the servicing of any or all
BY US OF mortgages in which we own a participation interest. This may be done by giving notice of termination.
SERVICING Such termination may be effective immediately, and we will not pay the Lender a termination fee.
ARRANGEMENTS
FOR MORTGAGES 1. TRANSFER OF LENDER'S POWERS. Upon termination, we will automatically succeed to all the Lender's rights
IN WHICH WE in and responsibilities for servicing of the affected mortgages. We will also have the option to
HAVE A exercise all the Lender's powers relating to these mortgages, and to designate any person or firm to
PARTICIPATION exercise those powers. However, exercise of the Lender's powers must be consistent with the Lender's and
INTEREST our respective participation interests.
The mortgage instruments for these mortgages and all related mortgage records will be delivered to us or a
party we designate. The Lender will also deliver necessary assignments, transfers and documents of authority.
2. TRANSFER OF SERVICING. If we terminate the Lender's servicing of any such mortgages, we are authorized to
transfer the servicing of the mortgages to new servicers and pay the new servicers a fee. The fee will apply
to the total outstanding principal balance on each mortgage, including our participation interest in each
mortgage as well as the participation interest of the Lender and of any other owner.
3. LIABILITY FOR FEES. The Lender and all additional owners of a participation interest will be liable for
their respective shares of the servicing fee we pay. They will also be liable for their respective shares of
advances that, in our sole discretion, are required. Advances may be required for insurance, taxes,
maintenance, improvements or other necessary outlays.
If the Lender or other owners fail to promptly provide their share of funds for advances, or for any other
necessary expenses, during any period, we may supply the funds. The fact that we do this does not release the
Lender or other owners from their liability. We may deduct any amount we advance the next time we owe money
to the Lender or other owners.
E. The exercise of a right of termination under any provision of this Contract will not impair any further
RIGHTS OF right of termination under another provision.
TERMINATION
NOT IMPAIRED
X CONTINUANCE OF RESPONSIBILITIES OR LIABILITIES
Responsibilities or liabilities of the Lender that exist before the termination of this Contract will continue
to exist after termination unless we expressly release the Lender from any of them in writing. This is true
whether the Contract was terminated by the Lender or by us.
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PARTICIPATION INTERESTS-
SPECIAL PROVISIONS
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XI PARTICIPATION INTERESTS-SPECIAL PROVISIONS
<S> <C>
This section contains special provisions that govern participation interests.
A. Listed below are the consequences of the sale of a participation interest.
AFTER THE
SALE OF A 1. TRANSFER OF UNDIVIDED INTEREST. When the Lender sells and conveys to us a
PARTICIPATION participation interest in one or more mortgages, this is a transfer of an undivided interest in each mortgage.
INTEREST
The sale and conveyance of the participation interest will have the same force and effect as:
- a separate assignment of each mortgage executed and delivered to us by the Lender; and
- a promissory note separately endorsed or transferred to us.
2. ASSURANCE OF OUR LEGAL RIGHTS. If federal or state laws or regulations now, or later, provide that the
purchase of a participation interest is an extension of credit, the Lender will take whatever additional steps
we may require to assure our legal rights as a purchaser of participation interests.
Such steps may include:
- placing legends on promissory notes;
- endorsing promissory notes in blank and delivering them to us; and
- executing mortgage assignments in a form acceptable to us and delivering them to us.
3. NO PARTNERSHIP OR JOINT VENTURE. Neither the simultaneous ownership of interests in one or more mortgages
nor any provision of this Contract will mean that a partnership or joint venture exists between the Lender and
us.
B. The Lender will make the following payments to us, according to our Guides, for
PAYMENTS TO US mortgages in which both the Lender and we own an interest:
1. RATABLE SHARING OF PRINCIPAL. The Lender will ratably share with us all mortgage principal payments.
2. PARTICIPATION SHARE OF INTEREST. The Lender will pay us our participation share of interest payments up
to:
- an amount sufficient for us to earn our yield on each mortgage; plus
- any amounts due us pursuant to this section.
C. As required by our Guides, the Lender will enforce the due-on-sale provisions and
ENFORCEMENT OF call options in the mortgages it services for us.
DUE-ON-SALE
AND CALL OPTIONS
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D. The Lender will have the option to repurchase our interest in a mortgage if:
REPURCHASE
OPTION - the Lender is required by our Guides to enforce a due-on-sale clause of a mortgage in which the Lender and
we own an interest; or
- we elect to exercise a call option provision of such a mortgage.
If the Lender wishes to repurchase our interest in such a mortgage, it may do so by:
- giving us notice of its intention to repurchase; and
- paying us an amount calculated according to the provisions of our Guides.
E. The note rate of a mortgage is stated in the participation certificate or attached loan schedule.
NOTE RATE INCREASE,
FORECLOSURE 1. NOTE RATE INCREASE. If, for any reason, there is an increase of the note rate of a mortgage in which
EXPENSES AND we hold a participation interest, the Lender will pay us, according to our Guides, a percentage of the
PREPAYMENT CHARGES increase equal to the percentage represented by our participation interest in the mortgage. This amount
will be in addition to our yield on the mortgage.
2. FORECLOSURE EXPENSES. The Lender will ratably share with us any reasonable foreclosure and related
expenses in connection with a mortgage in which we own a participation interest.
3. PREPAYMENT CHARGES. The Lender will ratably share with us any prepayment charges collected for mortgages
in which we own a participation interest.
F. The Lender will not make any optional or voluntary advances to the borrower under an open-end mortgage in
ADVANCES which we own a participation interest.
G. Participation interests may be assigned either by the Lender or us, as follows:
ASSIGNMENT
OR SALE OF 1. BY US. Without the Lender's consent we may assign:
PARTICIPATION
INTERESTS - our participation interest in any mortgage; and
- all rights in the mortgage we own under this Contract or under any other instruments.
2. BY LENDER TO TRANSFEREE. The Lender may sell or transfer all or part of any participation interest that it
owns in any mortgage under this Contract unless expressly prohibited from doing so by our Guides.
This sale or transfer of participation interests is subject to the conditions below, as well as to our Guides
as they are in effect on the date of our commitment to purchase.
For every sale or transfer, the Lender must obtain and furnish us with a properly executed instrument by which
the transferee:
- agrees to be bound by the terms of this Contract; and
- acknowledges our rights and interests under this Contract with respect to the mortgage.
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NOTICE
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Our rights and interests that must be acknowledged include, without limitation, the right to assess a
servicing fee against the owner of each participation interest if we:
- assume the servicing of the mortgage; or
- transfer the servicing to a new servicer under Section IX D of this Contract.
The sale or transfer of a participation interest does not relieve the Lender of any responsibility or
liability under this Contract. For example, the Lender continues to be liable for any fees and other amounts
charged under Section IX D3 of this Contract against the participation interest that is transferred. We may
collect these amounts from the Lender or from the transferee.
3. BY LENDER TO BANK. The Lender may be a member of, or be required to maintain reserves with a Federal Home
Loan Bank or Federal Reserve Bank. If so, and the Lender transfers its participation interests in any
mortgage under this Contract to such a bank to secure one or more advances, then the bank will not be deemed
to have assumed the mortgage warranties found in Section IV A.
Also, such a transfer to the bank will not relieve the Lender of any responsibility or liability under this
Contract.
XII NOTICE
Whenever notice is required under this Contract, it must be given as described in this section.
A. Any notice of termination given under this Contract must be:
NOTICE OF
TERMINATION - in writing;
- delivered in person or sent by registered or certified mail, with a return receipt requested; and
- addressed to the party to which notice is being given.
Delivery and notice is given when we or the Lender mail or register the notice with any post office.
B. Our Guides, including any amendments or supplements, and any other notices,
OUR GUIDES demands or requests under this Contract or applicable law will be:
AND OTHER
DOCUMENTS - in writing;
- delivered in person or mailed from any post office, substation, or letter box;
- enclosed in a postage prepaid envelope; and
- addressed to the Lender to which the matter is directed.
C. For purposes of notice, the following rules apply:
ADDRESS
1. Our address is the address of our regional office given in this Contract.
2. The Lender's address is that of its principal place of business given in this Contract.
Any change of address must be given in writing.
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XIII PRIOR AGREEMENTS
This Contract supersedes any prior agreements between the Lender and us that govern selling or servicing of
mortgages and participation interests to which this Contract relates.
However, this section will not release the Lender from any responsibility or liability under any prior
agreements and understandings.
XIV SEVERABILITY AND ENFORCEMENT
If any provision of this Contract conflicts with applicable law, the other provisions of this Contract that
can be carried out without the conflicting provision will not be affected.
All rights and remedies under this Contract are distinct and cumulative not only as to each other but as to
any rights or remedies afforded by law or equity. They may be exercised together, separately or successively.
These rights and remedies are for our benefit and that of our successors and assigns.
XV CAPTIONS
This Contract's captions and headings are for convenience only and are not part of the Contract.
XVI SCOPE OF CONTRACT
The following provisions apply, whether or not they are contrary to other provisions in this Contract.
A. We reserve the right to restrict the Lender's sale or servicing of mortgages or of participation interests
RESTRICTION to the type that the Lender and its employees have the experience and ability to originate, sell or service.
OF LENDER
B. This Contract covers only the sale of mortgages and participation interests and the servicing of mortgages,
TYPES OF within the following categories:
MORTGAGES
COVERED
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SIGNATURES AND DATE
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XVII SIGNATURES AND DATE
<S> <C>
By executing this Contract, the Lender and we agree to all of this Contract's terms and provisions. Both the
Lender and we have signed and dated this Contract below.
This Contract takes effect on the date we sign it.
Lender: Washington Mortgage Financial Group, Ltd.
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1593 Spring Hill Road, Suite 400
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(Address)
Vienna, VA 22182
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By: /s/ HOWARD S. PERKINS
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(Authorized Signature)
Howard S. Perkins
Executive Vice President, Chief Financial Officer & Treasurer
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(Type Name and Title)
Date: December 17, 1990
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Federal National Mortgage Association
Southern Regional Office
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(Address)
950 East Paces Ferry Road, Suite 1900
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Atlanta, GA 30326-1161
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By: /s/ GLENN T. AUSTIN, JR.
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(Authorized Signature)
Glenn T. Austin, Jr., Senior Vice President -- Regional Office
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(Type Name and Title)
Date: December 21, 1990
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EXHIBIT 10.2
DELEGATED UNDERWRITING AND
SERVICING ADDENDUM TO
MORTGAGE SELLING AND SERVICING CONTRACT
This Delegated Underwriting and Servicing Addendum to Mortgage Selling
and Servicing Contract ("Addendum") is made between Federal National Mortgage
Association, a corporation organized and existing under the laws of the United
States of America ("Fannie Mae"), and Washington Mortgage Financial Group,
Ltd., a Delaware corporation ("Lender").
RECITALS:
A. Fannie Mae and Lender have entered into the Mortgage Selling and
Servicing Contract ("Contract"; collectively, the Contract, this Addendum and
any other addenda to the Contract are the "DUS Contract") to (i) establish
Lender as an approved seller of mortgage loans and participation interests in
mortgage loans to Fannie Mae; (ii) provide the terms and conditions of the
sales; (iii) establish Lender as an approved servicer of mortgages that Fannie
Mae has purchased or in which Fannie Mae has purchased a participation
interest; and (iv) provide the terms and conditions of servicing of mortgage
loans.
B. Fannie Mae offers a multifamily mortgage purchase product line
called Delegated Underwriting and Servicing (as defined below), under which
Fannie Mae purchases multifamily mortgage loans from approved multifamily
mortgage lenders that underwrite, originate, sell and service such mortgage
loans.
C. Fannie Mae has approved Lender for Delegated Underwriting and
Servicing, and Fannie Mae and Lender desire to modify the Contract to include
amended and restated terms and provisions that pertain to Delegated
Underwriting and Servicing.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth in this Addendum, and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, Fannie
Mae and Lender agree as follows:
1. Amendment and Restatement. The Delegated Underwriting and
Servicing Addendum previously executed by Lender and Fannie Mae is amended and
restated in its entirety by this Addendum.
2. Amendment of the Contract. The Contract is amended by adding the
following Section XVI-C to the Contract:
XVI-C. DELEGATED UNDERWRITING AND SERVICING -- SPECIAL PROVISIONS.
This section contains provisions which pertain solely to the Delegated
Underwriting and Servicing product line. Except as modified by this section,
all other provisions of the Contract also pertain to Delegated Underwriting and
Servicing.
(2/2/94)
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(a) PURPOSE. Section I-A of the Contract is modified to include the
following additional purposes of the Contract:
- to establish Lender as an approved underwriter,
originator and seller of DUS Mortgages (as defined
below) to Fannie Mae under Delegated Underwriting and
Servicing;
- to set forth the terms and conditions that, together
with the applicable provisions of the DUS Guide (as
defined below), govern the sale and servicing of DUS
Mortgages by Lender under Delegated Underwriting and
Servicing; and
- to establish Lender as an approved servicer of the
DUS Mortgages that Fannie Mae purchases from Lender
under Delegated Underwriting and Servicing and any
other DUS Mortgages with respect to which Fannie Mae
has approved a transfer of servicing to Lender.
(b) INCORPORATION OF DUS GUIDE. Section I-C of the Contract is
modified to add the DUS Guide as a "Guide" under the Contract.
(c) ADDITIONAL IMPORTANT DEFINITIONS. Section I-D of the Contract is
modified to include the following additional definitions:
6. Collateral: The letters of credit, investment
agreements and other collateral that Lender delivers
and pledges for the benefit of Fannie Mae under the
DUS Reserve Agreement (as defined below).
7. Confidential Information: All non-public information
relating to Fannie Mae or the assets of Fannie Mae
that is disclosed or provided to Lender by Fannie Mae
including, without limitation, information regarding
delinquent multifamily loans and related properties.
8. Custodian: The entity so named and defined in the
DUS Reserve Agreement, including any successor
appointed under such agreement.
9. Delegated Underwriting and Servicing: Fannie Mae's
multifamily mortgage purchase product line so named,
as further described in the DUS Guide.
10. DUS Commitment: Any commitment that Fannie Mae
issues pursuant to the DUS Guide to Lender to
purchase a DUS Mortgage, as such commitment may be
amended.
(2/2/94) - 2 -
<PAGE> 3
11. DUS Guide: The Fannie Mae Multifamily Delegated
Underwriting and Servicing Guide, as the Multifamily
Delegated Underwriting and Servicing Guide may be
amended or supplemented from time to time by Fannie
Mae.
12. DUS Loss Sharing Agreement: The Delegated
Underwriting and Servicing Master Loss Sharing
Agreement between Fannie Mae and Lender that sets
forth certain obligations of Lender with respect to
each DUS Mortgage and the terms and conditions under
which Lender and Fannie Mae will share any loss that
may arise with respect to any DUS Mortgage, as such
agreement may be amended from time to time.
13. DUS Mortgage: Any Mortgage that is purchased by
Fannie Mae under Delegated Underwriting and
Servicing.
14. DUS Reserve Agreement: The Delegated Underwriting and
Servicing Reserve Agreement among Fannie Mae, Lender
and the Custodian, under which Lender delivers and
pledges Collateral for the benefit of Fannie Mae, and
the Custodian, as Fannie Mae's agent and bailee,
receives, holds, administers and disburses or
disposes of the Collateral, as such agreement may be
amended from time to time.
(d) COMPLIANCE WITH DELEGATED UNDERWRITING AND SERVICING STANDARDS.
Section II of the Contract is modified to include the following additional
provisions:
E. Compliance with Delegated Underwriting and Servicing Standards.
In order to be and remain eligible to sell and service DUS
Mortgages to Fannie Mae, Lender must be and remain in compliance
with all of the requirements of Delegated Underwriting and
Servicing as set forth in the DUS Guide and the DUS Contract.
(e) SALE OF DUS MORTGAGES. Section III-A of the Contract is modified
to include the following additional provision:
Lender's sale of each DUS Mortgage to Fannie Mae will be governed by
the applicable DUS Commitment, the DUS Guide (as in effect at the time
of the applicable DUS Commitment), the DUS Contract, the DUS Reserve
Agreement and the DUS Loss Sharing Agreement. Each time that Lender
delivers a DUS Mortgage to Fannie Mae, Lender must ensure that the
Collateral under the DUS Reserve Agreement satisfies the requirements
of such agreement.
(2/2/94) - 3 -
<PAGE> 4
(f) ASSIGNING MORTGAGE SERVICING. Section VII of the Contract is
modified to include the following additional provision:
Any Person to whom Lender is permitted by Fannie Mae to assign
Lender's obligations and rights to service a DUS Mortgage, in
accordance with Section VII of the Contract, must assume all of
Lender's rights and obligations under the DUS Contract, the DUS
Reserve Agreement and the DUS Loss Sharing Agreement with respect to
all DUS Mortgages for which servicing rights and obligations are
transferred.
(g) ADDITIONAL AND MODIFIED WARRANTIES.
i. MODIFIED CONTRACT WARRANTIES. Except as otherwise specifically
provided in this Addendum, Lender makes to Fannie Mae all the
warranties contained in Section IV-A of the Contract and in this
Addendum with respect to each DUS Mortgage that Lender sells to
Fannie Mae under a DUS Commitment.
(A) The warranty contained in Section IV-A(1) of the
Contract is replaced in its entirety with the
following:
1. MORTGAGE MEETS REQUIREMENTS.
(a) Each DUS Mortgage upon delivery to Fannie Mae
(i) satisfies the loan amount limitation of
the Fannie Mae Charter Act, based on the
number of units in and type of structure of
the property securing that DUS Mortgage, (ii)
has been underwritten and delivered by Lender
in material compliance with all applicable
requirements of the DUS Guide as in effect on
the date of the DUS Commitment for such DUS
Mortgage, including, but not limited to,
requirements pertaining to debt service
coverage, loan-to-value ratio, maximum
principal amount, loan term and amortization,
additional collateral, borrower eligibility,
credit, insurance, management, and
environmental compliance, and (iii) has been
documented in substantial compliance with the
DUS Guide as in effect on the date of
delivery of that DUS Mortgage.
(b) Lender will service each DUS Mortgage that
Lender services for Fannie Mae as required by
the DUS Guide (including remitting payments
to Fannie Mae, maintaining a loan file,
reporting and
(2/2/94) - 4 -
<PAGE> 5
maintaining required custodial accounts,
escrows and reserves, all as required by the
DUS Guide).
(B) The warranty contained in Section IV-A(2) of the
Contract is replaced in its entirety with the
following warranty and covenant:
2. LENDER AUTHORIZED TO DO BUSINESS. Lender and
any other party that held the DUS Mortgage
either:
(a) Were, at all times that either such
party held that mortgage, authorized
to transact business in the
jurisdiction and licensed in which
the property securing the DUS
Mortgage is located (the "Property
Jurisdiction"), or
(b) Under the laws of the Property
Jurisdiction, were not required to
be so authorized and none of the
following activities, taking into
account all of Lender's (or other
holder's) other activities in the
Property Jurisdiction, constitute
doing business in the Property
Jurisdiction:
-- lending the mortgage funds;
-- acquiring the mortgage;
-- holding the mortgage;
-- servicing the mortgage; or
-- transferring the mortgage in
whole or in part; and
if Lender (or any other holder of the
DUS Mortgage) were not authorized to
do business in the Property
Jurisdiction at all times that party
held the DUS Mortgage, the failure
of Lender (or such other party) to be
authorized to do business will have
no adverse effect on Fannie Mae's
ability to enforce the DUS Mortgage
(assuming that Fannie Mae itself is,
or need not be, authorized to do
business in that jurisdiction).
Lender will pay all costs related to
qualification or authorization to do business
or obtaining licenses in the event that
enforcement of any DUS Mortgage so requires
or is delayed in connection with Lender's
failure to be so qualified, authorized or
licensed.
(2/2/94) - 5 -
<PAGE> 6
(C) The warranty contained in Section IV-A(3) of the
Contract is replaced in its entirety by the following:
3. LENDER HAS FULL RIGHT TO SELL AND ASSIGN.
Lender is the sole owner and holder of the
DUS Mortgage and has full right and authority
to sell it, or a participation interest in
it, to Fannie Mae, subject, if applicable, to
the rights of a warehouse lender as revealed
to Fannie Mae prior to or at the time of
delivery of the DUS Mortgage. In addition,
and except as provided in the preceding
sentence, Lender's right to sell and assign
the DUS Mortgage or a participation interest
in it is not subject to any other party's
interest or to an agreement with any other
party.
(D) The warranty contained in Section IV-A(8) of the
Contract is modified by inserting the following at
the end of that section:
The terms and conditions of the DUS Mortgage
as reflected in the loan documents delivered
to Fannie Mae have not been amended, modified
or supplemented by any other agreement or
understanding of the parties or waiver of any
of the material provisions of those loan
documents, and all documents (originals or
true copies, as required by the DUS Guide)
evidencing, securing or otherwise setting
forth the terms of the DUS Mortgage or any
guaranty or recourse agreement with respect
to the DUS Mortgage have been delivered to
Fannie Mae.
ii. Additional Warranties. Section IV-A of the Contract is
modified to include the following warranties and covenants,
each of which is made by Lender to Fannie Mae as to each DUS
Mortgage that Lender sells to Fannie Mae under a DUS
Commitment:
21. Lender has all power and authority necessary to
originate, assign, transfer and deliver the DUS
Mortgage to Fannie Mae.
22. To the best of Lender's knowledge, information and
belief (based on Lender's exercise of due diligence,
as a prudent lender, to discover all pertinent facts,
information and circumstances):
- The credit reports and financial statements
relating to the borrower(s) and any other
person or entity required by the DUS Guide as
in effect on the date of the applicable DUS
Commitment in connection with the DUS
Mortgage
(2/2/94) - 6 -
<PAGE> 7
correctly reflect the financial condition of
such person(s), without material exception.
- Neither any borrower under the DUS Mortgage,
any general partner of a borrower, any key
principal(s) identified in the loan
documents, nor any guarantor of the DUS
Mortgage is currently a party to any
bankruptcy, reorganization, insolvency or
comparable proceeding.
- The requirements of the DUS Guide as in
effect on the date of the applicable DUS
Commitment have been satisfied with respect
to the experience and qualifications of the
borrower(s) and any other person or entity
whose experience and qualifications are
required by such guide to be ascertained in
connection with that DUS Mortgage.
23. No part of the property subject to the lien of a DUS
Mortgage:
- Is subject to the lien of any other mortgage,
deed of trust or other type of lien, except
as otherwise permitted by the DUS Guide or
expressly agreed in writing by Fannie Mae;
- Is subject to any lease other than leases
with respect to which the material
requirements of the DUS Guide as in effect on
the date of the DUS Commitment for such DUS
Mortgage with respect to subordination and
assignment of leases and rents have been
satisfied; and
- Has been taken in condemnation or other like
proceeding to an extent that would impair the
value of the DUS Mortgage or the property
subject to the DUS Mortgage, or the
usefulness of such property for the
contemplated purposes, nor is any such
proceeding known by Lender to be pending or
contemplated.
24. The appraisal on which the value determination with
respect to the property subject to the DUS Mortgage
has been based materially satisfies all requirements
of the DUS Guide as in effect on the date of the DUS
Commitment for such DUS Mortgage, and Lender has made
any adjustments to that value in underwriting that
are necessary to comply with the underwriting
requirements of the DUS Guide as in effect on such
date.
(2/2/94) - 7 -
<PAGE> 8
25. Lender agrees to maintain the confidentiality of the
Confidential Information and not to disclose,
directly or indirectly, any such Confidential
Information without the prior written consent of
Fannie Mae except to those employees of and investors
in Lender who need to know such information in
connection with the underwriting, origination,
selling and servicing of DUS Mortgages. Without
limitation, neither Lender nor any of its employees
or investors will disclose any Confidential
Information to any other lender, including any
warehouse lender providing credit to Lender or any
other purchaser of mortgage loans. Lender agrees to
take all reasonable action, by instruction, agreement
and otherwise, with such employees and investors to
satisfy its obligations under the DUS Contract with
respect to confidentiality, non-disclosure and
limitation of use. All copies of all Confidential
Information which Lender or any of its employees or
investors possesses or controls shall be returned to
Fannie Mae upon request by Fannie Mae.
iii. WARRANTY CRITERIA. Notwithstanding anything to the contrary in
the Contract, this Addendum or the DUS Guide:
(A) If there is a material breach of warranty contained
in this Addendum or in Section IV-A of the Contract
with respect to any DUS Mortgage purchased by Fannie
Mae under a DUS Commitment (other than a breach
relating to the underwriting of that DUS Mortgage
with respect to which the DUS Loss Sharing Agreement
will prevail), Lender, at Fannie Mae's request, will:
(a) indemnify Fannie Mae and hold Fannie Mae
harmless against all losses, damages, judgments or
legal expenses arising out of such breach and (b)
promptly take such action as is necessary to correct
such breach or the condition giving rise to it.
Fannie Mae also may take such action as it deems
necessary to remedy such breach or the condition
giving rise to it, and, in addition to being
indemnified and held harmless as provided above,
Fannie Mae will be entitled to indemnity from Lender
for the expenses and costs incurred in undertaking
such remedial action. Fannie Mae will not incur any
cost or expense under the preceding sentence unless
Lender has failed to respond promptly to Fannie Mae's
request to undertake the remedial action required
thereunder.
(B) Each warranty set forth in the Contract (as such
warranty may have been modified expressly in this
Addendum) and in this Addendum, made by Lender with
respect to a DUS Mortgage, is made (and will be
construed) separately and independently from
(2/2/94) - 8 -
<PAGE> 9
every other warranty with respect to that DUS
Mortgage; and a breach of any warranty will entitle
Fannie Mae to the applicable rights and remedies
therefor (as any such rights or remedies may have
been modified expressly in this Addendum) without
regard to the provisions and conditions of any other
warranty and regardless of whether or not the facts
or circumstances giving rise to such breach also
would give rise to a breach of any other warranty.
(h) BREACHES OF CONTRACT. Section VIII-A(2) of the Contract is
modified to include the following additional acts or omissions that will
constitute a breach of the Contract:
- Lender's failure to deliver and pledge the Collateral as required
under the DUS Reserve Agreement; or
- Lender's failure to pay in a timely manner any of its Payment
Obligations (as defined in the DUS Loss Sharing Agreement) when
required under the DUS Loss Sharing Agreement; or
- Lender's repudiation or, within any applicable cure period,
failure to perform any of its other obligations under the DUS
Reserve Agreement or the DUS Loss Sharing Agreement; or
- Lender's material failure to underwrite, originate, deliver or
service any DUS Mortgage in accordance with the DUS Guide; or
- Lender's failure timely to deliver to Fannie Mae, in accordance
with the DUS Guide in effect on the date of the applicable DUS
Commitment, a Mortgage for which Fannie Mae has issued a
mandatory delivery DUS Commitment; or
- Disclosure by Lender, its employees or investors of any
Confidential Information other than in accordance with the DUS
Contract.
(i) TERMINATION. If Fannie Mae or Lender terminates the DUS Contract
as provided in the DUS Contract, then (1) Lender shall remain liable under the
DUS Reserve Agreement and the DUS Loss Sharing Agreement that it has executed
until Lender's duties and obligations under those agreements terminate in
accordance with their terms; and (2) except as otherwise provided in the DUS
Reserve Agreement and the DUS Loss Sharing Agreement, the Collateral shall
remain with the Custodian or Fannie Mae until such time as Lender is entitled
to have the Collateral released under the terms of the DUS Reserve Agreement
and the DUS Loss Sharing Agreement.
(2/2/94) - 9 -
<PAGE> 10
(j) CONTINUATION OF LENDER'S RIGHTS AND RESPONSIBILITIES. All
covenants, representations, warranties, rights, responsibilities and
obligations of Lender under the terms and provisions of the DUS Contract, the
DUS Reserve Agreement and the DUS Loss Sharing Agreement shall continue
unchanged without regard to any subsequent conveyance of the DUS Mortgages by
Fannie Mae to a trust formed by or on behalf of Fannie Mae for purposes of
selling beneficial ownership interests in the DUS Mortgages under Fannie Mae's
programs relating to Mortgage-Backed Securities.
3. No License, Franchise or Transfer Rights Granted. Apart from the
rights expressly enumerated or granted to Lender under the DUS Contract, the
DUS Reserve Agreement or the DUS Loss Sharing Agreement, Fannie Mae does not
confer upon Lender a license, franchise, or any other transferrable or
assignable right. No transfer or assignment of Lender's rights and obligations
under the DUS Contract, the DUS Reserve Agreement or the DUS Loss Sharing
Agreement may be made except in accordance with the express terms of those
documents.
4. Ownership of Confidential Information; Survival of Obligations.
All ownership rights in, and intellectual property rights associated with, the
Confidential Information, including, without limitation, patent, trademark,
copyright and trade secret rights, shall remain the property of Fannie Mae.
All obligations of confidentiality shall survive the termination of the
Contract.
5. Defined Terms. All capitalized terms in this Addendum shall have
the meanings attributed to them in the Contract, unless otherwise indicated in
this Addendum.
6. Benefit of Contract and Addendum. All provisions of the Contract
and this Addendum are for the benefit of Lender and Fannie Mae only, and
nothing expressed or implied in the Contract or this Addendum is intended to be
for the benefit of any other person.
(2/2/94) - 10 -
<PAGE> 11
7. No Modification Except in Addendum. Except as expressly set
forth in this Addendum, no modification of the Contract is made or intended to
be made by this Addendum, and the Contract, as amended by this Addendum, is
confirmed and reaffirmed by Lender and Fannie Mae and shall be and remain in
full force and effect. In the event of an inconsistency between the Contract
and this Addendum, the provisions of this Addendum shall govern.
This Addendum shall become effective as of the date of its execution by
Fannie Mae.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: /s/ THOMAS W. WHITE (seal)
-----------------------------------------------
Name: Thomas W. White
Title: Senior Vice President for Multifamily Activities
Date: As of March 1, 1994
----------------------------------------------
LENDER:
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD.,
a Delaware corporation
By: /s/ SHEKAR NARASIMHAN (seal)
-----------------------------------------------
Name: Shekar Narasimhan
---------------------------------------------
Title: President and Chief Executive Officer
--------------------------------------------
Date: February 14, 1994
---------------------------------------------
(2/2/94) - 11 -
<PAGE> 1
EXHIBIT 10.3
===============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DELEGATED UNDERWRITING AND SERVICING
MASTER LOSS SHARING AGREEMENT
BETWEEN
FEDERAL NATIONAL MORTGAGE ASSOCIATION
AND
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD.
===============================================================================
[2/94]
<PAGE> 2
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DELEGATED UNDERWRITING AND SERVICING
MASTER LOSS SHARING AGREEMENT
SECTION HEADING PAGE
RECITALS ......................................................................1
STATEMENT OF AMENDMENT AND CONSOLIDATION ......................................2
ARTICLE 1
DEFINED TERMS .................................................................2
ARTICLE 2
SALE OF MORTGAGE LOANS.........................................................7
Section 2.01. Conveyance of Mortgage Loans......................7
Section 2.02. Loss Sharing......................................7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LENDER ......................................8
Section 3.01. No Consents.......................................8
Section 3.02. Existence and Power...............................8
Section 3.03. Authorization and
Non-contravention.................................8
Section 3.04. Binding Effect....................................8
Section 3.05. Governmental Consents.............................8
Section 3.06. Litigation........................................8
Section 3.07. Eligible Lender...................................9
Section 3.08. Compliance with Laws..............................9
ARTICLE 4
COVENANTS OF LENDER ...........................................................9
Section 4.01. Performance of Obligations........................9
Section 4.02. Good Standing.....................................9
Section 4.03. Compliance with Laws..............................9
Section 4.04. Agreement as Official Record of
Lender...........................................10
ARTICLE 5
LENDER'S SERVICING OF MORTGAGE LOANS..........................................10
Section 5.01 Compliance with Delegated Underwriting and
Servicing Guide..................................10
Section 5.02. Monthly Payments Equal to Principal
and Interest; Delinquency Advances...............10
Section 5.03. Servicing Advances...............................10
Section 5.04. Repurchase of Mortgage Loans.....................11
Section 5.05. Interim Loss Sharing Adjustments.................11
i
<PAGE> 3
Section 5.06. Unavailability of Net Operating
Income..........................................13
Section 5.07. Partial Payments................................13
ARTICLE 6
LOSS SHARING.................................................................13
Section 6.01. General ........................................13
Section 6.02. Asset Valuation Date............................14
Section 6.03. Determination of Asset Value....................14
Section 6.04. Calculation and Allocation of Loss
Sharing.........................................15
Section 6.05. Final Settlement of Loss........................15
Section 6.06. Third Party Assumption of Lender's
Share of Loss...................................16
Section 6.07. Determination of Loss Level.....................16
Section 6.08. Effect of Workouts on Loss Sharing..............16
ARTICLE 7
EVENTS OF DEFAULT............................................................17
Section 7.01. Events of Default...............................17
ARTICLE 8
REMEDIES.....................................................................18
Section 8.01. Remedies Available to Fannie Mae................18
Section 8.02. Remedies Not Exclusive..........................19
Section 8.03. Delay or Omission Not Waiver....................19
Section 8.04. Restoration of Rights and Remedies..............19
ARTICLE 9
MISCELLANEOUS................................................................19
Section 9.01. Benefit of Agreement............................19
Section 9.02. Notices.........................................20
Section 9.03. Severability....................................20
Section 9.04. Multiple Counterparts...........................20
Section 9.05. Termination of Delegated
Underwriting and Servicing Master
Loss Sharing Agreement..........................21
Section 9.06. Survival........................................21
Section 9.07. Relationship to DUS Guide.......................21
Section 9.08. Governing Law; Submission to
Jurisdiction; Waiver of Jury Trial..............21
ii
<PAGE> 4
LIST OF EXHIBITS
EXHIBIT A - Mortgage Loan Certificate........................................A-1
EXHIBIT B - Loss Sharing Formula.............................................B-1
EXHIBIT C - Existing Mortgage Loan Schedule..................................C-1
EXHIBIT D - Consent to Interim Loss Sharing Adjustment.......................D-1
iii
<PAGE> 5
THIS DELEGATED UNDERWRITING AND SERVICING MASTER LOSS SHARING AGREEMENT (the
"Agreement") is made between Federal National Mortgage Association, a
corporation organized and existing under the laws of the United States of
America ("Fannie Mae") and Washington Mortgage Financial Group, Ltd., a
Delaware corporation (the "Lender")
RECITALS:
A. Fannie Mae offers a multifamily mortgage purchase product line called
Delegated Underwriting and Servicing, under which Fannie Mae purchases
multifamily mortgage loans from approved multifamily mortgage lenders that
underwrite, originate, sell and service such mortgage loans.
B. Fannie Mae has approved Lender for Delegated Underwriting and Servicing, and
Fannie Mae and Lender have entered into certain agreements pertaining to
Delegated Underwriting and Servicing, including the Contract and the Reserve
Agreement (as each such term is defined below).
C. From time to time, Lender has delivered, or will deliver, Mortgage Loans (as
defined below) for sale to Fannie Mae under Delegated Underwriting and
Servicing.
D. Lender and Fannie Mae will share in any losses on Mortgage Loans under
Delegated Underwriting and Servicing, and, to secure Lender's obligations under
Delegated Underwriting and Servicing, Lender is required to establish a reserve
and to deliver Acceptable Collateral to Custodian in accordance with the
Reserve Agreement (as each such term is defined below).
E. Custodian, as agent and bailee of Fannie Mae, will hold collateral that
Lender delivers to Custodian to secure Lender's obligations under the Reserve
Agreement.
F. Fannie Mae and Lender desire to provide in this Agreement the manner in
which Fannie Mae and Lender will share in any losses that may arise with
respect to any Mortgage Loan, and for certain remedies of Fannie Mae if Lender
defaults under this Agreement or the Reserve Agreement or is in breach of the
Contract.
G. If Lender is a depository institution, Lender and Fannie Mae intend that
this Agreement, together with the Contract and the Reserve Agreement, be a
"securities contract" as that term is defined in 11 U.S.C. Section 741, as
amended by 12 U.S.C. Section 1821(e)(8)(D)(ii), and that Fannie Mae have
the rights of a party to a Qualified Financial Contract (as defined in 12
U.S.C. Section 1821(e)(D)(i)) as set forth in 12 U.S.C. Section 1821, as
such sections may be amended from time to time.
H. It is the intention of the parties that this Agreement shall amend, and
constitute the consolidation and entire
<PAGE> 6
restatement of, all "Loss Sharing Agreements" delivered or assumed by Lender
prior to the effective date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings set
forth in this Agreement, and other good and valuable consideration, the receipt
and sufficiency of which is acknowledged, Fannie Mae and Lender incorporate the
above recitals and agree as follows:
STATEMENT OF AMENDMENT AND CONSOLIDATION
This Agreement constitutes an amendment of each "Loss Sharing Agreement"
(i) executed and delivered by Fannie Mae and Lender with respect to Mortgage
Loans identified on Exhibit C (the "Existing Mortgage Loan Schedule" as defined
below) or (ii) assumed by Lender with the approval of Fannie Mae with respect
to Mortgage Loans identified on Exhibit C. It is the intention of the parties
that this Agreement shall fully restate in their entirety, and effect the
consolidation of, all Loss Sharing Agreements delivered or assumed by Lender
prior to the effective date of this Agreement in the form of a single
agreement. Lender acknowledges that the representations and warranties made in
connection with Mortgage Loans set forth on the Existing Mortgage Loan Schedule
remain in full force and effect notwithstanding the execution of this
Agreement. Lender further agrees that Fannie Mae, after the effective date of
this Agreement shall amend Exhibit C to add Mortgage Loans, if any, delivered
by Lender prior to the effective date of this Agreement. Fannie Mae shall
deliver a copy of revised Exhibit C to Lender.
ARTICLE 1
DEFINED TERMS
Capitalized terms in this Agreement shall have the following meanings:
Acceptable Collateral: Acceptable Collateral delivered to Custodian in
compliance with, and as defined in, the Reserve Agreement.
Asset Valuation Date: As defined in Section 6.02 of this Agreement.
Asset Value: The dollar amount with respect to a Mortgaged Property as
determined under Section 6.03 of this Agreement.
Borrower: The Person(s) obligated under a Note, Security Instrument and
other documents executed and delivered with respect to a Mortgage Loan.
2
<PAGE> 7
Business Day: Any day except a Saturday, Sunday or other day on which
Fannie Mae is not open for business.
Commitment Date: The date of a commitment to purchase a Mortgage Loan
under Delegated Underwriting and Servicing as shown on the Commitment
Confirmation (as defined in the DUS Guide) that is sent by Fannie Mae to Lender
with respect to that Mortgage Loan or, if there is a written commitment
agreement other than or in addition to a Commitment Confirmation between the
Lender and Fannie Mae with respect to that Mortgage Loan pursuant to which the
Loss Sharing Agreement will apply to such loan, the date such commitment
agreement is accepted by the Lender.
Contract: The Mortgage Selling and Servicing Contract between Lender and
Fannie Mae, as amended by the Delegated Underwriting and Servicing Addendum,
and as may be further amended from time to time.
Custodian: The Custodian as defined in the Reserve Agreement.
Date of Default: As to any Mortgage Loan, the date of the first uncured
Payment Default or Performance Default.
Delinquency Advances: Any payments that Lender makes, in whole or in part,
out of its own funds and in accordance with Section 5.02 of this Agreement, in
amounts equal to principal and interest owed to Fannie Mae under a Mortgage
Loan, calculated at the Pass-Through Rate (not at the default interest rate),
solely pursuant to Lender's obligations to Fannie Mae and not with respect to
the Borrower's obligations under that Mortgage Loan.
Delinquency Resolution Costs: As to any Mortgage Loan, any costs, limited
as provided below, paid or incurred by Lender or Fannie Mae: (i) to commence
and pursue foreclosure proceedings and appointment of a receiver, (ii) to
restructure a Mortgage Loan (except for costs associated with any Lender
Workout as discussed in the DUS Guide) on the related Mortgaged Property that
are directly related to such foreclosure proceedings or restructurings and
(iii) to commence and pursue collection (to the extent paid or incurred prior
to the Asset Valuation Date) under a guaranty or similar obligation, including
exceptions to non-recourse under the Mortgage Loan, under documents assigned to
or otherwise benefitting Fannie Mae. Delinquency Resolution Costs are limited
to reasonable attorneys' fees, court costs, recordation and transfer fees,
environmental assessments, appraisal costs (but only if obtained in connection
with bankruptcy proceedings or under the written direction of Fannie Mae) and
similar costs necessary to achieve foreclosure, appointment of a receiver, or
restructuring, all as approved by Fannie Mae.
Delivery Date: The date of delivery of a Mortgage Loan to Fannie Mae.
3
<PAGE> 8
DUS Guide: The Fannie Mae Delegated Underwriting and Servicing Guide, as
amended or supplemented from time to time by Fannie Mae, including any DUS
Lender Memos, announcements or guide updates, providing for certain terms and
conditions applicable to Lender's sale and assignment of Mortgage Loans to
Fannie Mae and Lender's servicing obligations with respect to such Mortgage
Loans.
Event of Default: Any one or more of the events described in Article 7 of
this Agreement.
Existing Mortgage Loan Schedule: A schedule, in the form of Exhibit C,
setting forth, as of the effective date of this Agreement, all of the Mortgage
Loans previously delivered to Fannie Mae for which Lender has loss sharing
obligations, which schedule shall include any amendment made by Fannie Mae to
add Mortgage Loans delivered by Lender prior to the effective date of this
Agreement.
Final Settlement of Loss: The determination by Fannie Mae, pursuant to
this Agreement (including either Exhibit B to this Agreement with respect to
any Mortgage Loan listed on Exhibit C or the Loss Sharing Formula in the DUS
Guide as in effect on the Commitment Date for any other Mortgage Loan), of the
final allocation of losses to be borne by Fannie Mae and Lender in respect of a
defaulted Mortgage Loan and the payment of any amounts pursuant to such
determination.
5% Amount: As defined in Section 5.05 of this Agreement.
Governmental Body: Any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
Lender Deductible Amount: The amount calculated by multiplying the actual
unpaid principal balance of a Mortgage Loan on the last day immediately
preceding the Asset Valuation Date for such Mortgage Loan by the percentage
specified in Exhibit B for Mortgage Loans listed on Exhibit C or, for any other
Mortgage Loan, the Loss Sharing Formula in the DUS Guide as in effect on the
Commitment Date for such Mortgage Loan, for calculating the Lender Deductible
Amount as applicable to the Loss Level for that Mortgage Loan determined as
provided in this Agreement.
Level I, Level II and Level III: The three loss sharing designations
described as such in the DUS Guide.
Loss Level: Any of Level I, Level II or Level III, as applicable.
Loss Sharing Formula: With respect to any Mortgage Loan listed on Exhibit
C, the provisions set forth in Exhibit B, or, for any other Mortgage Loan, the
provisions of the DUS Guide (excluding
4
<PAGE> 9
the examples and procedures) in effect on the Commitment Date for such Mortgage
Loan, that set forth how the loss on a Mortgage Loan will be calculated and
allocated between Fannie Mae and the Lender and how the Final Settlement of
Loss will be determined.
Mortgage Loan: A multifamily mortgage loan that is or will be either
originated and sold by Lender to Fannie Mae under Delegated Underwriting and
Servicing or with respect to which Lender has assumed or will assume the loss
sharing obligations under Delegated Underwriting and Servicing, which mortgage
loan upon delivery to Fannie Mae is evidenced by a Note and is secured by a
Security Instrument and other documents executed and delivered with respect to
that mortgage loan and with respect to which either a Mortgage Loan Certificate
has been or will be delivered or deemed delivered to Fannie Mae or which is
listed on Exhibit C.
Mortgage Loan Certificate: A certificate, in the form of Exhibit A,
delivered by Lender to Fannie Mae with each Mortgage Loan delivered after the
effective date of this Agreement.
Mortgaged Property: The property that secures a Note, which consists of
the land, as described in the related Security Instrument, and all buildings
and other improvements, including the multifamily housing project, made to and
located on the land, together with all fixtures, equipment and furniture
affixed or attached thereto or located thereon, as more specifically provided
in the applicable Security Instrument.
Note: A promissory note, including any addendum thereto, that evidences
the debt secured by a Security Instrument and that Lender either has
transferred and endorsed to Fannie Mae or with respect to which Lender has
assumed the loss sharing obligations, under Delegated Underwriting and
Servicing.
Payment Default: The failure of a Borrower to pay when due and in full any
payment(s) required with respect to the related Mortgage Loan, including, but
not limited to, principal, interest, late charges, default interest, prepayment
premium, escrows or other collateral accounts for taxes, insurance premiums and
assessments, other collateral accounts and the Replacement Reserve. For
example, scheduled principal and interest payments are past due on the second
day of a calendar month.
Payment Obligation: The obligation of Lender to make certain payments to
Fannie Mae in accordance with the terms of the Contract, the DUS Guide and this
Agreement.
Person: An individual, corporation, partnership, association, trust,
limited liability company, or any other entity or organization, including a
Governmental Body or political subdivision or an agency or instrumentality
thereof.
5
<PAGE> 10
Performance Default: The failure of a Borrower to perform any promise or
covenant under the related Mortgage Loan other than a failure that constitutes
a Payment Default.
Reimbursement Base: The dollar amount calculated with respect to a
particular Mortgage Loan, as determined in accordance with Section 6.04 of
this Agreement and either Exhibit B with respect to any Mortgage Loan listed on
Exhibit C or, for any other Mortgage Loan, the Loss Sharing Formula in the DUS
Guide as in effect on the Commitment Date for that Mortgage Loan.
Release Date: The date on and as of which Lender shall be released from
its obligation to make any future Delinquency Advance or Servicing Advance and
to pay Delinquency Resolution Costs with respect to a particular Mortgage Loan,
which date shall be the earliest to occur of the following:
(i) The date on which such Mortgage Loan is paid in full, the
Borrower's obligations thereunder are fully paid and finally
released, and the preference period under applicable federal and
state bankruptcy laws has passed;
(ii) the date on which Fannie Mae, in its sole discretion, shall have
fully and finally released Lender in writing from its Payment
Obligations with respect to such Mortgage Loan;
(iii) the date upon which an Asset Valuation Date arises with respect
to such Mortgage Loan under Section 6.02; or
(iv) the date on which Lender repurchases such Mortgage Loan pursuant
to Section 5.04.
Replacement Reserve: Any reserve or collateral account that is established
or delivered by or on behalf of a Borrower and held by Lender or Fannie Mae in
connection with a Mortgage Loan for maintenance of the Mortgaged Property as
more specifically provided in an agreement between Lender and Borrower with
respect to such account.
Reserve Agreement: The Delegated Underwriting and Servicing Reserve
Agreement among Fannie Mae, Lender and Custodian, as such agreement may be
amended by the parties thereto from time to time.
Security Instrument: The deed of trust, deed to secure debt or mortgage,
including any rider thereto, that secures a Note and that Lender either has
transferred and assigned to Fannie Mae or with respect to which Lender has
assumed the loss sharing obligations, under Delegated Underwriting and
Servicing.
Servicing Advances: The payments Lender makes out of its own funds and in
accordance with Section 5.03 of this Agreement for
6
<PAGE> 11
taxes, assessments, insurance premiums and other items (other than principal
and interest) owed or expended with respect to a Mortgaged Property solely
pursuant to Lender's obligations to Fannie Mae and not with respect to the
Borrower's obligations under the Mortgage Loan.
Total Lender Loss: As defined in Exhibit B for the Mortgage Loans listed
on Exhibit C or, for all other Mortgage Loans, in the Loss Sharing Formula in
the DUS Guide as in effect on the Commitment Date for each such Mortgage Loan.
ARTICLE 2
SALE OF MORTGAGE LOANS
Section 2.01. Conveyance of Mortgage Loans. In connection with the sale of
each Mortgage Loan by Lender and the purchase of such Mortgage Loan by Fannie
Mae on and after the date Lender executes this Agreement, Lender will endorse
the related Note, and assign the related Security Instrument and other related
Mortgage Loan documents as required under the DUS Guide for delivery of that
Mortgage Loan to Fannie Mae. In each case, Lender shall deliver to Fannie Mae a
Mortgage Loan Certificate with respect to such Mortgage Loan.
Section 2.02. Loss Sharing. Notwithstanding the endorsement of each Note
by Lender "without recourse," Lender acknowledges and agrees that it shall be
liable for the payment of the Lender Deductible Amount, if any, and its
allocated share of the Reimbursement Base, Delinquency Resolution Costs and
other amounts applicable to each such Mortgage Loan, all as provided under this
Agreement, and otherwise shall be bound by and subject to all the terms and
provisions of this Agreement, the Contract, the Reserve Agreement and the DUS
Guide, and Fannie Mae shall have the right to exercise all of its rights and
remedies against Lender under the same. Lender acknowledges and agrees that,
with respect to each Mortgage Loan it delivers to Fannie Mae, that it shall
deliver, and if it fails to so deliver, shall be deemed to have delivered, a
Mortgage Loan Certificate and that the representations and warranties set forth
in this Agreement with respect to Mortgage Loans will be applicable to each
such delivered Mortgage Loan. Lender further acknowledges and agrees that any
errors in or omissions from the Mortgage Loan Certificate with respect to a
Mortgage Loan shall not diminish in any respect Lender's obligations as
provided in this Agreement in respect of such Mortgage Loan.
7
<PAGE> 12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LENDER
Lender represents and warrants to Fannie Mae (a) on the date of execution
by Lender of this Agreement, and (b) on each Delivery Date that:
Section 3.01. No Consents. No consents or approvals of any Person are
required that have not been obtained for the execution, delivery and
performance of this Agreement by Lender.
Section 3.02. Existence and Power. Lender is the type of entity set forth
by the first paragraph of this Agreement duly organized, validly existing and
in good standing under the laws governing its creation and existence and has
all necessary corporate or partnership, as applicable, powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and to enter into this Agreement. If
applicable, each general partner of Lender (other than any natural Person who
is a general partner) is duly organized, validly existing and in good standing
under the laws governing its creation and existence and has all powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
Section 3.03. Authorization and Non-contravention. The execution, delivery
and performance by Lender of this Agreement are within Lender's corporate or
partnership, as applicable, power and have been duly authorized by all
necessary corporate or partnership, as applicable, action on the part of Lender
and, if applicable, any Person with an ownership interest in Lender whose
action is required and will not: (i) violate or contravene any law, regulation,
judgment, injunction, order, decree or other instrument currently binding on
Lender; or (ii) violate, contravene or constitute a default under any provision
of the governing documents of Lender or of any material agreement, contract,
mortgage or other instrument currently binding on Lender.
Section 3.04. Binding Effect. This Agreement constitutes a valid and
binding agreement of Lender enforceable against Lender in accordance with its
terms.
Section 3.05. Governmental Consents. No consent, approval, authorization
or order of any Governmental Body is required, and no filing need be made with
any Governmental Body, in connection with the execution, delivery and
performance by Lender of the transactions contemplated by this Agreement.
Section 3.06. Litigation. There are no actions, suits, or proceedings
pending or to the best knowledge of Lender threatened against it or, if
applicable, any general partner of Lender, in any court or before any Federal,
state, municipal or other governmental
8
<PAGE> 13
department or commission, board, bureau, agency or instrumentality that if
adversely determined will materially and adversely affect its business or
financial condition or the validity and enforceability of this Agreement or its
ability to perform in accordance with this Agreement.
Section 3.07. Eligible Lender. Lender is eligible to participate in
Delegated Underwriting and Servicing and is in material compliance with all of
the eligibility requirements set forth in the DUS Guide and the Contract.
Section 3.08. Compliance with Laws. Neither Lender nor, if applicable, any
general partner of Lender is in violation of any statute, rule or regulation of
any Governmental Body or any order of any court or arbitrator, the violation of
which, considered in the aggregate, could materially adversely affect the
business, operations or properties of Lender or, if applicable, any general
partner of Lender. if Lender is a depository institution, Lender has complied
with the requirements of 12 U.S.C. Section 1823(e), as amended from time to
time, in connection with the authorization, execution, delivery and retention
of all documents under Delegated Underwriting and Servicing.
ARTICLE 4
COVENANTS OF LENDER
Section 4.01. Performance of Obligations. Lender covenants to keep and
perform faithfully all of the covenants and undertakings contained in this
Agreement, the Reserve Agreement, the DUS Guide and the Contract.
Section 4.02. Good Standing. Lender covenants to maintain its good
standing under all applicable laws and regulations and to commit no act that
would alter the status of Lender as represented in Section 3.02 above. In the
event Lender has not maintained such status, it shall immediately notify Fannie
Mae to such effect.
Section 4.03. Compliance with Laws. Neither Lender nor, if applicable, any
general partner of Lender will violate any statute, rule or regulation of any
Governmental Body or any order of any court or arbitrator, the violation of
which, considered in the aggregate, could materially and adversely affect the
business, operations or properties of Lender or, if applicable, any general
partner of Lender. Lender agrees to forward, immediately upon receipt, any
notices it receives of any such violation or non-compliance. If Lender is a
depository institution, Lender will comply with the requirements of 12 U.S.C.
Section 1823(e), as amended from time to time, in connection with the
authorization, execution and delivery of all documents under Delegated
Underwriting and Servicing.
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Section 4.04. Agreement as Official Record of Lender. If Lender is a
depository institution, Lender covenants that this Agreement (including the
Mortgage Loan Certificates and the Exhibits and amendments to this Agreement)
is, and will be maintained continuously as, an official record of Lender as
contemplated in 12 U.S.C. Section 1823(e)(4), as amended from time to time.
ARTICLE 5
LENDER'S SERVICING OF MORTGAGE LOANS
Section 5.01. Compliance with Delegated Underwriting and Servicing Guide;
Delinquency Resolution Costs. Lender shall be responsible for servicing each
Mortgage Loan in accordance with the terms and provisions set forth in this
Agreement, the DUS Guide and the Contract. Lender shall pay Delinquency
Resolution Costs as provided in this Agreement.
Section 5.02. Monthly Payments Equal to Principal and Interest;
Delinquency Advances. Whether or not any Borrower pays to Lender the full
amount due under a Mortgage Loan, Lender, subject to Section 5.05 (if
applicable), will remit to Fannie Mae monthly amounts equal to all principal
and interest then owed under each Mortgage Loan in the manner and at the time
Lender is required to make remittances under the DUS Guide. On and after the
Release Date with respect to a Mortgage Loan, Lender shall not be obligated to
make any future Delinquency Advances for that Mortgage Loan. Lender's agreement
to make Delinquency Advances in respect of a Mortgage Loan is a part of
Lender's loss sharing obligations under this Agreement, constitutes a separate
contractual obligation of Lender to Fannie Mae and is not a guarantee or surety
of any obligation of the related Borrower.
Section 5.03. Servicing Advances. Whether or not Borrower makes payments
to Lender, Lender shall pay when due (and prior to the imposition of any
penalties or charges), subject to Section 5.05 (if applicable), amounts equal
to (i) all taxes and assessments against each Mortgaged Property, (ii) all
insurance premiums for insurance for each Mortgaged Property to insurance
carrier(s) acceptable to Fannie Mae, in accordance with the DUS Guide, and
(iii) any other payment, as determined by Fannie Mae, necessary to preserve and
protect the Mortgaged Property or to exercise any legal or equitable remedies
(other than foreclosure) against the Borrower or the Mortgaged Property
(including attorney, appraisal or other professional fees) or any other
obligations relating to the Mortgaged Property as set forth in the Mortgage
Loan documents. After a Date of Default with respect to any Mortgage Loan,
Lender remains obligated to pay when due (and prior to the imposition of any
penalties, or charges), subject to Section 5.05 (if applicable), the amounts
set forth in the first sentence of this Section 5.03; provided, however, Lender
shall not be
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required to make Servicing Advances to fund escrows or custodial accounts for
taxes, assessments and insurance premiums or to make payments to the
Replacement Reserve; provided, further, however, that the Lender must apply any
partial payments (including any net operating income from the Mortgaged
Property that, under applicable state law, is then available for use by Fannie
Mae) in the manner specified in Sections 5.06 and 5.07. On and after the
Release Date with respect to a Mortgage Loan, Lender shall not be obligated to
make any future Servicing Advances for that Mortgage Loan.
Section 5.04. Repurchase of Mortgage Loans. Lender shall have the right to
repurchase any Mortgage Loan following the Borrower's first uncured Payment
Default, provided that at least 120 days have elapsed since the date of the
Borrower's delinquency under such Mortgage Loan. The repurchase price shall be
equal to (i) the unpaid principal balance of such Mortgage Loan as of the date
of repurchase, plus (ii) the amount of any accrued and unpaid interest and
other sums (except late charges and default interest) then due under such
Mortgage Loan, plus (iii) for any Mortgage Loan purchased for cash by Fannie
Mae, the amount of any prepayment premium, calculated using the applicable
Pass-Through Rate (as defined in the DUS Guide) rather than the applicable Note
rate, that would be payable by the related Borrower if such Mortgage Loan were
prepaid on such date, or for any Mortgage Loan purchased by issuance of a
Fannie Mae MBS using the applicable MBS prepayment premium formula in Exhibit B
for all Mortgage Loans listed on Exhibit C or in the Loss Sharing Formula in
the DUS Guide as in effect on the Commitment Date for any other Mortgage Loan.
Section 5.05. Interim Loss Sharing Adjustments.
(a) Provided Lender is not in default under the Contract, the DUS Guide,
the Reserve Agreement or this Agreement, Lender may request the application of
the interim loss sharing adjustment set forth in Section 5.05(g) below with
respect to any Mortgage Loan then at Loss Level I if the aggregate amount of
all Delinquency Advances, Servicing Advances, and any Delinquency Resolution
Costs made by Lender and determined to be allowable by Fannie Mae equals or
exceeds, or is in good faith anticipated by Lender to equal or exceed, 5% of
the actual unpaid principal balance of such Mortgage Loan on the Date of
Default ("5% Amount").
(b) Lender must make such request to Fannie Mae at least 60 days prior to
the date Lender requests that the interim loss sharing adjustment become
effective, but Lender may give such notice to Fannie Mae at least 60 days prior
to the date on which Lender in good faith estimates that the 5% Amount will
have been expended by Lender.
(c) In connection with any interim loss sharing adjustment request,
including any reimbursement request, Lender shall submit information to Fannie
Mae to document all of the payments made by
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the Borrower on, and the Lender with respect to, such Mortgage Loan and any
additional information Fannie Mae may request.
(d) If Lender's request that an interim loss sharing adjustment be made is
submitted prior to the time Lender actually expends the 5% Amount, Lender must
provide a supplemental accounting to Fannie Mae as required under the DUS
Guide.
(e) After review of the information submitted by Lender, if (i) Fannie Mae
concurs with Lender's determination that the 5% Amount has been expended, (ii)
the Loss Level for that Mortgage Loan remains at Level I and (iii) Lender is
not in default under the Contract, the DUS Guide, the Reserve Agreement or this
Agreement, then Fannie Mae shall deliver to Lender the consent set forth in
Exhibit D with respect to that Mortgage Loan.
(f) If, on the Business Day prior to the initiation of the interim loss
sharing adjustment, payments by Lender with respect to Delinquency Advances,
Servicing Advances, and Delinquency Resolution Costs determined to be allowable
by Fannie Mae exceed the 5% Amount, then Fannie Mae will reimburse Lender for
75% of the amount of the excess above the 5% Amount within 60 days of the date
Fannie Mae confirms that the 5% Amount has been exceeded.
(g) The following provisions shall apply on and after the effective date
set forth in the consent delivered by Fannie Mae to Lender:
(i) Lender's obligation to make Delinquency Advances shall be 25% of
the amount Lender would otherwise be required under this
Agreement and the DUS Guide to advance or pay in respect of such
Mortgage Loan.
(ii) Lender shall pay when due (and prior to the imposition of any
penalty or charges) all amounts with respect to taxes,
assessments and insurance premiums with respect to the related
Mortgaged Property. After having paid all amounts when due with
respect to such taxes, assessments and insurance premiums,
Lender, no more frequently than once a calendar month for all
Mortgage Loans for which Lender has been authorized for Interim
Loss Sharing Adjustment, may request that Fannie Mae reimburse
Lender for up to 75% of such payments. Without limiting Lender's
obligations to make payments as provided in the first sentence
of this Section 5.05(g)(ii), Lender shall not be required to
fund escrows or custodial accounts for taxes, assessments and
insurance premiums and to make payments to the Replacement
Reserve but Lender must apply any partial payments in the manner
specified in Section 5.07.
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(iii) Lender shall pay Servicing Advances, other than those set forth
in (ii) above, promptly as required by the DUS Guide or as
directed by Fannie Mae and, no more frequently than once a
calendar month for all Mortgage Loans for which Lender has been
authorized for Interim Loss Sharing Adjustment, may request that
Fannie Mae reimburse Lender for up to 75% of such other
allowable Servicing Advances.
(iv) Lender shall pay Delinquency Resolution Costs and, no more
frequently than once a calendar month for all Mortgage Loans for
which Lender has been authorized for Interim Loss Sharing
Adjustment, may request that Fannie Mae reimburse it for 75% of
such Delinquency Resolution Costs.
Reimbursement made by Fannie Mae under (ii), (iii) or (iv) of this Section
5.05(g) shall be calculated on amounts in excess of the 5% Amount.
(h) Lender agrees that its obligations with respect to the Total Lender
Loss and Final Settlement of Loss with respect to a Mortgage Loan shall not be
reduced by any Interim Loss Sharing Adjustment applicable to such Mortgage Loan
and that its obligations in respect of any other Mortgage Loan shall not be
modified by virtue of the application of this Section 5.05 to a specific
Mortgage Loan.
(i) No Mortgage Loan at Level II or Level III is eligible for the interim
loss sharing adjustment.
Section 5.06. Unavailability of Net Operating Income. Lender's obligation
to make Delinquency Advances and Servicing Advances shall not be reduced by net
operating income with respect to a Mortgaged Property that, under the
provisions of applicable state law, is not then available for use by Fannie
Mae.
Section 5.07. Partial Payments. Lender must apply any partial payments
made by or on behalf of a Borrower in the manner specified in the applicable
Mortgage Loan documents and the DUS Guide.
ARTICLE 6
LOSS SHARING
Section 6.01. General. In the event of an uncured Payment Default with
respect to a Mortgage Loan (unless Lender elects to repurchase such Mortgage
Loan pursuant to Section 5.04), Fannie Mae shall determine the amount of any
loss in respect of such Mortgage Loan and the allocation thereof between Lender
and Fannie Mae in
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accordance with this Article 6. Fannie Mae shall determine the loss settlement
by calculating and allocating the Reimbursement Base and other amounts
applicable to such Mortgage Loan (as provided under Section 6.04 below), based
on the determination of the Asset Valuation Date (as provided under Section
6.02 below) and the Asset Value (as provided under Section 6.03 below).
Section 6.02. Asset Valuation Date. With respect to any Mortgage Loan, the
Asset Valuation Date shall be the earliest to occur of the dates on which:
(i) Title to the related Mortgaged Property is vested in Fannie Mae,
whether as a result of a judicial foreclosure sale, a
nonjudicial foreclosure sale or a deed in lieu of foreclosure,
but without regard to any applicable equity of redemption right
or statutory redemption period;
(ii) Fannie Mae receives the proceeds of any regularly conducted
foreclosure sale in respect of such Mortgage Loan;
(iii) Lender gives notice to Fannie Mae requesting that the Asset
Value of such Mortgage Loan be calculated after (A) a Payment
Default has not been cured, (B) Lender has recommended to Fannie
Mae, in accordance with the requirements set forth in the DUS
Guide, that Fannie Mae institute foreclosure or other lien
enforcement proceedings, as applicable, under the Security
Instrument and (C) Fannie Mae has rejected Lender's
recommendation;
(iv) Lender or Fannie Mae gives notice to the other party requesting
that the Asset Value of such Mortgage Loan be calculated,
provided, however, such notice may be given no earlier than two
years after the Date of Default;
(v) A court of competent jurisdiction confirms a plan of
reorganization affecting the owner of the Mortgaged Property
under Chapter 11 of the Federal Bankruptcy Code, as then in
effect, if Fannie Mae or Lender gives notice to the other party
specifying that the Asset Value of such Mortgage Loan be
calculated; or
(vi) Fannie Mae receives the proceeds of any sale of the Mortgaged
Property directed by a court of competent jurisdiction in a
bankruptcy proceeding.
Section 6.03. Determination of Asset Value. The Asset Value of a Mortgage
Loan shall be the dollar amount equal, as applicable, to: (i) the proceeds of
the sale to a third party that is not Fannie Mae, Lender or an entity
affiliated with Lender of the applicable Mortgaged Property at any regularly
conducted foreclosure sale or at any sale directed by a court of competent
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jurisdiction in a bankruptcy proceeding; or (ii) the appraised value of such
Mortgaged Property, as of the Asset Valuation Date, as determined by "as-is"
appraisals conducted in accordance with the terms of this Agreement. Fannie Mae
and Lender shall each order a separate appraisal to be completed within 60 days
of the Asset Valuation Date. Each such appraisal shall value the Mortgaged
Property as of the Asset Valuation Date and shall be completed by a qualified
independent fee appraiser having experience in the area where the Mortgaged
Property is located and otherwise in accordance with the requirements and
procedures set forth in the DUS Guide for appraisals required prior to delivery
of a Mortgage Loan to Fannie Mae; provided, however, that any such appraisal
shall be an "as is" appraisal, as defined and required for this purpose by the
DUS Guide. If the lower of the two appraised values differs from the higher of
the two appraised values by 5% or less, then the Asset Value will be the
average of the two appraised values. If the two appraised values differ by more
than 5%, the two appaisers cannot agree on a value, and Fannie Mae and Lender
cannot agree on a value, then Fannie Mae and Lender shall select a third
appraiser, who will be engaged and paid by Fannie Mae, to conduct an
independent appraisal within 60 days and value the Mortgaged Property as of the
Asset Valuation Date in accordance with the requirements and procedures
described in this Section 6.03. The third appraisal shall be binding upon
Lender and Fannie Mae. If Lender fails to cause an appraisal to be conducted as
provided above, the appraised value of a Mortgaged Property shall be determined
exclusively by an appraiser selected by Fannie Mae and otherwise using the
procedures set forth in this Section 6.03, and Lender waives any right to
challenge such valuation. In such event, Lender shall have no right to obtain a
copy of the appraisal.
Section 6.04. Calculation and Allocation of Loss Sharing. The
Reimbursement Base, Lender Deductible Amount, Delinquency Resolution Costs and
all other items used in the calculation of Total Lender Loss and determination
of Final Settlement of Loss applicable to any Mortgage Loan shall be calculated
and, if applicable, allocated between Lender and Fannie Mae are in accordance
with the applicable Loss Level for such Mortgage Loan as provided in (a)
Exhibit B for all Mortgage Loans listed on Exhibit C, or (b) for all other
Mortgage Loans, the Loss Sharing Formula in the DUS Guide in effect on the
Commitment Date of such Mortgage Loan.
Section 6.05. Final Settlement of Loss. Promptly after Fannie Mae's
determination of the loss settlement applicable to a Mortgage Loan under this
Article 6, Fannie Mae shall notify Lender of the results of such determination
and the amount payable by Fannie Mae or Lender to the other party, as
applicable. If amounts are owed to Fannie Mae, Lender agrees to make payment of
any such amounts by wire transfer of immediately available funds within five
(5) Business Days of the date of Fannie Mae's notice to Lender of
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such loss settlement determination. So long as Lender is not in default under
the Contract, the DUS Guide, the Reserve Agreement or this Agreement, Fannie
Mae agrees to make payment to Lender of any amounts owed to Lender by wire
transfer within five (5) Business Days of Fannie Mae's determination of the
related loss settlement.
Section 6.06. Third Party Assumption of Lender's Share of Loss. No Person
that is not a party to this Agreement shall assume, insure or participate in
ail or any portion of Lender's share of the loss applicable to any Mortgage
Loan under this Agreement without Fannie Mae's prior written approval, and any
attempt to so assume, insure or participate shall be void.
Section 6.07. Determination of Loss Level. The Loss Level for each
Mortgage Loan shall be Level I unless (a) pursuant to Section 8.01(d) Fannie
Mae determines that Level II or Level III shall be applicable or (b) Lender
elects, with the prior approval of Fannie Mae (which approval may be given by a
provision of the DUS Guide or otherwise), to set the Loss Level at Level II or
Level III. The Loss Level at which the loss sharing calculations and
allocations will be made with respect to a Mortgage Loan is the Loss Level on
the Date of Default for such Mortgage Loan; provided, however, that if:
(i) The Date of Default occurs within 365 days after Fannie Mae's
purchase of a Mortgage Loan, then the Loss Level may be adjusted
by Fannie Mae as provided in this Agreement within 180 days
after such Date of Default; or
(ii) Fannie Mae determines that there was fraud, material
misrepresentation or gross negligence by the Lender, its
officers, agents or employees, in the Lender's underwriting,
closing, delivery or servicing of that Mortgage Loan, then the
Loss Level may be adjusted by Fannie Mae as provided in this
Agreement at any time.
Section 6.08. Effect of Workouts on Loss Sharing. In the event of a
conflict between this Agreement and an existing written agreement between the
Lender and Fannie Mae regarding the loss sharing effects of a Mortgage Loan
workout with a Borrower, the terms of the applicable workout-related agreement
shall govern. After the effective date of this Agreement, any new
workout-related agreement between the Lender and Fannie Mae regarding the loss
sharing effects of a Mortgage Loan workout with a Borrower shall be subject to
this Agreement except as specifically modified by the applicable
workout-related agreement.
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ARTICLE 7
EVENTS OF DEFAULT
Section 7.01. Events of Default. Any one or more of the following acts or
occurrences shall constitute an Event of Default under this Agreement:
(a) Any representation, warranty or statement made by Lender to
Fannie Mae that was incorrect in any material respect when made;
(b) Lender's material failure to underwrite and deliver any Mortgage
Loan in accordance with the terms and conditions of the DUS
Guide;
(c) Lender's material failure in connection with any Mortgage Loan
to comply with the environmental hazards management and
assessment requirements and procedures set forth in the DUS
Guide;
(d) Lender's material failure to service any Mortgage Loan in
accordance with the terms and conditions of the DUS Guide;
(e) Lender's material failure to observe or perform any covenant or
agreement contained in this Agreement including, without
limitation, the payment of any amount required to be made by
Lender;
(f) Lender's insolvency or, if Lender is a depository institution,
the appointment of a conservator or receiver;
(g) Lender's acts or omissions in the performance of any of Lender's
obligations under this Agreement that constitute (A) fraud or
(B) negligence that has a material, adverse effect on Fannie
Mae's rights or interests;
(h) Lender's sale or transfer of Lender's obligation to service a
Mortgage Loan without obtaining Fannie Mae's prior written
approval;
(i) Lender's material breach of the Contract or the DUS Guide;
(j) An Event of Default under the Reserve Agreement; or
(k) If a Lender is a depository institution for which a conservator
or receiver has been appointed, the failure of such conservator
or receiver to affirm the Contract within a reasonable period
following the appointment of such conservator or receiver.
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ARTICLE 8
REMEDIES
Section 8.01. Remedies Available to Fannie Mae. Upon the occurrence of any
Event of Default under this Agreement, Fannie Mae may take, at its option, any
one or more of the following steps:
(a) Require Lender to cure the default within a designated period of
time (which, in the case of a non-monetary default, shall be no
less than 30 days);
(b) Transfer the right of Lender to service any or all of the
Mortgage Loans without payment of any termination fee under the
Contract;
(c) Require Lender to repurchase each Mortgage Loan as to which the
Event of Default specifically relates at a price equal to (i)
the unpaid principal balance of such Mortgage Loan as of the
date of Fannie Mae's tender of repurchase, plus (ii) the amount
of any accrued and unpaid interest and other sums (other than
late charges and default interest) then due under such Mortgage
Loan, plus (iii) for any Mortgage Loan purchased for cash by
Fannie Mae, the amount of the prepayment premium, calculated
using the applicable Pass-Through Rate rather than the
applicable Note rate, that then would be payable by the related
Borrower if such Mortgage Loan were prepaid on the date of
Lender's repurchase, or for any Mortgage Loan purchased by
issuance of a Fannie Mae MBS using the applicable MBS prepayment
premium formula in Exhibit B for all Mortgage Loans listed on
Exhibit C or in the Loss Sharing Formula in the DUS Guide as in
effect on the Commitment Date for any other Mortgage Loan;
(d) Require the Loss Level applicable to any Mortgage Loan to which
an Event of Default specifically relates be increased from Level
I to Level II or Level III or from Level II to Level III;
(e) Require Lender to deliver to Custodian, for a specified period
of time, servicing income from each Mortgage Loan as to which an
Event of Default relates or, at Fannie Mae's option, servicing
income from all Mortgage Loans delivered to Fannie Mae and
currently being serviced by Lender, which servicing income
shall, after the date of notice of such requirement, be
delivered to Custodian and held and applied as provided in the
Reserve Agreement;
(f) Draw upon, liquidate or otherwise realize against any collateral
held under the Reserve Agreement and retain and apply such
proceeds as provided in the Reserve
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Agreement and require Lender to deliver Acceptable Collateral
under the Reserve Agreement in an amount equal to the amount
drawn upon, liquidated or realized against; or
(g) Take any other action at law or in equity that may appear
necessary or desirable to enforce any obligation, covenant or
agreement of Lender under this Agreement.
Section 8.02. Remedies Not Exclusive. Unless otherwise expressly provided,
no remedy conferred in this Agreement or reserved to Fannie Mae is intended to
be exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
in this Agreement or now or hereafter existing at law or in equity.
Section 8.03. Delay or Omission Not Waiver. No delay or omission of Fannie
Mae to exercise any right or remedy under this Agreement upon an Event of
Default (except a delay or omission pursuant to a written waiver) shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
acquiescence therein. Every right and remedy provided by this Article 8 or by
law to Fannie Mae may be exercised from time to time, and as often as may be
deemed expedient by Fannie Mae. In order to entitle Fannie Mae to exercise any
remedy reserved to it in this Article 8, it shall not be necessary to give any
notice, other than such notice as may be required by this Article 8.
Section 8.04. Restoration of Rights and Remedies. If Fannie Mae shall have
instituted any proceeding to enforce any right or remedy under this Agreement
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to Fannie Mae, then and in every such case Fannie Mae
and Lender, subject to any determination in their proceeding, shall be restored
severally and respectively to their former positions, and thereafter all rights
and remedies of Fannie Mae shall continue as though no such proceeding had been
instituted.
ARTICLE 9
MISCELLANEOUS
Section 9.01. Benefit of Agreement. Any reference to any of the parties to
this Agreement shall be deemed to include the successors and assigns of such
party. All covenants and agreements contained in this Agreement are for the
benefit of the Lender and Fannie Mae and their respective successors and
assigns only, and nothing expressed or implied in this Agreement is intended to
be for the benefit of any other Person. It is the express intention of the
parties to this Agreement that Lender's obligations to make Delinquency
Advances and Servicing Advances and to pay Delinquency Resolution Costs in
connection with its loss sharing obligations
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under this Agreement are solely for the benefit of Fannie Mae and its
successors and assigns. The payment by Lender of any Delinquency Advance,
Servicing Advance or Delinquency Resolution Cost shall not release, diminish or
relieve the obligation of the related Borrower from making all payments
required by Borrower under the related Mortgage Loan.
Section 9.02. Notices. Each notice, request, instruction demand, consent,
or other approval (collectively, "notices" and singly "notice") given under
this Agreement shall be in writing to the other party at its address set forth
on the signature page of this Agreement or at such other address as such party
may designate by notice to the other party and shall be deemed given (a) three
(3) Business Days after mailing, by certified or registered U.S. mail, return
receipt requested, postage prepaid, (b) one (1) Business Day after delivery,
fee prepaid, to a national overnight delivery service (such as Federal Express,
Purolator Courier, or U.P.S. Next Day Air), (c) when delivered, if personally
delivered with proof of delivery thereof, or (d) on the date of transmission of
notice sent by facsimile machine if sent on a Business Day, otherwise on the
next Business Day. If notice is sent by facsimile machine, a copy also must be
sent by one of the methods set forth in (a) - (c) above, but notice will be
deemed given as provided in clause (d) above.
Each party to this Agreement agrees that it will not refuse or reject
delivery of any notice given under this Agreement, that it will acknowledge, in
writing, the receipt of the same upon request by the other party and that any
notice rejected or refused by it shall be deemed for all purposes of this
Agreement to have been received by the rejecting party on the date so refused
or rejected, as conclusively established by the records of the U.S. Postal
Service or the delivery or courier service.
Section 9.03. Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remaining provisions of this Agreement, and the validity, illegality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. If any covenant, stipulation, obligation or agreement of
Lender contained in this Agreement shall for any reason be held to be in
violation of law, then such covenant, stipulation, obligation or agreement
shall be deemed to be the covenant, stipulation, obligation or agreement of
Lender to the full extent permitted by law.
Section 9.04. Multiple Counterparts. This Agreement may be simultaneously
executed in multiple counterparts, all of which shall constitute one and the
same instrument and each of which shall be, and shall be deemed to be, an
original.
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Section 9.05. Termination of Delegated Underwriting and Servicing Master
Loss Sharing Agreement. Subject to the provisions of Section 8.01, this
Agreement shall terminate on the date that both of the following shall have
occurred: (i) Lender shall have completely and fully satisfied all of its
Payment Obligations with respect to all Mortgage Loans and no Mortgage Loans
remain outstanding; and (ii) Lender ceases to be an approved lender under
Delegated Underwriting and Servicing under the Contract.
Section 9.06. Survival. The terms and provisions of this Agreement shall
continue unimpaired without regard to any subsequent conveyance of any Mortgage
Loan by Fannie Mae to a trust formed by or on behalf of Fannie Mae for purposes
of selling ownership interests in such Mortgage Loan under Fannie Mae's
programs relating to Mortgage-Backed Securities. All covenants,
representations, warranties and obligations of Lender set forth in this
Agreement shall survive any subsequent conveyance by Fannie Mae of a Mortgage
Loan. The obligations of Lender under Article 6 shall survive the termination
of this Agreement (or the transfer of servicing of all or any of the Mortgage
Loans).
Section 9.07. Relationship to DUS Guide. In the event of an inconsistency
between the DUS Guide and this Agreement, the provisions of this Agreement
shall govern.
Section 9.08. Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
FEDERAL LAWS OF THE UNITED STATES, AND, TO THE EXTENT THERE IS NO APPLICABLE
FEDERAL LAW, THE LAWS OF THE DISTRICT OF COLUMBIA. LENDER AND FANNIE MAE SUBMIT
TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF COLUMBIA AND OF ANY DISTRICT OF COLUMBIA COURT SITTING IN THAT
JURISDICTION FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. LENDER AND FANNIE MAE
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. LENDER AND
FANNIE MAE IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
21
<PAGE> 26
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
duly executed by their duly authorized officers or representatives. This
Agreement shall be effective as of one day after the date of its execution by
Fannie Mae.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: /s/ THOMAS W. WHITE
--------------------------------------
Name: Thomas W. White
Title: Senior Vice President for
Multifamily Activities
Address: 3900 Wisconsin Avenue, N.W.
Washington, DC 20016
Attention: Multifamily Activities
Facsimile: (202) 752-4231
Telephone: (202) 752-7405
Date: As of March 1, 1994
--------------------
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD
By: /s/ SHEKAR NARASIMHAN
---------------------------------------
Name: Shekar Narasimhan
Title: President and Chief Executive officer
Address: 1593 Spring Hill Road, Suite 400
Vienna, VA 22182
Facsimile: (703) 821-0354
Telephone: (703) 790-0730
Date: February 14, 1994
------------------
22
<PAGE> 27
EXHIBIT A
MORTGAGE LOAN CERTIFICATE
This Mortgage Loan Certificate ("Certificate") forms an integral part of
the Master Loss Sharing Agreement (the "Agreement") between the Federal
National Mortgage Association and the Lender named below as in effect on the
date of the Certificate.
This Certificate is designed to identify the Mortgage Loan described below
as a Mortgage Loan to which the Agreement relates. By delivery to Fannie Mae of
the Mortgage Loan identified below, the Lender agrees that the representations
and warranties set forth in the Agreement with respect to Mortgage Loans shall
be applicable to the Mortgage Loan described in this Certificate. Lender
certifies to Fannie Mae that the following description of the Mortgage Loan is
true and correct in all respects.
DESCRIPTION OF MORTGAGE LOAN
Fannie Mae Commitment/Pool Number:
--------------------------
Commitment Date:
--------------------------------------------
Borrower:
---------------------------------------------------
Project Name:
-----------------------------------------------
Original Principal Balance:
---------------------------------
Gross Note Rate:
--------------------------------------------
Maturity Date:
----------------------------------------------
Lender is delivering this Mortgage Loan with an initial Loss Sharing Level of
___________.
Lender:
---------------------------------
----------------------------------------
a
---------------------------------------
By:
-------------------------------------
Printed Name:
---------------------------
Title:*
---------------------------------
Date:
-----------------------------------
* Must be signed by the President or a Vice President or by a General
Partner with authority to bind Lender.
A-1
<PAGE> 28
EXHIBIT B
LOSS SHARING FORMULA
PART VII - LOSS SHARING
This Part -- Loss Sharing -- describes the procedure for determining the
Lender's and Fannie Mae's respective shares of any loss that occurs on a
Mortgage Loan sold to Fannie Mae under Delegated Underwriting and Servicing.
First, the Reimbursement Base is calculated and allocated between Fannie Mae
and the Lender. Next, the Lender Deductible Amount is calculated. Finally, an
accounting is made to determine the required financial settlement and the Final
Settlement of Loss occurs.
This part consists of eight chapters:
Chapter 1 Total Lender Loss
Chapter 2 - Calculation of Reimbursement Base
Chapter 3 - Allocation of the Reimbursement Base
Chapter 4 - Lender Deductible Amount
Chapter 5 - Final Settlement of Loss
Chapter 6 - Accounting for Additional Collateral and Any
Property Funds Held by Lender
Chapter 7 - Examples
Chapter 8 - Procedures
(2/4/94)
<PAGE> 29
CHAPTER 1. TOTAL LENDER LOSS
SECTION 101. TOTAL LENDER LOSS
"Total Lender Loss" with respect to a Mortgage Loan means the sum of:
(i) The Lender's allocated share of the Reimbursement Base as set
forth in Part VII, Chapters 2 and 3;
(ii) The Lender Deductible Amount described in Part VII, Chapter 4,
Section 401;
(iii) The one-third portion of the total Delinquency Resolution Costs
that is not included in the Reimbursement Base;
(iv) Any amounts attributable to Missing Collateral (as set forth in
Part VII, Chapter 2); and
(v) Costs related to a Lender Workout, but the sum of (i), (ii) and
(iii) is subject to the limitation set forth in Section 102
below.
For MBS/DUS loans, payment of the Guaranty Fee as provided in Part XI is
an obligation of Lender and is not part of the loss sharing calculation.
SECTION 102. LIMITATION ON TOTAL LENDER LOSS
The sum of the amounts listed in Section 101(i), (ii), and (iii) above
with respect to a Mortgage Loan may never exceed the amount calculated by
multiplying the original principal balance of that Mortgage Loan by the maximum
lender loss percentage shown below for the Loss Level on the Date of Default
for the applicable Mortgage Loan:
<TABLE>
<CAPTION>
Loss Level at Maximum Lender Loss
Date of Default Percentage
--------------- -------------------
<S> <C>
I 20%
II 30%
III 40%
</TABLE>
SECTION 103. DEFINED TERMS
For purposes of this Part VII (and, unless a different definition is
otherwise provided in the Glossary, for purposes of the Guide), the following
definitions are applicable:
(2/4/94)
<PAGE> 30
Asset Valuation Date: As defined in the Loss Sharing Agreement, with
respect to any Mortgage Loan, the Asset Valuation Date shall be the earliest to
occur of the dates on which:
(i) Title to the related Mortgaged Property is vested in Fannie Mae,
whether as a result of a judicial foreclosure sale, a
non-judicial foreclosure sale or a deed-in-lieu of foreclosure,
but without regard to any applicable equity of redemption right
or statutory redemption period;
(ii) Fannie Mae receives the proceeds of any regularly conducted
foreclosure sale in respect of such Mortgage Loan;
(iii) Lender gives notice to Fannie Mae requesting that the Asset
Value of such Mortgage Loan be calculated after (A) a Payment
Default has not been cured, (B) Lender has recommended to Fannie
Mae, in accordance with the requirements set forth in the DUS
Guide, that Fannie Mae institute foreclosure or other lien
enforcement proceedings, as applicable, under the Security
Instrument and (C) Fannie Mae has rejected Lender's
recommendation;
(iv) Lender or Fannie Mae gives notice to the other party requesting
that the Asset Value of such Mortgage Loan be calculated;
provided, however, such notice may be given no earlier than two
years after the Date of Default;
(v) A court of competent jurisdiction confirms a plan of
reorganization affecting the owner of the Mortgaged Property
under Chapter 11 of the Federal Bankruptcy Code, as then in
effect, if Fannie Mae or Lender gives notice to the other party
specifying that the Asset Value of such Mortgage Loan be
calculated; or
(vi) Fannie Mae receives the proceeds of any sale of the Mortgaged
Property directed by a court of competent jurisdiction in a
bankruptcy proceeding.
Asset Value: As defined in the Loss Sharing Agreement, the dollar amount
equal, as applicable, to:
(i) the proceeds of the sale to a third party that is not Fannie
Mae, the Lender or an entity affiliated with the Lender of the
applicable Mortgaged Property at any regularly conducted
foreclosure sale or at any sale directed by a court of competent
jurisdiction in a bankruptcy proceeding; or
2
(2/4/94)
<PAGE> 31
(ii) the appraised value of such Mortgaged Property, as of the Asset
Valuation Date, as determined by "as-is" appraisal(s) conducted
in accordance with the terms of the Loss Sharing Agreement.
Business Day: As defined in the Loss Sharing Agreement, any day except a
Saturday, Sunday or other day on which Fannie Mae is not open for business.
Commitment Date: As defined in the Loss Sharing Agreement, the date of a
commitment to purchase a Mortgage Loan under Delegated Underwriting and
Servicing as shown on the Commitment Confirmation (as defined in the DUS Guide)
that is sent by Fannie Mae to Lender with respect to that Mortgage Loan or, if
there is a written commitment agreement other than or in addition to a
Commitment Confirmation between the Lender and Fannie Mae with respect to that
Mortgage Loan pursuant to which the Loss Sharing Agreement will apply, the date
such commitment agreement is accepted by the Lender.
Date of Default: As defined in the Loss Sharing Agreement, as to any
Mortgage Loan, the date of the first uncured Payment Default or Performance
Default.
Delinquency Advances: As defined in the Loss Sharing Agreement, any
payments that Lender makes, in whole or in part, out of its own funds and in
accordance with Section 5.02 of the Loss Sharing Agreement, in amounts equal to
principal and interest owed to Fannie Mae under a Mortgage Loan, calculated at
the Pass-Through Rate (not at the default interest rate), solely pursuant to
Lender's obligations to Fannie Mae and not with respect to the Borrower's
obligations under that Mortgage Loan.
Delinquency Resolution Costs: As defined in the Loss Sharing Agreement, as
to any Mortgage Loan, any costs, limited as provided below, paid or incurred by
Lender or Fannie Mae: (i) to commence and pursue foreclosure proceedings and
appointment of a receiver; (ii) to restructure a Mortgage Loan (except for
costs associated with any Lender Workout as discussed in the DUS Guide) on the
related Mortgaged Property that are directly related to such foreclosure
proceedings or restructurings and (iii) to commence and pursue collection (to
the extent paid or incurred prior to the Asset Valuation Date) under a guaranty
or similar obligation, including exceptions to non-recourse under the Mortgage
Loan, under documents assigned to or otherwise benefitting Fannie Mae.
Delinquency Resolution Costs are limited to reasonable attorneys' fees, court
costs, recordation and transfer fees, environmental assessments, appraisal
costs (but only if obtained in connection with bankruptcy proceedings or under
the written direction of Fannie Mae) and similar costs necessary to achieve
foreclosure, appointment of a receiver, or restructuring, all as approved by
Fannie Mae.
- 3 -
(2/4/94)
<PAGE> 32
Final Settlement of Loss: As defined in the Loss Sharing Agreement, the
determination by Fannie Mae, pursuant to the Loss Sharing Agreement (including
either Exhibit B to such Agreement with respect to any Mortgage Loan listed on
Exhibit C to such Agreement or the Loss Sharing Formula in the DUS Guide as in
effect on the Commitment Date for any other Mortgage Loan), of the final
allocation of losses to be borne by Fannie Mae and Lender in respect of a
defaulted Mortgage Loan and the payment of any amounts pursuant to such
determination.
5% Amount: As defined in the Loss Sharing Agreement, 5% of the actual
unpaid principal balance of the Mortgage Loan on the Date of Default.
Interim Loss Sharing Adjustment: As described in the Loss Sharing
Agreement.
Lender Deductible Amount: As described in Part VII, Section 401.
Lender Outlays: Actual expenditures with respect to a Mortgage Loan made
by the Lender and evidenced to Fannie Mae's satisfaction for (i) Delinquency
Advances, not including amounts exceeding the 5% Amount that are returned by
Fannie Mae to the Lender under an Interim Loss Sharing Adjustment, (ii)
Servicing Advances not reimbursed or otherwise paid by Fannie Mae, and (iii)
that portion of two-thirds of the total Delinquency Resolution Costs not
reimbursed or otherwise paid by Fannie Mae.
Loss Level: As defined in the Loss Sharing Agreement, any of Level, I,
Level II or Level III, as applicable.
Loss Sharing Formula: As defined in the Loss Sharing Agreement, with
respect to any Mortgage Loan listed on Exhibit C to the Loss Sharing Agreement,
the provisions set forth in Exhibit B to the Loss Sharing Agreement, or, for
any other Mortgage Loan, the provisions of the DUS Guide (excluding the
examples and the procedures) in effect on the Commitment Date for such Mortgage
Loan, that set forth how the loss on a Mortgage Loan will be calculated and
allocated between Fannie Mae and the Lender and how the Final Settlement of
Loss will be determined.
Mortgage Loan: As defined in the Loss Sharing Agreement, a multifamily
mortgage loan that is or will be either originated and sold by Lender to Fannie
Mae under Delegated Underwriting and Servicing or with respect to which Lender
has assumed or will assume the loss sharing obligations under Delegated
Underwriting and Servicing, which mortgage loan upon delivery to Fannie Mae is
evidenced by a Note and is secured by a Security Instrument and other documents
executed and delivered with respect to that mortgage loan and with respect to
which either a Mortgage Loan Certificate has been or will be delivered or
deemed delivered to
- 4 -
(2/4/94)
<PAGE> 33
Fannie Mae or which is listed on Exhibit C to the Loss Sharing Agreement.
Mortgage Loan Certificate: As defined in the Loss Sharing Agreement, a
certificate in the form of Exhibit A to the Loss Sharing Agreement, delivered
by Lender to Fannie Mae with each Mortgage Loan delivered after the effective
date of such agreement.
Mortgaged Property: As defined in the Loss Sharing Agreement, the property
that secures a Note, which consists of the land, as described in the related
Security Instrument, and all buildings and other improvements, including the
multifamily housing project, made to and located on the land, together with all
fixtures, equipment and furniture affixed or attached thereto or located
thereon, as more specifically provided in the applicable Security Instrument.
Pass-Through Rate: That portion of the stated interest rate on a Mortgage
Loan that is required to be passed through to Fannie Mae after reduction for
the Servicing Fee retained by the servicer of that Mortgage Loan and, if Fannie
Mae has issued a Mortgage-Backed Security (MBS) with respect to that Mortgage
Loan, the Guaranty Fee.
Payment Default: As defined in the Loss Sharing Agreement, the failure of
a Borrower to pay when due and in full any payment(s) required with respect to
the related Mortgage Loan, including, but not limited to, principal, interest,
late charges, default interest, prepayment premium, escrows or other collateral
accounts for taxes, insurance premiums and assessments, other collateral
accounts and the Replacement Reserve. For example, scheduled principal and
interest payments are past due on the second day of a calendar month.
Performance Default: As defined in the Loss Sharing Agreement, the failure
of a Borrower to perform any promise or covenant under the related Mortgage
Loan other than a failure that constitutes a Payment Default.
Prepayment Premium: The prepayment premium required to be paid under the
terms of a Mortgage Loan, calculated and determined as described in the
applicable Loan Documents.
Property Disposition Costs: Either (a) if the disposition of the Mortgage
Property occurs on or prior to the Asset Valuation Date, the actual amounts
expended in the sale or other transfer of a Mortgaged Property to a party other
than the Lender or Fannie Mae (or their nominees, agents or affiliates)
following acquisition of title to the property by or on behalf of Fannie Mae
for attorney's fees and expenses, title insurance, real estate commissions and
brokerage fees; or (b) if the disposition of Mortgaged Property has not
occurred on or prior to the Asset Valuation Date, the amount determined by
multiplying the Asset Value by (i) 3%, if the Asset
- 5 -
(2/4/94)
<PAGE> 34
Value is more than $10 million, (ii) 4.5%, if the Asset Value is more than $5
million but not more than $10 million, or (iii) 6%, if the Asset Value is $5
million or less.
Reimbursement Base: As described in Part VII, Section 201.
Scheduled Unpaid Principal Balance: The unpaid principal balance of a
Mortgage Loan as of a particular date that is scheduled to be unpaid under the
amortization schedule applicable to that Mortgage Loan but also taking into
account all actual unscheduled principal prepayments (for example, a prepayment
due to a partial condemnation or a drawing of an achievement letter of credit).
Servicing Advances: As defined in the Loss Sharing Agreement, the payments
Lender makes out of its own funds and in accordance with Section 5.03 of the
Loss Sharing Agreement for taxes, assessments, insurance premiums and other
items (other than principal and interest) owed or expended with respect to a
Mortgaged Property solely pursuant to Lender's obligations to Fannie Mae and
not with respect to the Borrower's obligations under the Mortgage Loan.
Total Lender Loss: As described in Part VII, Section 101.
- 6 -
(2/4/94)
<PAGE> 35
Chapter 2. Calculation of Reimbursement Base
Section 201. Calculation of Reimbursement Base
The Reimbursement Base is the portion of loss on a Mortgage Loan to be
allocated between the Lender and Fannie Mae and is calculated as described in
this Chapter 2. The Reimbursement Base will be determined only after the Asset
Valuation Date and the Asset Value have been established, the Lender has
submitted the materials required by Part VII (or, if the Lender fails to submit
such information, Fannie Mae has made a determination of the related amounts) ,
and Fannie Mae has reviewed the materials and determined the allowable amount
of any Delinquency Advances, Servicing Advances, Delinquency Resolution Costs
and the amount of any additions or deductions listed below.
The Property Regional Office will calculate the Reimbursement Base and
notify the Lender of the allocation of loss within 30 days of Fannie Mae's
receipt from the Lender of all of the materials required by Part VII and, if
the Asset Value is determined by appraisal, receipt of the final appraisal. The
Lender must submit all materials no later than 30 days after the Lender
receives the as-is appraisal ordered by the Lender. If the Lender does not
timely submit all of the required information, Fannie Mae will ascertain the
necessary information and determine the amount of the Reimbursement Base.
Specifically, the "Reimbursement Base" with respect to a Mortgage Loan
means the amount calculated as follows:
(a) Add all of the following amounts:
(i) The Scheduled Unpaid Principal Balance of the Mortgage Loan on
the last day immediately preceding the Asset Valuation Date;
(ii) Delinquency Advances, actually made by the Lender and evidenced
to Fannie Mae's satisfaction, but not including amounts
exceeding the 5% Amount that are returned by Fannie Mae to the
Lender under any Interim Loss Sharing Adjustment made with
respect to that Mortgage Loan;
(iii) Amounts equal to the scheduled principal and interest payments
on that Mortgage Loan at the Pass-Through Rate on and after the
Date of Default excluding amounts advanced as Delinquency
Advances by the Lender or paid, in whole or in part, by or on
behalf of the Borrower;
(iv) Servicing Advances (excluding those for amounts described in
paragraph (v) below), evidenced to
- 7 -
(2/4/94)
<PAGE> 36
Fannie Mae's satisfaction, actually made by the Lender (and
determined by Fannie Mae to be allowable), and amounts
reimbursed or otherwise paid by Fannie Mae for items that, if
paid by Lender, would be includable as such Servicing Advances;
(v) An amount equal to the sum of all Property related taxes,
assessments and impositions (including real estate taxes) and
Property related insurance premiums, whether paid or unpaid,
allocable to the period prior to the Asset Valuation Date,
except to the extent paid by or on behalf of the Borrower;
(vi) Two-thirds of total allowable Delinquency Resolution Costs; and
(vii) Either (A) the Prepayment Premium owed under the Note
calculated using the Pass-Through Rate as if that Mortgage Loan
had been accelerated on the Asset Valuation Date, if that
Mortgage Loan were purchased by Fannie Mae for cash, or (B) the
Prepayment Premium calculated as set forth in Part VII, Section
202, if that Mortgage Loan were purchased by Fannie Mae under
MBS/DUS.
(b) Subtract from the sum calculated in (a) the sum of all of the
following amounts:
(i) The Asset Value (net of Property Disposition Costs);
(ii) All cash or funds in escrows, reserves, Custodial Accounts or
other collateral held by the Lender or Fannie Mae in connection
with the Property and any not yet drawn balance under a Letter
of Credit that may still be drawn that is held by the Lender or
Fannie Mae in connection with the Property, provided that such
cash, funds, proceeds or other amounts are in the possession of
Fannie Mae or the Lender and are available to satisfy the
Borrower's obligations under the Mortgage Loan (collectively,
the "Additional Collateral");
(iii) The amount of any escrow, reserve or other collateral required
by this Guide that erroneously was not collected or was
erroneously disbursed by the Lender, the value of any other
collateral against which a lien required by this Guide was not
perfected or continued due to the Lender's failure properly to
file Uniform Commercial Code
- 8 -
(2/4/94)
<PAGE> 37
financing statements, and the amount of any Letter of Credit
required by this Guide which the Lender erroneously returned or
failed to draw prior to expiration (collectively, the "Missing
Collateral");
(iv) The Lender Deductible Amount, as provided in Part VII, Chapter
4, Section 401; and
(v) Any amount recovered on or prior to the Asset Valuation Date
from a guaranty, indemnification or similar obligation made with
respect to the Mortgage Loan that benefits Fannie Mae.
SECTION 202. PREPAYMENT PREMIUM FOR MORTGAGE LOANS PURCHASED UNDER MBS/DUS
If the Asset Valuation Date occurs in a Loan Year in which a Prepayment
Premium would be due as a result of an acceleration under a Mortgage Loan
purchased by Fannie Mae under MBS/DUS, the Prepayment Premium for purposes of
calculating the Reimbursement Base will be calculated in accordance with the
following formula:
GF x P x UPB
-------
GF + SF
Where: GF = Guaranty Fee rate for that Mortgage
Loan
SF = Servicing Fee rate for that Mortgage
Loan
P = Prepayment Premium percentage for
the applicable Loan Year, as
described in the Note for that
Mortgage Loan
UPB = actual unpaid principal balance of
the Mortgage Loan on the last day
immediately preceding the Asset
Valuation Date
- 9 -
(2/4/94)
<PAGE> 38
CHAPTER 3. ALLOCATION OF THE REIMBURSEMENT BASE
SECTION 301. ALLOCATION OF THE REIMBURSEMENT BASE
(a) If the Reimbursement Base is a positive number, the sharing of the
losses included in the Reimbursement Base will be determined based
upon the following ratios:
(i) Initial Reimbursement Base Allocation. The portion of the
Reimbursement Base which is less than or equal to 20 percent of
the actual unpaid principal balance of the Mortgage Loan on the
last day immediately preceding the Asset Valuation Date is
allocated as follows:
<TABLE>
<CAPTION>
Loss Level at Fannie Mae Lender
Date of Default Allocation Allocation
--------------- ----------- ----------
<S> <C> <C>
I 75% 25%
II 60% 40%
III 50% 50%
</TABLE>
(ii) Remaining Reimbursement Base Allocation. Any remaining portion
of the Reimbursement Base is allocated as follows:
<TABLE>
<CAPTION>
Loss Level at Fannie Mae Lender
Date of Default Allocation Allocation
--------------- ----------- ----------
<S> <C> <C>
I 90% 10%
II 75% 25%
III 70% 30%
</TABLE>
(b) If the Reimbursement Base is a negative number, then the entire
negative Reimbursement Base (as a negative number) is allocated to
the Lender in calculating the Total Lender Loss, as provided in Part
VII, Section 101.
- 10 -
(2/4/94)
<PAGE> 39
CHAPTER 4. LENDER DEDUCTIBLE AMOUNT
SECTION 401. LENDER DEDUCTIBLE AMOUNT
The "Lender Deductible Amount" means the amount calculated by multiplying
the actual unpaid principal balance of a Mortgage Loan on the last day
immediately preceding the Asset Valuation Date for such Mortgage Loan by the
percentage specified below that is applicable for the Loss Level for that
Mortgage Loan determined as provided in the Loss Sharing Agreement:
<TABLE>
<CAPTION>
Loss Level Lender Deductible
at Date of Default Amount Percentage
------------------- -------------------
<S> <C>
I 5%
II 10%
III 15%
</TABLE>
For purposes of calculating the Lender Deductible Amount, default interest is
not added to principal in determining the actual unpaid principal amount.
- 11 -
(2/4/94)
<PAGE> 40
CHAPTER 5. FINAL SETTLEMENT OF LOSS
SECTION 501. FINAL SETTLEMENT OF LOSS
After the Reimbursement Base is calculated, Fannie Mae will give the Lender
notice of the loss settlement determination and Fannie Mae and the Lender will
settle the loss on a Mortgage Loan as follows:
(a) Fannie Mae will verify and approve the amount of Lender Outlays the
Lender has made with respect to that Mortgage Loan.
(b) If the Total Lender Loss is a positive number and exceeds the sum of
(i) the Lender Outlays, (ii) the portion of the one-third of total
Delinquency Resolution Costs not included in the Reimbursement Base
and paid by Lender (but not reimbursed by Fannie Mae), and (iii) any
costs related to a Lender Workout, then the Lender owes Fannie Mae
the amount of that difference.
(c) If the Total Lender Loss is a positive number and is less than the
sum of (i) the Lender Outlays, (ii) the portion of the one-third of
total Delinquency Resolution Costs not included in the Reimbursement
Base and paid by Lender (but not reimbursed by Fannie Mae), and (iii)
any costs related to a Lender Workout, then Fannie Mae owes the
Lender the amount of that difference.
(d) If the Total Lender Loss (calculated without regard to costs related
to a Lender Workout) is a negative number, then Fannie Mae owes the
Lender the sum of the Lender Outlays and the portion of the one-third
of the Delinquency Resolution Costs that were paid by Lender and not
reimbursed by Fannie Mae.
(e) The Lender or Fannie Mae, as applicable, must make payment of any
amount owed in (b), (c) or (d) above by wire transfer of immediately
available funds within five Business Days of the date of Fannie Mae's
notice to the Lender of such loss settlement determination. As more
specifically provided in the Loss Sharing Agreement, Fannie Mae's
obligation to make any such payment is conditioned upon the Lender's
not being in default under its Contract, Reserve Agreement or Loss
Sharing Agreement or the DUS Guide.
- 12 -
(2/4/94)
<PAGE> 41
CHAPTER 6. ACCOUNTING FOR ADDITIONAL COLLATERAL AND ANY OTHER PROPERTY
HELD BY LENDER
SECTION 601. PAYMENT TO FANNIE MAE
Within five Business Days of the date of Fannie Mae's notice to the Lender
of the loss settlement determination with respect to a Mortgage Loan, the
Lender must deliver to Fannie Mae all Additional Collateral, sales proceeds,
net operating income, amounts recovered under a guaranty or other similar
documentation and any other amounts in the Lender's possession or under its
control with respect to that mortgage Loan or Mortgaged Property that are not
already held by Fannie Mae.
- 13 -
(2/4/94)
<PAGE> 42
EXHIBIT C [OMITTED]
EXHIBIT D
CONSENT TO INTERIM LOSS SHARING ADJUSTMENT
Date:
--------------
[Lender]
- - -------------------
- - -------------------
Dear :
---------------
Fannie Mae consents to the application of the Interim Loss Sharing
Adjustment(1), as set forth in Section 5.05 of the Master Loss Sharing Agreement
between you and Fannie Mae, as currently in effect, to the Mortgage Loan
described below:
Mortgage Loan on [Project Name]:
--------------------------------------
Fannie Mae Commitment/Pool No.:
---------------------------------------
Project Location:
-----------------------------------------------------
Borrower:
-------------------------------------------------------------
Effective for payments due beginning __________[month]_____________,
______[year]_____, your obligation to make Delinquency Advances and Servicing
Advances and to pay Delinquency Resolution Costs (each as defined in the Master
Loss Sharing Agreement) is reduced to the level required under the Interim Loss
Sharing Adjustment provisions of that agreement and Fannie Mae will make
reimbursements of Servicing Advances and Delinquency Resolution Costs as
provided in that Agreement.
Sincerely,
[Vice President/Property
Regional Office]
- - --------------------
(1) The Interim Loss Sharing Adjustment is available only for loans at
Level I to a Lender not in default under any agreement with Fannie Mae.
D-1
<PAGE> 1
EXHIBIT 10.4
==============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DELEGATED UNDERWRITING AND SERVICING RESERVE AGREEMENT
AMONG
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
STATE STREET BANK AND TRUST COMPANY
AND
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD.
==============================================================================
THIS INSTRUMENT CONSTITUTES A SECURITY
AGREEMENT FOR PURPOSES OF ARTICLE 9 OF
THE UNIFORM COMMERCIAL CODE
[4/96]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
STATEMENT OF AMENDMENT AND RESTATEMENT . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE I
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
GRANT OF SECURITY INTEREST
Section 2.01. Grant of Security Interest . . . . . . . . . . . . . . . . . 13
ARTICLE III
DELIVERY AND ADMINISTRATION OF ACCEPTABLE COLLATERAL
Section 3.01. Delivery of Acceptable Collateral . . . . . . . . . . . . . 14
Section 3.02. Calculation of the Aggregate Reserve
Requirement . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.03. Monthly Valuation of Acceptable
Collateral; Reduction of Collateral . . . . . . . . . . . . 17
Section 3.04. Administration of Acceptable Collateral . . . . . . . . . . 19
Section 3.05. Substitution of Acceptable Collateral . . . . . . . . . . . 22
Section 3.06. Release of Acceptable Collateral . . . . . . . . . . . . . . 22
Section 3.07. Change in Aggregate Reserve Requirement . . . . . . . . . . 22
Section 3.08. Custodian Reliance on Fannie Mae Reports . . . . . . . . . . 23
Section 3.09. Servicing Fee Reserve . . . . . . . . . . . . . . . . . . . 23
Section 3.10. Qualifying Lender Determination;
Withdrawal by Fannie Mae . . . . . . . . . . . . . . . . . . 23
Section 3.11. Application of PERQ Rates to Loans that
Become Mortgage Loans Pursuant to this
Agreement when Lender is a Qualifying
Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.12. Investment Guidelines for Acceptable
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF LENDER
Section 4.01. Consents to Transfer . . . . . . . . . . . . . . . . . . . . 28
Section 4.02. Existence and Power . . . . . . . . . . . . . . . . . . . . 28
Section 4.03. Authorization and Non-contravention . . . . . . . . . . . . 28
Section 4.04. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.05. Governmental Consents . . . . . . . . . . . . . . . . . . . 29
Section 4.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.07. Title to Acceptable Collateral . . . . . . . . . . . . . . . 29
Section 4.08. Relationship with Custodian . . . . . . . . . . . . . . . . 29
Section 4.09. Showings . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.10. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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ARTICLE V
REPRESENTATIONS OF CUSTODIAN
Section 5.01. Existence and Power . . . . . . . . . . . . . . . . . . . . 30
Section 5.02. Authorization and Non-contravention . . . . . . . . . . . . 30
Section 5.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.04. Relationship with Lender . . . . . . . . . . . . . . . . . . 30
Section 5.05. Financial Intermediary. . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI
COVENANTS OF LENDER
Section 6.01. Performance of Obligations . . . . . . . . . . . . . . . . . 31
Section 6.02. Good Standing . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.03. Further Assurances . . . . . . . . . . . . . . . . . . . . . 31
Section 6.04. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 31
Section 6.05. Aggregate Reserve Requirement . . . . . . . . . . . . . . . 31
Section 6.06. Information with Respect to Lender;
Lender's Counsel Opinion . . . . . . . . . . . . . . . . . . 32
Section 6.07. Compliance by Lender with Investment
Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
COVENANTS AND DUTIES OF CUSTODIAN
Section 7.01. Safekeeping of Acceptable Collateral . . . . . . . . . . . . 32
Section 7.02. Maintenance of Records . . . . . . . . . . . . . . . . . . . 33
Section 7.03. Delivery of Opinions of Counsel . . . . . . . . . . . . . . 33
Section 7.04. Acceptance of Duties and Obligations . . . . . . . . . . . . 33
Section 7.05. Fees, Charges and Expenses of Custodian . . . . . . . . . . 36
Section 7.06. Notice to Fannie Mae if Default Occurs . . . . . . . . . . . 36
Section 7.07. Corporate Custodian Required;
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.08. Successor Custodian by Merger,
Consolidation, Etc. . . . . . . . . . . . . . . . . . . . . . 37
Section 7.09. Resignation of Custodian . . . . . . . . . . . . . . . . . . 37
Section 7.10. Removal of Custodian . . . . . . . . . . . . . . . . . . . . 37
Section 7.11. Appointment Successor Custodian . . . . . . . . . . . . . . 37
Section 7.12. Concerning Any Successor Custodian . . . . . . . . . . . . . 38
Section 7.13. Protection of Lien . . . . . . . . . . . . . . . . . . . . . 38
Section 7.14. Compliance by Custodian with Investment Guidelines . . . . . 39
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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ARTICLE IX
REMEDIES
Section 9.01. Remedies of Fannie Mae . . . . . . . . . . . . . . . . . . . 40
Section 9.02. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . 42
Section 9.03. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . 42
Section 9.04. Restoration of Rights and Remedies . . . . . . . . . . . . . 42
Section 9.05. Effect of Cure Periods on Remedies . . . . . . . . . . . . . 43
Section 9.06. Additional Security; Right to Set-Off . . . . . . . . . . . 43
Section 9.07. Liquidation of Collateral . . . . . . . . . . . . . . . . . 43
ARTICLE X
MISCELLANEOUS
Section 10.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.02. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.03. Termination . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.04. Amendments and Waivers . . . . . . . . . . . . . . . . . . . 45
Section 10.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.06. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.07. Relationship to DUS Guide . . . . . . . . . . . . . . . . . 45
Section 10.08. Governing Law; Submission to
Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . 45
</TABLE>
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EXHIBITS
Exhibit A - Form of Certificate of Authorized Representatives
Exhibit B - Letter of Acceptable Collateral
Exhibit C - Letter of Confirmation
Exhibit D - Form of Opinion of Counsel for Lender (Upon
Execution of Reserve Agreement)
Exhibit E - Form of Irrevocable Letter of Credit (Evergreen)
Exhibit F - Form of Irrevocable Letter of Credit
Exhibit G - Form of Opinion of Counsel to Issuer of Letter of
Credit
Exhibit H - Form of Opinion of Counsel to Issuer of Letter of
Credit Regarding Amendment of Letter of Credit
Exhibit I - Assignment
Exhibit J - Form of Opinion of Counsel for Lender (Upon
Delivery and Pledge of an Existing Investment
Agreement, Permitted Investment or Funds with
Instructions to Invest in Permitted Investments)
Exhibit K - Form of Description of Collateral for Financing
Statements
Exhibit L - Form of Opinion of Counsel for Custodian
Exhibit M - Custodian's Schedule of Fees
Exhibit N - PERQ Credit
Exhibit 0 - Lender's General Partners
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This Delegated Underwriting and Servicing Reserve Agreement (the
"Agreement") is made by and among the FEDERAL NATIONAL MORTGAGE ASSOCIATION, a
corporation organized and existing under the laws of the United States of
America ("Fannie Mae"), WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware
corporation ("Lender") and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
banking corporation having its principal place of business in Boston,
Massachusetts ("Custodian"). This Agreement is effective as of the date of
execution by Fannie Mae.
RECITALS
A. Fannie Mae offers a multifamily product line called Delegated
Underwriting and Servicing, under which Fannie Mae purchases multifamily
mortgage loans from, and provides credit enhancement for multifamily mortgage
loans underwritten by, approved multifamily mortgage lenders that underwrite,
originate, sell and service such mortgage loans.
B. In connection with Lender's approval by Fannie Mae for
Delegated Underwriting and Servicing, Fannie Mae and Lender have entered or are
entering into the Contract (as defined below).
C. Lender and Fannie Mae agree to share in any losses on Mortgage
Loans that Fannie Mae purchases from Lender or on Mortgage Loans for which
Fannie Mae provides credit enhancement based on Lender's underwriting of such
Mortgage Loans under Delegated Underwriting and Servicing, or on Mortgage Loans
as to which Lender assumes the loss sharing obligations under Delegated
Underwriting and Servicing, and to secure Lender's obligations under Delegated
Underwriting and Servicing, Lender is required to establish a reserve by
delivering Acceptable Collateral (as defined below) to Fannie Mae under the
terms of this Agreement.
D. Fannie Mae and Lender have entered into or are entering into
the Loss Sharing Agreement (as defined below) to provide for the manner in
which Fannie Mae and Lender, with respect to each Mortgage Loan purchased by
Fannie Mae from Lender under Delegated Underwriting and Servicing, each
Mortgage Loan for which Fannie Mae provides credit enhancement based on
Lender's underwriting of such Mortgage Loan for Delegated Underwriting and
Servicing and any other Mortgage Loan with respect to which Lender assumes loss
sharing obligations under Delegated Underwriting and Servicing, will share in
any losses with respect to such Mortgage Loan and for certain remedies of
Fannie Mae.
E. Custodian, as Fannie Mae's collateral agent and bailee, will
hold and administer Collateral delivered by Lender to Custodian under this
Agreement.
F. Fannie Mae, Custodian and Lender wish to set forth the terms
and conditions for the delivery and administration of such Collateral.
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NOW THEREFORE, in consideration of the mutual covenants and
undertakings set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, Fannie
Mae, Lender and Custodian agree as follows:
STATEMENT OF AMENDMENT AND RESTATEMENT
THIS AGREEMENT constitutes an amendment and restatement in its
entirety of a Delegated Underwriting and Servicing Reserve Agreement, as
amended and restated (the "Prior Agreement"), executed and delivered among
Fannie Mae, Custodian and Lender. This Agreement also amends and restates the
following agreements among Fannie Mae, Lender and Custodian which supplemented
the Prior Agreement, but only to the extent that the Prior Agreement is
affected:
- Mews Loan Supplement to Delegated Underwriting and Servicing
Reserve Agreement
- Desert Shadows Loan Supplement to Delegated Underwriting
and Servicing Reserve Agreement
- Credit Enhancement Addendum
- Carlin Loan Supplement to Delegated Underwriting and Servicing
Reserve Agreement
Lender and Fannie Mae authorize and direct Custodian to hold under this
Agreement any Collateral delivered by Lender and held by Custodian under the
Prior Agreement, as though such Collateral were initially delivered under this
Agreement, but as of its original delivery under the Prior Agreement. All
representations, warranties and covenants made by Lender in the Prior Agreement
shall continue to bind Lender under this Agreement.
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms in this Agreement
shall have the following meanings:
"ACCEPTABLE COLLATERAL" means one or more Letters of Credit, one or
more Existing Investment Agreements, one or more Permitted Investments held in
accordance with the Investment Guidelines, or any combination thereof.
"ACQUISITION DATE" means, with respect to a Permitted Investment,
the date of delivery by Lender to, or purchase by, Custodian pursuant to this
Agreement.
"AGGREGATE RESERVE REQUIREMENT" means, as of any date of
determination, the amount in U.S. Dollars equal to the greater of the
following:
(a) (i) $500,000 or (ii) if Lender has been determined at any time
to have been or to be a Qualifying Lender pursuant to this Agreement,
$1,500,000; or
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(b) the sum of the Base Reserve Amount and the Risk-Based Reserve
Amount (and, if applicable pursuant to Exhibit N of this Agreement, the
PERQ Credit, if any, as of such date of determination).
"AUTHORIZED REPRESENTATIVE" means each individual at the time
designated to act in such capacity under this Agreement in a written
certificate, substantially in the form of Exhibit A to this Agreement,
furnished to the Custodian and containing the specimen signature of such
individual and executed on behalf of Fannie Mae by its President or any Vice
President, on behalf of Custodian by its President or any Vice President or
duly authorized Assistant Vice President in its Corporate Trust Department or
on behalf of Lender by its President or any Vice President, its manager or
authorized member, or its managing general partner, as applicable; provided,
however, that if Lender is a depository institution, any Authorized
Representative for Lender must hold the office of Vice President or higher.
"BASE RESERVE AMOUNT" means, as of any date of determination, the
aggregate amount in U.S. Dollars determined in accordance with (a) through (c)
below:
(a) $500,000; plus
(b) $5.00 per each $1,000 (.50%) of that portion, if any, of the
aggregate unpaid principal balance of all Mortgage Loans that is equal to
or less than $50 million; plus
(c) $2.50 per each $1,000 (.25%) of that portion, if any, of the
aggregate unpaid principal balance of all Mortgage Loans that is greater
than $50 million but less than or equal to $150 million.
"BORROWER" means the Person or Persons obligated under a note,
security instruments and other documents executed and delivered with respect to
a Mortgage Loan.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or any
other day on which Fannie Mae, Custodian or the Federal Reserve Bank of New
York is not open for business.
"COLLATERAL" means Acceptable Collateral, any funds, securities or
other assets on deposit in the Collateral Account and any other funds,
securities or other assets in which Lender has an interest delivered to or
otherwise held by Custodian under this Agreement or Fannie Mae (including any
amounts at any time credited or due to Lender from Fannie Mae) other than, with
respect to any warehouse bank with which Fannie Mae has entered into a "bailee
letter" pursuant to the DUS Guide, any "Note" and "Additional Documents" so
long as such property is held by Fannie Mae as bailee for the benefit for such
warehouse bank pursuant to such bailee letter.
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"COLLATERAL ACCOUNT" has the meaning set forth in Section 3.04(e)
of this Agreement.
"COLLATERAL DELIVERY DATE" means any date on which Lender delivers
Collateral to Custodian in accordance with Article III of this Agreement.
"COLLATERAL VALUE" means, with respect to:
(a) a Letter of Credit, the face amount of such Letter of Credit,
except that the Collateral Value of a Letter of Credit issued by a Person
that is not a Qualified Issuer shall be zero;
(b) an Existing Investment Agreement, the Invested Funds stated in
such Existing Investment Agreement without regard to any accrual of
interest, except that the Collateral Value of an Existing Investment
Agreement with respect to which Custodian has actual knowledge, or has
received notice from Fannie Mae, that Lender has defaulted in the
performance or observance of any representation, warranty or agreement in
Section 4.07 of this Agreement shall be zero; and
(c) any Permitted Investment, the following value of such
Permitted Investment at the Acquisition Date as determined by Custodian,
except that the Collateral Value of a Permitted Investment with respect
to which Custodian has actual knowledge, or has received notice from
Fannie Mae, that Lender has defaulted in the performance or observance of
any representation, warranty or agreement in Section 4.07 of this
Agreement shall be zero:
(i) Government Obligations, the product of (A) the
outstanding principal balance of each such Government Obligation,
multiplied by (B) the lower of the bid or offered prices for such
Government Obligations being valued on the Acquisition Date, which
Custodian obtains either from at least two nationally recognized
dealers or, if the bid and offered prices for such Government
Obligations being valued are regularly published in The Wall Street
Journal by reference to such prices so published on or most
recently before the Acquisition Date;
(ii) Discount notes, discount commercial paper or other
short-term discount obligations described in clauses (b) and (d) of
the definition of Permitted Investments, the accreted value thereof
on the Acquisition Date (determined by taking into account the date
of issuance, date of maturity and amount payable at maturity
according to the terms of such investment, and assuming
straight-line accretion of such value over the term);
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(iii) Interest-bearing short-term obligations, other than
discount obligations, described in clauses (b), (d) or (e) of the
definition of Permitted Investments, the face amount thereof,
without regard to accrued interest, if any, on the Acquisition
Date;
(iv) Repurchase agreements, the bid prices of the securities
subject to repurchase as quoted by a recognized pricing service as
of the close of business on the Business Day immediately preceding
the Acquisition Date (the "Bid Price"), minus the applicable Margin
(as defined below). If such bid prices are not so available,
Custodian shall be authorized to use the most current price
information provided by any recognized pricing service. If no bid
prices are so available, Custodian shall be authorized to price the
repurchase agreement by contacting any dealer designated as a
"primary dealer" by the Federal Reserve Bank of New York and
relying upon any price quoted by such "primary dealer" as if it
were quoted by a recognized pricing service. As used herein,
"Margin" shall mean with respect to any repurchase agreement, the
product of (1) the Bid Price, multiplied times (2) the percentage
amount by which the applicable percentage set forth in Section
3.12(e)(iii) (as determined by the nature of securities subject to
repurchase) exceeds 100%;
(v) Investment agreements between Fannie Mae and Custodian,
the "invested funds" stated in such investment agreement (without
regard to any accrual of interest);
(vi) Any Permitted Investments, described in clause (g) of
the definition of Permitted Investments, the result of such
valuation method as determined by Fannie Mae by notice to Custodian
on the Acquisition Date.
"CONTRACT" means the Mortgage Selling and Servicing Contract
between Lender and Fannie Mae, as amended by the Delegated Underwriting and
Servicing Addendum, and as such agreement may be further amended or
supplemented from time to time.
"CUSTODIAN" means State Street Bank and Trust Company, or any
successor thereto (including any successor appointed under this Agreement in
the event of the resignation or removal of State Street Bank and Trust Company
or a successor as Custodian).
"DUS GUIDE" means the Fannie Mae Multifamily Delegated Underwriting
and Servicing Guide, as such guide may be amended or supplemented from time to
time by Fannie Mae including, by way of example and not limitation, any DUS
Lender Memos, announcements or guide updates, providing for certain terms and
conditions applicable to Lender's sale and assignment of Mortgage Loans to
Fannie Mae, Mortgage Loans for which Fannie Mae provides credit enhancement and
Lender's servicing obligations with respect to such Mortgage Loans.
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"EVENT OF DEFAULT" means any of the events described in Article
VIII of this Agreement.
"EXISTING INVESTMENT AGREEMENT" means an investment agreement in
effect as of the date of execution by Fannie Mae of this Agreement, including
any subsequent amendments, supplements or extensions, between Fannie Mae and
Lender in form satisfactory to Fannie Mae pursuant to which Fannie Mae agrees
to pay interest on Invested Funds (as defined in such agreement) at the rate
and for the term set forth in such agreement.
"FEDERAL FUNDS" means an interest-bearing, overnight sale by
Custodian in its commercial banking capacity of Federal funds on deposit in
Custodian's reserve account with the Federal Reserve Bank District in which
Custodian's principal office is located, pursuant to which such funds, together
with interest payable thereon, shall be remitted to Custodian on the next
Business Day.
"FINAL SETTLEMENT OF LOSS" means the determination by Fannie Mae,
pursuant to the Loss Sharing Agreement, of the final allocation of losses to be
borne by Fannie Mae and Lender in respect of a defaulted Mortgage Loan and the
payment of any amounts pursuant to such determination.
"GOVERNMENTAL BODY" means any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
"GOVERNMENT OBLIGATIONS" means direct obligations of, and
obligations on which the full and timely payment of principal and interest is
unconditionally guaranteed by, the United States of America, and any
certificates, receipts, securities or other obligations evidencing ownership
of, or the right to receive, a specified portion of one or more interest
payments or principal payments or any combination thereof, to be made on any
such obligation.
"HERRO LOAN" means any Mortgage Loan Purchased by Fannie Mae after
December 1, 1992, that, at the time of its Purchase by Fannie Mae, satisfied
the requirements for such designation under the DUS Guide, provided that if at
any time the Loss Level applicable to that Mortgage Loan is Level II or Level
III, that Mortgage Loan shall not be a HERRO Loan for purposes of this
Agreement.
"INVESTED FUNDS" shall have the meaning set forth in the applicable
Existing Investment Agreement.
"INVESTMENT GUIDELINES" shall have the meaning set forth in Section
3.12 of this Agreement, as such investment guidelines may be amended or
supplemented from time to time by Fannie Mae in its sole and absolute
discretion by notice to Lender and Custodian, as provided in Section 3.12 of
this Agreement.
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"LETTER OF ACCEPTABLE COLLATERAL" shall mean the letter in the form
of Exhibit B of Lender to Custodian required to be delivered on any Collateral
Delivery Date pursuant to Section 3.01(a)(i)(B) of this Agreement.
"LETTER OF CREDIT" means a clean, irrevocable letter of credit in
the form set forth as either Exhibit E-1 or F-1, completed and issued by a
Qualified Issuer or confirmed in the form set forth as Exhibit E-2 or Exhibit
F-2, as applicable, completed and issued by a Qualified Issuer, which letter of
credit and, if applicable, confirmation may be amended from time to time as
permitted or required under this Agreement. No Letter of Credit issued by the
Custodian or any affiliate of Lender shall constitute Acceptable Collateral,
provided that Custodian shall rely on the representation of Lender set forth on
Schedule A to the related Letter of Acceptable Collateral as to any such
affiliation with Lender. Any renewal, replacement or substitute Letter of
Credit issued under this Agreement shall conform to the preceding two
sentences.
"LEVEL I", "LEVEL II", and "LEVEL III" mean the three loss sharing
designations described as such in the DUS Guide.
"LIEN" means any lien, mortgage, pledge, security interest, charge
or encumbrance of any kind, including the lien created by this Reserve
Agreement.
"LOSS LEVEL" means, as applicable, Level I, Level II, or Level III.
"LOSS SHARING AGREEMENT" means the Delegated Underwriting and
Servicing Master Loss Sharing Agreement, between Lender and Fannie Mae, and as
such agreement may be amended or supplemented from time to time.
"MODIFIED RISK MORTGAGE LOAN" means a Mortgage Loan so designated
in the DUS Guide or other written notice from Fannie Mae to the Custodian and
Lender, including by way of example and not limitation, a HUD risk-sharing
loan.
"MOODY'S" means Moody's Investors Service, Inc. or any successor
thereto that is a nationally recognized statistical rating agency approved by
Fannie Mae.
"MORTGAGE LOAN" means any mortgage loan purchased by Fannie Mae
from Lender under Delegated Underwriting and Servicing, or for which Fannie Mae
provides credit enhancement based on Lender's underwriting of such mortgage
loan under Delegated Underwriting and Servicing, or with respect to which
Lender has assumed all or part of the loss sharing obligations under Delegated
Underwriting and Servicing, provided, however, that a loan shall cease to be a
Mortgage Loan for purposes of the Aggregate Reserve Requirement on the date
Lender repurchases such Mortgage Loan in accordance with the provisions of the
Contract or the Loss Sharing Agreement, the date that such Mortgage Loan is
fully paid in
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accordance with its terms, or the date that Lender's Payment Obligations with
respect to such Mortgage Loan are fully paid and Final Settlement of Loss has
occurred.
"PAYMENT DEFAULT" means a Borrower's failure to pay when due and in
full any payment(s) required with respect to a Mortgage Loan, including, by way
of example and not limitation, principal, interest, late charges, default
interest, prepayment premium, escrows or other collateral accounts for taxes,
insurance premiums and assessments, other collateral accounts and the
replacement reserve.
"PAYMENT OBLIGATIONS" means, as to any Mortgage Loan, the
obligations of Lender: (i) to make payments to Fannie Mae in respect of such
Mortgage Loan and (ii) to pay Delinquency Advances, Servicing Advances and
Delinquency Resolution Costs and any other amount that Lender is obligated to
pay under the Loss Sharing Agreement, all in accordance with the terms of the
Contract and the Loss Sharing Agreement.
"PERFORMANCE DEFAULT" means the failure of a Borrower to perform
any promise or covenant under the related Mortgage Loan other than a failure
that constitutes a Payment Default.
"PERMITTED EXPENSES" means any item for which Custodian is entitled
to be reimbursed or otherwise paid provided by Section 7.05 of this Reserve
Agreement.
"PERMITTED INVESTMENTS" means one or more of the following:
(a) Government Obligations with a stated maturity date, provided
that the current maturity of such obligation may not exceed five (5)
years at the Acquisition Date; or
(b) Discount notes or other short-term interest-bearing debt
obligations of Fannie Mae, the Federal Home Loan Bank System or the
Federal Farm Credit Bank, provided that the current maturity of such
investment may not exceed ninety (90) days at the Acquisition Date; or
(c) Repurchase agreements pursuant to a written agreement having a
stated term not exceeding ninety (90) days with any Qualified Financial
Institution which, at the Acquisition Date, is rated A-1 by S&P or P-1 by
Moody's with respect to investments specified in clauses (a) or (b)
above, or Fannie Mae interest-bearing mortgage-backed securities
(excluding real estate mortgage investment conduits, REMICs and stripped
mortgage-backed securities), provided that the original maturity of such
investments described in clauses (a) or (b) above and so subject to
repurchase pursuant to such agreement may not exceed ten (10) years. For
the purpose of this Agreement, repurchase agreements are limited to
transactions in which a seller sells certain securities to Custodian,
subject to Custodian's agreement to resell such
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securities to seller at a future date at a stated price plus interest and
Custodian has taken actual or constructive delivery of such investments
on a repurchase basis. Custodian may not enter into repurchase
agreements in which investments acquired for the account are sold to
other entities on a repurchase basis; or
(d) Commercial paper or other short-term debt obligations,
including revolving trust master notes, issued or guaranteed by any
corporation organized or incorporated under the laws of the United States
or any state, district or territory therein which, on the date of the
acquisition by Custodian, is rated A-1 or better by S&P and P-1 or better
by Moody's. In the event that such obligation is rated by one rating
agency, but not both, Fannie Mae shall accept the rating of the sole
rating agency. The current maturity of such investment may not exceed 90
days at the Acquisition Date; or
(e) Overnight or term Federal Funds sold to, or certificates of
deposit of, federally insured depository institutions which, on the
Acquisition Date of these deposits, are rated C or better by Thomson
BankWatch, Inc., or demand or time deposits with Custodian (to the
extent Custodian meets such federal insurance and rating requirements),
provided that the remaining current maturity of such certificates of
deposit and other time deposits may not exceed 90 days at the Acquisition
Date; or
(f) With the written consent of Fannie Mae, investment agreements,
including any amendments, supplements or extensions, between Fannie Mae
and Custodian in form satisfactory to Fannie Mae; or
(g) any other investment approved in writing by Fannie Mae.
"PERQ COLLATERAL MARGIN" shall have the meaning set forth in
Exhibit N of this Agreement.
"PERQ CREDIT" shall have the meaning set forth in Exhibit N of this
Agreement.
"PERQ EFFECTIVE DATE" means the monthly Valuation Date as of which
Custodian initially calculates the Aggregate Reserve Requirement based on
Risk-Based Rates designated by Fannie Mae that reflect application of PERQ
Rates pursuant to Section 3.11 of this Agreement to any Mortgage Loan.
"PERQ RATE" means the percentage rate, if applicable to a
particular Mortgage Loan, as determined by Fannie Mae pursuant to Section 3.11
of this Agreement when Lender is a Qualifying Lender, used in calculation of
the Risk-Based Reserve Amount (with reference to clause (e) through (j) and
subject to the provisos of
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the definition of "Risk-Based Reserve Amount") respecting a Mortgage Loan.
"PERQ RELEASE AMOUNT" shall have the meaning set forth in
Exhibit N.
"PERSON" means an individual, corporation, partnership,
association, trust, limited liability company or any other entity or
organization, including, by way of example and not limitation, a government or
political subdivision or an agency or instrumentality thereof.
"PRICING AND UNDERWRITING TIER" means, as applicable, Tier 1, Tier
2, Tier 3, or Tier 4, or such other pricing and underwriting tiers as Fannie
Mae shall establish from time to time in its sole and absolute discretion, as
set forth in the DUS Guide.
"PURCHASE" or "PURCHASED" "BY FANNIE MAE" means, when used in
connection with a Mortgage Loan, (a) the purchase of a Mortgage Loan by Fannie
Mae or (b) the provision of credit enhancement with respect to a Mortgage Loan
by Fannie Mae if Fannie Mae does not purchase a Mortgage Loan in connection
with the provision of such credit enhancement.
"QUALIFIED FINANCIAL INSTITUTION" means any (a) bank or trust
company organized under the laws of any state of the United States of America;
(b) national banking association; (c) savings bank, savings and loan
association or insurance company or association chartered or organized under
the laws of any state of the United States of America; (d) federal branch or
agency pursuant to the International Banking Act of 1978 or any successor
provisions of law, a domestic branch or agency of a foreign bank which branch
or agency is duly licensed or authorized to do business under the laws of any
state or territory of the United States of America; (e) government bond dealer
reporting to, trading with, and recognized as a primary dealer by, the Federal
Reserve Bank of New York; (f) Fannie Mae; or (g) securities dealer approved in
writing by Fannie Mae, the liquidation of which is subject to the Securities
Investors Protection Corporation or other similar corporation.
"QUALIFIED ISSUER" means the bank that either issues or confirms a
Letter of Credit and that also satisfies at least the minimum rating
requirements applicable to acceptable issuers of letters of credit for purposes
of this Agreement under the DUS Guide.
"QUALIFYING LENDER" means Lender during any period (a) during which
the aggregate unpaid principal balance of all Mortgage Loans is equal to or
exceeds $500,000,000; and (b) with respect to such period, Fannie Mae has
determined (and not withdrawn by notice to Lender, with a copy to Custodian,
such determination pursuant to Section 3.10(b) of this Agreement) that Lender
qualifies pursuant to Section 3.10(a) of this Agreement for the application of
PERQ Rates pursuant to Section 3.11 of this Agreement to certain
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Mortgage Loans for purposes of the calculation of the Risk-Based Reserve Amount
of the Aggregate Reserve Requirement.
"RATE REDUCTION PERCENTAGE" means the percentage as determined by
Fannie Mae by which the Standard Risk-Based Rate or the PERQ Rate is multiplied
in the calculation of the Risk-Based Reserve Amount respecting a particular
Modified Risk Mortgage Loan.
"REIMBURSEMENT BASE" means the dollar amount calculated with
respect to a particular Mortgage Loan, as provided under the Loss Sharing
Agreement.
"RISK-BASED RATE" shall mean, as applicable to a Mortgage Loan, the
Standard Risk-Based Rate or the PERQ Rate for purposes of calculation of the
Risk-Based Reserve Amount of the Aggregate Reserve Requirement.
"RISK-BASED RESERVE AMOUNT" means, as of any date of determination,
the aggregate amount in U.S. Dollars determined in accordance with the
applicable Standard Risk-Based Rate pursuant to (a) through (d) below:
(a) $5.00 per each $1,000 (.50%) of the aggregate unpaid principal
balance of all Mortgage Loans, if any, for which the Loss Level is Level
I and, as of the date of Purchase by Fannie Mae, the Pricing and
Underwriting Tier is Tier 1 or Tier 2 or (other than respecting a HERRO
Loan) as to which Fannie Mae has not designated a Pricing and
Underwriting Tier; plus
(b) $3.75 per each $1,000 (.375%) of the aggregate unpaid
principal balance of all Mortgage Loans, if any, for which the Loss Level
is Level I and, as of the date of Purchase by Fannie Mae, the Pricing and
Underwriting Tier is Tier 3 or Tier 4 or Fannie Mae has designated such
Mortgage Loan as a HERRO Loan for purposes of and as defined in this
Agreement; plus
(c) $6.50 per each $1,000 (.65%) of the aggregate unpaid principal
balance of all Mortgage Loans, if any, for which the Loss Level is Level
II regardless of the Pricing and Underwriting Tier; plus
(d) $8.00 per each $1,000 (.80%) of the aggregate unpaid principal
balance of all Mortgage Loans, if any, for which the Loss Level is Level
III regardless of the Pricing and Underwriting Tier;
provided, however, that, if Lender is a Qualifying Lender as of the date a
particular loan becomes a Mortgage Loan pursuant to this Agreement (or Fannie
Mae otherwise assigns to the Mortgage Loan a PERQ Rate pursuant to Section
3.11(a) of this Agreement) the following PERQ Rate schedule shall apply in the
calculation of the
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Risk-Based Reserve Amount respecting such Mortgage Loan in lieu of the Standard
Risk-Based Rate, as of any date of determination:
(e) $5.00 per each $1,000 (.50%) of the aggregate unpaid principal
balance of such Mortgage Loans, if any, for which the Loss Level is Level
I and, as of the date of Purchase by Fannie Mae, the Pricing and
Underwriting Tier is Tier 1 or (other than respecting a HERRO Loan) as to
which Fannie Mae has not designated a Pricing and Underwriting Tier;
(f) $3.50 per each $1,000 (.35%) of the aggregate unpaid principal
balance of such Mortgage Loans, if any, for which the Loss Level is Level
I and, as of the date of Purchase by Fannie Mae, the Pricing and
Underwriting Tier is Tier 2;
(g) $2.00 per each $1,000 (.20%) of the aggregate unpaid principal
balance of such Mortgage Loans, if any, for which the Loss Level is Level
I and, as of the date of Purchase by Fannie Mae, the Pricing and
Underwriting Tier is Tier 3 or Fannie Mae has designated such Mortgage
Loan as a HERRO Loan for purposes of and as defined in this Agreement;
(h) $0.50 per each $1,000 (.05%) of the aggregate unpaid principal
balance of such Mortgage Loans, if any, for which the Loss Level is Level
I and, as of the date of Purchase by Fannie Mae, the Pricing and
Underwriting Tier is Tier 4;
(i) $6.50 per each $1,000 (.65%) of the aggregate unpaid principal
balance of such Mortgage Loans, if any, for which the Loss Level is Level
II regardless of the Pricing and Underwriting Tier;
(j) $8.00 per each $1,000 (.80%) of the aggregate unpaid principal
balance of such Mortgage Loans, if any, for which the Loss Level is Level
III regardless of the Pricing and Underwriting Tier; and
provided further, however, that (x) the above-mentioned Risk-Based Rate shall
be reduced in the case of a Modified Risk Mortgage Loan to the rate equal to
the product of the otherwise applicable Standard Risk-Based Rate or PERQ Rate,
as the case may be, multiplied by the applicable Rate Reduction Percentage (as
determined by Fannie Mae and reported by Fannie Mae to Custodian) for such
Modified Risk Mortgage Loan; and that (y) without consent of Lender or
Custodian, Fannie Mae upon notice to Lender and Custodian may reduce the above
Risk-Based Rates respecting a Mortgage Loan pursuant to this Agreement,
effective at any time, or increase the above Risk-Based Rates respecting any
Mortgage Loan pursuant to this Agreement or may establish new Pricing and
Underwriting Tiers with specified Risk-Based Rates pursuant to this Agreement,
as any such reduction, increase or Pricing and Underwriting Tier may be set
forth from time to time in the DUS Guide. Any increase in the above Risk-Based
Rates shall apply only as to Mortgage Loans for which Fannie Mae made a
commitment to Lender after the effective date of such increase.
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"S&P" means Standard & Poor's Rating Group, a division of The
McGraw-Hill Companies, Inc. or any successor thereto that is a nationally
recognized statistical rating agency approved by Fannie Mae.
"SERVICING FEE RESERVE" means the reserve established pursuant to
Section 3.09 of this Agreement in the event Lender is required, pursuant to the
Loss Sharing Agreement, to deliver servicing income to Custodian.
"STANDARD RISK-BASED RATE" means the percentage rate used in
calculation of the Risk-Based Reserve Amount (with reference to clauses (a)
through (d), and subject to the provisos of the definition of "Risk Based
Reserve Amount") respecting a Mortgage Loan unless Fannie Mae otherwise
determines that a PERQ Rate is applicable to such Mortgage Loan pursuant to
this Agreement.
"SUPERSEDED RESERVE METHODOLOGY" shall have the meaning set forth
on Exhibit N of this Agreement.
"TIER 1", "TIER 2", "TIER 3", and "TIER 4" means the four pricing
and underwriting tier designations described as such in the DUS Guide.
"VALUATION DATE" means any Collateral Delivery Date and the
fifteenth (15th) day of each month (or if any such day is not a Business Day,
the next succeeding Business Day).
ARTICLE II
GRANT OF SECURITY INTEREST
Section 2.01. Grant of Security Interest. To secure the payment of
all amounts payable by Lender under its Payment Obligations and to secure the
performance of its covenants, representations, warranties and agreements
contained in this Agreement, the Contract, and the Loss Sharing Agreement,
Lender assigns, transfers, deposits, pledges and sets over to Fannie Mae, each
item of Collateral (including Acceptable Collateral) delivered to Fannie Mae
directly or through its collateral agent and bailee, Custodian pursuant to this
Agreement and, respecting any Collateral including Acceptable Collateral (other
than an undrawn-upon Letter of Credit) and any funds, securities or other
assets on deposit in the Collateral Account, grants to Fannie Mae a valid
perfected first priority security interest in, Lien upon and right of set-off
against the following:
(i) ALL OF Lender's right, title and interest, whether now existing or
hereafter arising in each item of Collateral (including Acceptable
Collateral and any funds, securities or other assets on deposit in
the Collateral Account) delivered under this Agreement;
(ii) TOGETHER WITH all additions to and substitutions for the Collateral
(including Acceptable Collateral and any funds, securities or other
assets on deposit in the
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Collateral Account) as are required or permitted pursuant to the
terms of this Agreement;
(iii) TOGETHER WITH all proceeds, payments, distributions and collections
received or to be received, or derived or to be derived, now or any
subsequent time from or in connection with Collateral (including
Acceptable Collateral and any funds, securities or other assets on
deposit in the Collateral Account); and
(iv) TOGETHER WITH all powers and rights of Lender, whether presently
held or subsequently acquired, including rights of enforcement,
with respect to Collateral (including Acceptable Collateral and any
funds, securities or other assets on deposit in the Collateral
Account).
ARTICLE III
DELIVERY AND ADMINISTRATION OF ACCEPTABLE COLLATERAL
Section 3.01. Delivery of Acceptable Collateral.
(a) (i) The initial delivery of Acceptable Collateral shall be
made by Lender concurrently with or prior to the date of execution by Fannie
Mae of this Agreement. Subsequently, Acceptable Collateral may be delivered in
addition to or, in accordance with Section 3.05, in substitution for or
replacement of one or more previously delivered items of Acceptable Collateral.
On each Collateral Delivery Date, Lender:
(A) shall: (i) deliver to Custodian a Letter of Credit or an
amendment to an existing Letter of Credit increasing the amount of
such Letter of Credit; (ii) in the case of the initial delivery of
an Existing Investment Agreement, cause to be delivered to
Custodian the Existing Investment Agreement and an assignment duly
executed by Lender in the form of Exhibit I; (iii) deliver to
Custodian immediately available funds or Permitted Investments
(together with documentation evidencing the transfer of such
Permitted Investment to Custodian or, if applicable, Custodian's
financial intermediary), with written instructions for investment
of such funds and the proceeds of such Permitted Investments in
Permitted Investments in accordance with the Investment Guidelines,
subject to the provisions of Section 3.04(e) of this Agreement; or
(iv) if an Existing Investment Agreement has previously been
delivered to Custodian, deliver immediately available funds to
Fannie Mae under such Existing Investment Agreement and Fannie Mae
shall deliver to Custodian the notice set forth in Section
3.01(a)(iv) of this Agreement;
(B) shall deliver to Custodian the Letter of Acceptable
Collateral in the form of Exhibit B; and
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(C) shall deliver to Custodian the opinion of counsel in the
form of Exhibit G, in the case of a Letter of Credit (or as
required by Section 3.01(a)(v), if applicable), or in the form
of Exhibit J, in the case of the initial Collateral Delivery Date
of Collateral other than a Letter of Credit.
(ii) Lender shall furnish the opinion of counsel in the form
of Exhibit D and a certificate substantially in the form of Exhibit A upon
delivery of this Agreement by Lender to Custodian.
(iii) At least five (5) Business Days prior to the anticipated
initial Collateral Delivery Date of Collateral other than a Letter of Credit,
Lender shall notify Custodian of Lender's intention to deliver Collateral other
than a Letter of Credit, and deliver to Fannie Mae (at the address specified by
Fannie Mae pursuant to this subsection), for execution and filing by Fannie
Mae, financing statements executed by Lender with the description of Collateral
set forth in Exhibit K sufficient for filing in, together with a letter from
Lender's counsel setting forth, the jurisdictions and offices (including
addresses) in which such financing statements should be filed (which
jurisdictions and offices shall be identical to the jurisdictions and offices
that will be set forth in such counsels opinion in the form of Exhibit J). In
addition, Lender shall deliver to Fannie Mae financing statements for Fannie
Mae to file in the District of Columbia. Custodian shall deliver to Fannie Mae
and Lender's counsel, no later than the Business Day preceding the anticipated
initial Collateral Delivery Date of Collateral other than a Letter of Credit an
opinion of Custodian's counsel in the form of Exhibit L. For the purpose of
this subsection, (A) "initial Collateral Delivery Date of Collateral other than
a Letter of Credit" shall mean the first Collateral Delivery Date on which any
Collateral of any type or types other than (or in addition to) an undrawn
Letter of Credit is first delivered to Custodian pursuant to this Agreement,
and (B) the executed financing statements and Lender's counsel letter should be
delivered to counsel to Fannie Mae at the address designated BY Fannie Mae.
Lender shall reimburse Fannie Mae for costs and expenses incurred in connection
with the filing of any financing statements.
(iv) In the event that Lender delivers funds to Fannie Mae
pursuant to an Existing Investment Agreement, Fannie Mae shall notify Custodian
by telephone or telecopy promptly of such delivery and the amount of such
funds, and Custodian shall be entitled to rely on such notification in
determining the Collateral Value of the Collateral under this Agreement.
(v) In the event that a Letter of Credit previously
delivered under this Agreement is amended to reflect an extension of the term
of, or an increase of the face amount of, such Letter of Credit, Lender shall
cause the delivery to Custodian, concurrent with such amendment, of an opinion
of counsel to the issuer of such Letter of Credit, in the form of Exhibit H, as
to the validity of
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such amendment and the enforceability of such Letter of Credit as amended
against the issuer.
(vi) No later than five (5) Business Days following the
delivery by Lender of Collateral and the related documents on any Collateral
Delivery Date, and receipt of any notice from Fannie Mae of delivery of funds
under an Existing Investment Agreement, Custodian shall determine:
(A) whether the Collateral delivered is Acceptable Collateral;
(B) the Collateral Value of such Collateral;
(C) whether the Letter of Acceptable Collateral and the opinion(s)
of counsel described above comply with the provisions of this Agreement;
(D) upon the initial delivery of an Existing Investment Agreement
or a Permitted Investment, that there is included with the Collateral an
assignment substantially in the form of Exhibit I; and
(E) whether the Collateral Value of such Collateral, when added to
the Collateral Value of any previously delivered and currently held
Collateral, is at least equal to the Aggregate Reserve Requirement.
(vii) After Custodian makes the determinations set forth in
Section 3.01(a)(vi), Custodian promptly shall deliver to Fannie Mae and Lender
the Letter of Confirmation in the form of Exhibit C. If Custodian is unable to
make any of the determinations set forth in Section 3.01(a)(vi), Custodian
promptly shall notify Fannie Mae and Lender which determinations it was unable
to make and the reasons why it was unable to make such determinations.
(b) In the event Acceptable Collateral is a Letter of Credit, no
variation of the text of Exhibit E or F shall be made or accepted as Acceptable
Collateral by Custodian without Fannie Mae Is prior written consent.
(c) Each item of Collateral shall be delivered to Custodian at
Custodian's offices in Boston, Massachusetts or such other address as the
Custodian shall designate by notice to Fannie Mae and Lender.
(d) Subject to Section 3.05, Acceptable Collateral delivered under
this Agreement and held from time to time by the Custodian may consist (i)
entirely of one or more Existing Investment Agreements, (ii) entirely of one or
more Letters of Credit, (iii) entirely of one or more Permitted Investments
held in accordance with the Investment Guidelines, or (iv) any combination of
the foregoing.
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Section 3.02. Calculation of the Aggregate Reserve Requirement.
As of each monthly Valuation Date, the PERQ Effective Date and such other dates
as Fannie Mae shall reasonably require, Custodian shall calculate the Aggregate
Reserve Requirement.
Section 3.03. Monthly Valuation of Acceptable Collateral;
Reduction of Collateral.
(a) As of each monthly Valuation Date, Custodian shall (i)
determine the Collateral Value of each item of Collateral delivered to and held
by Custodian under this Agreement and whether such Collateral (taken as a
whole) constitutes Acceptable Collateral; (ii) if any Acceptable Collateral
consists of one or more Letter(s) of Credit, take the action required by
Section 3.04(c)(ii); and (iii) whether the investment of the Collateral is in
compliance with the Investment Guidelines, to the extent applicable. Within
five Business Days of each monthly Valuation Date, Custodian shall deliver to:
(x) Fannie Mae and Lender a monthly report setting forth Custodian's
determination of whether Collateral delivered to and held by Custodian
under this Agreement is Acceptable Collateral (taken as a whole), the
Collateral Value of each item of Acceptable Collateral, the Aggregate
Reserve Requirement as of such date of determination (including,
commencing as of the PERQ Effective Date, if applicable pursuant to
Exhibit N of this Agreement, the PERQ Credit), whether the Collateral
Value of Acceptable Collateral is equal to, exceeds or is less than the
Aggregate Reserve Requirement as of such date of determination, and, if
the Collateral Value of Acceptable Collateral is greater than or less
than the Aggregate Reserve Requirement as of such date of determination,
the amount of such excess or deficiency as the case may be; and
(y) Lender a monthly report of all transactions confirmed by Custodian
with respect to Acceptable Collateral since the preceding monthly
Valuation Date with respect to any Collateral delivered and then held
under this Agreement.
(b) If any report delivered to Fannie Mae and Lender pursuant to
Section 3.03(a)(x) above indicates that the Aggregate Reserve Requirement
exceeds the Collateral value of Acceptable Collateral on the date of
determination to which such report pertains, or if any Collateral that has been
delivered by Lender pursuant to Section 3.01 is not Acceptable Collateral,
then, within fifteen (15) days after the date of such monthly report, Lender
shall deliver, or cause to be delivered, to Custodian additional Acceptable
Collateral (provided that, unless Lender otherwise provides written notice to
Custodian, Lender shall be deemed to have requested the application by
Custodian of the PERQ Credit, if applicable, pursuant to Exhibit N of this
Agreement, if Lender is then a Qualifying Lender pursuant to Section 3.10 of
this Agreement), in an aggregate amount equal to or greater than the amount
specified in such report from Custodian and any other items
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required under Section 3.01(a) or the notice of Fannie Mae pursuant to
Section 3.01(a)(iv), as applicable. Upon such delivery of such Acceptable
Collateral, Custodian shall take the actions specified in Section 3.01(a)
(vi) and (vii) (and, upon application, if any, of the PERQ Credit, Custodian
shall also take the actions specified in Exhibit N of this Agreement).
(c) If any monthly report delivered to Fannie Mae and Lender
pursuant to Section 3.03(a)(x) above indicates that the Collateral Value on
the date of determination to which such report pertains exceeds the Aggregate
Reserve Requirement, Lender may request in writing to Custodian (with a copy to
Fannie Mae) that the amount of the Acceptable Collateral be reduced to an
amount not less than the Aggregate Reserve Requirement and in such request
specify which Acceptable Collateral Lender wishes to have reduced, liquidated
or released and whether in the form of cash or specified Permitted
Investment (s), as applicable; provided, however, that (i) during the initial
term of any Existing Investment Agreement or Permitted Investment described in
clause (f) of the definition of Permitted Investments, no reduction of Invested
Funds under such Existing Investment Agreement or Permitted Investment
described in clause (f) of the definition of Permitted Investments, shall be
permitted and (ii) no reduction of Invested Funds under any Existing Investment
Agreement or Permitted Investment described in clause (f) of the definition of
Permitted Investments, with a Reset Date (as defined in that Existing
Investment Agreement or Permitted Investment described in clause (f) of the
definition of Permitted Investments) shall be permitted until the next Reset
Date. Unless an Event of Default has occurred and is continuing, such
reduction may occur in the manner set forth in Section 3.03(d). If an Event of
Default has occurred and is continuing, Custodian shall not permit the
reduction or release of any Acceptable Collateral. Lender shall be responsible
for all costs and expenses, if any, incurred by Custodian and Fannie Mae
associated with such requested reduction or release.
(d) If a Letter of Credit is to be amended in connection with a
report delivered under Section 3.03(c), Lender shall notify Custodian and shall
arrange for an amendment to be delivered to Custodian so reducing the amount of
such Letter of Credit. Unless Custodian has actual knowledge of or has
received notice from Fannie Mae concerning the occurrence of an Event of
Default, Custodian shall permit such reduction. If the amount of funds subject
to investment under an Existing Investment Agreement is to be reduced,
Custodian shall notify Fannie Mae of the amount of such permitted reduction.
If no Event of Default has occurred and is continuing, subject to the terms of
the applicable Existing Investment Agreement and Section 3.03(c), Fannie Mae
shall deliver to Lender funds equal to the amount of such reduction of Invested
Funds promptly upon receipt of notice from Custodian and shall notify Custodian
of the delivery of such funds to Lender. If amounts on deposit in the
Collateral Account, including Permitted Investments are to be reduced,
Custodian shall take such actions, at the written direction of Lender, to
transfer one or more designated Permitted Investments or to liquidate specified
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Permitted Investments so as to provide funds to the Collateral Account pursuant
to Section 3.12(b) of this Agreement. Unless Custodian has actual knowledge of
or has received notice from Fannie Mae concerning the occurrence of an Event of
Default, Custodian shall deliver such Permitted Investments, funds or
combination thereof equal in Collateral Value to the amount of such reduction
to Lender within fifteen (15) days after receipt of such written direction of
Lender, and shall notify Fannie Mae of such delivery to Lender.
Section 3.04. Administration of Acceptable Collateral.
(a) The Custodian shall hold and administer the Collateral
(including Acceptable Collateral) delivered to it under this Agreement in
accordance with the provisions of this Agreement.
(b) Any Existing Investment Agreement pledged under this Agreement
shall be held securely by Custodian. If either party to an Existing Investment
Agreement pledged under this Agreement furnishes notice to the other party of
its intention to terminate such Existing Investment Agreement, Lender, unless
Fannie Mae in its sole and absolute discretion determines otherwise, shall
provide to Custodian substitute Acceptable Collateral meeting all the
applicable requirements of this Agreement together with any opinions or
documents that may be required by this Agreement with respect to such
Acceptable Collateral on or before the date that is thirty (30) days prior to
the expiration date of such Existing Investment Agreement. If substitute
Acceptable Collateral meeting all the applicable requirements of this Agreement
and any opinion and other documents required with respect to such Acceptable
Collateral under this Agreement are not received by Custodian at least five (5)
Business Days prior to termination of such Existing Investment Agreement
referred to in the preceding sentence, then Custodian shall advise Fannie Mae
that substitute Acceptable Collateral has not been received and, unless Fannie
Mae otherwise directs pursuant to Section 3.04(d), that Fannie Mae should pay
to Custodian all Invested Funds under such Existing Investment Agreement
together with any accrued but unpaid interest pursuant to such Existing
Investment Agreement for deposit with the Custodian in the Collateral Account
on the termination date of such Existing Investment Agreement.
(c) Any Letter of Credit delivered under this Agreement shall be
held securely by Custodian. Notwithstanding any other provision of this
Agreement to the contrary, Custodian shall not permit an existing Letter of
Credit to terminate without drawing on it unless Custodian has in its
possession sufficient other Acceptable Collateral having a Collateral Value at
least equal to the Aggregate Reserve Requirement.
(i) If the Person that issued the Letter of Credit notifies
Custodian that it has determined not to renew or extend the Letter of
Credit as contemplated therein, Custodian shall notify Lender and Fannie
Mae of Custodian's receipt of such notification. Upon receipt of such
notice or if the
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Letter of Credit by its terms is due to terminate, Lender shall provide
to Custodian substitute Acceptable Collateral meeting all the
requirements of this Agreement, together with any opinions or documents
that may be required by this Agreement with respect to such Acceptable
Collateral, on or before the date that is thirty (30) days prior to the
expiration date of such Letter of Credit. If substitute Acceptable
Collateral meeting all the requirements of this Agreement and any
opinions and other documents required with respect to such Acceptable
Collateral under this Agreement are not received by Custodian at least
five (5) Business Days prior to termination of the Letter of Credit in
Custodian's possession, then Custodian shall draw upon the full amount of
such Letter of Credit (or, if applicable, any confirmation) prior to
termination.
(ii) In the case of any Letter of Credit, on each Collateral
Delivery Date for such Letter of Credit and on each Valuation Date,
Custodian shall determine whether the bank issuing, or, if such Letter of
Credit is confirmed by another financial institution, the bank
confirming, such Letter of Credit constitutes a Qualified Issuer on the
Collateral Delivery Date or Valuation Date, as applicable. If the
Custodian determines that such issuer or confirming bank is not a
Qualified Issuer, then, Custodian shall notify Lender and Fannie Mae of
such determination and within fifteen (15) days after such notification,
but in any event not less than five (5) Business Days before termination
of the Letter of Credit, Lender shall provide to Custodian substitute
Acceptable Collateral meeting all the requirements of this Agreement and
any opinions and other documents required with respect to such Acceptable
Collateral under this Agreement. If substitute Acceptable Collateral and
any opinions and other documents required with respect to such Acceptable
Collateral under this Agreement are not received by Custodian within
fifteen (15) days after such notification, but in any event not less than
five (5) Business Days prior to the termination of the Letter of Credit
in Custodian's possession, then Custodian shall draw upon the full amount
of such Letter of Credit (or, if applicable, any confirmation) prior to
termination.
(d) If for any reason Custodian shall withdraw Invested Funds
under an Existing Investment Agreement under Section 3.04(b) of this Agreement
or draw on a Letter of Credit under Section 3.04(c) of this Agreement,
Custodian shall deposit the entire amount withdrawn under an Existing
Investment Agreement or drawn under a Letter of Credit in the Collateral
Account.
(e) Any funds or Permitted Investments delivered under this
Agreement shall be held securely by Custodian. Upon delivery to Custodian of
funds or Permitted Investments (including proceeds thereof) under this
Agreement (or if for any reason Custodian shall withdraw Invested Funds under
an Existing Investment Agreement under Section 3.04(b) or draw on a Letter of
Credit under Section
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3.04(c) of this Agreement), Custodian shall create and maintain with itself a
segregated non-interest-bearing custodial account (the "Collateral Account")
for the sole benefit of Fannie Mae and deposit in such segregated custodial
account the entire amount of such funds and Permitted Investments (and the
proceeds of such withdrawal of Invested Funds or drawing on a Letter of
Credit). Amounts in the Collateral Account shall be invested (and reinvested,
as the case may be) in Permitted Investments selected by and pursuant to
written instructions of Fannie Mae or Lender, as provided below, in accordance
with the Investment Guidelines, unless, upon the occurrence of an Event of
Default, Fannie Mae instructs the Custodian pursuant to Section 9.01 to deliver
funds or Permitted Investments to Fannie Mae or apply funds against Lender's
obligations to Fannie Mae under the Contract, this Agreement and the Loss
Sharing Agreement as Fannie Mae, exercising its sole and absolute discretion,
shall direct. Custodian shall have no responsibility for the application of
any such proceeds or Permitted Investments transferred to Fannie Mae. Except as
otherwise provided in Section 3.03(c) and (d) respecting a reduction or release
of Acceptable Collateral, no interest or earnings, if any, on Permitted
Investments held by Custodian in the Collateral Account shall be paid or be
payable currently to Lender. Lender and Fannie Mae agree that the Custodian
shall, after consultation with Fannie Mae, invest monies in such account in
Permitted Investments as Fannie Mae shall direct in written instructions to
Custodian, provided that, unless Custodian has actual knowledge of, or has
received notice from Fannie Mae concerning the occurrence of an Event of
Default, Custodian shall not be required to so consult with Fannie Mae and
Custodian, after consultation with Lender, shall invest (and reinvest, as the
case may be) monies in the Collateral Account in Permitted Investments as
Lender shall direct in written instructions to Custodian. In each instance,
Custodian's duty to invest shall be subject to the availability of the
designated Permitted Investments (including time-of-day requirements), and in
no instance shall the Custodian have any obligation to provide investment
advice or be liable for any loss suffered on any Permitted Investment, and the
right of Lender and Fannie Mae, as the case may be, to direct investment shall
be subject to Section 3.12. If, by or before 4:00 p.m. on any Business Day
Custodian has not received written instructions from Fannie Mae or Lender, as
appropriate, as to the investment of uninvested funds in the Collateral Account
Custodian shall invest the uninvested balance, if any, of the Collateral
Account at the close of such Business Day in accordance with the Investment
Guidelines as from time to time in effect.
(f) Neither the Custodian nor Fannie Mae shall incur liability for
any loss with respect to funds invested by Custodian in accordance with the
terms of this Agreement. Any such funds and investments held by Custodian or
Fannie Mae shall be applied to Lender's obligations to Fannie Mae under the
Contract, this Agreement and the Loss Sharing Agreement at such time or times
as Fannie Mae, in its sole and absolute discretion, may determine.
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Section 3.05. Substitution of Acceptable Collateral. Unless an
Event of Default has occurred and is continuing, Lender shall have the right,
upon compliance with the provisions of Section 3.01, at any time and from time
to time to deposit with Custodian Acceptable Collateral in substitution for or
replacement of Acceptable Collateral previously delivered pursuant to the terms
of this Agreement; provided, however, that (a) Fannie Mae, in its sole and
absolute discretion, may limit the number of Existing Investment Agreements
that it will accept under this Agreement, (b) that during the initial term of
any Existing Investment Agreement, no reduction of Invested Funds under such
Existing Investment Agreement shall be permitted and (c) no reduction of
Invested Funds under any Existing Investment Agreement with a Reset Date shall
be permitted until the next Reset Date under that Existing Investment
Agreement. In the event Lender substitutes Acceptable Collateral for other
Acceptable Collateral previously delivered pursuant to the terms of this
Agreement, Custodian promptly upon receipt of such substitute Acceptable
Collateral, together with the opinions and documents required pursuant to
Section 3.01, and Lender's written request shall release such previously
deposited Acceptable Collateral from the Lien of this Agreement but only after
Custodian has completed the actions set forth in Sections 3.01(a)(vi) and
(vii) with respect to such substitute Acceptable Collateral. If Lender is
substituting a Letter of Credit or Permitted Investments for an Existing
Investment Agreement, Fannie Mae shall remit or cause to be remitted Invested
Funds (as defined in the Existing Investment Agreement) to Lender promptly
after receipt of the Letter of Confirmation from Custodian.
Section 3.06. Release of Acceptable Collateral. Except as provided
in Sections 3.03(c) and (d) and 3.05 and Exhibit N of this Agreement,
Custodian, as collateral agent and bailee of Fannie Mae, shall not release any
of the Collateral including Acceptable Collateral from the Lien of this
Agreement without Fannie Mae's prior written approval.
Section 3.07. Change in Aggregate Reserve Requirement. Fannie Mae
shall have the sole and exclusive right to determine the Loss Level, as
provided in the Loss Sharing Agreement, and the Pricing and Underwriting Tier,
as provided in the DUS Guide, of any Mortgage Loan used to calculate the
Aggregate Reserve Requirement or any Reimbursement Base. Lender acknowledges
that from time to time, as permitted by the DUS Guide and the Loss Sharing
Agreement, Fannie Mae, as to any Mortgage Loan, may increase (e.g., from Level
I to Level II or Level III) or decrease (e.g., from Level III or Level II to
Level II or Level I) the Loss Level. Fannie Mae shall notify Custodian in
writing of any change in the Risk-Based Rate due to a change in the applicable
Loss Level. Within fifteen (15) days of receipt of the monthly valuation
report by Custodian pursuant to Section 3.03(a)(x) of this Agreement advising
Lender of a change in the Aggregate Reserve Requirement due to such change in
the applicable Loss Level, Lender, if the Collateral Value of all previously
delivered Acceptable Collateral is less than the then current Aggregate Reserve
Requirement, shall deliver, or cause to be delivered with Custodian additional
Acceptable Collateral (or
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unless Lender otherwise directs, Custodian shall apply the PERQ Credit, if
applicable, pursuant to Exhibit N of this Agreement, if Lender is then a
Qualifying Lender pursuant to Section 3.10 of this Agreement) in an aggregate
amount so that the Collateral Value of all Acceptable Collateral equals or
exceeds the then current Aggregate Reserve Requirement in accordance with the
provisions of Section 3.03(b) of this Agreement.
Section 3.08. Custodian Reliance on Fannie Mae Reports. For the
purpose of fulfilling its obligation under this Agreement, Custodian shall be
entitled to rely on the most-recently received monthly reports or other written
notice from Fannie Mae delivered to Custodian not later than the Business Day
prior to the date of determination to which such information relates of (i) the
unpaid principal balance, the Risk-Based Rate, the Rate Reduction Percentage if
any, and any other material written information applicable to each Mortgage
Loan; and (ii) whether Fannie Mae has determined Lender to be a Qualifying
Lender pursuant to Section 3.10(a) of this Agreement, later withdrawn such
determination pursuant to Section 3.10(b) of this Agreement or reinstated
Lender as a Qualifying Lender pursuant to Section 3.10(c) of this Agreement.
Section 3.09. Servicing Fee Reserve. In the event Fannie Mae
requires Lender to deliver servicing income to Custodian pursuant to the Loss
Sharing Agreement, Fannie Mae shall notify Custodian that Fannie Mae has
imposed such requirement on Lender and Custodian shall establish a reserve for
such servicing income and deposit, upon receipt, into such reserve all
servicing income delivered by Lender. Custodian shall invest funds in the
Servicing Fee Reserve in Permitted Investments. Funds in the Servicing Fee
Reserve shall be applied to Lender's obligations to Fannie Mae under the
Contract, this Agreement and the Loss Sharing Agreement at such time or times
as Fannie Mae, in its sole and absolute discretion, may determine. The
Servicing Fee Reserve shall not be included in determining whether the
Aggregate Reserve Requirement has been satisfied. Lender agrees that it will
take whatever reasonable action Fannie Mae or Custodian may request in order to
perfect Fannie Mae's interest in the Servicing Fee Reserve.
Section 3.10. Qualifying Lender Determination; Withdrawal by Fannie
Mae.
(a) If the aggregate unpaid principal balance of Mortgage Loans is
equal to or exceeds $500,000,000 as of the first Business Day of any calendar
quarter on or after the date of execution by Fannie Mae of this Agreement,
Fannie Mae shall determine in its sole and absolute discretion whether Lender,
subject to Lender's maintaining an aggregate unpaid principal balance of
Mortgage Loans equal to or in excess of $500,000,000, is a Qualifying Lender
for the period of such calendar quarter, based on such criteria as Fannie Mae
in its sole and absolute discretion shall determine from time to time
including, by way of example and not limitation, Lender's financial condition,
the financial
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condition of properties the Liens on which secure Mortgage Loans, Lender's
demonstrated competence in underwriting Mortgage Loans and Lender's overall
standing with Fannie Mae under Delegated Underwriting and Servicing.
Respecting the initial such quarterly determination, Fannie Mae shall promptly
notify Lender in writing (with a copy to Custodian) of such determination,
which determination shall be effective as of the PERQ Effective Date.
Custodian shall establish the PERQ Effective Date as a Valuation Date not more
than forty-five (45) days after the later of (i) the date of execution by
Fannie Mae of this Agreement or (ii) the date of such written notice by Fannie
Mae of such determination that Lender is a Qualifying Lender.
(b) After the determination by Fannie Mae that Lender, subject to
Lender's maintaining an aggregate unpaid principal balance of Mortgage Loans
equal to or in excess of $500,000,000, is a Qualifying Lender, Fannie Mae may,
but need not, reassess from time to time thereafter, whether Lender is a
Qualifying Lender, based on such criteria as Fannie Mae shall determine from
time to time. Respecting such reassessments, Fannie Mae shall notify Lender in
writing (with a copy to Custodian) of a withdrawal, if any, by Fannie Mae in
its sole and absolute discretion of its determination that Lender is a
Qualifying Lender, which adverse determination shall be effective as of the
date such notice is given to Lender pursuant to Section 10.01 of this
Agreement. Custodian shall rely on such initial determination by Fannie Mae
until Fannie Mae shall notify Custodian of such withdrawal by Fannie Mae.
(c) If Fannie Mae withdraws its determination that Lender is a
Qualifying Lender pursuant to Section 3.10(b) of this Agreement, Fannie Mae may
determine in its sole and absolute discretion to reinstate Lender as a
Qualifying Lender, effective on such date and for such period as determined by
Fannie Mae and, in such event, Fannie Mae shall notify Lender (with a copy to
Custodian).
(d) Without notice by Fannie Mae to Lender, Lender shall not be a
Qualifying Lender at any time that the aggregate unpaid balance of Mortgage
Loans is less than $500,000,000.
Section 3.11. Application of PERQ Rates to Loans that Become
Mortgage Loans Pursuant to this Agreement when Lender is a Qualifying Lender.
(a) In connection with the initial determination by Fannie Mae
that Lender is a Qualifying Lender, Fannie Mae shall list each Mortgage Loan,
in chronological order by date of Purchase by Fannie Mae. Fannie Mae shall
assign a Standard Risk-Based Rate designation to each Mortgage Loan so listed
in order of date of Purchase by Fannie Mae (beginning with the earliest such
date of Purchase by Fannie Mae) until the aggregate unpaid principal balance of
such Mortgage Loans equals at least $500,000,000. Fannie Mae shall assign a
PERQ Rate designation to each Mortgage Loan subsequently Purchased by Fannie
Mae (without regard to
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whether the Purchase by Fannie Mae occurred prior to the PERQ Effective Date).
Fannie Mae shall designate each Mortgage Loan on a "whole loan" basis with
either a Standard Risk-Based Rate or a PERQ Rate being applicable to the entire
unpaid principal balance of such Mortgage Loan.
(b) After the initial Risk-Based Rate assignments pursuant to
Section 3.11(a) of this Agreement, Fannie Mae shall assign a PERQ Rate
designation to any loan that becomes a Mortgage Loan pursuant to this Agreement
when Lender is a Qualifying Lender (including any loan that is a refinancing of
a previously outstanding Mortgage Loan). Fannie Mae shall advise Custodian of
the PERQ Rate applicable to such Mortgage Loan pursuant to Section 3.08 of this
Agreement, and Custodian shall forward such report to Lender.
(c) Upon written notice from Fannie Mae of the assignment of a
PERQ Rate to a Mortgage Loan, Custodian thereafter shall calculate the
Risk-Based Reserve Requirement component of the Aggregate Reserve Requirement
at the PERQ Rate respecting Mortgage Loans so assigned a PERQ Rate designation
without regard to whether Lender is a Qualifying Lender as of the date of such
calculation.
Section 3.12. Investment Guidelines for Acceptable Collateral. (a)
Pursuant to Section 3.04(e) of this Agreement, amounts held in the Collateral
Account shall be invested only in Permitted Investments in accordance with the
Investment Guidelines. Net income or gain received and collected from such
investments shall be credited and losses charged to the Collateral Account.
(b) Unless Custodian has actual knowledge of or has received
notice from Fannie Mae concerning the occurrence of an Event of Default,
Custodian, at and pursuant to the written direction of Lender, shall sell or
present for redemption or exchange, as specified in such direction any
Permitted Investment in which moneys in the Collateral Account shall have been
invested as directed by Lender to provide cash or facilitate the transfer of
money or securities in connection with a release of Collateral pursuant to
Section 3.03(c) or (d) or a substitution of Collateral pursuant to Section
3.05, which direction from Lender shall provide such specific direction as to
the investment or investments to be liquidated and the manner or method of
sale, redemption or exchange as Custodian may require. Custodian shall have no
liability for any loss suffered in connection with any such sale, redemption or
exchange (provided Custodian acts in accordance with such direction) . As soon
as practicable after any such sale, redemption or exchange, Custodian shall
give notice thereof (including a brief summary of the manner of such sale,
redemption or exchange) to Fannie Mae and Lender. Upon the occurrence of an
Event of Default, Fannie Mae may instruct Custodian to sell or cause to be sold
one or more Permitted Investments in which moneys in the Collateral Account are
invested pursuant to Section 9.01. Custodian shall have no duty to preserve
rights of Lender (against prior parties or otherwise) in any Permitted
Investments.
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(c) Neither Fannie Mae nor Custodian shall be liable for any loss
arising from, or any depreciation in the value of any obligations in which
funds in the Collateral Account shall be invested.
(d) Fannie Mae may, at any time, modify all or part of the
Investment Guidelines as Fannie Mae deems necessary or convenient in its sole
and absolute discretion by written notice to Lender and Custodian. Custodian
and Lender shall be bound by any modification to the Investment Guidelines
immediately upon written notice from Fannie Mae or at such other time as may be
specified in such notice. Collateral that would no longer be Acceptable
Collateral solely pursuant to Investment Guidelines as so modified shall be
permitted to mature unless Fannie Mae, in its sole and absolute discretion,
instructs Custodian to liquidate such Collateral prior to maturity.
(e) Investment Guidelines, as of the date of execution by Fannie
Mae of this Agreement, are:
(i) Not less than ten percent (10%) of the Collateral Value of
Acceptable Collateral shall be invested in (A) Permitted Investments that
have a current maturity of less than one year; (B) Letters of Credit; (C)
Existing Investment Agreements or Permitted Investments described in
clause (f) of the definition of Permitted Investments, in either case
that are payable in immediately available funds that have an original
maturity of one year or less; or (D) any combination of the foregoing.
(ii) With respect to Acceptable Collateral constituting investments
described in clauses (d), (e) and (g) of the definition of Permitted
Investments, not more than thirty percent (30%) of the Collateral Value
of all Acceptable Collateral shall be invested in any such obligations of
a particular obligor or its affiliates (including, by way of example and
not limitation, commercial paper of any one corporation or certificates
of deposit of any one depository institution).
(iii) With respect to Acceptable Collateral constituting
investments described in clause (c) of the definition of Permitted
Investments, the aggregate market value of the securities subject to
repurchase sold by the counterparty entity to Custodian pursuant to any
such repurchase agreement shall be maintained by the counterparty entity
selling the securities so subject to repurchase at not less than the
below-referenced percentage of the repurchase price (including, by way of
example and not limitation, accrued interest or price differential as of
the date of determination), based on the securities subject to repurchase
and original maturity of the repurchase agreement:
(A) for eligible Government Obligations that have a current
maturity of one year or less:
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(1) 101% respecting repurchase agreements with an
original maturity of 30 days or less;
(2) 102% respecting repurchase agreements with an
original maturity of 31 to 60 days; and
(3) 103% respecting repurchase agreements with an
original maturity of 61 to 90 days.
(B) for eligible securities other than Government
Obligations that have a current maturity of one year or less or for
eligible Government Obligations that have a current maturity of
more than one year:
(1) 102% respecting repurchase agreements with an
original maturity of 30 days or less;
(2) 103% respecting repurchase agreements with an
original maturity of 31 days to 60 days; and
(3) 104% respecting repurchase agreements with an
original maturity of 61 days to 90 days.
(C) for eligible Fannie Mae mortgaged-backed securities that
have a current maturity of more than one year:
(1) 103% respecting repurchase agreements with
maturities of 30 days or less;
(2) 104% respecting repurchase agreements with
maturities of 31 days to 60 days; and
(3) 105% respecting repurchase agreements with
maturities of 61 days to 90 days.
(iv) With respect to Acceptable Collateral constituting investments
described in clause (c) of the definition of Permitted Investment, not
more than thirty-three and one-third percent (33.33%) of the Collateral
Value of all Acceptable Collateral shall be invested in any such
repurchase agreements pursuant to which the securities subject to
repurchase (other than Government Obligations) are obligations of a
particular obligor or its affiliates.
(v) No investments may be made in term obligations issued or
guaranteed by Custodian having an original maturity in excess of one
Business Day at the Acquisition Date.
(vi) In the event that Custodian does not receive directions from
Fannie Mae or Lender as to the investment of uninvested funds in the
Collateral Account, Custodian shall invest such amounts in the following
Permitted Investments: overnight Federal Funds; or if sale of overnight
Federal Funds
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is not reasonably available to Custodian, overnight time or demand
deposits of Custodian otherwise described in clause (e) of the definition
of Permitted Investments, if available.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF LENDER
Lender represents and warrants to Fannie Mae and Custodian (a) on
the date of execution by Lender of this Agreement and (b) on each Collateral
Delivery Date under this Agreement that:
Section 4.01. Consents to Transfer. No consents or approvals of
any Persons are or will be required which have not or will not have been
obtained for: (i) the execution, delivery and performance of this Agreement;
(ii) the pledge of, and security interest in, Collateral, if Collateral other
than a Letter of Credit is being delivered by Lender, and the delivery of
Collateral to Custodian, as collateral agent and bailee for Fannie Mae, for the
purposes of and as contemplated by this Agreement; (iii) the delivery of any
funds to Fannie Mae pursuant to an Existing Investment Agreement; (iv) the
investment and reinvestment of funds in the Collateral Account in Permitted
Investments in accordance with the Investment Guidelines; or (v) to the best
knowledge and belief of Lender, the subsequent transfer of the proceeds of any
Letter of Credit, Existing Investment Agreement or Permitted Investment by
Custodian, as collateral agent and bailee for Fannie Mae, pursuant to the terms
of this Agreement.
Section 4.02. Existence and Power. Lender is the type of entity
set forth in the first paragraph of this Agreement, duly organized, validly
existing and in good standing under the laws governing its creation and
existence has not been known or done business under any other name that has not
been disclosed to Fannie Mae, and has all necessary corporate or partnership,
as applicable, powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
to enter into this Agreement, and, if Lender is a partnership, all of the
general partners of Lender are set forth on Exhibit O.
Section 4.03. Authorization and Non-contravention. The execution,
delivery and performance by Lender of this Agreement are within Lender's lawful
corporate or partnership, as applicable, power and have been duly authorized by
all necessary corporate or partnership, as applicable, action on the part of
Lender and, if applicable, any Person with an ownership interest in Lender
whose action is required, and will not: (i) violate or contravene any law,
regulation, judgment, injunction, order, decree or other instrument currently
binding on Lender; or (ii) violate, contravene or constitute a default under
any provision of the governing documents of Lender or of any material
agreement, contract, mortgage or other instrument currently binding on Lender.
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Section 4.04. Binding Effect. This Agreement constitutes a valid
and binding agreement of Lender enforceable against Lender in accordance with
its terms.
Section 4.05. Governmental Consents. No consent, approval,
authorization or order of any Governmental Body is required, and no filing need
be made with any Governmental Body, in connection with the execution, delivery
and performance by Lender of this Agreement or the consummation by Lender of
the transactions contemplated by this Agreement.
Section 4.06. Litigation. There are no actions, suits, or
proceedings pending or to the best knowledge of Lender threatened against it
or, if applicable, any general partner of Lender, in any court or before any
Federal, state, municipal or other governmental department or commission,
board, bureau, agency or instrumentality which, if adversely determined, will
materially and adversely affect its business or financial condition or the
validity and enforceability of this Agreement or its ability to perform in
accordance with this Agreement.
Section 4.07. Title to Acceptable Collateral. Lender has good
title to any Collateral other than a Letter of Credit delivered to Custodian
under this Agreement, free of all liens (other than the Lien created by this
Agreement). In addition, any Acceptable Collateral or other Collateral
delivered to Custodian under this Agreement shall not be subject to any offset,
defense or counterclaim other than by Fannie Mae, if applicable. Upon delivery
to Custodian of any Existing Investment Agreement or Permitted Investment,
Fannie Mae will obtain and have a valid perfected first priority lien in and
upon such Existing Investment Agreement or Permitted Investment subject to no
other Lien and the Existing Investment Agreement or Permitted Investment will
neither have been nor will be assigned, transferred or pledged by Lender as
Collateral for any other purpose.
Section 4.08. Relationship with Custodian. Neither Lender nor, if
applicable, any general partner of Lender is controlling, controlled by or
under common control with Custodian, and neither Lender nor, if applicable, any
general partner of Lender has any special relationship with Custodian,
including, by way of example and not limitation any agency relationship, that
has not been disclosed to Fannie Mae.
Section 4.09. Showings. Lender has delivered to Fannie Mae and
Custodian: (a) an executed opinion of Lender's legal counsel, if required by
the terms of this Agreement; (b) Acceptable Collateral (or immediately
available funds with written instructions for investment of such funds in
Permitted Investments in accordance with the Investment Guidelines) and, if
required, an Assignment in the form of Exhibit I; (c) the Letter of Collateral
for each item of Collateral; and (d) other documents as may reasonably be
requested by Fannie Mae or Custodian.
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Section 4.10. Compliance with Laws. Neither Lender nor, if
applicable, any general partner of Lender is in violation of any statute, rule
or regulation of any Governmental Body or any order of any court or arbitrator,
the violation of which, considered in the aggregate, could materially adversely
affect the business, operations or properties of the Lender or any general
partner of Lender. Lender, if Lender is a depository institution, has complied
with the requirements of 12 U.S.C. Section 1823(e), as amended from time to
time, in connection with the authorization, execution, delivery, and retention
of all documents under Delegated Underwriting and Servicing.
ARTICLE V
REPRESENTATIONS OF CUSTODIAN
Custodian represents and warrants to Fannie Mae and Lender that:
Section 5.01. Existence and Power. Custodian is the type of entity
set forth in the first paragraph of this Agreement, duly incorporated, validly
existing and in good standing under the laws governing its creation and
existence and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to enter into and perform its
obligations under this Agreement.
Section 5.02. Authorization and Non-contravention. The execution,
delivery and performance by Custodian of this Agreement have been duly
authorized by all necessary corporate action on the part of Custodian (no
action by shareholders of Custodian being required) and do not and will not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of association or by-laws of Custodian or of any
material agreement, judgment, injunction, order, decree, or, to the best of
Custodian's knowledge, any other instrument, binding upon Custodian.
Section 5.03. Binding Effect. This Agreement constitutes a valid
and binding agreement of Custodian enforceable against Custodian in accordance
with its terms.
Section 5.04. Relationship with Lender. Custodian is not
controlling, controlled by or under common control with Lender, or, if
applicable, any general partner of Lender listed on Exhibit O, the issuer of a
Letter of Credit, any banking institution confirming a Letter of Credit or any
obligor of a term Permitted Investment, and Custodian does not have any special
relationships, including, by way of example and not limitation, agency
relationships, with Lender or, if applicable, any general partner of Lender
listed on Exhibit O, that have not been disclosed to Fannie Mae.
Section 5.05. Financial Intermediary. Custodian is a bank which in
the ordinary course of its business maintains custodial accounts for others.
The execution of this Agreement by
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Custodian has been approved either (a) by its Board of Directors and such
approval is reflected in the minutes of the meeting of such Board of Directors
or (b) approved by an officer of Custodian duly authorized by the Board of
Directors to enter into agreements such as this Agreement and such
authorization is reflected in the minutes of the Board of Directors' meetings.
ARTICLE VI
COVENANTS OF LENDER
Section 6.01. Performance of Obligations. Lender covenants to keep
and perform faithfully all of the covenants and undertakings contained in this
Agreement.
Section 6.02. Good Standing. Lender covenants to maintain its
current condition of good standing under all applicable laws and regulations.
Section 6.03. Further Assurances. Lender shall execute and deliver
or cause to be executed and delivered to Fannie Mae or Custodian at any time or
times at the request of Fannie Mae or Custodian, all documents, instruments,
letters of direction, notices, reports, acceptances, receipts, consents,
financing statements, waivers, affidavits and certificates as Fannie Mae or
Custodian may reasonably request, in form satisfactory to Fannie Mae or
Custodian as appropriate, in order to consummate fully all of the transactions
contemplated under this Agreement; and in connection therewith, Lender
irrevocably makes, constitutes and appoints each of Fannie Mae and Custodian
and any of its officers, employees or agents as its true and lawful attorney
with power to sign the name of Lender to any such document, instrument, letter
of direction, notice, report, acceptance, receipt, consent, financing
statements, waiver, affidavit or certificate, provided Lender has not complied
with Fannie Mae's or Custodian's request to execute such document within seven
(7) days from the date of written request.
Section 6.04. Compliance with Laws. Lender will not violate any
statute, rule or regulation of any governmental body or any order of any court
or arbitrator, the violation of which, considered in the aggregate, could
materially adversely affect the business, operations or properties of the
Lender or, if applicable, any general partner of Lender.
Section 6.05. Aggregate Reserve Requirement. Lender agrees that
(i) at all times under this Agreement, it shall maintain the Collateral Value
of Acceptable Collateral delivered under this Agreement to equal or exceed the
then applicable Aggregate Reserve Requirement and (ii) it shall cure any
shortfall in the Aggregate Reserve Requirement within fifteen (15) days after
notice from Custodian by delivering either Acceptable Collateral (or
immediately available funds with written instructions for investment of such
funds in Permitted Investments in accordance with the Investment Guidelines)
having an aggregate Collateral Value equal to or greater than such shortfall to
Custodian in
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accordance with the terms of this Agreement or funds in an amount equal to or
greater than such shortfall to Fannie Mae in accordance with the terms of an
Existing Investment Agreement (or by application of the PERQ Credit, if
applicable, pursuant to Exhibit N of this Agreement, if Lender is a Qualifying
Lender).
Section 6.06. Information with Respect to Lender; Lender's Counsel
Opinion.
(a) Lender shall notify Custodian and Fannie Mae not less than ten
(10) Business Days before any proposed change in Lender's name, identity,
organizational structure, place of organization or principal place of business.
Upon receipt of any such notification, Fannie Mae or Custodian, upon Fannie
Mae's direction, may request an opinion of Lender's counsel setting forth the
actions with respect to financing or continuation statements that must be taken
to maintain the perfection of the Lien of this Agreement in any Collateral. In
addition, thirty (30) days prior to the date for the filing of continuation or
financing statements, as set forth in the Lender's counsel opinion delivered in
connection with the most recently delivered Collateral, Lender's counsel shall
provide an opinion to Custodian confirming that the information with respect to
such filings is unchanged. If Lender's counsel is unable to provide such
confirming opinion, Fannie Mae or Custodian, at Fannie Mae's direction, may
request an opinion of counsel setting forth the actions with respect to
financing or continuation statements that must be taken to maintain the
perfection of the Lien of this Agreement in any Collateral. Subject to the
obligations of the Custodian as set forth in Section 7.13(a), Lender shall
take such action as is necessary to maintain the perfection of the Lien of this
Agreement in any Collateral.
(b) On or after the initial Collateral Delivery Date of any
Collateral other than a Letter of Credit, Lender shall notify Custodian on the
first Valuation Date of each calendar quarter that the Lender's name, identity,
organizational structure, place of organization or principal place of business
have not changed since the most recently delivered such notice pursuant to this
Section 6.06(b), except as Lender has otherwise so notified Custodian pursuant
to Section 6.06(a) of this Agreement.
Section 6.07. Compliance by Lender with Investment Guidelines.
Lender shall provide instructions to Custodian respecting the investment of
Collateral only in accordance with the Investment Guidelines.
ARTICLE VII
COVENANTS AND DUTIES OF CUSTODIAN
Section 7.01. Safekeeping of Acceptable Collateral. Custodian
shall hold and keep all Collateral, including Acceptable Collateral, delivered
to it by Lender in certificated or physical form, along with all assignments
and each Letter of Credit, in secure fireproof storage facilities with adequate
controls on access to assure the safety and security of the documents.
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Custodian shall add all Collateral, including Acceptable Collateral, delivered
to it by Lender in book-entry form to the securities account of the Custodian
for the benefit of Fannie Mae and identify such book-entry obligations on the
books and records of Custodian as being held as Collateral for the benefit of
Fannie Mae.
Section 7.02. Maintenance of Records. Custodian will at all times
maintain its books and records accurately to reflect Fannie Mae's perfected
first priority security interest in any Collateral other than a Letter of
Credit held by Custodian under this Agreement. In addition Custodian, so long
as this Agreement remains in force and effect, shall maintain this Agreement as
an official record of Custodian.
Section 7.03. Delivery of Opinions of Counsel. Custodian shall
deliver to Fannie Mae and Lender an opinion of Custodian's counsel
substantially in the form of Exhibit L at each time delivery of such opinion is
required by Article III.
Section 7.04. Acceptance of Duties and Obligations. Custodian
accepts the duties and obligations imposed upon it under this Agreement and
represents and covenants that Custodian is fully empowered under the applicable
laws and regulations of the United States of America and, if applicable, state
law, to accept such duties and obligations, and agrees to perform said duties
and obligations, subject to the following express terms and conditions:
(a) Custodian may execute any of its powers and perform any of its
duties and obligations by or through attorneys, agents, receivers or employees
and shall not be responsible for the acts of any attorneys or agents appointed
by it with due care in good faith, and shall be entitled to advice of counsel
concerning the performance of its duties and obligations under this Agreement,
and may in all cases pay such reasonable compensation to all such attorneys,
agents, or receivers as may reasonably be employed in connection with the
performance of the duties and obligations set forth in this Agreement.
Custodian may conclusively rely upon the opinion or advice of counsel appointed
by Custodian in good faith. Custodian shall not be responsible for any loss or
damage resulting from any action or non-action in good faith in reliance upon
such opinion or advice. To the extent permitted by law, in no event shall
Custodian be liable for any indirect, punitive, special or consequential
damages.
(b) Custodian shall not be responsible for any factual matters set
forth in the recitals to this Agreement and shall not be responsible for the
recording or re-recording, filing or refiling of this Agreement, or for the
validity of the execution by Lender of this Agreement, or of any instruments of
further assurance (other than as expressly set forth in Section 7.13), or for
the sufficiency of the security intended to be delivered by Lender under this
Agreement. Custodian shall not be responsible or liable for any loss suffered
in connection with any investment of funds made by it in accordance with this
Agreement.
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(c) Custodian shall be protected in acting in good faith upon any
notice, request, resolution, consent, certificate, affidavit, letter, telegram
or other paper or document, or oral communication or direction, from Fannie Mae
or Lender and believed to be genuine and correct and to have been signed or
sent or given by the proper Person or Persons. Without limiting the generality
of the foregoing, Custodian shall have no responsibility for or obligation to
determine the genuineness or validity of any item of Acceptable Collateral
delivered to it, or the genuineness, validity or authorization of any signature
appearing thereon.
(d) As to the existence or non-existence of any fact or as to the
sufficiency or validity of any instrument, paper or proceeding, Custodian shall
be entitled to rely upon certificates of public officials or from an officer or
general partner, as applicable, or Authorized Representative of Lender or
Fannie Mae (including notices from Fannie Mae) as sufficient evidence of the
facts therein contained, shall also be at liberty to accept a similar
certificate to the effect that any particular dealing, transaction or action is
necessary or expedient, but may at its discretion secure such further evidence
deemed necessary or advisable, but shall in no case be bound to secure the
same.
(e) The permissive right of Custodian to do things enumerated in
this Agreement shall not be construed as duty, and Custodian shall not be
liable in the performance of its obligations under this Agreement except for
its negligence or willful misconduct.
(f) Custodian shall not be required to take notice or be deemed to
have notice of any default under this Agreement except for a default under
Section 6.06(b) or Section 8.01(a) of this Agreement or unless Custodian shall
be specifically notified in writing of such default by Lender or Fannie Mae.
(g) Custodian shall not be required to give any bonds or surety in
respect of the execution of the powers granted it under this Agreement.
(h) Custodian, prior to the occurrence of an Event of Default
under this Agreement 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 and, in the absence of bad faith on
its part, Custodian may conclusively rely, as to the truth of the statements
and correctness of the opinions expressed therein, upon certificates or
opinions furnished to Custodian and conforming to the requirements of this
Agreement; but in the case of any such certificates or opinions which by any
provision of this Agreement are specifically required to be furnished to
Custodian, Custodian shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Agreement. After an
Event of Default, unless Custodian is acting upon the express written direction
of Fannie Mae, Custodian shall exercise its duties under this Agreement using
the same degree of care and skill in their
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exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(i) All moneys received by Custodian shall, until used or applied
or invested as provided in this Agreement, be held for the purposes for which
they were received and shall not be commingled with the general funds of
Custodian, but need not be segregated from other funds except to the extent
required by law. Custodian shall have no duty to remit funds from the
Collateral Account unless and until cleared and available.
(j) No provision of this Agreement shall be construed to relieve
Custodian from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) This subsection shall not be construed to limit the
effect of subsection (h) of this Section;
(ii) Custodian shall not be liable for any error of judgment
made in good faith by an officer of Custodian, unless it
shall be proved that Custodian was negligent in
ascertaining the pertinent facts;
(iii) Custodian shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in
accordance with the direction of Fannie Mae relating to
the time, method and place of conducting any proceeding
or any remedy available to Custodian, or exercising any
duty or power conferred upon Custodian under this
Agreement; and
(iv) No provision of this Agreement shall require Custodian
to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its
duties under this Agreement, or in the exercise of any
of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds is
not reasonably assured to it; it being understood that a
written commitment by Fannie Mae to repay such funds
shall constitute reasonable assurance.
(k) Anything in this Agreement to the contrary notwithstanding
(except for clause (iv) in subsection (j) above), Fannie Mae shall have the
sole and exclusive right, at any time, by an instrument or instruments in
writing executed and delivered to Custodian, to instruct or direct Custodian
with regard to how it should proceed in order to enforce Fannie Mae's rights
under this Agreement or comply with any or all of the terms and conditions of
this Agreement. In no instance shall Custodian be liable for any
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actions (or forbearance) undertaken by Custodian pursuant to the instruction of
Fannie Mae in accordance with the terms of this Agreement or of Lender under
the circumstances in which this Agreement authorize Custodian to follow
Lender's instructions.
(l) The Custodian acts strictly as collateral agent and bailee for
Fannie Mae under this Agreement and as such has no duty or obligation to
undertake any action of enforcement or collection in respect of the Collateral
at the request or direction of Lender, including, by way of example and not
limitation in connection with any dispute that may arise between Fannie Mae and
Lender in respect of any calculation of, the making by Fannie Mae of, or any
refusal by Fannie Mae to make, any payment of interest or principal under any
Existing Investment Agreement.
Section 7.05. Fees, Charges and Expenses of Custodian. Fannie Mae
shall be responsible for the payment of all of Custodian's fees and reasonable
expenses arising under this Agreement in accordance with the schedule attached
as Exhibit M (such fees and expenses, "Permitted Expenses") , provided that
Lender for the benefit of Fannie Mae, as an obligation of Lender secured under
this Agreement, shall pay directly to Custodian all such Permitted Expenses of
Custodian within thirty (30) days after invoicing by Custodian. From time to
time Custodian shall invoice Lender (with copy to Fannie Mae) for such
Permitted Expenses of Custodian; provided that Custodian shall not be entitled
to, nor shall it assert, a Lien on any portion of the Collateral with respect
to any sums owing to it pursuant to this Agreement. If Lender shall fail to
pay such Permitted Expenses of Custodian within thirty (30) days after
invoicing by Custodian, Custodian shall so notify Fannie Mae (with a copy to
Lender). If such Permitted Expenses of Custodian remain unpaid thirty (30)
days after such notice by Custodian to Fannie Mae, Custodian shall bill Fannie
Mae directly for any Permitted Expenses of Custodian due and payable.
Section 7.06. Notice to Fannie Mae if Default Occurs. If a default
occurs of which Custodian is by Section 7.04(f) required to take notice,
Custodian promptly shall give written notice of such default to Fannie Mae and
Lender by facsimile transmission followed by notice to Fannie Mae by registered
or certified mail or national overnight delivery service pursuant to Section
10.01 of this Agreement.
Section 7.07. Corporate Custodian Required; Eligibility. There
shall at all times be a custodian under this Agreement and such custodian shall
be a corporation or association organized and doing business under the laws of
the United States of America or of any state, authorized to accept and exercise
the trusts in this Agreement and be subject to supervision or examination by
Federal or state authorities. Any successor as custodian shall have a combined
capital and surplus of at least $100,000,000, and shall be a member bank of a
Federal Reserve Bank qualified to maintain book entry accounts. If at any time
Custodian shall cease to be eligible in accordance with the provisions of this
Section, it
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shall resign immediately at the request of Fannie Mae. No resignation or
removal of Custodian and no appointment of a successor custodian shall become
effective until the successor custodian has been appointed as provided in this
Article VII and has accepted its appointment under Section 7.11 hereof.
Section 7.08. Successor Custodian by Merger, Consolidation, Etc.
Any corporation or association into which Custodian may be merged, or with
which it may be consolidated, or to which it may sell, lease or transfer its
corporate trust business and assets as a whole or substantially as a whole,
provided such corporation or association is otherwise eligible under Section
7.07 hereof, shall be and become successor custodian under this Agreement and
shall be vested with all the powers, rights, obligations, duties, remedies,
immunities and privileges under this Agreement as was its predecessor, without
the execution or filing of any instrument on the part of any of the parties to
this Agreement except as may be necessary to maintain the perfection of the
security interest created by this Agreement under which Fannie Mae is the
secured party in accordance with the Uniform Commercial Code.
Section 7.09. Resignation of Custodian. Custodian and any
successor custodian may at any time resign from the duties and obligations
created by this Agreement by giving sixty (60) days prior written notice by
registered or certified mail to Lender and Fannie Mae. If no successor
custodian shall have been so appointed and have accepted appointment within
sixty (60) days of the giving of written notice by the resigning Custodian as
aforesaid, the resigning Custodian may petition any court of competent
jurisdiction for the appointment of a successor custodian.
Section 7.10. Removal of Custodian. Custodian or any successor
custodian may be removed at any time with or without cause, by an instrument or
concurrent instruments in writing delivered to Custodian and Lender by Fannie
Mae.
Section 7.11. Appointment of Successor Custodian. In case
Custodian shall:
(a) resign pursuant to Section 7.07 or 7.09;
(b) be removed pursuant to Section 7.10; or
(c) be dissolved, taken under the control of any public officer or
officers or of a receiver appointed by a court, or otherwise
become incapable of acting under this Agreement,
a successor shall be appointed by Fannie Mae. Fannie Mae shall provide notice
to Lender of such appointment. Every such successor custodian appointed
pursuant to the provisions of this Section shall be eligible to serve as
Custodian under Section 7.07 and willing to accept the duties imposed under the
terms and conditions of this Agreement.
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In case at any time Custodian shall resign and no appointment of a
successor custodian shall have been made and accepted pursuant to the
provisions of this Article VII prior to the date specified in the notice of
resignation as the date when such resignation would otherwise take effect,
Fannie Mae may require delivery of the Collateral to it to be held pursuant to
the provisions of this Agreement or apply to any court of competent
jurisdiction to appoint a successor custodian. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, appoint a successor
custodian.
Section 7.12. Concerning Any Successor Custodian. Every successor
custodian appointed under this Agreement shall execute, acknowledge and deliver
to its predecessor and also to Lender and Fannie Mae, an instrument in writing
accepting such appointment, and upon sending such instrument such successor
shall become fully vested with all the powers, rights, obligations, duties,
remedies, immunities and privileges of its predecessor; but, nevertheless, (1)
such predecessor shall, on the written request of Lender or Fannie Mae, execute
and deliver an instrument transferring to such successor custodian all the
powers, rights, obligations, duties, remedies, immunities and privileges of
such predecessor under this Agreement, and (2) such predecessor shall deliver
all securities, moneys, books, records, documents and registers held by it as
Custodian under this Agreement to its successor. Immediately upon appointment
as a successor custodian, such successor custodian shall deliver to Lender and
Fannie Mae a Letter of Confirmation and shall fulfill all the obligations of a
Custodian under this Agreement. Should any instrument in writing from Lender
or Fannie Mae be required by any successor custodian for more fully and
certainly vesting in such successor the powers, rights, obligations, duties,
remedies, immunities and privileges vested in the predecessor by this
Agreement, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by Lender and/or Fannie Mae at the expense
of Fannie Mae. The written notice of resignation of any Custodian and the
instrument or instruments removing any Custodian and appointing a successor
under this Agreement, together with all other instruments provided for in this
Article, shall be filed or recorded by the successor custodian in each
recording office, if any such instrument or this Agreement shall have been
filed or recorded.
Section 7.13. Protection of Lien.
(a) Custodian will from time to time execute and deliver all
financing statements, continuation statements, and such other instruments, and
will take such other action as may be necessary or advisable to maintain or
preserve the Lien of this Agreement in any Collateral (other than Letters of
Credit) delivered under this Agreement as a perfected first priority security
interest. Fannie Mae designates Custodian as its agent and attorney-in-fact to
execute such financing statements, continuation statements and such other
instruments referred to in the preceding sentence.
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(b) Without Fannie Mae's prior approval, Custodian shall not
remove any Existing Investment Agreement or Permitted Investment from the
jurisdiction in which it was held on the date such Existing Investment
Agreement or Permitted Investment was delivered to Custodian unless Custodian
has delivered to Fannie Mae (and, unless an Event of Default has occurred and
is continuing, Lender) an opinion of counsel to the effect that such lien and
perfected security interest will continue to be maintained after giving effect
to such removal.
(c) If Custodian has not received quarterly notice by Lender
pursuant to Section 6.06(b) of this Agreement respecting any change in name,
identity, organizational structure, place of organization or principal place of
business of Lender within five (5) days after the initial Valuation Date of any
calendar quarter, Custodian shall so notify Lender of such required notice.
Custodian shall promptly notify Fannie Mae if (i) Custodian receives such
notice from Lender affirmatively indicating any such change, or (ii) no notice
is received within seven (7) days after Custodian contacts Lender as provided
above.
Section 7.14. Compliance by Custodian with Investment Guidelines.
Custodian shall invest funds and hold Collateral in the Collateral Account only
in accordance with the Investment Guidelines.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. Any one or more of the following
acts or occurrences shall constitute an Event of Default under this Reserve
Agreement:
(a) Lender shall fail to deliver Acceptable Collateral or
otherwise shall fail to comply with any requirements of Article III within the
time specified in Article III, or shall fail to maintain sufficient Acceptable
Collateral so that the aggregate Collateral Value of all Acceptable Collateral
is equal to or greater than the Aggregate Reserve Requirement as required by
this Agreement;
(b) Lender shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those agreements contained in
Article III) for a period of thirty (30) days after written notice thereof has
been given to Lender by Fannie Mae, unless Fannie Mae agrees in writing that
such failure cannot be cured or remedied within such 30-day period, and Lender
commences within such 30-day period, and thereafter diligently pursues to
completion, a course of action reasonably designed in Fannie Mae's judgment to
cure or remedy such failure;
(c) any representation, warranty or statement made by Lender in
this Agreement, in the Contract or in any certificate delivered in connection
with or under this Agreement shall prove to have been incorrect in any material
respect when made; provided
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that if the incorrect matter as to which such representation or warranty
relates is capable of being cured, it shall not constitute an Event of Default
unless Lender fails to correct such matter within thirty (30) days after Lender
shall first acquire knowledge or receive notice of the matter;
(d) Lender's acts or omissions in the performance of any of its
obligations under this Agreement constitute (i) fraud or material
misrepresentation or (ii) negligence that has a material, adverse effect on
Fannie Mae's rights or interests;
(e) The occurrence of a Lender insolvency, or, in the case of a
Lender that is a depository institution, the appointment of a conservator or
receiver;
(f) Lender shall repudiate or, within any applicable cure period,
fail to perform any of its obligations under the Contract;
(g) Lender shall repudiate or, within any applicable cure period,
fail to perform any of its obligations under the Loss Sharing Agreement; or
(h) Lender shall fail to make any Payment Obligation as and when
required by the Loss Sharing Agreement.
ARTICLE IX
REMEDIES
Section 9.01. Remedies of Fannie Mae. Upon the occurrence of any
Event of Default under this Agreement, unless such Event of Default has been
cured to Fannie Mae's satisfaction, Fannie Mae may, at its sole option:
(a) notify and cause Custodian to draw, in whole or in part,
upon any Letter of Credit delivered to Custodian under this Agreement, hold the
proceeds from such a draw in accordance with Section 3.04(d), and upon notice
from Fannie Mae, promptly deliver the proceeds thereof to Fannie Mae in
accordance with Fannie Mae's instructions;
(b) retain, take title to and (subject to the limitation set
forth below) use for any purpose, either directly or through Custodian (acting
in accordance with the instructions of Fannie Mae), any Invested Funds (together
with any accrued interest thereon) under any Existing Investment Agreement
delivered under this Agreement, and/or, at Fannie Mae's sole and absolute
discretion, terminate such Existing Investment Agreement;
(c) instruct Custodian to sell, liquidate or otherwise dispose
of or cause to be sold, liquidated or otherwise disposed of in a commercially
reasonable manner, the Collateral or any part thereof or interest therein by
public auction to the highest bidder or at private sale or auction with or
without demand, advertisement
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or notice of the date, time or place of sale or any adjournment thereof, upon
such terms and in such manner that Fannie Mae may approve. Nevertheless, if
notice of any public sale shall be required by law, Lender agrees that such
notice shall be sufficient if it describes the Collateral to be sold in general
terms, stating the nature thereof, and the location and nature of the
Collateral, and is published at least once in a newspaper of general
circulation which Fannie Mae may elect in the city in which Custodian's
corporate trust office is located, not less than two (2) days prior to the
sale. All requirements of reasonable notice shall be met if such notice is
mailed, postage prepaid, to Lender at its address set forth herein or at such
other addresses as it may have in writing provided to Fannie Mae, at least two
(2) days before the time of such sale or disposition. Fannie Mae may, if it
deems it reasonable, direct Custodian to adjourn any sale of any Collateral
from time to time by an announcement at the time and place of the sale to be so
postponed or adjourned without being required to give a new notice of sale.
Custodian is hereby irrevocably appointed the true and lawful attorney of
Lender, in its name and stead, to make all necessary transfers of property thus
sold; and for that purpose it may execute all necessary instruments of
transfer, and may substitute one or more Persons with like power, Lender hereby
ratifying and confirming all that its said attorney, or such substitute or
substitutes, shall lawfully do by virtue hereof. Nevertheless, if so requested
by Fannie Mae, Custodian or any purchaser of the Collateral or any part
thereof, Lender shall ratify and confirm any such sale or transfer by executing
and delivering to Custodian or such purchaser all proper instruments of
transfer and releases as may be designated in any such request. Fannie Mae, or
Custodian acting on its behalf, may proceed at law or in equity to foreclose
the lien of this Agreement against all or any part of the Collateral and to
have the same sold under the judgment or decree of a court having jurisdiction
or as otherwise may be required or permitted by law. In connection with any
such action or proceeding, Lender hereby waives any right, to the extent
applicable law permits, to receive prior notice of or a judicial or other
hearing with respect thereto and also waives, to the extent permitted by law,
any bonds, security or sureties required by any statute, rule or otherwise by
law as an incident to any taking of possession by Fannie Mae, or Custodian
acting on its behalf, of the Collateral. Upon any sale, whether made under the
power of sale hereby given or by virtue of judicial proceedings, Fannie Mae or
Custodian may bid for and purchase the Collateral or any part thereof and, upon
compliance with the terms of the sale, may hold, retain, possess or dispose of
such property in its or their own absolute right without accountability. Upon
any sale, whether made under the power of sale hereby given or by virtue of
judicial proceedings, the receipt of Custodian, or of the officer making a sale
under judicial proceedings, shall be a sufficient discharge to the purchaser or
purchasers at any sale for its or their purchase money, and such purchaser or
purchasers shall not be obliged to see to the application thereof. Any such
sale, whether under any power of sale hereby given or by virtue of judicial
proceedings, shall bind Lender and Custodian to the purchaser or purchasers,
shall operate
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to divest all right, title and interest whatsoever of each of them under or
pursuant to this Agreement in and to the property sold, and shall be a
perpetual bar, both at law and in equity, against each of them and their
successors and assigns, and against any and all persons claiming through or
under them to assert such right, title and interest. Lender agrees that the
other parties hereto shall have no obligation to marshall any Collateral for
the benefit of Lender or any other Person; and
(d) take whatever other action at law or in equity may appear
necessary or desirable to enforce any monetary obligation, covenant or
agreement of Lender under this Agreement.
Proceeds of any Letter of Credit, Existing Investment Agreement, Permitted
Investment, or other Collateral held under this Agreement shall be applied by
Fannie Mae against (i) Lender's obligation for the benefit of Fannie Mae to pay
Custodian's fees and reasonable expenses arising under this Agreement, (ii)
Lender's allocated share of the loss with respect to any Mortgage Loan after
Fannie Mae calculates the loss on that Mortgage Loan as provided in the Loss
Sharing Agreement and (iii) in Fannie Mae's sole and absolute discretion, any
other obligation owed by Lender to Fannie Mae. No such funds or, if, in Fannie
Mae's sole and absolute discretion, such funds are invested, earnings on such
funds shall be returned to Lender until all obligations for payment by Lender
under this Agreement, the Loss Sharing Agreement, the Contract, and any other
agreement with Fannie Mae that requires Lender to deposit Collateral under this
Agreement have been determined and paid in full and all such agreements have
been terminated.
Section 9.02. Remedies Not Exclusive. Unless otherwise expressly
provided, no remedy conferred in this Agreement or reserved to Fannie Mae is
intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given under this Agreement or now or hereafter existing at law or
in equity. Fannie Mae shall not be required to liquidate, or otherwise realize
against, Collateral held under this Agreement, prior to any demand and suit for
payment by Lender of any amounts then owing to Fannie Mae.
Section 9.03. Delay or Omission Not Waiver. No delay or omission
of Fannie Mae to exercise any right or remedy provided under this Agreement
upon an Event of Default (except a delay or omission pursuant to a written
waiver) shall impair any such right or remedy or constitute a waiver of, or
acquiescence in, any such Event of Default. Every right and remedy given by
this Article IX or by law to Fannie Mae may be exercised from time to time, and
as often as may be deemed expedient by Fannie Mae. In order to entitle Fannie
Mae to exercise any remedy reserved to Fannie Mae in this Article IX, it shall
not be necessary to give any notice.
Section 9.04. Restoration of Rights and Remedies. If Fannie Mae
shall have instituted any proceeding to enforce any right or remedy under this
Agreement and such proceeding has been
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discontinued or abandoned for any reason, or has been determined adversely to
Fannie Mae, then and in every such case, Fannie Mae, Custodian and Lender,
subject to any determination in such proceeding, shall be restored severally
and respectively to their former positions under this Agreement, and thereafter
all rights and remedies of Fannie Mae shall continue as though no such
proceeding had been instituted.
Section 9.05. Effect of Cure Periods on Remedies. The rights of
Custodian or Fannie Mae otherwise provided in this Agreement to draw on any
Letter of Credit, to use any Invested Funds under an Existing Investment
Agreement or to liquidate any Permitted Investment shall not be limited or
affected in any way by any right of Lender to cure or remedy a default set
forth in Section 8.01(b) or (c) of this Agreement.
Section 9.06. Additional Security; Right to Set-Off. Any amounts
at any time credited or due to Lender from Fannie Mae, securities or other
property of Lender in the possession of Fannie Mae (other than, with respect to
any warehouse bank with which Fannie Mae has entered into a "bailee letter"
pursuant to the DUS Guide, any "Note" or "Additional Documents" so long as such
property is held by Fannie Mae as bailee for the benefit of such warehouse bank
pursuant to such bailee letter) may at all times be treated as Collateral for
the payment of any obligation under this Agreement, the Contract or the Loss
Sharing Agreement and Lender pledges to Fannie Mae and grants Fannie Mae a
valid security interest in, Lien upon and right of set-off against all such
amounts, securities or other property. Regardless of the adequacy of any other
Collateral, Fannie Mae may execute or realize on its security interest in any
such amounts credited by or due to Lender from Fannie Mae, securities or other
property and may apply any such amounts, securities or other property to or set
them off against Lender's obligations to Fannie Mae under this Agreement, the
Contract or the Loss Sharing Agreement at any time after the occurrence and
during the continuance of any Event of Default.
Section 9.07. Liquidation of Collateral. If Custodian shall at any
time receive written notice from Fannie Mae stating that an Event of Default
has occurred and is continuing, and directing Custodian to sell or otherwise
liquidate the Collateral held by Custodian, or such portion or portions thereof
as are designated in such direction, Custodian shall outline and send to Fannie
Mae a proposed manner of sale (including methodology, to the extent applicable)
for Fannie Mae's approval. Upon receipt by Custodian of written approval from
Fannie Mae of the manner (and methodology, as applicable) of sale or other
liquidation (and having received notice of an Event of Default and instruction
to sell or liquidate Collateral, as provided above), Custodian shall carry out
the sale or other liquidation of Collateral, or such portion or portions
thereof, as so directed and in accordance with such approved terms. In no
instance shall Custodian be obligated to commence (or defend) any legal,
proceedings, or to take any actions which in its reasonable judgment shall
require it to expend or risk its own funds or to incur or suffer liability for
which it
43
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<PAGE> 49
has not been indemnified to its satisfaction, in connection with the sale or
liquidation of Collateral. If Custodian shall at any time receive written
notice from Fannie Mae stating that an Event of Default has occurred and is
continuing, and directing Custodian to transfer or deliver to Fannie Mae (or as
it may direct) any Collateral, or portion or portions thereof, held by
Custodian (including by way of example, and not limitation, any cash or
Permitted Investments held in the Collateral Account), Custodian shall transfer
or deliver such Collateral to Fannie Mae (or as it may otherwise direct).
Custodian shall not be responsible for determining the requirements of
applicable law (including without limitation those imposed on secured parties
under the Uniform Commercial Code, to the extent applicable), if any, or for
compliance therewith, in connection with any such sale, liquidation or transfer
of Collateral. In no instance shall Custodian be liable for any loss or
deficiency incurred or resulting from or remaining after any such sale,
liquidation or transfer (provided the same is carried out in accordance with
the instruction and approval of Fannie Mae, as provided for hereinabove).
ARTICLE X
MISCELLANEOUS
Section 10.01. Notices. Each notice, request, instruction demand,
consent, or other approval (collectively, "notices" and singly "notice") given
under this Agreement shall be in writing to the other party at its address set
forth on the signature page of this Agreement or at such other address as such
party may designate by notice to the other party and shall be deemed given (a)
three (3) Business Days after mailing, by certified or registered U.S. mail,
return receipt requested, postage prepaid, (b) one (1) Business Day after
delivery, fee prepaid, to a national overnight delivery service (such as
Federal Express, Purolator Courier, or U.P.S. Next Day Air), (c) when
delivered, if personally delivered with proof of delivery thereof, or (d) on
the date of transmission of notice sent by facsimile machine if sent on a
Business Day, otherwise on the next Business Day. If notice is sent by
telecopier or facsimile machine, a copy also must be sent by one of the methods
set forth in (a) - (c) above, but notice will be deemed given as provided in
clause (d) above.
Each party to this Agreement agrees that it will not refuse or
reject delivery of any notice given under this Agreement, that it will
acknowledge, in writing, the receipt of the same upon request by the other
party and that any notice rejected or refused by it shall be deemed for all
purposes of this Agreement to have been received by the rejecting party on the
date so refused or rejected, as conclusively established by the records of the
U.S. Postal Service or the delivery or courier service.
Section 10.02. No Waiver. No failure or delay by Fannie Mae in
exercising any right, power or privilege under any of the Contract, the Loss
Sharing Agreement, the DUS Guide or this Agreement shall operate as a waiver of
such right, power or
44
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<PAGE> 50
privilege nor shall any single or partial exercise of such right, power or
privilege preclude any other or further exercise of that right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies provided in this Agreement shall be cumulative and not exclusive
of any rights or remedies provided by law.
Section 10.03. Termination. This Agreement shall terminate on the
date that Custodian transfers any remaining Collateral to Lender or Fannie Mae,
in accordance with the provisions of this Agreement, following receipt by
Custodian of written authorization from Fannie Mae to release the Collateral.
Fannie Mae shall give such authorization to Custodian in the event that (a)
Lender has completely and fully satisfied all of its Payment Obligations to
Fannie Mae under the Contract, this Agreement and the Loss Sharing Agreement
and no Mortgage Loans remain outstanding, and (b) Lender ceases to be an
approved lender under Delegated Underwriting and Servicing and the Contract.
Section 10.04. Amendments and Waivers. Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing, is signed by Lender and Custodian and is consented to in writing by
Fannie Mae.
Section 10.05. Severability. The invalidity, illegality, or
unenforceability of any provision of this Agreement pursuant to judicial decree
shall not affect the validity or enforceability of any other provision of this
Agreement, all of which shall remain in full force and effect.
Section 10.06. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original.
Section 10.07. Relationship to DUS Guide. In the event of an
inconsistency between the DUS Guide and this Agreement, the provisions of this
Agreement shall govern.
Section 10.08. Governing Law; Submission to Jurisdiction; Waiver
of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE FEDERAL LAWS OF THE UNITED STATES, AND, TO THE EXTENT THERE IS NO
APPLICABLE FEDERAL LAW, THE LAWS OF THE DISTRICT OF COLUMBIA WITHOUT GIVING
EFFECT TO INTERNAL CHOICE OF LAW RULES, EXCEPT THAT WITH RESPECT TO THE
PERFECTION OF SECURITY INTERESTS IN ACCEPTABLE COLLATERAL, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS SHALL APPLY. LENDER, CUSTODIAN AND FANNIE MAE
SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF COLUMBIA AND OF ANY DISTRICT OF COLUMBIA COURT SITTING IN THAT
JURISDICTION FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. LENDER, CUSTODIAN AND
FANNIE MAE IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW ANY
OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING HAS BEEN BROUGHT IN AN
45
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<PAGE> 51
INCONVENIENT FORUM. LENDER, CUSTODIAN AND FANNIE MAE IRREVOCABLY WAIVE ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR CONTEMPLATED BY THIS AGREEMENT.
IN WITNESS WHEREOF, Lender, Custodian and Fannie Mae have executed
this Agreement effective as of the date of execution by Fannie Mae.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ SHEKAR NARASIMHAN (seal)
-------------------------------
Name: Shekar Narasimhan
-----------------------------
Title: President/CEO
----------------------------
Address: 1593 Spring Hill Road, #400
Vienna VA 22182
Telephone: 703-610-1400
Facsimile: 703-610-1404
Date: May 29, 1996
----------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ CLAIRE A. FUSCO (seal)
-------------------------------
Name: Claire A. Fusco
-----------------------------
Title: Vice President
----------------------------
Mailing Address:
Corporate Trust Department P.O. Box 778
Boston, MA 02102
Attention: Corporate Trust Department
or
Delivery Address:
Corporate Trust Department
Two International Place
Boston, MA 02110
Attention: Claire A. Fusco
Telephone: (617) 664-5440
Facsimile: (617) 664-5367
Date: 5/31/96
-----------------------------
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<PAGE> 52
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: /s/ THOMAS W. WHITE (seal)
--------------------------------
Name: Thomas W. White
------------------------------
Title: Senior Vice President for
Multifamily Activities
-----------------------------
Address:
3900 Wisconsin Avenue, N.W.
Washington, DC 20016
Attention: Multifamily Activities
Telephone: (202) 752-7405
Facsimile: (202) 752-4231
Date: As of June 4, 1996
------------------------------
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<PAGE> 53
EXHIBIT A
CERTIFICATE OF AUTHORIZED REPRESENTATIVES
CERTIFICATE OF LENDER
I, Elizabeth Whitbred-Snyder, certify that I am the duly elected Senior Vice
President of Washington Mortgage Financial Group, Ltd., a corporation, and
further certify as follows.
Pursuant to the requirements of the Delegated Underwriting and Servicing
Reserve Agreement by and among Lender, Federal National Mortgage Association
and State Street Bank and Trust Company, the following are the names of the
Authorized Representatives of Lender and a true specimen signature of each
individual.
<TABLE>
<CAPTION>
NAME TITLE SPECIMEN SIGNATURE
- - ---- ----- ------------------
<S> <C> <C>
Shekar Narasimhan President/CEO /s/ SHEKAR NARASIMHAN
-------------------------
Howard S. Perkins EVP/CFO/Treasurer /s/ HOWARD S. PERKINS
-------------------------
Douglas Moritz EVP Lending /s/ DOUGLAS MORITZ
-------------------------
Clarke B. Welbum EVP Credit Policy /s/ CLARKE B. WELBUM
-------------------------
</TABLE>
In witness whereof, I have signed my name.
Dated: May 29, 1996
/s/ ELIZABETH WHITBRED-SNYDER
------------------------------------
Elizabeth Whitbred-Snyder
Senior Vice President and Controller
(SEAL)
<PAGE> 54
EXHIBIT B
LETTER OF ACCEPTABLE COLLATERAL
[On Lender's Letterhead]
FEDERAL NATIONAL MORTGAGE ASSOCIATION
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Ladies and Gentlemen:
Enclosed in connection with the Delegated Underwriting and Servicing Reserve
Agreement among ________________ ("Lender"), Federal National Mortgage
Association ("Fannie Mae"), and State Street Bank and Trust Company as
collateral agent and bailee for Fannie Mae (in such capacity, "Custodian" or
"you"), as in effect on the date of this letter (the "Reserve Agreement"), is
the Schedule of Acceptable Collateral as set forth on Schedule A ("Acceptable
Collateral").
In connection with the delivery of the Acceptable Collateral described in
Schedule A to you, we represent that we have full [corporate/partnership]
right, power and authority to perform all of our obligations under the Reserve
Agreement, including, if applicable, the granting of a security interest in the
Acceptable Collateral other than a Letter of Credit (as defined in the Reserve
Agreement), and that the Acceptable Collateral described on Schedule A complies
with all applicable requirements of the Reserve Agreement and all other
agreements between Lender and Fannie Mae that may be applicable.
We further represent that neither the fulfillment of the terms of the Reserve
Agreement nor the delivery, assignment, pledge of and security interest in the
Acceptable Collateral granted to Fannie Mae violates any provisions of our
organizational documents, or any law, regulations or court decree applicable to
us, and none of such actions will result in a breach of, or constitute a
default under, any agreement, indenture or other material instrument to which
we are a party or by which we are bound. We have obtained any and all required
authorizations or approvals of, or consents to, the delivery, pledge and
assignment of, and security interest in, such Acceptable Collateral to Fannie
Mae, delivered to Custodian as collateral agent and bailee of Fannie Mae, by
federal, state or other regulatory bodies.
- - -----------------
(1) Insert Custodian's correct address, if changed.
B-1
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<PAGE> 55
If Acceptable Collateral is being delivered in substitution of, or in addition
to, previously delivered Acceptable Collateral, we have checked the appropriate
box below:
[ ] Acceptable Collateral is being delivered concurrently as
substitute Acceptable Collateral.
[ ] Acceptable Collateral is being delivered concurrently as
additional Acceptable Collateral.
Please confirm the receipt of the Acceptable Collateral to us at the following
address:
Please also make the determinations called for by Section 3.01(a)(vi) of the
Reserve Agreement and indicate that you have made such determinations by
completing and returning to us at the above address your Letter of
Confirmation. Custodian may rely upon this letter as if it were addressed to
it.
Lender's name, identity, organizational structure, place of organization or
principal place of business have not changed since the most recently delivered
Letter of Acceptable Collateral. If any such information has changed, please so
state.
- - ------------------------------------------------------------------
- - ------------------------------------------------------------------
- - ------------------------------------------------------------------
- - ------------------------------------------------------------------
Sincerely,
[Lender's Name]
By: *
---
Name:
Title:
Date:
*Must be executed by an Authorized Representative of Lender. If Lender is not a
corporation, the signature block should show the name of any entity (such as a
general partner or manager) on behalf of which an individual is signing and the
relationship of that entity to Lender.
B-2
[4/96]
<PAGE> 56
SCHEDULE A TO EXHIBIT B
Schedule of Acceptable Collateral Delivered to Custodian
Under the Reserve Agreement
[If a Letter of Credit or an amendment to a Letter of Credit
is being provided, list the following information:
Letter of Credit
Neither Letter of Credit Issuer nor Confirming Bank is an
affiliate of Lender as of the date hereof: [ ] (Check if so represented by
Lender.)
Letter of Credit Issuer:
Confirming Bank (if applicable):
Amount: (show previous amount and addition, if amendment)
Account Party:
Beneficiary:
Termination Date:
Letter of Credit Number:]
[If an Existing Investment Agreement or an increase to the
amount of Invested Funds under an Existing Investment Agreement is being
pledged, list the following information:
Existing Investment Agreement
Fannie Mae Reference Number: D____________
Issued by: Fannie Mae
Amount: (show previous amount and addition, if increased)
Termination Date: ]
Permitted Investment
[Describe individually by issuer or counterparty, amount,
interest rate or yield, maturity and CUSIP or other identifying number if
Permitted Investments are to be transferred to Custodian.]
[If funds are to be delivered for acquisition by Custodian of
Permitted Investments, attach investment instructions as Schedule B to this
Exhibit B.]
B-3
[4/96]
<PAGE> 57
EXHIBIT C
LETTER OF CONFIRMATION
[On Custodian's Letterhead]
[Lender]
- - -----------------------------------------
- - -----------------------------------------
Ladies and Gentlemen:
We have received your Letter of Acceptable Collateral dated
__________________________, 19__, regarding Acceptable Collateral and other
materials, as required by the Reserve Agreement, as defined in your Letter of
Acceptable Collateral. We confirm that we have made the determinations called
for by Section 3.01(a)(vi) of the Reserve Agreement with respect to the
Acceptable Collateral and the other materials enclosed with your Letter of
Acceptable Collateral. We have determined that such Acceptable Collateral has
a Collateral Value of U.S. $_____________. We further confirm that we have
received the Collateral described on Schedule A to your letter.
[We confirm to you and to Fannie Mae that any such Acceptable Collateral
consisting of an Existing Investment Agreement (or, if an increase to an
Existing Investment Agreement, notification from Fannie Mae of such increase)
is in our possession, is accompanied by an executed instrument of assignment
substantially in the form required by the Reserve Agreement, is being held by
us for the benefit of Fannie Mae and is accompanied by the opinions of counsel
in the forms required by the Reserve Agreement, which state, among other
things, that such action has been taken with respect to the Investment
Agreement to perfect a first-priority security interest therein in favor of
Fannie Mae.]
[We confirm to you and to Fannie Mae that any such Acceptable Collateral
consisting of a Permitted Investment (or Collateral consisting of immediately
available funds with written instructions for investment of such funds in
Permitted Investments in accordance with the Investment Guidelines) is in our
actual or constructive possession, is accompanied by an executed instrument of
assignment or transfer substantially in the form required by the Reserve
Agreement, is being held by us for the benefit of Fannie Mae and that initial
delivery of such Acceptable Collateral consisting of Permitted Investments (or
such immediately available funds) is or was accompanied by the opinions of
counsel in the forms required by the Reserve Agreement, which state, among
other things, action required with respect to the Permitted Investment to
perfect a first-priority security interest therein in favor of Fannie Mae.]
[We confirm to you and to Fannie Mae that any of such Acceptable Collateral
consisting of a Letter of Credit that has been issued in the form and amount
required by the Reserve Agreement, has been issued or confirmed by a bank
meeting Fannie Mae's applicable
C-1
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<PAGE> 58
rating standards and has been delivered to us, together with an opinion of
counsel to the issuer of the Letter of Credit, in the form required by the
Reserve Agreement.]
[The Letter of Credit was issued by ________________________ on
___________________, 19__, in an amount of U.S. $___________________, final
expiration date of ______________________________________________. [If
applicable] The Letter of Credit was confirmed by __________________________
on _________________________, 19__.]
The statements made in this letter are subject to the terms of the Reserve
Agreement, and terms used but not otherwise defined shall have the same
meanings as ascribed to such terms in such Reserve Agreement.
Sincerely,
STATE STREET BANK AND TRUST COMPANY
By:
Name:
Title:
Date:
cc: Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Attention: Multifamily Activities
C-2
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<PAGE> 59
[KROOTH & ALTMAN LETTERHEAD]
May 30, 1996
Federal National Mortgage Association
ATTENTION: Multifamily Activities
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, Massachusetts 02110
Re: Delegated Underwriting and Servicing Reserve Agreement
Ladies and Gentlemen:
We have acted as counsel to Washington Mortgage Financial
Group, Ltd. ("Lender") in connection with the Delegated Underwriting and
Servicing Reserve Agreement ("Reserve Agreement"), executed by Lender, and
submitted to Federal National Mortgage Association ("Fannie Mae") and State
Street Bank and Trust Company (the "Custodian") for signature. This opinion is
being delivered at the direction of the Lender in partial satisfaction of the
requirements of Section 3.01(a)(ii) of the Reserve Agreement.
In such capacity as counsel for Lender, we have prepared,
reviewed or examined, and are familiar with, originals or copies, certified or
otherwise, identified to our satisfaction, of the following documents:
A. Mortgage Selling and Servicing Contract (the
"Contract");
B. Delegated Underwriting and Servicing Addendum to the
Mortgage Selling and Servicing Contract between
Lender and Fannie Mae (the "DUS Addendum");
C. Reserve Agreement;
<PAGE> 60
Federal National Mortgage Association
State Street Bank and Trust Company
May 30, 1996
Page 2
D. Delegated Underwriting and Servicing Master Loss
Sharing Agreement between Lender and Fannie Mae (the
"Loss Sharing Agreement");
E. The Certificate of Incorporation, as amended, and
Bylaws of the Lender (collectively, the
"Organizational Documents;
F. Certificate of good standing document respecting
Lender dated May 7, 1996, issued by the State of
Delaware; and
G. Such certificates and other representations of Lender
as we have deemed necessary to enable us to deliver
the opinions set forth below.
In connection with rendering the opinions set forth below, we
have examined pertinent statutes and regulations and copies, certified or
otherwise, identified to our satisfaction, of the records of the Lender and
have made such other investigation as we have considered necessary as a basis
for the opinions expressed below.
In the course of our examination and review and in connection
with the opinions expressed below, we have assumed the genuineness of all
signatures other than Lender's, the authenticity of all documents submitted to
us as copies, and the due authorization, execution and delivery of the Contact,
the DUS Addendum, the Reserve Agreement and the Loss Sharing Agreement by all
parties thereto other than Lender.
In basing the opinions set forth in this opinion on "our
knowledge" or "to the best of our knowledge", the words "our knowledge" and "to
the best of our knowledge" signify that, in the course of our representation of
Lender, no facts have come to our attention that would give us actual knowledge
or actual notice that any such opinions or other matters are not accurate and
complete. Except as otherwise stated in this opinion, we have undertaken no
investigation or verification of such matters. Further, the words "our
knowledge" and "to the best of our knowledge" as used in this opinion are
intended to be limited to the actual knowledge of the attorneys within our firm
who have been directly involved in the representation of Lender in connection
with the Contract, the DUS Addendum, the Reserve Agreement and the Loss Sharing
Agreement and the attorneys within our firm who we reasonably believe have
knowledge of the affairs of Lender (including, as to information relevant to a
particular opinion or confirmation regarding a particular factual matter, the
attorneys within our firm who are primarily responsible for providing the
response concerning that particular opinion or confirmation).
<PAGE> 61
Federal National Mortgage Association
State Street Bank and Trust Company
May 30, 1996
Page 3
Based upon the foregoing, it is our opinion that:
1. Lender has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has full corporate power and authority to conduct its business as it
is now being conducted.
2. Lender has full right, power and authority to
execute, deliver and perform its obligations under the Contract, the DUS
Addendum, the Reserve Agreement and the Loss Sharing Agreement, including
granting a security interest as contemplated in the Reserve Agreement in
certain collateral (the "Acceptable Collateral"); the Contract, the DUS
Addendum, the Reserve Agreement and the Loss Sharing Agreement have been duly
authorized, executed and delivered by Lender; and the Contract, the DUS
Addendum, the Reserve Agreement and the Loss Sharing Agreement constitute the
legal, valid and binding obligations of Lender, enforceable against Lender by
Fannie Mae and Custodian in accordance with their terms except to the extent
enforcement thereof may be limited or affected by any applicable bankruptcy,
insolvency, receivership, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity (whether
enforcement is sought in a proceeding in equity, an action at law, or
otherwise).
3. Neither the execution and delivery by Lender of the
Contract, the DUS Addendum, the Reserve Agreement and the Loss Sharing
Agreement, nor the performance by Lender of its obligations under, nor the
compliance by Lender with any of the provisions of, the Contract, the DUS
Addendum, the Reserve Agreement and the Loss Sharing Agreement violate any
provisions of the Organizational Documents of Lender, or any law or regulations
applicable to Lender or its assets or operations or court decree known to us to
be applicable to or binding upon Lender; and none of such actions will result
in a breach of, or constitute a default under, any material agreement,
indenture or other instrument (known to us, after reasonable inquiry) to which
Lender is a party or by which it or its assets or operations is bound, and any
and all authorizations or approvals of or consents to pledge and assignment of
such interest as Lender has in such Acceptable Collateral to Custodian as of
the date of this opinion by any federal, state or other governmental regulatory
agency at the time having Jurisdiction in the premises have been obtained.
4. There is not pending or, to the best of our
knowledge, threatened any action, suit, proceeding, inquiry or investigation
before any court, public board or regulatory agency, against or affecting
Lender or its assets or operations, wherein an unfavorable decision, ruling or
finding could adversely affect Lender's powers or
[4/96]
<PAGE> 62
Federal National Mortgage Association
State Street Bank and Trust Company
May 30, 1996
Page 4
existence or the validity or enforceability of, or Lender's ability to perform
its obligations under, the Contact, the DUS Addendum, the Reserve Agreement and
the Loss Sharing Agreement, or could result in any material adverse change in
the business, condition (financial or otherwise) or operation of Lender.
We are admitted to practice in the District of Columbia, and
in rendering this opinion letter, we do not express any opinion concerning any
law other than the federal law of the United States, and the laws of the
District of Columbia, and, although we are not admitted to practice in the
State of Delaware, the provisions of the General Corporation Law of the State
of Delaware applicable to the opinions expressed herein. We do not express any
opinion on any issue not expressly addressed above.
We are rendering the opinion to you at the request of our
client, the Lender, for your benefit in connection with the delivery of the
Contract, the DUS Addendum, the Reserve Agreement and the Loss Sharing
Agreement, and the opinion may not be relied upon by any party other than the
persons to whom it is addressed without our prior written approval.
Very truly yours,
KROOTH & ALTMAN
/s/ PATRICK J. CLANCY
----------------------------
Patrick J. Clancy
<PAGE> 63
EXHIBIT E-1
FORM OF IRREVOCABLE LETTER OF CREDIT (EVERGREEN)
[bank's letterhead]
IRREVOCABLE LETTER OF CREDIT NO.___________
__________________________, 19__
Federal National Mortgage Association
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Dear Sir or Madam:
For the account of
_________________________________________________________,
[name of account party/customer]
we open in your favor our Irrevocable Letter of Credit No.___________
("Credit") for an amount not exceeding a total of U.S.$________ effective
immediately and expiring on _______________________, 19__ (the "Initial
Termination Date").
The Initial Termination Date shall be deemed automatically extended, without
amendments, for one year from the Initial Termination Date, and thereafter for
one year from each anniversary of the then applicable Termination Date through
_______________ (as to the Initial Termination Date or each extension of the
Initial Termination Date, a "Termination Date") , unless at least sixty days
prior to the then applicable Termination Date, we shall notify you in writing
at the above address, with a copy to your counsel at the address specified
below, by certified or registered mail, return receipt requested, that we, in
our sole discretion, do not wish to extend the then applicable Termination Date
for any such additional period:
General Counsel
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, DC 20016
Re: Multifamily Matters
Unless the then applicable Termination Date occurs earlier in accordance with
this paragraph, the Final Termination Date shall be____________________ (the
"Final Termination Date").
- - ---------------
(1) Insert Custodian's correct address, if changed.
E-1-1
[4/96]
<PAGE> 64
Funds under this Credit are available to you or to State Street Bank and Trust
Company, your collateral agent and bailee, against either one of your sight
draft(s) on us, completed in substantially the form attached as Schedule A, for
all or any part of this Credit. If, for any reason, we cannot determine the
order in which any draft is presented to us, payment will be made only to
Federal National Mortgage Association.
We will promptly honor all drafts drawn in compliance with the terms of this
Credit if received on or before the then applicable Termination Date
at
--------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
[bank's address]
.
- - ----------------------------------------------------------------------------
Drafts presented at our office at the address set forth above no later than
10:00 a.m. shall be honored on the date of presentation, by payment in
accordance with your payment instructions that accompany each such draft. If
requested by you or State Street Bank and Trust Company, your collateral agent
and bailee, payment under this Credit may be made by wire transfer of
immediately available funds to your account as specified in your instructions,
or by deposit of same day funds in a designated account that you maintain with
us or at another financial institution located in the same (or a later) time
zone. All drawings under this Credit will be paid with our own funds.
This Credit shall be governed by and subject to the Uniform Customs and
Practice for Documentary Credits (1993 revision), International Chamber of
Commerce Publication No. 500 ("UCP"), and to the extent not inconsistent with
the UCP, the laws of the State of [state in which the LOC issuer has its
principal office].
Sincerely,
[name of bank]
By:
E-1-2
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<PAGE> 65
SCHEDULE A TO EXHIBIT E-1
Form of Sight Draft (Evergreen)
IRREVOCABLE LETTER OF CREDIT NO.
______________
SIGHT DRAFT
[name & address of bank]
-----------------------------
[city, state]
, 19
----------------------- --
Pay on demand to Federal National Mortgage Association or to State Street Bank
and Trust Company, as collateral agent and bailee of Federal National Mortgage
Association, the sum of U.S. $ ________________. This draft is drawn under your
Irrevocable Letter of Credit No._______________________________.
Federal National Mortgage Association
By:
or
State Street Bank and Trust Company,
as collateral agent and bailee of
Federal National Mortgage
Association
By:
E-1-3
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<PAGE> 66
EXHIBIT E-2
CONFIRMATION OF LETTER OF CREDIT (EVERGREEN)
[Date]
Federal National Mortgage Association
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Ladies and Gentlemen:
We have been requested by ____________________________________ ("Credit
Issuer"), to add our confirmation to their Irrevocable Letter of Credit No.
________________________ ("Letter of Credit"), which was issued in your favor
on ___________________________________________.
We enclose a photocopy of the Letter of Credit and engage with you that drafts
drawn under and in conformity with the terms and conditions of the Letter of
Credit will be honored on due presentation to the drawee.
This Confirmation is for the maximum amount Of U.S. $___________________.
Drawings under this Confirmation are available by your presentation to us at
____________________________ [bank's address] of the following:
1. The Sight Draft (substantially in the form of Schedule A of the Letter of
Credit).
2. A statement purportedly signed by an officer of you or State Street Bank
and Trust Company as your collateral agent and bailee certifying that you
have effected your drawing to the Credit Issuer in compliance with the
terms and conditions of the Letter of Credit and that the attached draft
remains unpaid one business day thereafter. If for any reason we cannot
determine the order any draft is presented to us or for any reason, in our
sole discretion, are unsure about whether payment should be made to the
beneficiary or State Street Bank and Trust Company, we shall be protected
in making payment to the beneficiary.
We will promptly honor all drafts drawn in compliance with the terms of this
Confirmation if received on or before the business, day next following
termination date of the Letter of Credit.
- - ----------------
(1) Insert Custodian's correct address, if changed.
E-2-1
[4/96]
<PAGE> 67
Drafts accompanied by the statement required above presented at our office at
the address shown above no later than 10:00 a.m. shall be honored on the date
of presentation, by payment in accordance with your payment instructions that
accompany each such draft. If requested by you, payment under this Confirmation
may be made by wire transfer of immediately available funds to your account as
specified in your instructions or by depositing same day funds in a designated
account that you maintain with us or at another financial institution located
in the same (or a later) time zone. All drawings under this Confirmation will
be paid with our own funds. This Confirmation is subject to the Uniform
Customs and Practice for Documentary Credits (1993 revision), International
Chamber of Commerce Publication No. 500 ("NCP"), and to the extent nor
inconsistent with the UCP, the laws of the State of ___________________[state
in which confirming bank has its principal office].
Should you have any questions, please do not hesitate to contact us at________.
Sincerely,
[Authorized Signature]
Enclosure
E-2-2
[4/96]
<PAGE> 68
EXHIBIT F-1
FORM OF IRREVOCABLE LETTER OF CREDIT
[bank's letterhead]
IRREVOCABLE LETTER OF CREDIT NO.
________
, 19
----------------------- --
Federal National Mortgage Association
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Dear Sir or Madam:
For the account of_____________________________________________________________
[name of account party/customer]
we hereby open in your favor our Irrevocable Letter of Credit No. ___________
("Credit") for an amount not exceeding a total of U.S. $ ____________________
effective immediately and expiring on________, 19__ (the "Termination Date").
Funds under this Credit are available to you or to State Street Bank and Trust
Company, your collateral agent and bailee, against either one of your sight
draft(s) on us, completed in substantially the form attached as Schedule A, for
all or any part of this Credit. If, for any reason, we cannot determine the
order in which any draft is presented to us, payment will be made only to
Federal National Mortgage Association.
We will promptly honor all drafts drawn in compliance with the terms of this
Credit if received on or before the Termination Date at
[bank's address]
________________________________________________________________.
Drafts presented at our office at the address set forth above no later than
10:00 a.m. shall be honored on the date of presentation, by payment in
accordance with your payment instructions that accompany each such draft. If
requested by you, payment under this Credit may be made by wire transfer of
immediately available funds to your account as specified in your instructions,
or by deposit of same day funds in a designated account that you maintain with
us or at another financial institution located in the same (or a later)
- - ----------------
(1) Insert Custodian's correct address, if changed.
F-1-1
[4/96]
<PAGE> 69
time zone. All drawings under this Credit will be paid with our own funds.
This Credit shall be governed by and subject to the Uniform Customs and
Practice for Documentary Credits (1993 revision), International Chamber of
Commerce Publication No. 500 ("UCP"), and to the extent not inconsistent with
the UCP, the laws of the State of [state in which the LOC issuer has its
principal office].
Sincerely,
[name of bank]
By:
F-1-2
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<PAGE> 70
SCHEDULE A TO EXHIBIT F-1
Form of Sight Draft
IRREVOCABLE LETTER OF CREDIT NO._____
SIGHT DRAFT
[name & address of bank]
---------------------------------------
[city, state]
,19
------------------------------ ------
Pay on demand to Federal National Mortgage Association or to State Street Bank
and Trust Company, as collateral agent and bailee of Federal National Mortgage
Association, the sum of U.S. $ ____________________________. This draft is
drawn under your Irrevocable Letter of Credit No.___________________________.
Federal National Mortgage Association
By:
or
State Street Bank and Trust Company,
as collateral agent and bailee of
Federal National Mortgage Association
By:
F-1-3
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<PAGE> 71
EXHIBIT F-2
CONFIRMATION OF LETTER OF CREDIT
[Date]
Federal National Mortgage Association
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Ladies and Gentlemen:
We have been requested by ____________________________________ ("Credit
Issuer"), to add our confirmation to their Irrevocable Letter of Credit
No._____________________ ("Letter of Credit"), which was issued in your favor
on _____________________.
We enclose a photocopy of the Letter of Credit and engage with you that drafts
drawn under and in conformity with the terms and conditions of the Letter of
Credit will be honored on due presentation to the drawee.
This Confirmation is for the maximum amount of U.S. $_______________________.
Drawings under this Confirmation are available by your presentation to us at
_______________________________________ (bank's address] of the following:
1. The Sight Draft (substantially in the form of Schedule A of
the Letter of Credit).
2. A statement purportedly signed by an officer of you or State
Street Bank and Trust Company as your collateral agent and
bailee certifying that you have effected your drawing to the
Credit Issuer in compliance with the terms and conditions of
the Letter of Credit and that the attached draft remains
unpaid one business day thereafter. If for any reason we
cannot determine the order any draft is presented to us or for
any reason, in our sole discretion, are unsure about whether
payment should be made to the beneficiary or State Street Bank
and Trust Company, we shall be protected in making payment to
the beneficiary.
We will promptly honor all drafts drawn in compliance with the terms of this
confirmation if received on or before the earlier of: (a) the business day next
following the termination date of the
- - --------------------
(1) Insert Custodian's correct address, if changed.
F-2-1
[4/96]
<PAGE> 72
Letter of Credit or (b)___________________ 19__. Drafts accompanied by the
statement required above presented at our office at the address shown above no
later than 10:00 a.m. shall be honored on the date of presentation, by payment
in accordance with your payment instructions that accompany each such draft.
If requested by you, payment under this confirmation may be made by wire
transfer of immediately available funds to your account as specified in your
instructions or by depositing same day funds in a designated account that you
maintain with us or at another financial institution located in the same (or a
later) time zone. All drawings under this Confirmation will be paid with our
own funds. This Confirmation is subject to the Uniform Customs and Practice
for Documentary Credits (1993 revision), International Chamber of Commerce
Publication No. 500 ("NCP"), and to the extent nor inconsistent with the UCP,
the laws of the State of________________________________________ [state in
which confirming bank has its principal office].
Should you have any questions, please do not hesitate to contact us at _______.
Sincerely,
[Authorized Signature]
Enclosure
F-2-2
[4/96]
<PAGE> 73
EXHIBIT G
FORM OF OPINION OF COUNSEL TO ISSUER OF LETTER OF CREDIT
(AND, IF APPLICABLE, CONFIRMATION OF LETTER OF CREDIT)
[DATE]
Federal National Mortgage Association
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Gentlemen:
This opinion is being furnished to you at the request of
____________________________ ("Lender"), with respect to the issuance by
____________________________ ("Bank") of its letter of credit [confirmation]
No. _________ ("Letter of Credit") in your favor.
We have acted as counsel to the Bank in connection with the
preparation, execution and delivery of the Letter of Credit. We have examined
a certificate of the [Comptroller of the Currency or other charterer] of recent
date as to the operating history of the Bank and as to the valid certification
of the Bank to do business as a [national banking association]. We have also
examined a certificate of a ___________________________ of the Bank as to the
authority of certain officers of the Bank to execute agreements on behalf of the
Bank and as to the incumbency of the officer(s) of the Bank who have executed
the Letter of Credit on behalf of the Bank. We have assumed the genuineness of
signatures and the authenticity of certificates and documents, other than those
of the Bank, submitted to us as originals and the conformity to original
documents of documents submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion
that the Letter of Credit has been duly executed and delivered by the Bank and
constitutes the legal, valid and binding obligation of the Bank, enforceable in
accordance with its terms, except that the enforcement of the rights and
remedies with respect to the Letter of Credit is subject to applicable
bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws
affecting the enforcement of creditors' rights generally as they may be applied
in the bankruptcy, insolvency, reorganization or liquidation of the Bank, and
that the availability of the remedies of specific performance, of injunctive
relief or other equitable
- - --------------------
(1) Insert Custodian's correct address, if changed.
G-1
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<PAGE> 74
remedies is subject to the discretion of the court before which any such
proceeding may be brought.
We authorize State Street Bank and Trust Company, as your
collateral agent and bailee, and Lender to rely on this opinion to the extent
and as if it were addressed to them.
Very truly yours,
G-2
[4/96]
<PAGE> 75
EXHIBIT H
FORM OF OPINION OF COUNSEL TO ISSUER OF LETTER OF CREDIT
REGARDING AMENDMENT OF LETTER OF CREDIT (AND IF APPLICABLE,
CONFIRMATION OF LETTER OF CREDIT
[DATE]
Federal National Mortgage Association
c/o State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Gentlemen:
This opinion is being furnished to you at the request
of___________________________ ("Lender") with respect to the amendment dated
("Amendment") by _____________________________ ("Bank") of its letter of credit
[confirmation] No. __________ ("Letter of Credit") in your favor.
We have acted as counsel to the Bank in connection with the
preparation, execution and delivery of the Amendment to the Letter of Credit.
We have examined a certificate of the [Comptroller of the Currency or other
charterer] of recent date as to the operating history of the Bank and as to the
valid certification of the Bank to do business as a [national banking
association]. We have also examined a certificate of a _________________ of
the Bank as to the authority of certain officers of the Bank to execute
agreements on behalf of the Bank and as to the incumbency of the officer(s) of
the Bank who have executed the Amendment to the Letter of Credit on behalf of
the Bank. We have assumed the genuineness of signatures, and the authenticity
of certificates and documents, other than those of the Bank, submitted to us as
originals and the conformity to original documents of documents submitted to us
as copies.
Based upon and subject to the foregoing, we are of the opinion
that the Amendment to the Letter of Credit has been duly executed and delivered
by the Bank and the Letter of Credit, as amended, constitutes the legal, valid
and binding obligation of the Bank, enforceable in accordance with its terms,
except that the enforcement of the rights and remedies with respect to the
Letter of Credit, as amended, is subject to applicable bankruptcy, .insolvency,
reorganization, liquidation, moratorium or similar laws
- - -----------------
(1) Insert Custodian's correct address, if changed.
H-1
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<PAGE> 76
affecting the enforcement of creditors' rights generally as they may be applied
in the bankruptcy, insolvency, reorganization or liquidation of the Bank, and
that the availability of the remedies of specific performance, of injunctive
relief or other equitable remedies is subject to the discretion of the court
before which any such proceeding may be brought.
We authorize State Street Bank and Trust Company, as your
collateral agent and bailee, and Lender to rely on this opinion to the extent
and as if it were addressed to them.
Very truly yours,
H-2
[4/96]
<PAGE> 77
EXHIBIT I
ASSIGNMENT
This ASSIGNMENT is made and entered into by_________________
("Lender") pursuant to the Delegated Underwriting and Servicing Reserve
Agreement (the "Reserve Agreement") among Lender, Federal National Mortgage
Association ("Fannie Mae") and State Street Bank and Trust Company (the
"Custodian"). Capitalized terms used in this Assignment and not otherwise
defined have the meanings given them in the Reserve Agreement.
For good and valuable consideration, the receipt and
sufficiency of which is acknowledged by Lender, Lender transfers, assigns, sets
over and otherwise conveys to Fannie Mae to be held by Custodian as collateral
agent and bailee for Fannie Mae as provided in the Reserve Agreement, (i) all
additions to and substitutions for the [Investment Agreement], (ii) all
proceeds, payments, distributions and collections received or to be received,
or derived or to be derived, now or at any subsequent time from or in
connection with the [Investment Agreement] and (iii) all powers and rights of
Lender, whether presently held or subsequently acquired, including rights of
enforcement, under the [Investment Agreement].
IN WITNESS WHEREOF, Lender has caused this Assignment to be
executed this _________day of_________________________, __.
LENDER:
By:
Name:
Title:
*[Notice: The signature(s) to this assignment must correspond exactly
with the name(s) on the face of the [(Investment Agreement]
without alteration or any change whatsoever. The signature(s)
must be notarized.]
I-1
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<PAGE> 78
______________________________)
______________________________) ss
)
This instrument was acknowledged before me on [date] by
[name(s) of Person(s)] as [type of authority, e.g., officer, trustee, general
partner, etc.] of [name of party on behalf of whom instrument was executed.](1)
(Signature of Notarial Officer)
(Seal, if any)
Title (and Rank)
(My commission expires:
- - ------------------
(1) The form of the notarization may be varied to conform to the requirements
of local law.
I-2
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<PAGE> 79
EXHIBIT J
FORM OF OPINION OF COUNSEL FOR LENDER
(UPON DELIVERY AND PLEDGE OF AN EXISTING
INVESTMENT AGREEMENT, PERMITTED INVESTMENT OR
FUNDS WITH INSTRUCTIONS TO INVEST IN PERMITTED INVESTMENTS)
__________________________, 19__
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Attention: Multifamily Activities
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110(1)
Re: Delivery and Pledge of Collateral other than
a Letter of Credit under Delegated
Underwriting and Servicing Reserve Agreement
Ladies and Gentlemen:
We have acted as counsel to ________________________________
("Lender") in connection with the delivery and pledge of collateral under the
Delegated Underwriting and Servicing Reserve Agreement ("Reserve Agreement"),
executed by Lender, the Federal National Mortgage Association ("Fannie Mae")
and State Street Bank and Trust Company ("Custodian"). This opinion is being
delivered at the direction of the Lender in satisfaction of certain of the
requirements of Section 3.01(a)(i)(C) of the Reserve Agreement with respect
to the initial delivery to Custodian of Collateral other than a Letter of
Credit.
In such capacity as counsel for Lender, we have prepared,
reviewed or examined, and are familiar with, originals or copies, certified or
otherwise, identified to our satisfaction, of the following documents:
A. Reserve Agreement;
B. [List all organization documents of Lender
and any general partner of Lender such as the
Partnership Agreement, the Articles of
Incorporation and Bylaws or the Limited
Liability Company Agreement] (collectively,
the "Organizational Documents") and
- - -----------------
(1) Insert Custodian's correct address, if changed.
J-1
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<PAGE> 80
C. [Certificate of good standing or equivalent
document] respecting Lender dated
_____________, 19__ issued by the [designate
state authority].
In connection with rendering the opinions set forth below, we
have examined pertinent statutes and regulations and copies, certified or
otherwise, identified to our satisfaction, of the records of [the managing
general partner of Lender and the records of] Lender and have made such other
investigation as we have considered necessary as a basis for the opinions
expressed below.
In the course of our examination and review and in connection
with the opinions expressed below we have assumed (i) the genuineness of all
signatures other than Lender's; (ii) the authenticity of all documents
submitted to us as copies; (iii) the due authorization, execution and delivery
of the Reserve Agreement by all parties thereto other than Lender; (iv) that
Custodian, as collateral agent and bailee of Fannie Mae, acquired its interest
in Collateral constituting an Existing Investment Agreement or Permitted
Investment (as such terms are defined in the Reserve Agreement) in good faith,
for value, and without notice or knowledge of any lien, mortgage, security
interest, encumbrance or other claim against such Collateral; (v) that the
Existing Investment Agreement or Permitted Investment is held in the continuous
actual or constructive possession of Custodian in the Commonwealth of
Massachusetts following delivery or transfer, as the case may be, to Custodian;
and (vi) the books and records of Custodian will identify such Collateral as
held by Custodian solely and exclusively as collateral agent and bailee for
Fannie Mae.
Based upon the foregoing, but subject to exceptions and
exclusions set forth herein, it is our opinion that, Lender has duly and
validly authorized the pledge of, and grant of a valid security interest in,
lien upon and right of set-off against Collateral other than a Letter of Credit
pursuant to the Reserve Agreement, and the Reserve Agreement creates the valid
pledge and security interest that it purports to create in the Collateral.
The [list all offices, such as the Secretary of State, City
Registrar, etc., in all jurisdictions, based on the jurisdiction of Lender's
organization, Lender's principal place of business and Lender's operations, in
which filing is advisable for perfection] are the only jurisdictions, and the
only offices within such jurisdictions, in which the filing of Uniform
Commercial Code financing statements with respect to an Existing Investment
Agreement or Permitted Investment are or would be necessary in order to perfect
a security interest in the Existing Investment Agreement or Permitted
Investment, to the extent it constitutes or may be construed to constitute a
contract right, account or general intangible under the Uniform Commercial
Code.
Based on the laws of the State(s) of [jurisdictions in which
UCC filings must be made] as of the date of this opinion, in order to continue
the effectiveness of the financing statements
J-2
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<PAGE> 81
referred to in the preceding paragraph, appropriate continuation statements
must be filed at ______-year intervals after the original filing of such
financing statements. Other than the foregoing, no recording or filing of the
Reserve Agreement or any other documents is necessary to make effective the
lien and perfected security interest of Fannie Mae in an Existing Investment
Agreement or Permitted Investment to the extent it constitutes or may be
construed to constitute a contract right, account or general intangible under
the Uniform Commercial Code.
We express no opinion as to the priority of the security
interest in the Existing Investment Agreement or Permitted Investment in favor
of Fannie Mae in: (i) any claim or lien in favor of the United States or any
state or agency or instrumentality thereof (including, by way of example and
not limitation, federal or state tax liens, liens under the Employee Retirement
Income Security Act of 1974, as amended, or claims under 31 U.S.C. Section
3713), or (ii) any liens, claims, interests or rights that arise by operation
of law and that may take priority over perfected security interests.
We express no opinion as to the laws of any Jurisdiction other
than the laws of__________________________ [insert jurisdiction(s) of Lender's
organization and principal place of business and any other jurisdiction in
which UCC filings must be made] and the laws of the United States of America.
In rendering the opinions set forth above, we have relied,
with your permission, solely upon the opinion of counsel for Custodian with
respect to the perfection of security interests in instruments and securities
under the laws of the Commonwealth of Massachusetts. A copy of that opinion is
attached as Exhibit A.
We are rendering the opinion to you and to Custodian at the
request of our client solely for your benefit in connection with the initial
delivery of Collateral other than a Letter of Credit pursuant to the Reserve
Agreement, and the opinion may not be relied upon by any party other than the
persons to whom it is addressed without our prior written approval.
Very truly yours,
J-3
[4/96]
<PAGE> 82
cc: State Street Bank and Trust Company
[copy of opinion to be delivered concurrently to:
Office of General Counsel
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, DC 20016
Re: Multifamily Matters
J-4
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<PAGE> 83
EXHIBIT K
FORM OF DESCRIPTION OF COLLATERAL FOR FINANCING STATEMENTS
All of Debtor's right, title and interest, whether now
existing or hereinafter arising, in and to "Collateral" held by the Federal
National Mortgage Association ("Fannie Mae") or State Street Bank and Trust
Company, as Custodian, pursuant to that certain Delegated Underwriting and
Servicing Reserve Agreement among Fannie Mae, Custodian and Debtor, as
described on Schedule A.
K-1
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<PAGE> 84
[LENDER]
SCHEDULE A
TO UCC-1 FINANCING STATEMENT
1. Debtor: [LENDER] (the "Company")
[Address]
Attention: ________________________________
2. Secured Party: State Street Bank and Trust Company, as Custodian (the
"Custodian") as collateral agent and bailee for the benefit of the Federal
National Mortgage Association ("Fannie Mae") pursuant to that certain Delegated
Underwriting and Servicing Reserve Agreement among Fannie Mae, the Custodian
and the Company (as the same may be amended, supplemented or otherwise modified
from time to time, the "Reserve Agreement").
Address: [Custodian address]
3. This Financing Statement covers all of the Company's right, title and
interest, whether now existing or hereafter arising, in "Collateral," which is
defined in the Reserve Agreement as Acceptable Collateral, any funds,
securities, or other assets on deposit in the Collateral Account held by
Custodian pursuant to the Reserve Agreement and any other funds, securities or
other assets in which Lender has an interest delivered to or otherwise held by
Custodian under the Reserve Agreement or Fannie Mae (including any amounts at
any time credited or due to Lender from Fannie Mae) other than, with respect to
any warehouse bank with which Fannie Mae has entered into a "bailee letter"
pursuant to the DUS Guide (as defined in the Reserve Agreement), any "Note" and
"Additional Documents" so long as such property is held by Fannie Mae as bailee
for the benefit for such warehouse bank pursuant to such bailee letter,
together with (i) all additions to and substitutions for such Collateral, (ii)
all proceeds, payments, distributions and collections received or to be
received, or derived or to be derived, now or at any subsequent time from or in
connection with such Collateral and (iii) all powers and rights of Lender,
whether presently held or subsequently acquired, including rights of
enforcement, under such Collateral.
4. Capitalized terms used herein shall have the following meanings:
"ACCEPTABLE COLLATERAL" means one or more bank letters of
credit (or confirmations) payable to Fannie Mae or Custodian against
the account of the Company, one or more investment agreements between
Fannie Mae and the Company held by Custodian, one or more Permitted
Investments held by Custodian, or any combination thereof.
"PERMITTED INVESTMENTS" means one or more of the following:
K-2
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<PAGE> 85
(a) certain U.S. Government obligations; or
(b) certain discount notes or other short-term interest-bearing
debt obligations of Fannie Mae, the Federal Home Loan Bank System or
the Federal Farm Credit Bank; or
(c) certain repurchase agreements with respect to investments
specified in clauses (a) or (b) above, or Fannie Mae interest-bearing
mortgage-backed securities; or
(d) certain commercial paper or other short-term debt
obligations, including revolving trust master notes, issued or
guaranteed by any corporation organized or incorporated under the
laws of the United States or any state, district or territory
therein; or
(e) overnight or term Federal Funds sold to, or certificates of
deposit of, certain federally insured depository institutions or
demand or time deposits with Custodian; or
(f) investment agreements, including any amendments,
supplements or extensions, between Fannie Mae and Custodian; or
(g) any other investment approved by Fannie Mae.
K-3
[4/96]
<PAGE> 86
EXHIBIT L
FORM OF OPINION OF COUNSEL FOR CUSTODIAN
[To be revised after discussion with Custodian counsel to
address permitted Investments under Massachusetts law.]
________________________, 19__
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Attention: Multifamily Activities
and
[Lender's Counsel]
Re: Perfection of Lien in Certain
Instruments under Massachusetts law
Ladies and Gentlemen:
We have acted as counsel to State Street Bank and Trust
Company, as Custodian acting as collateral agent and bailee (in such capacity,
the "Custodian") for Federal National Mortgage Association ("Fannie Mae") in
connection with the Delegated Underwriting and Servicing Reserve Agreement [,
as amended and restated,] effective as of __________________ , 199_ (the
"Agreement") among Fannie Mae, ______________________(the "Lender") and the
Custodian.
All references to the "Uniform Commercial Code" or the "UCC"
shall mean the Uniform Commercial Code in effect in The Commonwealth of
Massachusetts, as amended. Any capitalized terms appearing herein but not
otherwise expressly defined in this letter shall have the meanings assigned to
such terms in, or by reference in, the Agreement.
Pursuant to Section 3.01(a)(iii) of the Agreement, you have
asked us to render our opinion upon certain matters pertaining to the
perfection of a security interest under Massachusetts law in property in the
form of Instruments, Certificated Securities, Uncertified Securities, Clearing
Agency Securities, Federal Book-Entry Securities and certain Deposit Accounts,
as each of those terms is defined below, if and to the extent governed by
Massachusetts law. Any Instruments, Deposit Accounts or Securities (as defined
below) which are pledged as Acceptable Collateral to Fannie Mae and delivered
to Custodian as collateral agent of and
L-1
[4/96]
<PAGE> 87
bailee for Fannie Mae under the Agreement are sometimes collectively referred
to herein as "Collateral".
As used herein, "Money" means "money" as defined in Section
1201(24) of the UCC; "Instruments" means "instruments" as defined in Section
9-105(l)(i) of the UCC (excluding Certificated Securities, as defined below)
which are physically held in Massachusetts; "Clearing Agency Securities" means
Certificated Securities which are registered to and in the continuous
possession of a "clearing corporation" as defined in Section 8-102(3) of the
UCC which is located in Massachusetts or its Custodian Bank which is located in
Massachusetts; "Certificated Securities" means "certificated securities" as
defined in Section 8-102(i)(a) of the UCC which are physically held in
Massachusetts; "Federal Book-Entry Securities" means securities issued by the
United States Treasury, the Federal National Mortgage Association or by the
Federal Home Loan Mortgage Corporation which are maintained in book-entry form
on the records of the Federal Reserve Bank of Boston pursuant to 31 C.F.R.
Section 306.115-.122, 24 C.F.R. Section 81.41-49, or 1 C.F.R. Part 462;
"Financial Intermediary" means a "financial intermediary" as defined in Section
8-313(4) of the UCC acting on behalf of the Custodian with respect to
Securities; "Custodian Bank" means a "custodian bank" as defined in Section
8-102(4) of the UCC; "Depositary" means State Street Bank and Trust Company
acting in its capacity as a "depositary" as defined in 31 C.F.R. Section
306.118 or similar federal regulations governing the transfer of Federal
Book-Entry Securities with respect to the Federal Book-Entry Securities, and as
a Financial Intermediary on behalf of the Custodian; "Financial Intermediary
Securities Account" means the securities account maintained by the Financial
Intermediary in the name of the Custodian; "Uncertificated Securities" means
"uncertificated securities" as defined in Section 8-102(b) of the UCC, issued
by an issuer the jurisdiction of organization of which is Massachusetts;
"Securities" shall mean, collectively, Certificated Securities, Uncertificated
Securities, Clearing Agency Securities, and Federal Book-Entry Securities;
"Deposit Account" means a demand or time deposit account held at State Street
Bank and Trust Company in the name of and subject to the exclusive control of
the Custodian, which is not represented by (and as to which no person is
entitled to be issued) an "indispensable instrument" evidencing or entitling
the holder to rights of ownership in, transfer of or payment or withdrawal from
such account (such as a passbook or certificate of deposit or similar
instrument) unless such "indispensable instrument" is in the continuous and
exclusive possession and control of the Custodian, and as to which no person
other than the Custodian has any right of access to or power of withdrawal,
transfer or payment from, or power to make third-party payments from (whether
by check, draft, negotiable order of withdrawal or similar means) such account;
and "General Intangibles" and "Accounts" shall mean "general intangibles" and
"accounts," respectively, as each of those terms is defined in Section 9-106
of the UCC. Any of the foregoing defined terms appearing in the plural form
may also be used on singular form with the same meaning.
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In arriving at the opinions expressed below, we have examined
a photocopy of an executed copy of the Agreement and originals or copies
certified or otherwise identified to our satisfaction of such other documents,
if any, as we have deemed necessary as a basis for the opinions hereinafter
expressed.
In our examination, we have assumed the genuineness, due
authorization and legal authority of all signatures appearing in any documents
we have examined, and we have assumed the authenticity of all documents
submitted to us as originals, the conforming to originals of any documents
submitted to us as photostatic or certified copies, and the authenticity of the
originals of any such documents submitted to us as photostatic or certified
copies.
Without limiting the generality of the foregoing paragraph, we
have assumed (except in the case of our client, the Custodian) that the
Agreement has been duly executed and delivered by each of the parties thereto
by a duly authorized person, that each such party has sufficient and adequate
power and authority under its organizational documents and applicable law to
enter into the Agreement and to perform the obligations and agreements on its
part to be performed thereunder, that each such party has taken all necessary
corporate or other (as applicable) action to duly authorize it to enter into
and perform its obligations and agreements under, and has satisfied any legal
requirements that may be applicable to it to the extent necessary to permit it
to enter into and perform its obligations and agreements under, the Agreement,
and that the Agreement constitutes the legal, valid and binding obligation of
each such party, enforceable against each such party in accordance with its
terms. We have also assumed that the Agreement is sufficient under applicable
law to cause a valid security interest to be created in and to attach to the
Collateral as contemplated by the Agreement and we have assumed compliance with
the Agreement by the parties thereto in material respects.
We have undertaken no independent investigation or
determination of any factual matter or assumption pertinent or material to this
opinion. As to certain factual matters we have relied upon representations and
warranties contained in the documents we have examined, and otherwise have made
certain assumptions as set forth in this letter. Without limiting the
generality of the foregoing, we point out that we have not examined any item
pledged or delivered as, or representing, Collateral, for purposes of this
opinion.
The opinions stated in this letter are subject to and may be
affected by applicable bankruptcy, insolvency, receivership, reorganization,
and moratorium laws, and similar laws relating to or affecting the rights of
creditors generally, from time to time in effect, and to general principles of
equity (whether in a proceeding at law or in equity) and to the exercise of
judicial discretion in granting particular equitable remedies. Without
limiting the generality of the foregoing, we point out that Section 552 of the
Federal Bankruptcy Code limits the extent to which
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property acquired by a debtor after the commencement of a case under the
Federal Bankruptcy Code may be subject to a security interest arising from a
security agreement entered into by the debtor before the commencement of such
case.
We have assumed that (i) the Lender owns good and valid title
to each item of Collateral (constituting a sufficient interest therein to grant
a first priority security interest as contemplated by the Agreement), and that
the Lender's rights in each such item of Collateral are superior to the rights
of any other person or entity, immediately prior to the grant, attachment and
perfection of the security interest in favor of Fannie Mae described in the
opinions set forth below; (ii) each of the Lender, Custodian and Fannie Mae
acquires its interest in the Collateral in good faith, for value, and without
notice or knowledge of any lien, mortgage, security interest, encumbrance or
other adverse claim against any item of Collateral (including, by way of
example and not of limitation, notice that any Instrument is overdue, or has
been dishonored or is subject to a defense and notice of any of the matters
described in Section 8-304 of the UCC to the extent applicable to any
securities); (iii) following delivery to the Custodian, each Instrument and
Certificated Security is held in the continuous possession of the Custodian, as
collateral agent of and bailee for Fannie Mae, in The Commonwealth of
Massachusetts; (iv) any restrictions on transfer of any item of Collateral
imposed under the terms thereof or applicable law have been complied with in
connection with the pledge thereof to Fannie Mae and will be complied with at
all times relevant to the opinions set forth below; (v) the books and records
of the Custodian will identify the Collateral as held solely and exclusively as
collateral agent of and bailee for Fannie Mae; (vi) the Custodian has received
a copy of the Agreement executed by the parties thereto and, in connection with
the pledge of any particular item of Collateral, the Custodian has received the
documents relating thereto as contemplated by Section 3.01(a) of the Agreement;
(vii) value has been given by Fannie Mae, and a validly created security
interest in favor of Fannie Mae has attached to the Collateral under the laws
of such jurisdiction as may be applicable thereto; (viii) each Instrument and
Certificated Security (including by way of example and not limitation each
Certificated Security constituting a Clearing Agency Security) contains only an
endorsement thereon which is genuine and duly authorized including, by way of
example and not limitation, any endorsement appearing on any instrument of
transfer accompanying any such Instrument or Certificated Security (including
by way of example and not limitation each Certificated Security constituting a
Clearing Agency Security); and (ix) each Deposit Account contains exclusively
Money deposited by the Lender with the Custodian pursuant to Section 3.01(a) of
the Agreement and held in the Collateral Account or the proceeds of Collateral
pledged to the Custodian under the Agreement in which the Custodian has a
first priority perfected security interest.
To the extent our opinions set forth below address perfection
in proceeds of the Collateral, such opinions are qualified generally by the
applicable provisions and limitations of
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Section 9-306 of the UCC. We point out that proper and timely steps may be
necessary to establish and continue the perfection of Fannie Mae's security
interest in any proceeds of or distributions on the Collateral received,
invested or reinvested from time to time, and the priority of any such security
interest in proceeds and distributions may be subject to further considerations
under applicable provisions of the UCC beyond those stated in this opinion if
any such proceeds or distributions are in the form of property other than
identifiable cash proceeds in the continuous possession of Fannie Mae or the
Custodian, as agent of and bailee for Fannie Mae, (in the form of Money which
is not commingled with other money or is deposited in a separate deposit
account containing only proceeds of Collateral and under the exclusive control,
dominion and possession of Fannie Mae or the Custodian) or in the form of
property of the same type as the original Collateral from which such proceeds
are derived and with respect to which appropriate actions are taken to maintain
Fannie Mae's continuous security interest therein in accordance with Section
9-306 of the UCC and this opinion (subject to the provisions of Section 9-308
of the UCC). We express no opinion as to proceeds except to the extent that
Article 8 or Article 9 of the UCC is applicable thereto.
We express no opinion as to whether or to what extent any item
of Collateral pledged under or pursuant to the Agreement constitutes or may
constitute an Instrument, a Deposit Account or a Security (as those terms are
defined hereinabove), or a Permitted Investment (as defined in the Agreement)
or complies with the Investment Guidelines under the Agreement, to the extent
applicable.
We have assumed that (i) with respect to Collateral in the
form of Federal Book-Entry Securities, the entries on the books of the Federal
Reserve Bank of Boston reflecting the transfer of the Federal Book-Entry
Securities to the account of the Custodian will be the sole and exclusive entry
in the records of a Federal Reserve Bank reflecting ownership in such Federal
Book-Entry Securities, and that the entries made by the Federal Reserve Bank of
Boston will be complete and accurate and will not identify the Federal
Book-Entry Securities as belonging to anyone other than the Custodian; (ii)
each item of Collateral constituting an Instrument or Certificated Security is
represented by only one original document; (iii) in the case of Clearing Agency
Securities, the Certificated Securities representing the Clearing Agency
Securities will be continuously located in The Commonwealth of Massachusetts in
the custody of a "clearing corporation" as defined in Section 8-102(3) of the
UCC located in Massachusetts (a "Clearing Corporation") or of a Custodian Bank
(or a nominee of either) subject to the Clearing Corporation's exclusive
control, will be either in bearer form, or in registered form and registered to
the Clearing Corporation or its Custodian Bank (or nominee of either of them)
subject to the Clearing Corporation's exclusive control or indorsed in blank,
and such Clearing Agency Securities will be identified on the records of the
Clearing Corporation for the sole and exclusive account of the Custodian or a
Financial Intermediary acting on its behalf; (iv) that any Certificated
Securities, Clearing Agency
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Securities and Instruments will contain only endorsements (including without
limitation endorsements on any separate instrument of transfer or assignment)
thereon which are genuine and duly authorized, with all necessary intervening
endorsements (to create a complete chain to the endorsements described in this
opinion); (v) that in the case of Uncertificated Securities, such
Uncertificated Securities will be continuously maintained in the records of the
issuer thereof solely and exclusively in the name of the Custodian, that the
issuer of such Uncertificated Securities is organized under the laws of the
Commonwealth of Massachusetts, and that such issuer will not register the
interest of any other Person or send an initial transaction statement or any
other statement describing such Uncertificated Securities to any other Person;
(vi) that any restrictions on transfer imposed upon any Securities by their
terms or pursuant to the terms of the indenture or other operative instrument
under which it is issued are complied with; and (vii) that the books and
records of the Financial Intermediary will be accurate and complete and will
not identify any Collateral as belonging to anyone other than the Custodian,
and that the Financial Intermediary will not confirm the purchase of any
Collateral to any Person other than the Custodian or acknowledge that it holds
any of the Collateral for anyone other than the Custodian.
We express no opinion as to the priority of any security
interest or pledge in favor of Fannie Mae in or against: (i) any Collateral
that constitutes proceeds of property in which another person or entity claims
a perfected security interest; (ii) any purchase money security interest; (iii)
any security interest in favor of a third party that could be perfected without
possession or filing pursuant to Sections 8.313(i)(h) or 9-305 of the UCC, or
which could be perfected temporarily without perfection pursuant to Section
8.313(1)(i) or Section 9-304 of the UCC; (iv) any claim or lien in favor of
the United States or any state or agency or instrumentality thereof (including,
by way of example and not limitation, federal or state tax liens, liens under
the Employee Retirement Income Security Act of 1974, as amended, or claims
under 31 U.S.C. Section 3713), (v) any liens, claims, interests or rights
(including, by way of example but not limitation, rights of set-off) that arise
by operation of law and that may take priority over perfected security
interests; (vi) any lien creditor to the extent such security interest purports
to secure any advance or extension of credit made subsequent to the date which
is more than 45 days after the date such person or entity becomes a lien
creditor, other than an advance or extension of credit made without knowledge
of the lien of the lien creditor or pursuant to a commitment entered into
without knowledge of the lien of the lien creditor; (vii) any lien creditor who
executed on or attached or levied upon any portion of Collateral prior to the
perfection of the security interest in favor of Fannie Mae; (viii) to the
extent the Agreement purports to secure future advances, any other secured
party to the extent set forth in Section 9-312(7) of the UCC; (ix) any person
or entity who may have entered into a subordination or intercreditor agreement
with Fannie Mae with respect to any of the Collateral; (x) any security
interest perfected under the laws of another jurisdiction to the
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extent that the Collateral subject to such security interest was located in
such jurisdiction within the four months prior to perfection of the security
interest in favor of Fannie Mae; (xi) the rights of any Person in any Security
based upon a claim of "wrongful" transfer to Section 8-315 of the UCC; or (xii)
any lien or claim (including by way of example and not of limitation, rights of
set-off) of the Clearing Corporation, any Financial Intermediary or the Federal
Reserve Bank, or any issuer's lien pursuant to Section 8-103 of the UCC, with
respect to any Security.
We express no opinion as to the laws of any jurisdiction other
than the laws of The Commonwealth of Massachusetts, and, to the extent
expressly addressed herein, if any, the federal laws of the United States of
America, each as presently existing. Nothing in this letter shall be construed
to constitute an opinion as to any question of choice of law or conflicts of
laws affecting or relating to the matters addressed in this letter. In this
regard, we point out that although the Agreement states that it shall be
governed by and construed in accordance with the laws of Massachusetts as to
perfection of security interests in Acceptable Collateral, it states that it
shall otherwise be governed by and construed in accordance with the federal
laws of the United States and, to the extent there is no applicable federal
law, the laws of the District of Columbia.
We assume that you have filed or caused to be filed duly
executed and completed Uniform Commercial Code financing statements in proper
form in such filing offices within such jurisdiction or jurisdictions as may be
necessary to perfect the security interest of Fannie Mae in the Collateral
under applicable law if the Collateral or any portion thereof were determined
or construed to constitute "general intangibles" (within the meaning of that
term under the UCC) or other form of property requiring the filing of financing
statements for perfection; and, in connection with the foregoing, we assume
that there have not been filed in any such filing offices Uniform Commercial
Code financing statements describing such Collateral in favor of any other
person as secured party which would take priority over the financing statements
filed in favor of Fannie Mae as secured party. We understand that you are or
will be relying upon an opinion of Lender's counsel as to, among other things,
the proper filing of such financing statements (and any actions necessary to
continue the effectiveness thereof, such as the filing and refiling of
continuation statements) and the perfection and priority of the security
interest of Fannie Mae to the extent the Collateral constitutes or may be
construed to constitute property requiring the filing of financing statements
for perfection.
In the opinions set forth below, when we state that Collateral
is, shall be or must be, in the "Possession" of the Custodian, we mean that:
(i) as to Collateral in the form of Instruments,
such Instruments shall be held in the actual
possession
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of the Custodian and shall be duly endorsed to
the Custodian or in blank;
(ii) as to Collateral in the form of Federal
Book-Entry Securities, the Federal Reserve Bank
of Boston shall make an appropriate entry on its
books and records of the transfer of such
Federal Book-Entry Securities to the securities
account of the Depositary, and the Depositary
acting as Financial Intermediary for the
Custodian, shall send the Custodian confirmation
of the purchase by it for the Custodian of such
Federal Book-Entry Securities, and shall also by
book-entry to the Financial Intermediary
Securities Account identify such Federal
Book-Entry Securities as belonging to the
Custodian, and the Custodian shall duly identify
on its books and records that such Securities
are held by it as Custodian for the benefit of
Fannie Mae under the Agreement;
(iii) as to Collateral in the form of Certificated
Securities, such Certificated Securities (A)
shall be held in the possession of the Custodian
and shall be registered in the name of the
Custodian or duly endorsed (within the meaning
of Section 8-308 of the UCC) in blank or to the
Custodian, or (B) shall be held in the
possession of a Financial Intermediary for the
Custodian and registered in its name or duly
endorsed to it or in blank, and such Financial
Intermediary shall send the Custodian
confirmation of the purchase by the Financial
Intermediary for the Custodian of such
Certificated Securities and shall also by
book-entry to the Financial Intermediary
Securities Account identify such Certificated
Securities as belonging to the Custodian; and
the Custodian shall duly identify on its books
and records that such Securities are held by it
as Custodian for the benefit of Fannie Mae under
the Agreement;
(iv) as to Collateral in the form of Clearing Agency
Securities, the related Clearing Corporation
shall make appropriate entries on its books
reducing the appropriate securities account of
the transferor and increasing the appropriate
securities account of the Custodian, or a
Financial Intermediary acting for the Custodian,
by the amount of such Clearing Agency
Securities, and, in the case of a Financial
Intermediary, such Financial Intermediary shall
send a confirmation to the Custodian of the
purchase of such Clearing Agency Securities by
the Financial Intermediary for the Custodian and
shall by book-entry to the Financial
Intermediary Securities Account identify such
Clearing Agency Securities as belonging to the
Custodian; and the
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Custodian shall duly identify on its books and
records that such Securities are held by it as
Custodian for the benefit of Fannie Mae under
the Agreement;
(v) as to Collateral in the form of Uncertificated
Securities, (a) submission of an instruction
(within the meaning of Section 8-308(4) of the
UCC) to the issuer of such Uncertificated
Securities originated by the registered owner or
another appropriate person (within the meaning
of Section 8-308(7)(a) and (8) of the UCC, as
applicable), to transfer such Uncertificated
Securities to the Custodian, or a Financial
Intermediary acting for the Custodian, receipt
by the Custodian or such Financial Intermediary
of an initial transaction statement (within the
meaning of Section 8-408(4) of the UCC) signed
by such issuer and showing the Uncertificated
Securities as transferred to the Custodian or
such Financial Intermediary, as the case may be
(or, in either case, its nominee), free of any
registered pledge or other adverse interest, and
registration by such issuer on its books and
records of such transfer of such Uncertificated
Securities to the Custodian or such Financial
Intermediary, as the case may be, and (b) in the
case of the Financial Intermediary, such
Financial Intermediary shall send the Custodian
confirmation of the purchase by the Financial
Intermediary for the Custodian of such
Uncertificated Securities, and shall also by
book-entry to the Financial Intermediary
Securities Account identify such Uncertificated
Securities as belonging to the Custodian; and
the Custodian shall duly identify on its books
and records that such Uncertificated Securities
are held by it as Custodian for the benefit of
Fannie Mae under the Agreement.
(vi) as to Collateral in the form of Deposit
Accounts, each such Deposit Account shall be
appropriately identified as belonging to the
Custodian for the benefit of Fannie Mae under
the Agreement, and shall be at all times subject
to the exclusive possession, dominion and
control of the Custodian.
We also point out that to the extent any of the Collateral is
maintained by a Financial Intermediary as part of a fungible bulk (within the
meaning of Sections 8-313(1) and 8-321(2) of the UCC) the interest of the
secured party therein may be limited to a proportionate property interest in
such fungible bulk.
Based upon and subject to the foregoing, it is our opinion
that:
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1. The delivery into the Possession (as defined
hereinabove) of the Custodian of Collateral in the form of Instruments,
Certificated Securities, Uncertificated Securities, Clearing Agency Securities
or Federal Book-Entry Securities pursuant to the Agreement, will be sufficient
under Massachusetts law to perfect the security interest of Fannie Mae, in such
Collateral and such security interest will be a first priority perfected
security interest under Massachusetts law, provided such Collateral remains
continuously in the Possession of the Custodian as agent of and bailee for
Fannie Mae and such Agreement remains in effect.
2. The delivery into the Possession (as defined
hereinabove) of the Custodian of Collateral in the form of a Deposit Account
pursuant to the Agreement will be sufficient under Massachusetts law to perfect
the security interest of Fannie Mae under the Agreement in such Collateral, or
will be sufficient to cause such security interest to be recognized as a lien
which is effective as a perfected security interest under applicable
Massachusetts law, and such security interest (or lien which is effective as a
security interest) will be of first priority under Massachusetts law, provided
such Collateral remains continuously in the Possession of the Custodian as
agent of the bailee for Fannie Mae and such Agreement remains in effect.
To the extent our opinion set forth in paragraph 2 above
addresses the perfection of a security interest in a Deposit Account which does
not contain exclusively the proceeds of other Collateral in which the Trustee
has a perfected, first priority security interest under the Agreement (referred
to for this purpose as a "Non-Article 9 deposit account"), such opinion is
subject to the following explanation and caveats.
Section 9-104 of the UCC excludes from its coverage transfers
of interests in "deposit accounts", except to the extent such deposit accounts
constitute proceeds of other collateral within the meaning of Section 9-306 of
the UCC. A "deposit account" is defined in Section 9-105 of the UCC as any
"demand, time, savings, passbook or like account maintained with a bank,
savings and loan association, credit union or like organization, other than an
account evidenced by a certificate of deposit." Therefore, the creation of an
enforceable security interest (or a lien comparable to a security interest) in
such a deposit account (which does not contain exclusively the proceeds of
other collateral) will be governed by the common law.
Massachusetts common law pertaining to the creation of an
enforceable security interest in or pledge of a Non-Article 9 deposit account,
although not undeveloped in all respects, is unclear and undeveloped on certain
points. In analyzing the issue, we have examined, in addition to cases decided
under the law of The Commonwealth of Massachusetts, cases decided under the law
of other states which, in our view, may provide guidance on the issue, although
they do not constitute controlling precedent in the examination of these
questions by a Massachusetts court. Reported
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Massachusetts case law governing common law pledges is, for the most part,
limited to cases addressing pledges of passbook accounts. Thus, where an
"indispensable instrument", such as a passbook, does not exist, Massachusetts
common law is uncertain and undeveloped (as it is concerning the question of
what may or may not constitute an "indispensable instrument" other than a
passbook). Although we do not address choice of law in this opinion, we also
bring to your attention that the question of the creation or perfection of an
effective security interest in a deposit account may further be complicated by
uncertainty as to which jurisdiction's law should apply, such as in a situation
in which the debtor (in this case the Lender) and the deposit account being
pledged (in this case, a deposit account held in Massachusetts) are located in
different jurisdictions.
Assuming that Massachusetts law would be applied, it is our
opinion, although the matter is not free from doubt, that a Massachusetts court
applying Massachusetts law would hold that a properly granted security interest
in and lien upon a Non-Article 9 deposit account which is established and
maintained so that the secured party has sole dominion, control and possession
of the account and over the disposition of amounts credited thereto, and which
is maintained in the name of the secured party in a manner consistent with the
Agreement and the applicable assumptions stated hereinabove, will create a lien
thereon in favor of the secured party which will not be subject to any lien
(subject to the qualifications appearing elsewhere in this opinion) or security
interest that would be recognized to be superior to the interest of such
secured party.
We undertake no obligation to advise you as to matters that
may occur or come to our attention in the future, whether of a legal or factual
nature. Although this opinion assumes that applicable law in effect on the
date hereof remains unchanged, we draw to your attention that in 1994 there was
adopted by the American Law Institute and the National Conference of
Commissioners on Uniform State Laws a substantial revision of Article 8 (and
certain companion revisions to Article 9) of the Uniform Commercial Code,
including revisions to the provisions thereof governing transfers of interests
in investment securities, and that proposed legislation adopting such revisions
(in whole or in part, or in modified form) is currently under consideration by
the Massachusetts legislature. We also point out that on March 4, 1996 the
Department of the Treasury published proposed regulations that take into
account the proposed revisions to UCC Articles 8 and 9 and would revise the
regulations governing certain Federal Book-Entry Securities.
We are furnishing this opinion to you at the request of our
client solely for your benefit in connection with the Custodian's compliance
with the requirements of Section 3.01(a) (i) of the Agreement and the opinion
may not be relied upon by any
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person other than the persons to whom it is addressed without our prior written
approval.
Very truly yours,
cc: State Street Bank and Trust Company
(copy of opinion to be delivered concurrently to:
Office of General Counsel
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, DC 20016
Re: Multifamily Matters]
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EXHIBIT M
CUSTODIAN'S SCHEDULE OF FEES
Annual Administration Fee: $160.00 per month.
This fee would cover the monthly processing requirements as covered under this
Agreement.
Collateral Transactions:
1. Delivery of Letter of Credit or amendment: $50 per Letter of
Credit or amendment delivered
2. Draw on Letter of Credit: $150 per draw
3. Delivery of Investment Agreement or amendment: $50 per Agreement
or amendment
4. Sale of a Permitted Investment: $50 per sale
5. Out-of-pocket expenses, including, by way of example and not
limitation, transfer charges, wire transfer charges, costs
associated with the purchase or change of a Permitted
Investment, postage, legal fees, etc. billed at cost
This Schedule of Fees shall remain in effect for two years from the effective
date of this Agreement. Custodian may make reasonable adjustments to these
fees thereafter by giving Fannie Mae and Lender 60 days' prior notice of the
adjustment.
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EXHIBIT N
PERQ CREDIT
It Fannie Mae determines that Lender is a Qualifying Lender on
or prior to September 30, 1997 and the aggregate unpaid balance of Mortgage
Loans equals or exceeds $500 million as of the date of execution by Fannie Mae
of this Agreement, the following provisions shall apply:
1. Definitions
"PERQ Collateral Margin" means, as of the PERQ Effective Date,
the amount equal to the excess, if any, of the Collateral Value of Acceptable
Collateral over the sum of the Base Reserve Amount and the Risk-Based Reserve
Amount (as calculated with applicable PERQ Rates).
"PERQ Credit" means, as of any date of determination, the
aggregate amount in U.S. Dollars determined in accordance with (i) through (iv)
below:
(i) the Superseded Reserve Amount, as of the PERQ Effective
Date, minus
(ii) the sum of the Base Reserve Amount and the Risk-Based Reserve
Amount (as calculated with applicable PERQ Rates), as of the PERQ
Effective Date; minus
(iii) the excess, if any, of the PERQ Release Amount, if any, over
the amount equal to clause (i) of the definition of "PERQ Release Amount,"
as of the PERQ Effective Date; minus
(iv) reductions, if any, of the PERQ Credit applied by Custodian
from time to time (at the direction of Lender when Lender is a Qualifying
Lender) due to an increase to the Risk-Based Reserve Amount (A) when a
loan becomes a Mortgage Loan pursuant to this Agreement, or (B) upon a
change in Loss Level respecting a Mortgage Loan.
"PERQ Release Amount" means, as of the PERQ Effective Date,
the aggregate amount in U.S. Dollars determined in accordance with (i) through
(iii) below.
(i) the excess, if any, of the Collateral Value of Acceptable
Collateral over the Superseded Reserve Amount; plus
(ii) the Collateral Value of Acceptable Collateral previously
delivered to Custodian by Lender respecting loans that became Mortgage
Loans on or after November 1, 1995 through the last day of the month
covered by the most recent unpaid principal balance report supplied by
Fannie Mae to Custodian pursuant to Section 3.08 of this Agreement; minus
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(iii) the excess, if any, of the Superseded Reserve Amount over the
Collateral Value of Acceptable Collateral;
provided that, in no event shall the PERQ Release Amount exceed the PERQ
Collateral Margin.
"Superseded Reserve Amount" means, as of the PERQ Effective
Date, the amount in U.S. Dollars determined in accordance with (i) through
(vii) below:
(i) $500,000; plus
(ii) $10.00 per each $1,000 (1.0%) of that portion, if any, of the
aggregate unpaid principal balance of all Mortgage Loans that is equal to or
less than $50 million;-plus
(iii) $7.50 per each $1,000 (.75%) of that portion, if any, of
the aggregate unpaid principal balance of all Mortgage Loans that is greater
than $50 million but less than or equal to $150 million; plus
(iv) $5.00 per each $1,000 (.50%) of that portion, if any, of the
aggregate unpaid principal balance of all Mortgage Loans that is greater than
$150 million; plus
(v) $1.50 per each $1,000 (.15%) of the aggregate unpaid principal
balance of all Mortgage Loans, if any, for which the Loss Level is Level II;
plus
(vi) $3.00 per each $1,000 (.30%) of the aggregate unpaid principal
balance of all Mortgage Loans, if any, for which the Loss Level is Level III;
minus
(vii) $1.25 per each $1,000 (.125%) of the aggregate unpaid
principal balance of all Mortgage Loans, if any, that are designated by Fannie
Mae as HERRO Loans for purposes of and as defined in this Agreement.
2. Release of PERQ Release Amount. As of the PERQ Effective
Date, if the Collateral Value of Acceptable Collateral is equal to or exceeds
the sum of the Base Reserve Amount and the Risk-Based Reserve Amount (as
calculated with applicable PERQ Rates), then Custodian may release Acceptable
Collateral to Lender pursuant to Section 3.03(c) and (d) of this Agreement in
the amount of the PERQ Release Amount, if any.
3. Calculation of PERQ Credit. As of the PERQ Effective Date,
Custodian shall calculate Lender's PERQ Credit. Custodian shall notify Fannie
Mae and Lender of the amount of the PERQ Credit as of the PERQ Effective Date.
Custodian shall include ,the PERQ Credit, as from time to time reduced, as a
component of the Aggregate Reserve Requirement, whether or not Lender is
thereafter a Qualifying Lender as of any date of determination. Custodian
shall report, in the monthly report to Fannie Mae and Lender, pursuant to
Section 3.03 (a) (x) of this Agreement, the
N-2
[4/96]
<PAGE> 101
amount of the PERQ Credit, if any, as of the monthly Valuation Date. The PERQ
Credit shall be subject to reduction, from time to time, solely by application
of the PERQ Credit by the Custodian as provided in subsection 4 of this Exhibit
N.
4. Application of PERQ Credit. In lieu of delivery of additional
Acceptable Collateral when that Lender is a Qualifying Lender, unless Lender
otherwise directs in writing to Custodian, Custodian shall apply all or a
specified portion of the PERQ Credit in connection with the requirements of
Section 3.03(b) of this Agreement due to an increase in the Risk-Based Reserve
Amount upon (A) when a loan becomes a Mortgage Loan pursuant to this Agreement,
or (B) upon a change in Loss Level respecting a Mortgage Loan. Custodian shall
so apply the PERQ Credit only when the Lender is a Qualifying Lender pursuant
to Section 3.10 of this Agreement. Upon any such application of the PERQ
Credit, Custodian shall reduce the PERQ Credit in the amount so applied.
Application by Custodian of the PERQ Credit pursuant to this subsection 3 of
Exhibit N shall permanently reduce the PERQ Credit.
5. For the purpose of fulfilling its obligations under Exhibit N
to this Agreement, Custodian shall rely on the most recent monthly reports or
other written notice from Fannie Mae pursuant to Section 3.08 of this
Agreement.
N-3
[4/96]
<PAGE> 102
EXHIBIT O
LENDER'S GENERAL PARTNERS
Set forth below is the name, address and telecopy number of each of
Lender's general partners:
Washington Mortgage Financial Group, Ltd. is not a partnership
O-1
[4/96]
<PAGE> 1
EXHIBIT 10.5
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
CREDIT AND SECURITY AGREEMENT
BETWEEN
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD.,
a Delaware corporation
AND
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
-------------------------------------
Dated as of June 14, 1996
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
1.1 Defined Terms........................................................................ 1
1.2 Other Definitional Provisions........................................................ 16
2. THE CREDIT.................................................................................... 16
2.1 The Warehousing Commitment........................................................... 16
2.2 Procedures for Obtaining Warehousing Advances........................................ 19
2.3 The Term Loan Commitment............................................................. 21
2.4 The Servicing Facility Commitment.................................................... 21
2.5 Procedures for Obtaining Servicing Facility
Advances............................................................................. 23
2.6 Notes................................................................................ 26
2.7 Interest............................................................................. 26
2.8 Principal Payments................................................................... 28
2.9 Expiration of Commitments............................................................ 32
2.10 Method of Making Payments............................................................ 32
2.11 Commitment Fees...................................................................... 33
2.12 Miscellaneous Charges................................................................ 35
2.13 Interest Limitation.................................................................. 35
3. COLLATERAL.................................................................................... 35
3.1 Grant of Security Interest........................................................... 35
3.2 Release of Security Interest in Collateral........................................... 38
3.3 Delivery of Additional Collateral or Mandatory
Prepayment........................................................................... 39
3.4 Collection and Servicing Rights...................................................... 40
3.5 Return of Collateral at End of Commitment............................................ 40
</TABLE>
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i
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<TABLE>
<S> <C> <C>
4. CONDITIONS PRECEDENT.......................................................................... 41
4.1 Initial Advance...................................................................... 41
4.2 Each Advance......................................................................... 43
5. REPRESENTATIONS AND WARRANTIES................................................................ 45
5.1 Organization; Good Standing; Subsidiaries............................................ 45
5.2 Authorization and Enforceability. .................................................. 45
5.3 Approvals............................................................................ 46
5.4 Financial Condition.................................................................. 46
5.5 Litigation........................................................................... 46
5.6 Compliance with Laws................................................................. 47
5.7 Regulations G and U.................................................................. 47
5.8 Investment Company Act............................................................... 47
5.9 Payment of Taxes..................................................................... 47
5.10 Agreements........................................................................... 47
5.11 Title to Properties.................................................................. 48
5.12 ERISA................................................................................ 48
5.13 Eligibility.......................................................................... 48
5.14 Place of Business.................................................................... 49
5.15 Special Representations Concerning Warehousing
Collateral........................................................................... 49
5.16 Servicing............................................................................ 52
5.17 Special Representations Concerning Servicing
Collateral........................................................................... 52
6. AFFIRMATIVE COVENANTS......................................................................... 53
6.1 Payment of Notes..................................................................... 54
6.2 Financial Statements and Other Reports............................................... 54
6.3 Maintenance of Existence; Conduct of Business........................................ 56
</TABLE>
Washington/Huntoon:6/13/96
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.4 Compliance with Applicable Laws...................................................... 56
6.5 Inspection of Properties and Books................................................... 57
6.6 Notice............................................................................... 57
6.7 Payment of Debt, Taxes, etc.......................................................... 58
6.8 Insurance............................................................................ 58
6.9 Closing Instructions................................................................. 58
6.10 Subordination of Certain Indebtedness................................................ 59
6.11 Other Loan Obligations............................................................... 59
6.12 Use of Proceeds of Advances.......................................................... 59
6.13 Special Affirmative Covenants Concerning
Collateral........................................................................... 59
7. NEGATIVE COVENANTS................................................................................. 61
7.1 Contingent Liabilities............................................................... 61
7.2 Sale or Pledge of Servicing Contracts................................................ 61
7.3 Merger; Sale of Assets; Acquisitions................................................. 61
7.4 Deferral of Subordinated Debt........................................................ 62
7.5 Loss of Eligibility.................................................................. 62
7.6 Debt to Adjusted Tangible Net Worth Ratio............................................ 62
7.7 Minimum Adjusted Tangible Net Worth.................................................. 62
7.8 Liquidity............................................................................ 62
7.9 Maximum Pass-Throughs................................................................ 62
7.10 Minimum Adjusted Servicing Portfolio................................................. 62
7.11 Debt Service Coverage Ratio.......................................................... 62
7.12 Delinquency Ratio.................................................................... 62
7.13 Transactions with Affiliates......................................................... 62
7.14 Special Negative Covenants Concerning Collateral..................................... 63
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
8. DEFAULTS; REMEDIES............................................................................ 63
8.1 Events of Default.................................................................... 63
8.2 Remedies............................................................................. 67
8.3 Application of Proceeds.............................................................. 71
8.4 Lender Appointed Attorney-in-Fact.................................................... 71
8.5 Right of Set-Off..................................................................... 72
9. NOTICES....................................................................................... 72
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.......................................................... 73
11. FINANCIAL INFORMATION......................................................................... 74
12. MISCELLANEOUS................................................................................. 74
12.1 Terms Binding Upon Successors; Survival of
Representations...................................................................... 74
12.2 Assignment........................................................................... 75
12.3 Amendments........................................................................... 75
12.4 Governing Law........................................................................ 75
12.5 Participations....................................................................... 75
12.6 Relationship of the Parties.......................................................... 75
12.7 Severability......................................................................... 76
12.8 Operational Reviews.................................................................. 76
12.9 Consent to Credit References......................................................... 76
12.10 Consent to Jurisdiction.............................................................. 76
12.11 Counterparts......................................................................... 77
12.12 Entire Agreement..................................................................... 77
12.13 Waiver of Jury Trial................................................................. 77
12.14 Joint and Several Liability.......................................................... 77
</TABLE>
Washington/Huntoon:6/13/96
iv
<PAGE> 6
EXHIBITS
Exhibit A-1 Warehousing Promissory Note
Exhibit A-2 Term Loan Promissory Note
Exhibit A-3 Servicing Facility Promissory Note
Exhibit B (Intentionally Omitted)
Exhibit C-MF Request for Advance Against
Mortgage Loans
Exhibit C-SER Servicing Acquisition Advance Request
Exhibit C-WC Working Capital Advance Request
Exhibit D-MF/BER Procedures and Documentation for
Warehousing Berkshire Loans
Exhibit D-MF/CONV/DUS Procedures and Documentation for
Warehousing Conventional
Multifamily, Health Care, Commercial
and FNMA DUS Mortgage Loans
Exhibit D-MF/FHA Procedures and Documentation for
Warehousing FHA Project Mortgage
Loans and FHA Construction Mortgage
Loans
Exhibit D-SA Procedures and Documentation for
Servicing Acquisition Advances
Exhibit E-1 Schedule of Servicing Portfolio
Exhibit E-2 Schedule of Pledged Servicing
Contracts
Exhibit F Subordination of Debt Agreement
Exhibit G Subsidiaries
Exhibit H Legal Opinion
Exhibit I-MF Officer's Certificate
Exhibit J Schedule of Existing Warehouse Lines
Exhibit K Funding Bank Agreement
Exhibit L Terms Applicable to Guaranteed
Advances
Washington/Huntoon:6/13/96
v
<PAGE> 7
THIS CREDIT AND SECURITY AGREEMENT, dated as of June 14, 1996, between
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington") and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon", Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers"), and for purposes of this Agreement are deemed
to have their principal office at 1593 Spring Hill Road, Suite 400, Vienna, VA
22182, and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Lender"), having its principal office at 8400 Normandale Lake Blvd., Suite
600, Minneapolis, Minnesota 55437.
WHEREAS, the Borrowers and the Lender desire to set forth herein the
terms and conditions upon which the Lender shall provide warehouse financing,
term loan financing and servicing facility financing to the Borrowers;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. Capitalized terms defined below or
elsewhere in this Agreement (including the Exhibits hereto)
shall have the following meanings:
"Acknowledgment Agreement" has the meaning set forth in
Section 8.2(i) hereof.
"Adjusted Servicing Portfolio" means, for any Person, the
Servicing Portfolio of such Person, but excluding the principal
balance of Mortgage Loans included in the Servicing Portfolio at such
date, (a) which are past due for principal or interest for sixty (60)
days or more, (b) are Commercial Mortgage Loans, FNMA DUS Mortgage
Loans or FHA co-insured Mortgage Loans, (c) with respect to which such
Person is obligated to repurchase or indemnify the holder of the
Mortgage Loans as a result of defaults on the Mortgage Loans at any
time during the term of such Mortgage Loans, (d) for which the
Servicing Contracts are not owned by such Person free and clear of all
Liens (other than in favor of the Lender), or (e) which are serviced
by the Borrowers for others under subservicing arrangements.
"Adjusted Tangible Net Worth" means with respect to any
Person at any date, the Tangible Net Worth of such Person at such
date, excluding capitalized excess servicing fees and capitalized
servicing rights, plus one-half percent (1/2%) of the Adjusted
Servicing Portfolio and plus deferred taxes arising from capitalized
excess servicing fees and capitalized servicing rights.
"Advance" means a disbursement by the Lender under the
Commitments pursuant to Article 2 of this Agreement,
Washington/Huntoon:6/13/96
1
<PAGE> 8
including, without limitation, Warehousing Advances, the Term Loan
Advance, Servicing Facility Advances and readvances of funds
previously advanced to the Borrowers and repaid to the Lender.
"Advance Request" means a Warehousing Advance Request or
a Servicing Facility Advance Request.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
"Agreement" means this Credit and Security Agreement, either
as originally executed or as it may from time to time be supplemented,
modified or amended.
"Annual Debt Payments" means, as of the last day of any
fiscal quarter of the Washington and its Subsidiary, the sum of (a)
the aggregate amount of scheduled principal payments required under
this Agreement on the Term Loan Advances and Servicing Facility
Advances in the four (4) fiscal quarters following such date
(assuming, with respect to all measurement dates prior to the
Servicing Facility Commitment Termination Date, that (i) the Servicing
Facility Commitment Termination Date is not extended, and (ii) no
Servicing Facility Advances are made after such measurement date), and
(b) the amount of interest expense incurred under this Agreement on
the Term Loan Advances and Servicing Facility Advances or under the
Existing Term Agreement and deducted in calculating net income for the
four (4) fiscal quarters ending on such date.
"Appraisal" means a certificate of independent certified
public accountants or independent financial consultants selected by
the Borrowers and reasonably satisfactory to the Lender as to the
Appraisal Value of the Pledged Servicing Contracts or the Nonrecourse
Servicing Contracts acquired in any Servicing Acquisition, which shall
evaluate such Servicing Contracts based upon reasonably determined
categories of the Mortgage Loans contained therein and give effect to
any subservicing agreement to which any such Mortgage Loan is or will
be subject, which certificate shall be in form, substance and detail
reasonably satisfactory to the Lender.
"Appraisal Value" means, at any date of determination, with
respect to the Pledged Servicing Contracts or the Nonrecourse
Servicing Contracts acquired in any Servicing Acquisition, the fair
market value of the Borrowers' right to service Mortgage Loans
pursuant to such Servicing Contracts, calculated as a percentage of
the unpaid principal amount of each Mortgage Loan serviced pursuant
thereto, as set forth in the most recent Appraisal, adjusted to
account for changes in such Servicing Contracts since the date of such
Appraisal.
Washington/Huntoon:6/13/96
2
<PAGE> 9
"Approved Custodian" means a pool custodian or other Person
which is deemed acceptable to the Lender from time to time in its sole
discretion to hold a Mortgage Loan for inclusion in a Mortgage Pool or
to hold a Mortgage Loan as agent for an Investor who has issued a
Purchase Commitment for such Mortgage Loan.
"Berkshire Advance" means an Advance made to Washington
against Berkshire Loans.
"Berkshire Loans" means advances made by Washington under the
Berkshire Master Agreement and evidenced by the Berkshire Master
Notes.
"Berkshire LP" means BRI OP Limited Partnership, a Delaware
limited partnership.
"Berkshire Master Agreement" means the Master Credit Facility
Agreement dated as of November 17, 1995, by and among Berkshire LP,
Berkshire Realty Company, Inc., BRI River Oakes Limited Partnership,
any Subsidiary of Berkshire LP that becomes a "Subsidiary Guarantor"
thereunder and Washington, as the same may be amended, supplemented,
restated or otherwise modified and in effect from time to time.
"Berkshire Master Notes" means the "Base Facility Note" and
the "Revolving Facility Note" executed and delivered to Washington
under the Berkshire Master Agreement, as the same may be amended,
supplemented, restated or otherwise modified and in effect from time
to time.
"Borrowers" has the meaning set forth in the first
paragraph of this Agreement.
"Business Day" means any day excluding Saturday or Sunday and
excluding any day on which national banking associations are closed
for business.
"Calendar Quarter" shall mean the three (3) month period
beginning on any January 1, April 1, July 1 or October 1.
"Cash Collateral Account" means a demand deposit account
maintained at the Funding Bank in the name of the Lender and
designated for receipt of the proceeds of the sale or other
disposition of the Collateral.
"Closing Date" means June ___, 1996.
"Collateral" has the meaning set forth in Section 3.1
hereof.
Washington/Huntoon:6/13/96
3
<PAGE> 10
"Collateral Documents" has the meaning set forth in
Section 2.2(a) hereof.
"Collateral Value" means (a) with respect to any Mortgage
Loan as of the date of determination, the lesser of (i) the amount of
any Advance made against such Mortgage Loan under Section 2.1(c)
hereof; or (ii) the Fair Market Value of such Mortgage Loan; or (b)
in the event Pledged Mortgages have been exchanged for Pledged
Securities, the aggregate Fair Market Value of the Mortgage Loans
backing such Pledged Securities; or (c) with respect to cash, the
amount of such cash.
"Commercial Advance" means an Advance made against a
Commercial Mortgage Loan.
"Commercial Mortgage Loan" means a Mortgage Loan (other than
a Multifamily Mortgage Loan or a Health Care Mortgage Loan) secured by
a Mortgage on improved commercial real property.
"Commitment" means the Warehousing Commitment, the Term
Loan Commitment or the Servicing Facility Commitment.
"Commitment Fee" means the Warehousing Commitment Fee,
the Term Loan Commitment Fee or the Servicing Facility
Commitment Fee.
"Committed Purchase Price" means for a Mortgage Loan the
product of the Mortgage Note Amount multiplied by (a) the price
(expressed as a percentage) as set forth in a Purchase Commitment for
such Mortgage Loan or (b) in the event such Mortgage Loan is to be
used to back a Mortgage-backed Security or a Participation
Certificate, the price (expressed as a percentage) as set forth in a
Purchase Commitment for such Mortgage-backed Security or a
Participation Certificate.
"Conventional Mortgage Loan" means a Multifamily Mortgage
Loan (other than a FNMA DUS Mortgage Loan, an FHA Project Mortgage
Loan, or an FHA Construction Mortgage Loan), or a Health Care Mortgage
Loan (other than an FHA Project Mortgage Loan or an FHA Construction
Mortgage Loan).
"Debt" means, with respect to any Person, at any date (a) all
indebtedness or other obligations of such Person which, in accordance
with GAAP, would be included in determining total liabilities as shown
on the liabilities side of a balance sheet of such Person at such
date; and (b) all indebtedness or other obligations of such Person for
borrowed money or for the deferred purchase price of property or
services; provided that for purposes of this Agreement, there shall be
excluded from Debt at any date loan loss reserves, Subordinated Debt
not due within one year of such date, and deferred taxes arising from
Washington/Huntoon:6/13/96
4
<PAGE> 11
capitalized excess servicing fees and capitalized servicing
rights.
"Debt Service Coverage Ratio" means, as of the last day of
any fiscal quarter of Washington and its Subsidiaries, the ratio of
Funds From Operations to Annual Debt Payments.
"Default" means the occurrence of any event or existence of
any condition which, but for the giving of Notice, the lapse of time,
or both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1(g)
hereof.
"Delinquency Ratio" means the ratio of (a) the unpaid
principal balance of Mortgage Loans serviced by the Borrowers (i) on
which one or more payments are more than thirty (30) days past due,
(ii) which are subject to foreclosure proceedings or (iii) any obligor
on which is the subject of bankruptcy or other similar proceedings, to
(b) the Servicing Portfolio of the Borrowers.
"Depository Benefit" shall mean the compensation received by
the Lender, directly or indirectly, as a result of the Borrowers'
maintenance of Eligible Balances with a Designated Bank.
"Designated Bank" means any bank(s) designated from time to
time by the Lender to be a Designated Bank with whom the Lender has an
agreement under which the Lender can receive a Depository Benefit. As
of the date of this Agreement, the Designated Banks are Bank United
Texas, fsb and National City Bank, Kentucky. The Lender has the right,
at any time and from time to time in its sole discretion, to designate
one or more additional banks, or to terminate the designation of any
bank, as a designated bank hereunder.
"DUS Program" means FNMA's Delegated Underwriting and
Servicing Program.
"Eligible Balances" means all funds of or maintained by the
Borrowers and their Subsidiaries in non-interest bearing accounts at a
Designated Bank, less balances to support fees, interest or other
amounts that would otherwise be payable to the Designated Bank, float,
reserve requirements, Federal Deposit Insurance Corporation insurance
premiums and such other reductions as may be imposed by governmental
authorities from time to time.
"Eligible Mortgage Pool" means a Mortgage Pool for which (a)
an Approved Custodian has issued its initial certification (on the
basis of which a Pledged Security is to be issued),
Washington/Huntoon:6/13/96
5
<PAGE> 12
(b) there exists a Purchase Commitment covering such Pledged Security,
and (c) such Pledged Security will be delivered to the Lender.
"ERISA" means the Employee Retirement Income Security Act of
1974 and all rules and regulations promulgated thereunder, as amended
from time to time and any successor statute.
"Event of Default" means any of the conditions or events
set forth in Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
"Existing Term Agreement" means the Term Loan and Security
Agreement dated December 19, 1994, between the Borrowers and the
Lender, as the same has been amended and is
in effect on the Closing Date.
"Existing Warehousing Agreement" means the Warehousing Credit
and Security Agreement (Single-Family and Multi-Family Mortgage Loans)
dated as of November 23, 1993, between the Borrowers and the Lender,
as the same has been amended and is in effect on the Closing Date.
"Fair Market Value" means at any time for a Mortgage Loan or
the related Mortgage-backed Security (if such Mortgage Loan is to be
used to back a Mortgage-backed Security) (a) if such Mortgage Loan or
the related Mortgage-backed Security is covered by a Purchase
Commitment, the Committed Purchase Price, or (b) otherwise, the market
price for such Mortgage Loan or Mortgage-backed Security, determined
by the Lender based on market data for similar Mortgage Loans or
Mortgage-backed Securities and such other criteria as the Lender deems
appropriate.
"FHA" means the Federal Housing Administration and any
successor thereto.
"FHA Construction Mortgage Loan" means an FHA fully insured
Mortgage Loan for the construction or substantial rehabilitation of a
Multifamily Property or a Health Care Facility.
"FHA Project Mortgage Loan" means an FHA fully insured
Multifamily Mortgage Loan or an FHA fully insured Health Care Mortgage
Loan.
"FHLMC" means the Federal Home Loan Mortgage Corporation
and any successor thereto.
"FICA" means the Federal Insurance Contributions Act.
Washington/Huntoon:6/13/96
6
<PAGE> 13
"FIRREA" means the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"First Mortgage" means a Mortgage which constitutes a first
Lien on the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a
First Mortgage.
"FNMA" means the Federal National Mortgage Association
and any successor thereto.
"FNMA DUS Mortgage Loan" means a Multifamily Mortgage Loan
under FNMA's DUS Program.
"Funding Bank" means The First National Bank of Chicago or
any other bank designated from time to time by the Lender.
"Funding Bank Agreement" means the letter agreement
substantially in the form of Exhibit K hereto.
"Funds From Operations" means, as of the last day of any
fiscal quarter of Washington and its Subsidiaries, the sum of (a) the
net income of Washington and its Subsidiaries on a consolidated basis,
for the four (4) fiscal quarters ending on such date, plus (b) the
amount of income tax expense deducted in calculating such net income,
minus (c) the amount of income taxes actually paid by Washington and
its Subsidiaries during such four (4) fiscal quarters, plus (d)
depreciation, amortization and other non-cash items deducted in
calculating such net income, minus (e) non-cash revenue included in
calculating such net income, minus (f) the amount of dividends paid
and other distributions made on the capital stock of Washington during
such four (4) fiscal quarters, plus (g) the amount of interest expense
incurred under this Agreement on the Term Loan Advances and Servicing
Facility Advances or under the Existing Term Loan Agreement and
deducted in calculating such net income.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination.
Washington/Huntoon:6/13/96
7
<PAGE> 14
"Gestation Agreement" means an agreement under which the
Borrowers agree to sell or finance (a) a Pledged Mortgage prior to the
date of purchase by an Investor, or (b) a Mortgage Pool prior to the
date the Mortgage-backed Security is issued.
"GNMA" means the Government National Mortgage Association
and any successor thereto.
"Health Care Facility" means a retirement service center, a
board and care facility, an intermediate care facility, a nursing home
or a hospital.
"Health Care Mortgage Loan" means a Mortgage Loan secured
by a Mortgage on a Health Care Facility.
"HUD" means the Department of Housing and Urban
Development and any successor thereto.
"HUD 241 Program" means federal loan insurance to finance
improvements, additions and equipment to multi-family rental housing
and healthcare facilities pursuant to Section 241 of the National
Housing Act, 12 U.S.C. Sections 1715z-6.
"HUD 241 Advances" means Advances made against HUD 241
Mortgage Loans.
"HUD 241 Mortgage Loans" means Mortgage Loans that are
insured by HUD under the HUD 241 Program and committed for purchase by
an Investor pursuant to a Purchase Commitment.
"Indemnified Liabilities" has the meaning set forth in
Article 10 hereof.
"Internal Revenue Code" means the Internal Revenue Code of
1986, or any subsequent federal income tax law or laws, as any of the
foregoing have been or may from time to time be amended.
"Investor" means FNMA, FHLMC or a financially responsible
private institution which is deemed acceptable by the Lender from time
to time in its sole discretion.
"Lender" has the meaning set forth in the first paragraph
of this Agreement.
"LIBOR" means, for each calendar week, the rate of interest
per annum which is equal to the arithmetic mean of the U.S. Dollar
London Interbank Offered Rates for one (1) month periods as of 11:00
a.m. London time on the first Business Day of each week on which the
London Interbank market is open, as published by Knight-Ridder, Inc.
on its
Washington/Huntoon:6/13/96
8
<PAGE> 15
MoneyCenter system. LIBOR shall be rounded, if necessary, to the next
higher one sixteenth of one percent (1/16%). If such U.S. dollar LIBOR
rates are not so offered or published for any period, then during such
period LIBOR shall mean the London Interbank Offered Rate for one (1)
month periods published on the first Business Day of each week on
which the London Interbank market is open, in the Wall Street Journal
in its regular column entitled "Money Rates."
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Liquid Assets" means, with respect to any Person at any
date, the following unrestricted and unencumbered assets owned by such
Person on such date: cash, funds on deposit in any bank located in the
United States, investment grade commercial paper, money market funds,
marketable securities and the excess, if any, of Mortgage Loans and
Mortgage-backed Securities held for sale (valued in accordance with
GAAP) over the outstanding aggregate principal amount of notes or
other debt instruments against which such Mortgage Loans or
Mortgage-backed Securities are pledged as Collateral.
"Loan Documents" means this Agreement, the Notes, any
agreement of the Borrowers relating to Subordinated Debt, and each
other document, instrument or agreement executed by the Borrowers in
connection herewith or therewith, as any of the same may be amended,
restated, renewed or replaced from time to time.
"Margin Stock" has the meaning assigned to that term in
Regulations G and U of the Board of Governors of the Federal Reserve
System as in effect from time to time.
"Maturity Date" means, for any Advance, the Warehousing
Maturity Date, the Servicing Facility Maturity Date or the Term Loan
Maturity Date, as applicable.
"Miscellaneous Charges" has the meaning set forth in
Section 2.12 hereof.
"Mortgage" means a mortgage or deed of trust on improved real
property. A Mortgage may be a First Mortgage or a Second Mortgage.
"Mortgage-backed Securities" means GNMA, FNMA or FHLMC
securities that are backed by Mortgage Loans.
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"Mortgage Loan" means any loan evidenced by a Mortgage
Note and any Berkshire Loan.
"Mortgage Note" means a promissory note secured by a
Mortgage.
"Mortgage Note Amount" means, as of the date of
determination, with respect to any Mortgage Loan, the then outstanding
unpaid principal amount of the related Mortgage Note or the then
outstanding unpaid principal amount of the Berkshire Loan.
"Mortgage Pool" means a pool of one or more Pledged Mortgages
on the basis of which there is to be issued a Mortgage-backed
Security.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA which is maintained for employees of
the Borrowers or a Subsidiary of the Borrowers.
"Multifamily Mortgage Loan" means a Mortgage Loan secured
by a Mortgage on improved Multifamily Property.
"Multifamily Property" means real property containing or
which will contain more than four (4) dwelling units.
"Nonrecourse Servicing Contract" means a Servicing Contract
under which the Borrowers are not obligated to repurchase or indemnify
the holder of Mortgage Loans as a result of a default on the Mortgage
Loans occurring more than six months after the date of such Mortgage
Loan; provided, that the Borrowers may be obligated to repurchase or
indemnify the holder as a result of a breach of any customary
representation or warranty made by the Borrowers, as seller or
servicer, in respect of such Mortgage Loans.
"Notes" has the meaning set forth in Section 2.6 hereof.
"Notices" has the meaning set forth in Article 9 hereof.
"Obligations" means any and all indebtedness, obligations and
liabilities of the Borrowers to the Lender (whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly
owed with others, direct or indirect, absolute or contingent,
liquidated or unliquidated, and whether or not from time to time
decreased or extinguished and later increased, created or incurred),
arising out of or related to the Loan Documents.
"Officer's Certificate" means a certificate executed on
behalf of the Borrowers by their chief financial officer or its
treasurer or by such other officer as may be designated
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herein and substantially in the form of Exhibit I-MF attached
hereto.
"Operating Account" means a demand deposit account maintained
at the Funding Bank in the name of Borrowers and designated for
funding the discount portion of each Advance and for returning any
excess payment from an Investor for a Pledged Mortgage or Pledged
Security.
"Parent" shall mean NHP Financial Services, Ltd., a
Delaware corporation.
"Participant" has the meaning set forth in Section 12.5
hereof.
"Participation Certificate" means a participation certificate
issued by an Investor, a pool custodian satisfactory to the Lender or
the Borrowers evidencing an undivided interest in a Pledged Mortgage
or a Mortgage Pool consisting of Pledged Mortgages.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Plans" has the meaning set forth in Section 5.12 hereof.
"Pledged Mortgages" has the meaning set forth in Section
3.1(a) hereof.
"Pledged Securities" has the meaning set forth in Section
3.1(b) hereof.
"Pledged Servicing Contracts" has the meaning set forth
in Section 3.1(d) hereof.
"Purchase Commitment" means a written commitment, in form and
substance satisfactory to the Lender, issued in favor of the Borrowers
by an Investor pursuant to which that Investor commits to purchase
Mortgage Loans, Mortgage-backed Securities or Participation
Certificates.
"Release Amount" has the meaning set forth in Section
3.2(g) hereof.
"Refunder" means an Advance made against a Mortgage Loan the
proceeds of which are used to repay an existing Mortgage Loan in the
Borrowers' Servicing Portfolio or retire a
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Mortgage-backed Security for which one of the Borrowers is the
servicer.
"Second Mortgage" means a Mortgage which constitutes a second
Lien on the property covered thereby.
"Second Mortgage Loan" means a Mortgage Loan secured by
a Second Mortgage.
"Servicing Acquisition" means a transaction in which the
Borrowers acquire Nonrecourse Servicing Contracts with respect to
Multi-family Mortgage Loans in a bulk purchase, to the extent that the
Lender makes a Servicing Acquisition Advance to finance a part of the
cost of the Borrowers' acquisition of such Servicing Contracts.
"Servicing Acquisition Advance" shall mean a Servicing
Facility Advance used to finance part of the Borrowers' cost of a
Servicing Acquisition.
"Servicing Acquisition Cost" means, with respect to any
Nonrecourse Servicing Contracts acquired by the Borrowers as part of
any Servicing Acquisition, the unamortized net cost to the Borrowers,
as reflected on its books and records, of acquiring such Nonrecourse
Servicing Contracts.
"Servicing Acquisition Documents" means, with respect to any
Servicing Acquisition, the Servicing Purchase Agreement and all
agreements, documents, and instruments executed and
delivered in connection therewith.
"Servicing Collateral" means the Pledged Servicing Contracts,
all Collateral described in Sections 3.1(e) and 3.1(f) and all
Collateral described in Sections 3.1(g), 3.1(h) and 3.1(i) hereof that
constitutes proceeds of, or is related to, such Collateral.
"Servicing Collateral Value" means, as of the date of any
determination, sixty-five (65%) of the Appraisal Value of the Pledged
Servicing Contracts (adjusted to account for Pledged Servicing
Contracts sold, created or acquired since the date of the most recent
Appraisal in accordance with the methodology of such Appraisal);
provided, that for purposes of calculating the Servicing Collateral
Value, the following Mortgage Loans shall be excluded: (i) Mortgage
Loans on which any payment is more than forty-five (45) days past due,
(ii) Mortgage Loans in respect of which the Borrowers have commenced
foreclosure proceedings, (iii) Mortgage Loans in respect of which any
obligor is the subject of a bankruptcy proceeding, and (iv) Servicing
Contracts excluded in calculating the Adjusted Servicing Portfolio.
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"Servicing Contract" means, with respect to any Person, the
arrangement, whether or not in writing, pursuant to which such Person
has the right to service Mortgage Loans.
"Servicing Facility Advance" means a disbursement by the
Lender under the Servicing Facility Commitment pursuant to Section 2.4
of this Agreement.
"Servicing Facility Advance Request" has the meaning set
forth in Section 2.5(a) hereof.
"Servicing Facility Commitment" has the meaning set forth
in Section 2.4 hereof.
"Servicing Facility Commitment Amount" means Ten Million
Dollars ($10,000,000).
"Servicing Facility Commitment Fee" means a fee payable by
the Borrowers in consideration of the Lender's issuance of its
Servicing Acquisition Commitment. The amount of the Servicing
Commitment Fee is set forth in Section 2.11(c) hereof.
"Servicing Facility Commitment Termination Date" means the
earlier of: (a) the close of business on August 31, 1997, as such date
may be extended from time to time pursuant to Section 2.4(c) hereof,
and (b) the date the obligation of the Lender to make further Advances
hereunder is terminated pursuant to Section 8.2 below.
"Servicing Facility Maturity Date" means the earliest of: (a)
the close of business on the date five (5) years after the Servicing
Facility Commitment Termination Date, (b) the Warehousing Maturity
Date, and (c) the date the Servicing Facility Advances become due and
payable pursuant to Section 8.2 below.
"Servicing Facility Promissory Note" means the promissory
note evidencing the Borrowers' Obligations with respect to Servicing
Facility Advances in the form of Exhibit A-3 attached hereto.
"Servicing Facility Rate" means a floating rate of interest
per annum equal to three and one-half percent (3.50%) per annum over
LIBOR. The Servicing Facility Rate shall be adjusted on and as of the
effective date of each weekly change in LIBOR. The Lender's
determination of the Servicing Facility Rate as of any date of
determination shall be conclusive and binding, absent manifest error.
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"Servicing Portfolio" means, as to any Person, the unpaid
principal balance of Mortgage Loans whose Servicing Contracts are
owned by such Person.
"Servicing Purchase Agreement" means any agreement pursuant
to which the Borrowers make any Servicing Acquisition.
"Statement Date" means the date of the most recent financial
statements of Washington and, its Subsidiaries, on a consolidated
basis delivered to the Lender under the terms of this Agreement.
"Subordinated Debt" means all indebtedness of the Borrowers
for borrowed money which is, by its terms (which terms shall have been
approved by the Lender), effectively subordinated in right of payment
to all other present and future Obligations and, solely for purposes
of Section 7.4 hereof, all indebtedness of the Borrowers which is
required to be subordinated by Section 4.1(b) or Section 6.10 hereof.
"Subsidiary" means any corporation, association or other
business entity in which more than fifty percent (50%) of the total
voting power or shares of stock entitled to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of
the other Subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means with respect to any Person at any
date, the excess of the total assets over total liabilities of such
Person on such date, each to be determined in accordance with GAAP
consistent with those applied in the preparation of the financial
statements referred to in Section 4.1(a)(5) hereof, plus loan loss
reserves and that portion of Subordinated Debt not due within one year
of such date, provided that, for purposes of this Agreement, there
shall be excluded from total assets advances or loans to shareholders,
officers or Affiliates, investments in Affiliates, assets pledged to
secure any liabilities not included in the Debt of such Person,
intangible assets, those other assets which would be deemed by HUD to
be non-acceptable in calculating adjusted net worth in accordance with
its requirements in effect as of such date, as such requirements
appear in the "Audit Guide for Audit of Approved Non-Supervised
Mortgagees", and other assets deemed unacceptable by the Lender in its
sole discretion.
"Term Loan Advance" means the disbursement by the Lender
under the Term Loan Commitment pursuant to Section 2.3 of this
Agreement.
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"Term Loan Commitment" has the meaning set forth in
Section 2.3 hereof.
"Term Loan Commitment Amount" means Ten Million Dollars
($10,000,000).
"Term Loan Commitment Fee" means a fee payable by the
Borrowers in consideration of the Lender's issuance of its
Term Loan Commitment. The amount of the Term Loan Commitment
Fee is set forth in Section 2.11 hereof.
"Term Loan Maturity Date" means the earliest of: (a) the
close of business on May 31, 2001, as such date may be extended from
time to time in writing by the Lender, in its sole discretion, (b) the
Warehousing Maturity Date, and (c) the date the Term Loan Advance
becomes due and payable pursuant to Section 8.2 below.
"Term Loan Promissory Note" means the promissory note
evidencing the Borrowers' Obligations with respect to the Term Loan
Advance in the form of Exhibit A-2 attached hereto.
"Term Loan Rate" means a floating rate of interest per annum
equal to three percent (3.00%) per annum over LIBOR. The Term Loan
Rate shall be adjusted on and as of the effective date of each weekly
change in LIBOR. The Lender's determination of the Term Loan Rate as
of any date of determination shall be conclusive and binding, absent
manifest error.
"Trust Receipt" means a trust receipt in a form approved by
and pursuant to which the Lender may deliver any document relating to
the Collateral to the Borrowers for correction or completion.
"Warehousing Advance" shall mean a disbursement by the
Lender under the Warehousing Commitment pursuant to Section 2.1 of
this Agreement.
"Warehousing Collateral" means all of the Collateral
other than the Servicing Collateral.
"Warehousing Commitment" has the meaning set forth in
Section 2.1 hereof.
"Warehousing Commitment Amount" means One Hundred Fifty
Million Dollars ($150,000,000).
"Warehousing Commitment Fee" means a fee payable by the
Borrowers in consideration of the Lender's issuance of the
Warehousing Commitment. The amount of the Warehousing
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Commitment Fee, if any, is set forth in Section 2.11(a) hereof.
"Warehousing Maturity Date" shall mean the earlier of: (a)
the close of business on August 31, 1997, as such date may be extended
from time to time in writing by the Lender, in its sole discretion, on
which date the Warehousing Commitment shall expire of its own term,
and without the necessity of action by the Lender, and (b) the date
the Warehousing Advances become due and payable pursuant to Section
8.2 below.
"Warehousing Rate" means a floating rate of interest which is
equal to one percent (1.00%) per annum over LIBOR. The Warehousing
Rate will be adjusted as of the effective date of each weekly change
in LIBOR. The Lender's determination of the Warehousing Rate as of any
date of determination shall be conclusive and binding, absent manifest
error.
"Working Capital Advance" means a Servicing Facility Advance
to provide for the Borrowers' general working capital needs.
"Working Capital Advance Request" has the meaning given
it in Section 2.5(a) hereof.
1.2 Other Definitional Provisions.
1.2(a) Accounting terms not otherwise defined
herein shall have the meanings given the terms under GAAP.
1.2(b) Defined terms may be used in the singular
or the plural, as the context requires.
1.2(c) All references to time of day shall mean the
then applicable time in Chicago, Illinois, unless expressly
provided to the contrary.
2. THE CREDIT.
2.1 The Warehousing Commitment.
2.1(a) Subject to the terms and conditions of this
Agreement and provided no Default or Event of Default has
occurred and is continuing, the Lender agrees from time to
time during the period from the Closing Date, to, but not
including, the Warehousing Maturity Date, to make Warehousing
Advances to the Borrowers, provided the total aggregate
principal amount outstanding at any one time of all such
Warehousing Advances shall not exceed the Warehousing
Commitment Amount. The obligation of the Lender to make
Warehousing Advances
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hereunder up to the Warehousing Commitment Amount is
hereinafter referred to as the "Warehousing Commitment."
Within the Warehousing Commitment, the Borrowers may borrow,
repay and reborrow. On the Closing Date, the Lender shall,
without further action by the Borrowers, make Warehousing
Advances in an amount equal to the aggregate principal
balance of all outstanding loans made pursuant to the
Existing Warehousing Agreement, other than "P&I Advances" and
"Working Capital Advances" (as defined therein), and shall
apply such Warehousing Advances to repay such outstanding
loans under the Existing Warehousing Agreement. All
Warehousing Advances under this Agreement shall constitute a
single indebtedness, and all of the Collateral shall be
security for the Warehousing Promissory Note and for the
performance of all the Obligations. Warehousing Advances
shall be made either to Washington or to Huntoon, as shall be
requested by Washington or Huntoon, but each Warehousing
Advance, whether made to Washington or to Huntoon shall be
deemed made to or for the benefit of Washington and Huntoon,
and Washington and Huntoon, jointly and severally, shall be
obligated to repay any Warehousing Advances made to
Washington or Huntoon under the Warehousing Commitment. With
respect to its obligation to repay Warehousing Advances made
to the other Borrower, each Borrower agrees to the terms set
forth in Exhibit L attached hereto and made a part hereof.
2.1(b) Warehousing Advances shall be used by the
Borrowers solely for the purpose of funding the acquisition
or origination of Mortgage Loans and shall be made at the
request of the Borrowers, in the manner hereinafter provided
in Section 2.2 hereof, against the pledge of such Mortgage
Loans as Collateral therefor. The following limitations on
the use of the Advance shall be applicable:
(1) No Warehousing Advance shall be made
against a Mortgage Loan which is not covered by a
Purchase Commitment for either the Mortgage Loan or
the Mortgage-backed Securities or Participation
Certificates to be created on the basis of such
Mortgage Loan.
(2) No Warehousing Advance shall be made to
Washington against Mortgage Loans other than FHA
Construction Mortgage Loans, FHA Project Mortgage
Loans, FNMA DUS Mortgage Loans, Conventional
Mortgage Loans, HUD 241 Mortgage Loans, Commercial
Mortgage Loans and Berkshire Loans.
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(3) No Warehousing Advance shall be made to
Huntoon against Mortgage Loans other than FHA
Construction Mortgage Loans, FHA Project Mortgage
Loans, HUD 241 Mortgage Loans or Conventional
Mortgage Loans.
(4) Except for Warehousing Advances made on
the Closing Date used to refund loans outstanding
under the Existing Warehousing Agreement, no
Warehousing Advance shall be made against any FHA
Project Mortgage Loan, FNMA DUS Mortgage Loan,
Conventional Mortgage Loan, Commercial Mortgage Loan
or Berkshire Loan which was closed more than thirty
(30) days prior to the date of the requested
Advance.
(5) No Warehousing Advance shall be made
against an FHA Construction Mortgage Loan unless (a)
no lender other than the Lender has made loans to
the Borrowers against such Pledged Mortgage, (b) the
Lender has, at one time had or will (as provided in
Exhibit D-FHA) obtain possession of the related
Mortgage Note and Collateral Documents, and (c) the
related Mortgage Note is in the possession of a
Person other than the Borrowers or an Affiliate of
the Borrowers.
(6) The aggregate amount of HUD 241
Advances outstanding at any one time shall not
exceed Fifteen Million Dollars ($15,000,000).
(7) The aggregate amount of Commercial
Advances outstanding at any one time shall not
exceed Thirty Million Dollars ($30,000,000).
2.1(c) No Warehousing Advance shall exceed
the following amount applicable to the type of Collateral at
the time it is pledged:
(1) A Warehousing Advance made against a
Conventional Mortgage Loan pledged hereunder that is
committed for purchase by FNMA or FHLMC, the lesser
of (i) the Mortgage Note Amount or (ii) the
Committed Purchase Price.
(2) A Warehousing Advance made against a
Conventional Mortgage Loan pledged hereunder that is
committed for purchase by an Investor other than
FNMA or FHLMC, ninety-eight percent (98%) of the
lesser of (i) the Mortgage Note Amount or (ii) the
Committed Purchase Price.
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(3) A Warehousing Advance made against a
FNMA DUS Mortgage Loan pledged hereunder, the lesser
of (i) the Mortgage Note Amount or (ii) the
Committed Purchase Price.
(4) A Warehousing Advance made against an
FHA Project Mortgage Loan, an FHA Construction
Mortgage Loan or a HUD 241 Mortgage Loan pledged
hereunder, the lesser of (i) the Mortgage Note
Amount or (ii) the Committed Purchase Price.
(5) A Warehousing Advance made against
Commercial Mortgage Loan pledged hereunder,
ninety-five percent (95%) of the lesser of (i) the
Mortgage Note Amount, or (ii) the Committed
Purchase Price.
(6) A Warehousing Advance made against a
Berkshire Loan pledged hereunder, the lesser of (i)
the Mortgage Note Amount or (ii) the Committed
Purchase Price.
2.2 Procedures for Obtaining Warehousing Advances.
2.2(a) The Borrowers may obtain a Warehousing
Advance hereunder, subject to the satisfaction of the
conditions set forth in Sections 4.1 and 4.2 hereof, upon
compliance with the procedures set forth in this Section
2.2 and in the following described Exhibits, attached hereto
and made a part hereof including the delivery of all documents
listed in the following described Exhibits (the "Collateral
Documents") to the Lender, as applicable to the type of
Collateral being financed:
(1) Conventional Mortgage Loans, FNMA DUS
Mortgage Loans and Commercial Mortgage Loans, as set
forth in Exhibit D-MF/CONV/DUS hereto.
(2) FHA Project Mortgage Loans, FHA
Construction Mortgage Loans and HUD 241 Mortgage
Loans, as set forth in Exhibit D-MF/FHA hereto.
(3) Berkshire Loans, as set forth in
Exhibit D-MF/BER.
Requests for Warehousing Advances shall be initiated by the
Borrowers by delivering to the Lender, no later than one (1)
Business Day prior to any Business Day that the Borrowers
desire to borrow hereunder, a completed and signed request
for a Warehousing Advance (a "Warehousing Advance Request")
on the then current form approved by the Lender. The current
forms in use by the Lender are
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<PAGE> 26
Exhibit C-MF for Warehousing Advances against Mortgage Loans
other than Berkshire Loans, and Exhibit C-MF/BER for
Warehousing Advances made to Washington against Berkshire
Loans, attached hereto and made a part hereof. The Lender
shall have the right, on not less than three (3) Business
Days' prior Notice to the Borrowers, to modify any of said
Exhibits to conform to current legal requirements or Lender
practices, and, as so modified, said Exhibits shall be deemed
a part hereof.
2.2(b) Before funding, the Lender shall have a
reasonable time (one (1) Business Day under ordinary
circumstances) to examine such Warehousing Advance Request
and the Collateral Documents to be delivered prior to such
requested Warehousing Advance, as set forth in the applicable
Exhibit hereto, and may reject such of them as do not meet
the requirements of this Agreement or of the related Purchase
Commitment.
2.2(c) The Borrowers shall hold in trust for the
Lender, and the Borrowers shall deliver to the Lender
promptly upon request, the following: (1) originals of the
Collateral Documents for which copies are required to be
delivered to the Lender pursuant to Exhibit DMF/CONV/DUS,
Exhibit D-MF/FHA or Exhibit D-MF/BER, (2) the original
lender's ALTA Policy of Title Insurance or an equivalent
thereto, (3) the environmental assessment, and (4) any other
documents relating to a Pledged Mortgage which the Lender may
request including, without limitation, certificates of
casualty or hazard insurance, credit information on the maker
of each such Mortgage Note, and other documents of all kinds
which are customarily desired for inspection or transfer
incidental to the purchase of any Mortgage Note by an
Investor and any additional documents which are customarily
executed by the seller of a Mortgage Note to an Investor.
2.2(d) To make a Warehousing Advance, the Lender
shall cause the Funding Bank to credit an account of the
Borrowers with the Funding Bank, which account shall be under
the exclusive control of the Lender, upon compliance by the
Borrowers with the terms of this Agreement. The Lender shall
determine in its sole discretion the method by which a
Warehousing Advance is made.
2.2(e) If, pursuant to the authorization given by
the Borrowers in the Funding Bank Agreement, for the purpose
of financing a Mortgage Loan against which the Lender has
made a Warehousing Advance in accordance with a Request for
Advance the Lender debits the Borrowers' Operating Account at
the Funding Bank to the extent
Washington/Huntoon:6/13/96
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<PAGE> 27
necessary to cover a wire to be initiated by the Lender, and
such debit or direction results in an overdraft, the Lender
may make an additional Warehousing Advance to fund such
overdraft.
2.3 The Term Loan Commitment. Subject to the terms and
conditions of this Agreement and provided no Default or Event of
Default has occurred and is continuing, the Lender agrees, on the
Closing Date, to make a Term Loan Advance to the Borrowers in an
amount equal to the outstanding balance of the loans made pursuant to
the Existing Term Loan Agreement, but not to exceed the Term Loan
Commitment Amount. The obligation of the Lender to make the Term Loan
Advance hereunder is hereinafter referred to as the "Term Loan
Commitment." On the Closing Date, the Lender shall, without further
request by the Borrowers, make the Term Loan Advance and apply it to
repay all outstanding loans made pursuant to the Existing Term Loan
Agreement. The Term Loan Advance shall constitute a single
indebtedness, and all of the Collateral shall be security for the Term
Loan Promissory Note and for the performance of all the Obligations.
The Term Loan Advance shall be made jointly to Washington and Huntoon,
and Washington and Huntoon, jointly and severally, shall be obligated
to repay the Term Loan Advance. With respect to its obligation to
repay the Term Loan Advance, in the event the Term Loan Advance or any
portion thereof is deemed to be made to either Borrower (rather than
jointly to both Borrowers), the other Borrower agrees to the terms set
forth in Exhibit L attached hereto and made a part hereof.
2.4 The Servicing Facility Commitment.
2.4(a) Subject to the terms and conditions of this
Agreement and provided no Default or Event of Default has
occurred and is continuing, the Lender agrees from time to
time during the period from the Closing Date, to, but not
including, the Servicing Facility Commitment Termination
Date, to make Servicing Facility Advances to the Borrowers,
provided the total aggregate principal amount outstanding at
any one time of all such Servicing Facility Advances shall
not exceed the Servicing Facility Commitment Amount. The
obligation of the Lender to make Servicing Facility Advances
hereunder up to the Servicing Facility Commitment Amount is
hereinafter referred to as the "Servicing Facility
Commitment." Within the Servicing Facility Commitment, the
Borrowers may borrow, repay and reborrow. On the Closing
Date, the Lender shall, without further action by the
Borrowers, make Working Capital Advances in an amount equal
to the aggregate outstanding principal balance of all "P&I
Advances" and "Working Capital Advances" outstanding under
the Existing Warehousing Agreement, and
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shall apply such Working Capital Advances to repay such
outstanding loans under the Existing Warehousing Agreement.
All Servicing Facility Advances under this Agreement shall
constitute a single indebtedness, and all of the Collateral
shall be security for the Servicing Facility Promissory Note
and for the performance of all the Obligations. Servicing
Facility Advances shall be made either to Washington or to
Huntoon, as shall be requested by Washington or Huntoon, but
each Servicing Facility Advance, whether made to Washington
or to Huntoon shall be deemed made to or for the benefit of
Washington and Huntoon, and Washington and Huntoon, jointly
and severally, shall be obligated to repay any Servicing
Facility Advances made to Washington or Huntoon under the
Servicing Facility Commitment. With respect to its obligation
to repay Servicing Facility Advances made to the other
Borrower, each Borrower agrees to the terms set forth in
Exhibit L attached hereto and made a part hereof.
2.4(b) Servicing Facility Advances shall be made
either as Servicing Acquisition Advances or as Working
Capital Advances. Servicing Acquisition Advances shall be
used by the Borrowers solely for the purpose of financing a
part of the Servicing Acquisition Cost of a Servicing
Acquisition. Working Capital Advances shall be used to
provide for the working capital needs of the Borrowers. Each
Servicing Facility Advance shall be made at the request of
the Borrowers, in the manner hereinafter provided in Section
2.2 hereof. The following limitations on the use of the
Advance shall be applicable:
(1) No Servicing Facility Advance shall be
made if, after giving effect thereto and, in the
case of a Servicing Acquisition Advance, to the
Servicing Acquisition to be funded thereby, (i) the
aggregate outstanding principal balance of the Term
Loan Advance and all Servicing Facility Advances
would exceed the Servicing Collateral Value as of
the date of such Servicing Facility Advance, or (ii)
in the case of any Servicing Acquisition Advance,
the amount of such Servicing Acquisition Advance
would exceed seventy percent (70%) of Servicing
Acquisition Cost or, if an Appraisal is required by
the Lender, the Appraisal Value of the Nonrecourse
Servicing Contracts being acquired in such Servicing
Acquisition; provided, that for purposes of the
foregoing calculations, the following Mortgage Loans
shall be excluded: (w) Mortgage Loans on which any
payment is more than thirty (30) days past due, (x)
Mortgage Loans in
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respect of which the Borrowers have commenced
foreclosure proceedings, (y) Mortgage Loans in
respect of which any obligor is the subject of a
bankruptcy proceeding, and (z) Servicing Contracts
excluded in calculating the Adjusted Servicing
Portfolio.
(2) The aggregate amount of Working
Capital Advances outstanding at any one time shall
not exceed Five Million Dollars ($5,000,000) (the
"Working Capital Sublimit").
(3) No Servicing Acquisition Advance shall
be made to finance a Servicing Acquisition unless
the Lender shall have reviewed the documents and
information described in Section 2.5(b) in
connection with such Servicing Acquisition, and the
same shall be in all respects satisfactory to the
Lender.
2.4(c) Unless either the Lender or the Borrower, in
its sole discretion, provides the other with written notice,
on or before the sixtieth day prior to the then-effective
Servicing Facility Commitment Termination Date, that it is
not willing to extend the Servicing Facility Commitment
Termination Date (subject to an earlier termination of the
Commitments pursuant to Section 8.2), and provided no Default
or Event of Default has occurred and is continuing on the
then-effective Servicing Facility Commitment Termination
Date, the Servicing Facility Commitment Termination Date
shall be extended by one year, effective as of the
then-effective Servicing Facility Commitment Termination
Date; provided, that the Servicing Facility Commitment
Termination Date shall not be extended under this Section
2.4(c) beyond August 31, 2001.
2.5 Procedures for Obtaining Servicing Facility
Advances.
2.5(a) The Borrowers may obtain a Servicing Facility
Advance hereunder, subject to the satisfaction of the
conditions set forth in Sections 4.1 and 4.2 hereof, upon
compliance with the procedures set forth in this Section 2.5.
Requests for Servicing Acquisition Advances shall be
initiated by the Borrowers delivering to the Lender, no later
than two (2) Business Day prior to any Business Day on which
the Borrowers desire to borrow hereunder, a completed and
signed request for a Servicing Acquisition Advance (a
"Servicing Acquisition Advance Request") on the then current
form approved by the Lender. The current form in use by the
Lender is
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Exhibit C-SER attached hereto and made a part hereof.
Requests for Working Capital Advances shall be initiated by
the Borrowers delivering to the Lender, no later than one (1)
Business Day prior to any Business Day on which the Borrowers
desire to borrow hereunder, a completed and signed request
for a Working Capital Advance (a "Working Capital Advance
Request") on the then current form approved by the Lender.
The current form in use by the Lender is Exhibit C-WC
attached hereto and made a part hereof. The Lender shall have
the right, on not less than three (3) Business Days' prior
Notice to the Borrowers, to modify such Exhibits to conform
to current legal requirements or Lender practices, and, as so
modified, said Exhibit shall be deemed a part hereof.
2.5(b) The Borrowers shall deliver the following
documents, certificates and opinions related to any Servicing
Acquisition to the Lender prior to the date of such Servicing
Acquisition Advance:
(1) the following documents with respect to
Nonrecourse Servicing Contracts acquired in such
Servicing Acquisition: (i) a counterpart of the
Servicing Purchase Agreement and all other Servicing
Acquisition Documents, duly executed by each party
thereto, (ii) such information with respect to such
Servicing Contracts and the Mortgage Loans serviced
pursuant thereto as the Lender may reasonably
request, (iii) a valuation of such Servicing
Contracts prepared using the methodology and values
used in the most recent Appraisal of the Pledged
Servicing Contracts or, if required by the Lender,
an Appraisal with respect to such Servicing
Contracts and (iv) evidence satisfactory to the
Lender that, if requested by the Lender, FNMA, FHLMC
and/or GNMA, if applicable, has entered into an
Acknowledgment Agreement with respect to all such
Servicing Contracts to which it is a party
(provided, that such evidence shall not be required
if such Servicing Contracts are excluded from the
calculation of Servicing Acquisition Cost and the
Appraisal or internal valuation described above),
and that, if applicable, GNMA has received such
notice of the Lender's security interest in such
Servicing Contracts to which it is a party as may be
required thereunder or to perfect such security
interests;
(2) a certificate of the president or
chief financial officer of each of the
Borrowers, certifying that all representations
and warranties set forth in Section 5 hereof,
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including, without limitation, Section 5.4 hereof,
are true and correct as though made on and as of the
date of such Servicing Acquisition Advance;
(3) evidence satisfactory to the Lender
that all consents from and notices to FNMA, FHLMC,
GNMA, FHA, VA and other governmental agencies or
Investors required for the Borrowers to assume the
Servicing Contracts to be acquired and continue its
business after the closing of such Servicing
Acquisition have been obtained and given;
(4) evidence satisfactory to the Lender
that such Servicing Acquisition Advance and any
additional funds delivered simultaneously to such
seller will be sufficient to pay the purchase price
under such Servicing Purchase
Agreement in full;
(5) Such UCC Financing statements or
amendments as the Lender, in its sole
discretion, may request to perfect or continue
the perfection of its security interest;
(6) UCC, tax lien and judgment searches in
the appropriate public records for the seller(s) in
such Servicing Acquisition, which shall not have
disclosed the existence of any prior Lien on the
Servicing Contracts to be acquired by the Borrowers;
and
(7) such further documents, instruments,
opinions, certificates and evidence as the
Lender may reasonably request.
2.5(c) Before funding any Servicing Acquisition
Advance, the Lender shall have a reasonable time (two (2)
Business Days in ordinary circumstances) to examine the
documents delivered to it hereunder in connection with the
Servicing Acquisition to be funded by such Servicing
Acquisition Advance prior to making the requested Servicing
Acquisition Advance, and may reject such of them as are not
reasonably satisfactory to Lender.
2.5(d) To make a Servicing Acquisition
Advance, the Lender shall disburse the amount thereof in
accordance with the Request for Servicing Acquisition Advance
upon compliance by the Borrowers with the terms of this
Agreement. To make a Working Capital Advance,
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the Lender shall disburse the proceeds thereof into the
Operating Account.
2.6 Notes. The Borrowers' Obligations in respect of
Warehousing Advances shall be evidenced by a Warehousing Promissory
Note of the Borrowers in the form of Exhibit A-1 attached hereto. The
Borrowers' Obligations in respect of the Term Loan Advance shall be
evidenced by a Term Loan Promissory Note of the Borrowers
substantially in the form of Exhibit A-2 attached hereto. The
Borrowers' Obligations in respect of Servicing Facility Advances shall
be evidenced by a Servicing Facility Promissory Note of the Borrowers
in the form of Exhibit A-3 attached hereto. Each note shall be dated
as of the date hereof. The Warehousing Promissory Note, the Term Loan
Promissory Note and the Servicing Promissory Note are collectively
referred to as the "Notes". The terms "Warehousing Promissory Note,"
"Term Loan Promissory Note," "Servicing Promissory Note," "Note" or
"Notes" shall include all extensions, renewals and modifications of
the Notes and all substitutions therefor. All terms and provisions of
the Notes are hereby incorporated herein.
2.7 Interest.
2.7(a) Except as provided in Section 2.7(g), the
unpaid amount of each Warehousing Advance shall bear
interest, from the date of such Advance until paid in full,
at the Warehousing Rate.
2.7(b) Except as provided in Section 2.7(g), the
unpaid amount of each Term Loan Advance shall bear interest,
from the date of such Term Loan Advance until paid in full,
at the Term Loan Rate.
2.7(c) Except as provided in Section 2.7(g), the
unpaid amount of the Servicing Facility Advance shall bear
interest, from the date of the Servicing Facility Advance
until paid in full, at the Servicing Facility Rate.
2.7(d) The Borrowers shall be entitled to receive
certain benefits based on the average monthly Eligible
Balances of the Borrowers maintained at a Designated Bank.
For the purposes hereof, all Advances shall be called the
"Applicable Advances". After the end of each calendar month,
the Lender will calculate the interest due for the applicable
month, by electing a portion ("Balance Funded Portion") of
the Applicable Advances which is equal to the lesser of (a)
the Applicable Advances outstanding during such month or (b)
the average amount of Eligible Balances on deposit with a
Designated Bank during such month. The Balance Funded Portion
of
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the Applicable Advances shall bear interest at balance funded
rates of (1) one percent (1.00%) per annum for the Balance
Funded Portion of Warehousing Advances, (2) three and
one-half percent (3.50%) per annum for the Balance Funded
Portion of Servicing Facility Advances, and (3) three percent
(3.00%) per annum for the Balance Funded Portion of the Term
Loan Advance.
The Balance Funded Portion of the Applicable
Advances outstanding for a month shall be determined by (a)
first, deducting the average amount of the Term Loan Advance
outstanding for a month from the average amount of Eligible
Balances during such month, but only to the extent of the
average amount of Eligible Balances, (b) second, to the
extent Eligible Balances remain for such month, deducting the
average amount of the Servicing Facility Advances outstanding
for a month from the remaining average amount of Eligible
Balances during such month, but only to the extent of the
remaining average amount of Eligible Balances, and (c) third,
to the extent Eligible Balances remain for such month,
deducting the average amount of Warehousing Advances
outstanding for a month from the remaining average amount of
Eligible Balances during such month, but only to the extent
of the remaining average amount of Eligible Balances.
If, for any month, a portion of the average amount
of Eligible Balances remains ("Remainder") after the Balance
Funded Portion has been deducted, the Lender shall provide a
benefit in the form of an "Earnings Credit" on the Remainder
portion of the Eligible Balances maintained in time deposit
accounts with the Designated Bank, and the Lender shall
provide a benefit in the form of an "Earnings Allowance" on
the Remainder portion of the Eligible Balances maintained in
demand deposit accounts with the Designated Bank. Any
Earnings Allowance shall be used first and any Earnings
Credit shall be used second as a credit against accrued
Miscellaneous Charges and fees, including, but not limited to
Commitment Fees and may be used, at the Lender's option, to
reduce accrued interest. Any Earnings Allowance not used
during the month in which the benefit was received shall be
accumulated for use and must be used during the calendar year
in which the benefit was received. Any Earnings Credit not
used during the month in which the benefit was received shall
be used to provide a cash benefit to the Borrowers.
The Lender's determination of the Balance Funded
Portion, the Earnings Credit and the Earnings Allowance for
any month shall be determined by the Lender in its sole
discretion and shall be conclusive and binding
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absent manifest error. In no event shall the benefit
received by the Borrowers exceed the Depository Benefit.
Either party hereto may terminate the benefits
provided for in this Section, effective immediately upon
Notice to the other party, if the terminating party shall
have determined (which determination shall be conclusive and
binding absent manifest error) at any time that any
applicable law, rule, regulation, order or decree or any
interpretation or administration thereof by any governmental
authority charged with the interpretation or administration
thereof, or compliance by such party with any request or
directive (whether or not having the force of law) of any
such authority, shall make it unlawful or impossible for such
party to continue to offer or receive the benefits provided
for in this Section.
2.7(e) Interest shall be computed on the basis of a
360-day year and applied to the actual number of days elapsed
in each interest calculation period and shall be payable
monthly in arrears, on the first day of each month,
commencing with the first month following the Closing Date
and on the Maturity Date.
2.7(f) If, for any reason, no interest is due on an
Advance, the Borrowers agree to pay to the Lender an
administrative fee equal to one day of interest on such
Advances at a rate of one and one-half percent (1-1/2%) per
annum. Administrative and other fees shall be due and payable
in the same manner as interest is due and payable hereunder.
2.7(g) After the occurrence and during the
continuation of an Event of Default hereunder, the Lender may
give Notice to the Borrowers that the unpaid amount of each
Advance shall bear interest, until paid in full, at a rate of
interest (the "Default Rate") equal to two percent (2%) per
annum over the applicable rate provided in the applicable
subsection of this Section 2.7 or, if no rate is applicable,
the highest rate then applicable to any outstanding Advance.
2.8 Principal Payments.
2.8(a) The outstanding principal amount of
all Warehousing Advances shall be payable in full on the
Warehousing Maturity Date.
2.8(b) The outstanding principal amount of the Term
Loan Advance shall be payable in twenty (20) equal quarterly
installments, due on the first day of each Calendar Quarter
following the Closing Date. Such
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installments shall be in an amount equal to one-fortieth
(1/40) of the amount of the Term Loan Advance each. The
remaining principal balance of the Term Loan Advance shall be
payable on the Term Loan Maturity Date.
2.8(c) The outstanding principal amount of the
Servicing Facility Advances as of the Servicing Facility
Commitment Termination Date shall be payable in twenty (20)
equal quarterly installments, due on the first day of each
Calendar Quarter beginning after the Servicing Facility
Commitment Termination Date. Each such installment shall be
in an amount equal to one-twentieth (1/20) of the aggregate
outstanding principal balance of the Servicing Facility
Advances on the Servicing Facility Commitment Termination
Date. The remaining principal balance of the Servicing
Facility Advances shall be payable on the Servicing Facility
Maturity Date.
2.8(d) The Borrowers shall have the right to prepay
the outstanding Advances in whole or in part, from time to
time, without premium or penalty. All prepayments of the Term
Loan Advance, and all prepayments of the Servicing Facility
Advances made after the Servicing Facility Commitment
Termination Date, shall be applied to the installments due
thereon in the inverse order of their maturities.
2.8(e) All payments of outstanding Advances from the
proceeds of the sale or other disposition of Pledged
Mortgages and Pledged Securities shall be paid directly by
the Investor to the Cash Collateral Account to be applied
against the Obligations.
2.8(f) The Borrowers shall be obligated to pay to
the Lender, without the necessity of prior demand or notice
from the Lender, and the Borrowers authorize the Lender to
cause the Funding Bank to charge the Borrowers' account for,
the amount of any outstanding Advance against a specific
Pledged Mortgage, upon the earliest occurrence of any of the
following events:
(1) For an FHA Construction Mortgage Loan,
ninety (90) days elapse from the date of each
Advance made by the Lender against such Pledged
Mortgage, and for any other Mortgage Loan other than
a Pledged Mortgage to be exchanged for a FNMA
Mortgage-backed Security, ninety (90) days elapse
from the date of the initial Advance made by the
Lender against such Pledged Mortgage, whether or not
such Pledged Mortgage is included in an Eligible
Mortgage Pool.
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(2) For Mortgage Loans other than FNMA DUS
Mortgage Loans to be exchanged for a FNMA
Mortgage-backed Security, forty-five (45) days elapse
from the date the Pledged Mortgage was delivered to
an Investor for examination and purchase, without
the purchase being made, or upon rejection of the
Pledged Mortgage as unsatisfactory by an Investor.
(3) For FNMA DUS Mortgage Loans to be
exchanged for a FNMA Mortgage-backed Security,
seventy-five (75) days elapse from the date such
FNMA DUS Mortgage Loan was delivered to FNMA for
examination, and the issuance of a Pledged Security,
without the Pledged Security being issued, or upon
rejection of the Pledged Mortgage as unsatisfactory
by FNMA.
(4) On the date an Advance was made and the
Pledged Mortgage which was to have been funded by
such Advance is not closed and funded.
(5) For a Conventional Multi-family
Mortgage Loan, FNMA DUS Mortgage Loan, FHA Project
Mortgage Loan, HUD 241 Mortgage Loan, FHA
Construction Mortgage Loan or Conventional Health
Care Mortgage Loan, one (1) Business Day elapses
from the date an Advance was made against any
Mortgage Loan, without receipt of those Collateral
Documents relating to such Mortgage Loan required to
be delivered on such date under Exhibit
D-MF/CONV/DUS, Exhibit D-MF/FHA, or Exhibit D-MF/BER
hereto, or such Collateral Documents, upon
examination by the Lender, are found not to be in
compliance with the requirements of this Agreement
or the related Purchase Commitment.
(6) Ten (10) Business Days elapse from the
date a Collateral Document was delivered to the
Borrowers for correction or completion under a Trust
Receipt, without being returned to the Lender.
(7) Three (3) Business Days after the date
on which the Lender notifies the Borrowers that a
Pledged Mortgage is determined to have been
originated based on untrue, incomplete or inaccurate
information, whether or not the Borrowers had
knowledge of such misrepresentation or incorrect
information, or that the Pledged Mortgage is
defaulted and has remained in default for a period
of sixty (60) days or more.
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(8) On the mandatory delivery date of the
related Purchase Commitment and the specific Pledged
Mortgage was not delivered under the Purchase
Commitment prior to such mandatory delivery date or
the Purchase Commitment is terminated.
(9) Upon sale, maturity or other
disposition of the Pledged Mortgage.
(10) Payment of any Lien prior to a HUD 241
Mortgage Loan is delinquent, and remains delinquent,
for a period of sixty (60) days or more.
(11) If the Pledged Mortgage is included in
a Mortgage Pool, then if the Mortgage Pool is an
Eligible Mortgage Pool, upon sale of the
Mortgage-backed Security, or if the Mortgage Pool is
not an Eligible Mortgage Pool, upon delivery of the
Pledged Mortgage to the pool custodian.
(12) For an Advance made to Washington
against a Berkshire Loan, two (2) days elapse from
the date of the initial Advance made by the Lender
without the Pledged Security to be exchanged for a
one hundred percent (100%) participation in such
Berkshire Loan having been issued, or upon any
determination by FNMA not to purchase such one
hundred percent (100%) participation.
2.8(g) The outstanding amount of any Advance made
pursuant to Section 2.2(e) shall be payable in full within
one (1) Business Day after the date of such Advance.
2.8(h) The Borrowers shall give Notice to the Lender
(telephonically, to be followed by written notice) of the
Pledged Mortgages or Pledged Securities for which proceeds
have been received. Upon receipt of such Notice the Advances
against such Pledged Mortgages or Pledged Securities shall be
repaid and such Pledged Mortgages or Pledged Securities shall
be considered to have been redeemed from pledge. The Lender
is entitled to rely upon the Borrowers' affirmation that
deposits in the Cash Collateral Account represent payment
from Investors for the purchase of Pledged Mortgages or
Pledged Securities as specified by the Borrowers. In the
event that the payment from an Investor for the purchase of
Pledged Mortgages or Pledged Securities is less than the
outstanding Advances against such Pledged Mortgages or the
Mortgage Loans backing Pledged Securities, the Lender
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is authorized to cause the Funding Bank to charge the
Borrowers' account for an amount equal to such deficiency.
Provided no Default or Event of Default exists, the Lender
shall return any excess payment from an Investor for Pledged
Mortgages or Pledged Securities
to the Borrowers.
2.8(i) In addition to the payments required pursuant
to Section 2.8(f), the Borrowers shall be obligated to pay to
the Lender, without the necessity of prior demand or notice
from the Lender, and the Borrowers authorize the Lender to
cause the Funding Bank to charge the Borrowers' account if
the principal amount of any Pledged Mortgage is prepaid in
whole or in part while an Advance is outstanding against such
Pledged Mortgage, for the amount of such prepayment, to be
applied to such Advance.
2.8(j) If at any time the aggregate outstanding
principal balance of all Servicing Facility Advances and the
Term Loan Advance exceeds the Servicing Collateral Value, the
Borrowers shall prepay either the outstanding Term Loan
Advances or the outstanding Servicing Facility
Advances in the amount of such excess.
2.9 Expiration of Commitments. Unless extended or terminated
earlier as permitted hereunder, the Warehousing Commitment shall
expire of its own term, and without the necessity of action by the
Lender, at the close of business on the Warehousing Maturity Date. The
Term Loan Commitment shall expire of its own term, and without the
necessity of action by the Lender, at the close of business on the
Closing Date. The Servicing Facility Commitment shall expire of its
own term, and without the necessity of action by the Lender, at the
close of business on the Servicing Facility Commitment Termination
Date.
2.10 Method of Making Payments.
2.10(a) Except as otherwise specifically provided
herein, all payments hereunder shall be made to the Lender
not later than the close of business on the date when due
unless such date is a non-Business Day, in which case, such
payment shall be due on the first Business Day thereafter,
and shall be made in lawful money of the United States of
America in immediately available funds transferred via wire
to accounts designated by the Lender from time to time.
2.10(b) Upon an Event of Default, and without the
necessity of prior demand or notice from the Lender, the
Borrowers authorize the Lender to cause the Funding Bank
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to charge the Borrowers' account for any Obligations due
and owing the Lender.
2.11 Commitment Fees.
2.11(a) The Borrowers agree to pay to the Lender a
Warehousing Commitment Fee for the period from the Closing
Date until the date set forth in clause (a) of the definition
of Warehousing Maturity Date, in the amount of one-eighth
percent (1/8%) per annum of One Hundred Million Dollars
($100,000,000), which Warehousing Commitment Fee shall be
paid monthly in advance and shall be computed on the basis of
a 365-day year and applied to the actual number of days
elapsed in such calendar month. On the Closing Date, the
Borrowers shall pay the prorated portion of the monthly
Warehousing Commitment Fee due from the Closing Date to the
last day of the current calendar month. Thereafter, the
Borrowers shall make monthly payments of the Warehousing
Commitment Fee on the first (1st) day of each calendar month.
If the Warehousing Maturity Date is other than the last day
of a calendar month, the Borrowers shall pay the prorated
portion of the monthly Warehousing Commitment Fee due from
the beginning of the then current calendar month to and
including the Warehousing Maturity Date. The Borrowers shall
not be entitled to a reduction in the amount of the
Warehousing Commitment Fee in the event the Warehousing
Commitment Amount is reduced or in the event that the
Warehousing Commitment is terminated at the request of the
Borrowers or as a result of an Event of Default. If the
Warehousing Commitment terminates at the request of the
Borrowers or as a result of an Event of Default, the unpaid
balance of the Warehousing Commitment Fee shall be due and
payable in full on the date of such termination.
2.11(b) The Borrowers agree to pay to the Lender a
Term Loan Commitment Fee for the period from the Closing Date
until the Term Loan Maturity Date, in the amount of (i) on
the Closing Date, one-fifth percent (1/5%) per annum of the
Term Loan Commitment Amount for the period from the Closing
Date until the end of the then-current month, and (ii) on the
first day of each month thereafter, one-fifth (1/5%) per
annum of the outstanding principal balance of the Term Loan
on such date, which Term Loan Commitment Fee shall be paid
monthly in advance and shall be computed on the basis of a
365-day year and applied to the actual number of days elapsed
in such month. If the Term Loan Maturity Date is other than
the last day of a month, the Borrowers shall pay the prorated
portion of the quarterly Term Loan Commitment Fee due from
the beginning of the then current
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month to and including the Term Loan Maturity Date. The
Borrowers shall not be entitled to a refund of any portion of
the Term Loan Commitment Fee previously paid in the event the
Term Loan Advance is prepaid, either voluntarily by the
Borrowers or as a result of an Event of Default.
2.11(c) The Borrowers agree to pay to the Lender a
Servicing Facility Commitment Fee for the period from the
Closing Date until the later to occur of (i) the date set
forth in clause (a) of the definition of Servicing Facility
Commitment Termination Date or (ii) the Servicing Facility
Maturity Date, in the amount of one-fifth percent (1/5%) per
annum of (i) from the Closing Date until the end of the month
in which the Servicing Facility Commitment Termination Date
occurs, the Servicing Facility Commitment Amount, and (ii)
thereafter, the aggregate outstanding principal balance of
the Servicing Facility Advances as of the first day of each
month, which Servicing Facility Commitment Fee may be paid
quarterly in advance and shall be computed on the basis of a
365-day year and applied to the actual number of days elapsed
in such month. On the Closing Date, the Borrowers shall pay
the prorated portion of the monthly Servicing Facility
Commitment Fee due from the Closing Date to the last day of
the current month. Thereafter, the Borrowers shall make
monthly payments of the Servicing Facility Commitment Fee on
the first (1st) day of each month. If the Servicing Facility
Maturity Date is other than the last day of a month, the
Borrowers shall pay the prorated portion of the quarterly
Servicing Facility Commitment Fee due from the beginning of
the then current month to and including the Servicing
Facility Maturity Date. The Borrowers shall not be entitled
to a reduction in the amount of the Servicing Facility
Commitment Fee, in the event the Servicing Facility
Commitment Amount is reduced or in the event that the
Servicing Facility Commitment is terminated at the request of
the Borrowers or as a result of an Event of Default or in the
event the Servicing Facility Advances are prepaid after the
Servicing Facility Commitment Termination Date, either
voluntarily by the Borrowers or as a result of an Event of
Default. If the Servicing Facility Commitment terminates at
the request of the Borrowers or as a result of an Event of
Default, or if the Servicing Facility Advances are prepaid
after the Servicing Facility Commitment Termination Date,
either voluntarily by the Borrowers or as a result of an
Event of Default, the unpaid balance of the Servicing
Facility Commitment Fee shall be due and payable in full on
the date of such termination.
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2.12 Miscellaneous Charges. The Borrowers agree to reimburse
the Lender for miscellaneous charges and expenses (collectively,
"Miscellaneous Charges") incurred by or on behalf of the Lender in
connection with the handling and administration of Advances, and to
reimburse the Lender for Miscellaneous Charges incurred by or on
behalf of the Lender in connection with the handling and
administration of the Collateral. For the purposes hereof,
Miscellaneous Charges shall include, but not be limited to, charges
for wire transfers, charges for security delivery fees, charges for
overnight delivery of Collateral to Investors, Funding Bank's service
charges and Designated Bank's service charges. Miscellaneous Charges
are due when incurred, but shall not be delinquent if paid within
fifteen (15) days after receipt of an invoice or an account analysis
statement from the Lender.
2.13 Interest Limitation. All agreements between the
Borrowers and the Lender are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of
maturity of this Agreement or the Notes or otherwise, shall the amount
paid or agreed to be paid to the Lender for the use, forbearance,
loaning or retention of the Advances secured by this Agreement exceed
the maximum permissible under applicable law. If from any
circumstances whatsoever, fulfillment of any provisions hereof or of
the Notes, or any other document securing this Agreement at any time
given shall involve transcending the limit of validity prescribed by
law, then, the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances
the Lender should ever receive as interest an amount which would
exceed the highest lawful rate of interest, such amount which would be
in excess of interest shall be applied to the reduction of the
principal balance secured by the Notes and not to the payment of
interest thereunder. This provision shall control every other
provision of all agreements between the Borrowers and Lender and shall
also be binding upon and available to any subsequent holder of the
Notes.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the payment
of the Notes and for the performance of all of the Borrowers'
Obligations, the Borrowers hereby assign and transfer to the Lender
all right, title and interest in and to and grants a security interest
to the Lender in the following described property (the "Collateral"):
3.1(a) All Mortgage Loans, including all Mortgage
Notes and Mortgages evidencing or securing such Mortgage
Loans, which from time to time are delivered or caused to be
delivered to the Lender (including delivery to a third
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party on behalf of the Lender), come into the possession,
custody or control of the Lender for the purpose of
assignment or pledge or in respect of which an Advance has
been made by the Lender hereunder and, with respect to the
Berkshire Loans, the Berkshire Master Notes and all of
Washington's right, title and interest in and to the
Berkshire Master Agreement and the "Loan Documents" (as
defined therein) (the "Pledged Mortgages").
3.1(b) All Mortgage-backed Securities and
Participation Certificates which are from time to time
created in whole or in part on the basis of the Pledged
Mortgages or are delivered or caused to be delivered to, or
are otherwise in the possession of the Lender, or its agent,
bailee or custodian as assignee, or pledged to the Lender, or
for such purpose are registered by book-entry in the name of,
the Lender (including delivery to or registration in the name
of a third party on behalf of the Lender) hereunder or in
respect of which from time to time an Advance has been made
by the Lender hereunder (the "Pledged Securities").
3.1(c) All commitments issued by the FHA to insure
any Mortgage Loans included in the Pledged Mortgages; all
guaranties related to Pledged Securities; all Purchase
Commitments held by the Borrowers covering the Pledged
Mortgages or the Pledged Securities and all proceeds
resulting from the sale thereof to Investors pursuant
thereto; and all personal property, contract rights,
servicing and servicing fees and income or other proceeds,
amounts and payments payable to the Borrowers as compensation
or reimbursement, accounts and general intangibles of
whatsoever kind relating to the Pledged Mortgages, the
Pledged Securities, said FHA commitments and the Purchase
Commitments, and all other documents or instruments relating
to the Pledged Mortgages and the Pledged Securities,
including, without limitation, any interest of the Borrowers
in any fire, casualty or hazard insurance policies and any
awards made by any public body or decreed by any court of
competent jurisdiction for a taking or for degradation of
value in any eminent domain proceeding as the same relate to
the Pledged Mortgages.
3.1(d) All Nonrecourse Servicing Contracts now
owned or hereafter created or acquired by the Borrowers.
3.1(e) All rights of the Borrowers to receive
payments under or by virtue of the Servicing Contracts
described in Section 3.1(d) and the Acknowledgement
Agreements, whether as servicing fees, servicing income,
damages, amounts payable upon the cancellation or
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termination of any such Servicing Contract, interests on
the foregoing, or otherwise.
3.1(f) Any agreement pursuant to which any Servicing
Contract described in Section 3.1(d) or the stock of any
Subsidiary that owned (at the time of acquisition or at any
time thereafter) or owns any such Servicing Contract was
acquired or is sold by the Borrowers, and all documents
executed or delivered in connection with any such acquisition
or sale.
3.1(g) All right, title and interest of the
Borrowers in and to all escrow accounts, documents,
instruments, files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards,
accounting records (including all information, records,
tapes, data, programs, discs and cards necessary or helpful
in the administration or servicing of the Collateral) and
other information and data of the Borrowers relating to the
Collateral.
3.1(h) All now existing or hereafter acquired cash
delivered to or otherwise in the possession of the Lender or
its agent, bailee or custodian or designated on the books and
records of the Borrowers as assigned and pledged to the
Lender.
3.1(i) All cash and non-cash proceeds of the
Collateral, including all dividends, distributions and other
rights in connection with, and all additions to,
modifications of and replacements for, the Collateral, and
all products and proceeds of the Collateral, together with
whatever is receivable or received when the Collateral or
proceeds thereof are sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or
involuntary, including, without limitation, all rights to
payment with respect to any cause of action affecting or
relating to the Collateral or proceeds thereof.
The grant of the security interest under Sections 3.1(d) and 3.1(e)
above is subject and subordinate to the rights of FNMA, FHLMC or GNMA,
as applicable, in and to any Servicing Contracts to which FNMA, FHLMC
or GNMA is a party. The Lender acknowledges that (i) each Borrower is
entitled to servicing income with respect to a given Mortgage Pool
only as long as such Borrower is an issuer in good standing, (ii) upon
either Borrower's loss of issuer status, the Lender's rights to
servicing income related to the affected Mortgage Pool(s) also
terminate, and (iii) the pledge of rights to servicing income conveys
no rights (such as the right to become a substitute
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servicer or issuer) that are not otherwise specifically provided for
in the applicable GNMA or Investor guide.
3.2 Release of Security Interest in Collateral.
3.2(a) Pledged Mortgages shall be released from the
Lender's security interest only against payment to the Lender
of the Release Amount in connection with such Pledged
Mortgages.
3.2(b) If Pledged Mortgages are to be transferred to
a pool custodian or to FHLMC or FNMA for inclusion in a
Mortgage Pool, the Lender's security interest in such Pledged
Mortgages shall be released only against payment to the
Lender of the Release Amount in connection with such Pledged
Mortgages. If the Lender's security interest in the Pledged
Mortgages comprising the Mortgage Pool is not released prior
to the issuance of the Mortgage-backed Security or
Participation Certificate, then the Mortgage-backed Security
or Participation Certificate, when issued, shall be a Pledged
Security. The Lender's security interest shall continue in
such Pledged Mortgages and the Pledged Security. The Lender
shall be entitled to possession of such Pledged Security in
the manner provided below.
3.2(c) If Pledged Mortgages are transferred to an
Approved Custodian and included in an Eligible Mortgage Pool,
the Lender's security interest in the Pledged Mortgages
comprising the Eligible Mortgage Pool shall be released upon
the issuance of the Mortgage-backed Security, which shall be
a Pledged Security. The Lender's security interest in such
Pledged Security shall be released only against payment to
the Lender of the Release Amount in connection with the
Pledged Mortgages backing such Pledged Security. The Lender
shall be entitled to possession of such Pledged Security in
the manner provided below.
3.2(d) The Lender shall have the exclusive right to
the possession of the Pledged Securities or, if the Pledged
Securities are not to be issued in certificated form or are
to be issued in certificated form and registered exclusively
in the name of, and held by, a clearing agency or its
nominee, shall have the right to have the book entries for
the Pledged Securities issued in the Lender's name or the
name or names of its designees, and the Lender shall have the
right to cause delivery of the Pledged Securities to be made
to the Investor or the book entries registered in the name of
the Investor or the Investor's designee only against payment
therefor. The Borrowers acknowledge that the
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Lender may enter into one or more standing arrangements with
other financial institutions for the issuance of Pledged
Securities in book entry form in the name of such other
financial institutions, as agent or financial intermediary
for the Lender, and the Borrowers agree upon request of the
Lender, to execute and deliver to such other financial
institutions the Borrowers' written concurrence in any such
standing arrangements.
3.2(e) Prior to the occurrence of an Event of
Default, the Borrowers may redeem a Pledged Mortgage or
Pledged Security from the Lender's security interest by
notifying the Lender of its intention to redeem such Pledged
Mortgage or Pledged Security from pledge and either (a)
paying, or causing an Investor to pay, to the Lender, for
application to prepayment of the principal balance of the
Notes, the Release Amount in connection with such Pledged
Mortgage or Pledged Security, or (b) delivering substitute
Collateral which, in addition to being acceptable to the
Lender in its sole discretion will, when included with the
Collateral, result in a Collateral Value of all Collateral
held by the Lender which is at least equal to the aggregate
outstanding Advances.
3.2(f) Following the occurrence of a Default or
Event of Default, the Lender may, with no liability to the
Borrowers or any Person, continue to release its security
interest in any Pledged Mortgage or Pledged Security against
payment of the Release Amount in connection with such Pledged
Mortgage or Pledged Security.
3.2(g) The Release Amount in connection with any
Pledged Mortgage shall be (i) prior to the occurrence of an
Event of Default, the principal amount of the Advances made
against such Pledged Mortgage, and (ii) from and after the
occurrence and during the continuance of an Event of Default,
the Committed Purchase Price of such Pledged Mortgage or, if
there is no Purchase Commitment therefor, the amount paid to
the Lender in a commercially reasonable disposition thereof.
3.3 Delivery of Additional Collateral or Mandatory
Prepayment. At any time that the aggregate Collateral Value of the
Pledged Mortgages and Pledged Securities then pledged hereunder is
less than the aggregate amount of the Warehousing Advances then
outstanding hereunder, the Lender may request, and the Borrowers shall
within two (2) Business Days after Notice by the Lender (a) deliver to
the Lender for pledge hereunder additional Mortgage Loans and/or cash,
with a Collateral Value sufficient to cover the difference between
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the Collateral Value of the Pledged Mortgages and Pledged Securities
pledged and the aggregate amount of Warehousing Advances outstanding
hereunder, and/or (b) repay the Warehousing Advances in an amount
sufficient to reduce the aggregate balance thereof outstanding to or
below the Collateral Value of the Pledged Mortgages and Pledged
Securities pledged hereunder.
3.4 Collection and Servicing Rights. So long as no Event of
Default shall have occurred and be continuing, the Borrowers shall be
entitled to service and receive and collect directly all sums payable
to the Borrowers in respect of the Collateral other than proceeds of
any Purchase Commitment or proceeds of the sale of any Collateral.
Following the occurrence of any Event of Default, the Lender or its
designee shall thereafter be entitled to service and receive and
collect all sums payable to the Borrowers in respect of the
Collateral, and in such case (a) the Lender or its designee in its
discretion may, in its own name, in the name of the Borrowers or
otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so, (b) the
Borrowers shall, if the Lender so requests, hold in trust for the
benefit of the Lender and forthwith pay to the Lender at its office
designated by Notice hereunder, all amounts thereafter received by the
Borrowers upon or in respect of any of the Collateral, advising the
Lender as to the source of such funds, and (c) all amounts so received
and collected by the Lender shall be held by it as part of the
Collateral.
3.5 Return of Collateral at End of Commitment. If (a) the
Commitments shall have expired or been terminated, and (b) no
Advances, interest or other Obligations evidenced by the Notes or
payable under the Loan Documents shall be outstanding and unpaid, the
Lender shall release its security interest in the Collateral, and
deliver all Collateral in its possession to the Borrowers, in each
case at the Borrowers expense. The receipt of the Borrowers for any
Collateral released or delivered to the Borrowers pursuant to any
provision of this Agreement shall be a complete and full acquittance
for the Collateral so returned, and the Lender shall thereafter be
discharged from any liability or responsibility therefor.
3.6 Release of Collateral.
3.6(a) The Lender may deliver documents
relating to the Collateral to the Borrowers for correction or
completion pursuant to a Trust Receipt.
3.6(b) Prior to the occurrence of a Default
or Event of Default, upon delivery by the Borrowers to the
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Lender of shipping instructions pursuant to Exhibit
DMF/CONV/DUS, Exhibit D-MF/FHA or Exhibit D-MF/BER, the
Lender will transmit Pledged Mortgages or Pledged Securities
and all related loan documents or pool documents to the
applicable Investor, Approved Custodian
or other party.
3.6(c) Upon receipt of Notice from the Borrowers
under Section 2.8(h) hereof, and repayment of the Release
Amount with respect to a Pledged Mortgage identified by the
Borrowers, any Collateral Documents relating to the redeemed
Pledged Mortgage or Mortgage Loan backing a Pledged Security
which have not been delivered to an Investor or Approved
Custodian shall be released by the Lender to or at the
direction of the Borrowers.
4. CONDITIONS PRECEDENT.
4.1 Initial Advance. The obligation of the Lender to
make the initial Advance under this Agreement is subject to
the satisfaction, in the sole discretion of the Lender, on or
before the date thereof of the following conditions precedent:
4.1(a) The Lender shall have received the following,
all of which must be satisfactory in form and content to the
Lender, in its sole discretion:
(1) The Notes and this Agreement duly
executed by the Borrowers.
(2) The Borrowers' articles of
incorporation as certified by the Secretary of State
of Delaware and a copy of the Borrowers' bylaws
certified by the corporate secretary of the
Borrowers, or a Certificate of the Borrowers stating
that there has been no change in either the articles
of incorporation or bylaws since those most recently
delivered in connection with the Existing
Warehousing Agreement or the Existing Term
Agreement, and certificates of good standing dated
no less recently than ninety (90) days prior to the
date of this Agreement.
(3) Resolutions of the board of directors
of the Borrowers, certified as of the date of this
Agreement by their corporate secretary, authorizing
the execution, delivery and performance of this
Agreement and the other Loan Documents, and all
other instruments or documents to be delivered by
the Borrowers pursuant to this Agreement.
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(4) A certificate of the Borrowers'
corporate secretary as to the incumbency and
authenticity of the signatures of the officers of
the Borrowers executing this Agreement and the other
Loan Documents and each Advance Request and all
other instruments or documents to be delivered
pursuant hereto (the Lender being entitled to rely
thereon until a new such certificate has been
furnished to the Lender).
(5) Financial statements of Washington and
its Subsidiaries, on a consolidated basis,
containing a balance sheet as of December 31, 1995,
and related statements of income, changes in
stockholders' equity and cash flows for the period
ended on such date, all prepared in accordance with
GAAP applied on a basis consistent with prior
periods and audited by independent certified public
accountants of recognized standing acceptable to the
Lender.
(6) Financial statements of Washington and
its Subsidiaries, on a consolidated basis,
containing a balance sheet as of March 31, 1996,
related statements of income and changes in
stockholders' equity for the period ended on such
date prepared in accordance with GAAP applied on a
basis consistent with Washington's most recent
audited financial statements.
(7) A favorable written opinion of counsel
to the Borrowers, dated as of the date of this
Agreement substantially in the form of Exhibit H
attached hereto, addressed to the Lender.
(8) Uniform Commercial Code, tax lien and
judgment searches of the appropriate public records
in the States of California, Delaware, New Jersey
and Virginia for the Borrowers, which search shall
not have disclosed the existence of any prior Lien
on the Collateral other than in favor of the Lender
or as permitted hereunder.
(9) An executed copy of the Berkshire
Master Agreement.
(10) Executed copies of the Berkshire
Master Notes.
(11) An executed copy of the FNMA Special
Pool Purchase Contract related thereto.
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(12) An executed original of a bailee
agreement with respect to the Berkshire Master Notes
among Washington, the Lender and FNMA, in form and
substance satisfaction to the Lender.
(13) Copies of the certificates, documents
or other written instruments which evidence the
Borrowers' eligibility described in Section 5.13
hereof, all in form and substance satisfactory to
the Lender.
(14) Copies of the Borrowers' errors and
omissions insurance policy or mortgage impairment
insurance policy, and blanket bond coverage policy,
or certificates in lieu of policies, all in form and
content satisfactory to the Lender, showing
compliance by the Borrowers as of the date of this
Agreement with the related provisions of Section
6.8 hereof.
(15) Executed financing statements in
recordable form covering the Collateral and ready
for filing in all jurisdictions required by the
Lender.
(16) Receipt by the Lender of any fees due
on the date hereof, including, but not limited to,
Commitment Fees and document production fees.
(17) Evidence that all accounts necessary
into which Advances will be funded have been
established at the Funding Bank and receipt of a
fully executed Funding Bank Agreement.
4.1(b) All directors, officers and shareholders of
the Borrowers, all Affiliates of the Borrowers or of any
Subsidiary of the Borrowers, to whom or to any of whom the
Borrowers shall be indebted as of the date of this Agreement,
which indebtedness has a term of more than one (1) year or is
in excess of Five Hundred Thousand Dollars ($500,000) shall
have subordinated such indebtedness to the Obligations, by
executing a Subordination of Debt Agreement, in the form of
Exhibit F hereto; and the Lender shall have received an
executed copy of any such Subordination of Debt Agreement,
certified by the corporate secretary of the Borrowers to be
true and complete and in full force and effect as of the date
of the Advance.
4.2 Each Advance. The obligation of the Lender to make
the initial and each subsequent Advance under this Agreement
is subject to the satisfaction, in the sole discretion of the
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Lender, as of the date of each such Advance, of the following
additional conditions precedent:
4.2(a) The Borrowers shall have delivered to the
Lender the Advance Request and Collateral Documents, called
for under, and shall have satisfied the procedures set forth
in, Section 2.2 hereof and the applicable Exhibits hereto
described in that Section, according to the requested
Advance. All items delivered to the Lender shall be
satisfactory to the Lender in form and content, and the
Lender may reject such of them as do not meet the
requirements of this Agreement or of the related Purchase
Commitment.
4.2(b) The Lender shall have received evidence
satisfactory to it as to the making and/or continuation of
any book entry or the due filing and recording in all
appropriate offices of all financing statements and other
instruments as may be necessary to perfect the security
interest of the Lender in the Collateral under the Uniform
Commercial Code of Minnesota or other applicable law.
4.2(c) The representations and warranties of the
Borrowers contained in Article 5 hereof shall be accurate and
complete in all material respects as if made on and as of the
date of each Advance.
4.2(d) The Borrowers shall have performed all
agreements to be performed by it hereunder, and after giving
effect to the requested Advance, there shall exist no Default
or Event of Default hereunder.
4.2(e) The Borrowers shall not have incurred any
material liabilities, direct or contingent, other than in the
ordinary course of its business, since the Statement Date.
4.2(f) The Lender shall have received from counsel
for the Borrowers, if requested by the Lender in its sole
discretion, an updated opinion, in form and substance
satisfactory to the Lender, addressed to the Lender and dated
as of the date of such Advance, covering such of the matters
as the Lender may reasonably request.
Delivery of an Advance Request by the Borrowers shall be
deemed a representation by the Borrowers that all conditions set forth
in this Section 4.2 shall have been satisfied as of the date of such
Advance.
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5. REPRESENTATIONS AND WARRANTIES.
The Borrowers hereby represents and warrants to the Lender,
as of the date of this Agreement and as of the date of each Advance
Request and the making of each Advance, that:
5.1 Organization; Good Standing; Subsidiaries. Each of the
Borrowers and each Subsidiary of the Borrowers is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the full legal power and
authority to own its property and to carry on its business as
currently conducted and is duly qualified as a foreign corporation to
do business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary, except
in jurisdictions, if any, where a failure to be in good standing has
no material adverse effect on the business, operations, assets or
financial condition of the Borrowers or any such Subsidiary. For the
purposes hereof, good standing shall include qualification for any and
all licenses and payment of any and all taxes required in the
jurisdiction of its incorporation and in each jurisdiction in which
the Borrowers transact business. The Borrowers have no Subsidiaries
except as set forth on Exhibit G hereto. Exhibit G sets forth with
respect to each such Subsidiary, its name, address, place of
incorporation, each state in which it is qualified as a foreign
corporation, and the percentage ownership of its capital stock by the
Borrowers.
5.2 Authorization and Enforceability. The Borrowers have the
power and authority to execute, deliver and perform this Agreement,
the Notes and all other Loan Documents to which the Borrowers are
party and to make the borrowings hereunder. The execution, delivery
and performance by the Borrowers of this Agreement, the Notes and all
other Loan Documents to which the Borrowers are party and the making
of the borrowings hereunder and thereunder, have been duly and validly
authorized by all necessary corporate action on the part of the
Borrowers (none of which actions has been modified or rescinded, and
all of which actions are in full force and effect) and do not and will
not conflict with or violate any provision of law, of any judgments
binding upon the Borrowers, or of the articles of incorporation or
by-laws of the Borrowers, conflict with or result in a breach of or
constitute a default or require any consent under, or result in the
creation of any Lien upon any property or assets of the Borrowers
other than the Lien on the Collateral granted hereunder, or result in
or require the acceleration of any indebtedness of the Borrowers
pursuant to any agreement, instrument or indenture to which the
Borrowers are a party or by which the Borrowers or their property may
be bound or affected. This Agreement, the Notes and all other Loan
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<PAGE> 52
Documents contemplated hereby or thereby constitute legal, valid, and
binding obligations of the Borrowers, enforceable in accordance with
their respective terms, except as limited by bankruptcy, insolvency or
other such laws affecting the enforcement of creditors' rights.
5.3 Approvals. The execution and delivery of this Agreement,
the Notes and all other Loan Documents and the performance of the
Borrowers' obligations hereunder and thereunder and the validity and
enforceability hereof and thereof do not require any license, consent,
approval or other action of any state or federal agency or
governmental or regulatory authority other than those which have been
obtained and remain in full force and effect.
5.4 Financial Condition. The balance sheet of Washington and
its Subsidiaries, on a consolidated basis, as at the Statement Date,
and the related statements of income and changes in stockholders'
equity for the fiscal period ended on the Statement Date, heretofore
furnished to the Lender, fairly present the financial condition of
Washington and its Subsidiaries as at the Statement Date and the
results of its operations for the fiscal period ended on the Statement
Date. The Borrowers have, on the Statement Date, no known material
liabilities, direct or indirect, fixed or contingent, matured or
unmatured, or liabilities for taxes, long-term leases or unusual
forward or long-term commitments not disclosed by, or reserved against
in, said balance sheet and related statements, and at the present time
there are no material unrealized or anticipated losses from any loans,
advances or other commitments of the Borrowers except as heretofore
disclosed to the Lender in writing. Said financial statements were
prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved. Since the Statement Date, there has
been no material adverse change in the business, operations, assets or
financial condition of the Borrowers (and their Subsidiaries), nor is
the Borrowers aware of any state of facts which (with or without
notice or lapse of time or both) would or could result in any such
material adverse change.
5.5 Litigation. There are no actions, claims, suits or
proceedings pending or, to the knowledge of the Borrowers, threatened
or reasonably anticipated against or affecting the Borrowers or any
Subsidiary of the Borrowers in any court or before any arbitrator or
before any government commission, board, bureau or other
administrative agency which, if adversely determined, may reasonably
be expected to result in any material and adverse change in the
business, operations, assets or financial condition of the Borrowers
as a whole, or which would affect the validity or enforceability of
this Agreement, the Notes or any other Loan Document.
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5.6 Compliance with Laws. Neither the Borrowers nor any
Subsidiary of the Borrowers are in violation of any provision of any
law, or of any judgment, award, rule, regulation, order, decree, writ
or injunction of any court or public regulatory body or authority
which might have a material adverse effect on the business,
operations, assets or financial condition of the Borrowers as a whole
or which would affect the validity or enforceability of this
Agreement, the Notes or any other Loan Document.
5.7 Regulations G and U. The Borrowers are not engaged
principally, or as one of their important activities, in the business
of extending credit for the purpose of purchasing or carrying Margin
Stock, and no part of the proceeds of any Advances made hereunder will
be used to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock.
5.8 Investment Company Act. Neither of the Borrowers is
an "investment company" or controlled by an "investment
company" within the meaning of the Investment Company Act of
1940, as amended.
5.9 Payment of Taxes. The Borrowers and each of their
Subsidiaries has filed or caused to be filed all federal, state and
local income, excise, property and other tax returns with respect to
the operations of the Borrowers and their Subsidiaries which are
required to be filed, all such returns are true and correct, and the
Borrowers and each of their Subsidiaries has paid or caused to be paid
all taxes as shown on such returns or on any assessment, to the extent
that such taxes have become due, including, but not limited to, all
FICA payments and withholding taxes, if appropriate; provided, that
with respect to Huntoon such representations are limited to periods
ending after September 11, 1991. The amounts reserved, as a liability
for income and other taxes payable, in the financial statements
described in Section 5.4 hereof are sufficient for payment of all
unpaid federal, state and local income, excise, property and other
taxes, whether or not disputed, of the Borrowers and their Subsidiaries
accrued for or applicable to the period and on the dates of such
financial statements and all years and periods prior thereto and for
which either Borrower or any of their Subsidiaries may be liable in
its own right or as transferee of the assets of, or as successor to,
any other Person.
5.10 Agreements. Neither of the Borrowers nor any
Subsidiary of the Borrowers is a party to any agreement,
instrument or indenture or subject to any restriction
materially and adversely affecting its business, operations,
assets or financial condition, except as disclosed in the
financial statements described in Section 5.4 hereof. Neither
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of the Borrowers nor any Subsidiary of the Borrowers is in default in
the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement, instrument, or
indenture which default could have a material adverse effect on the
business, operations, properties or financial condition of the
Borrowers as a whole. No holder of any indebtedness of either of the
Borrowers or of any of their Subsidiaries has given notice of any
asserted default thereunder, and no liquidation or dissolution of
either of the Borrowers or of any of their Subsidiaries and no
receivership, insolvency, bankruptcy, reorganization or other similar
proceedings relative to either of the Borrowers or of any of their
Subsidiaries or any of its properties is pending, or to the knowledge
of the Borrowers, threatened.
5.11 Title to Properties. Each of the Borrowers and each
Subsidiary of the Borrowers has good, valid, insurable (in the case of
real property) and marketable title to all of its properties and
assets (whether real or personal, tangible or intangible) reflected on
the financial statements described in Section 5.4 hereof, except for
such properties and assets as have been disposed of since the date of
such financial statements as no longer used or useful in the conduct
of its business or as have been disposed of in the ordinary course of
business, and all such properties and assets are free and clear of all
Liens except as disclosed in such financial statements.
5.12 ERISA. All plans ("Plans") of a type described in
Section 3(3) of ERISA in respect of which either of the Borrowers or
any Subsidiary of the Borrowers is an "Employer," as defined in
Section 3(5) of ERISA, are in substantial compliance with ERISA, and
none of such Plans is insolvent or in reorganization, has an
accumulated or waived funding deficiency within the meaning of Section
412 of the Internal Revenue Code, and neither of the Borrowers nor any
Subsidiary of the Borrowers has incurred any material liability
(including any material contingent liability) to or on account of any
such Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of
ERISA; and no proceedings have been instituted to terminate any such
Plan, and no condition exists which presents a material risk to either
of the Borrowers or a Subsidiary of the Borrowers of incurring a
liability to or on account of any such Plan pursuant to any of the
foregoing Sections of ERISA. No Plan or trust forming a part thereof
has been terminated since September 1, 1974.
5.13 Eligibility. The Borrowers are approved and qualified
and in good standing as a lender or seller/servicer, as set forth
below, and meet all requirements applicable to its status as such:
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5.13(a) Washington and Huntoon are FHA approved
mortgagees, eligible to originate, purchase, hold, sell and
service FHA fully insured Mortgage Loans.
5.13(b) Huntoon is a GNMA approved seller/
servicer of Mortgage Loans and issuer of Mortgage-backed
Securities guaranteed by GNMA.
5.13(c) Washington and Huntoon are FNMA approved
seller/servicers of Mortgage Loans, eligible to originate,
purchase, hold, sell and service Mortgage Loans to be sold to
FNMA.
5.13(d) Washington is a FNMA approved and qualified
Delegated Underwriting and Servicing Lender, eligible to
process, underwrite, hold, sell to FNMA and service FNMA
Mortgage Loans under the DUS Program.
5.13(e) Huntoon and Washington are FHLMC approved
seller/servicers of Mortgage Loans, eligible to originate,
purchase, hold, sell and service Mortgage Loans to be sold to
FHLMC.
5.14 Place of Business. The chief executive office and
principal place of business of Washington is 1593 Spring Hill Road,
Suite 400, Vienna, VA 22182. The chief executive office and principal
place of business of Huntoon is 379 Thornall Street, Edison, New Jersey
08837.
5.15 Special Representations Concerning Warehousing
Collateral. The Borrowers hereby represent and warrant to the
Lender, as of the date of this Agreement and as of the date of
each Advance Request and the making of each Advance, that:
5.15(a) The applicable Borrower is the legal and
equitable owner and holder, free and clear of all Liens
(other than Liens granted hereunder), of the Pledged
Mortgages and the Pledged Securities. All Pledged Mortgages,
Pledged Securities and Purchase Commitments have been duly
authorized and validly issued to the Borrower, and all of the
foregoing items of Collateral comply with all of the
requirements of this Agreement, and have been and will
continue to be validly pledged or assigned to the Lender,
subject to no other Liens.
5.15(b) Each Borrower has, and will continue to
have, the full right, power and authority to pledge the
Collateral pledged and to be pledged by it hereunder.
5.15(c) Any Mortgage Loan and any related document
included in the Pledged Mortgages (1) has been duly executed
and delivered by the parties thereto at a
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closing held not more than thirty (30) days prior to the date
of the initial Advance Request for such Mortgage Loan, except
with respect to an Advance Request for a Berkshire Advance,
(2) has been made in compliance with all requirements of the
Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, the federal Truth-In-Lending Act and all
other applicable laws and regulations, (3) is and will
continue to be valid and enforceable in accordance with its
terms, without defense or offset, (4) has not been modified
or amended except in writing, which writing is part of the
Collateral Documents, nor any requirements thereof waived,
(5) has been evaluated or appraised in accordance with Title
XI of FIRREA, and (6) complies and will continue to comply
with the terms of this Agreement and, if applicable, with the
related Purchase Commitment held by the Borrowers. Except for
FHA Construction Mortgage Loans and the Berkshire Master
Notes, each Mortgage Loan has been fully advanced in the face
amount thereof. Each First Mortgage is a first Lien on the
premises described therein and each Second Mortgage is
secured by a second Lien on the premises described therein,
and has or will have a title insurance policy, in American
Land Title Association form or equivalent thereof, from a
recognized title insurance company, insuring the priority of
the Lien of the Mortgage and meeting the usual requirements
of Investors purchasing such Mortgage Loans.
5.15(d) No default has occurred and is continuing
for more than sixty (60) days under any Mortgage Loan
included in the Pledged Mortgages without the Advance against
such Pledged Mortgage having been repaid in accordance with
Section 2.8(f)(7) hereof, provided, however, that with
respect to Pledged Mortgages which have already been pledged
as Collateral hereunder, if any default has occurred, the
Borrowers will promptly notify the Lender.
5.15(e) The Borrowers have complied and will
continue to comply with all laws, rules and regulations in
respect of the FHA insurance of each Mortgage Loan included
in the Pledged Mortgages designated by either Borrower as an
FHA insured Mortgage Loan, and such insurance is and will
continue to be in full force and effect.
5.15(f) All fire and casualty policies covering the
premises encumbered by each Mortgage included in the Pledged
Mortgages (1) name and will continue to name the applicable
Borrower and its successors and assigns as the insured under
a standard mortgagee clause, (2) are and will continue to be
in full force and effect, and (3)
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afford and will continue to afford insurance against fire and
such other risks as are usually insured against in the broad
form of extended coverage insurance from time to time
available.
5.15(g) Pledged Mortgages secured by premises
located in a special flood hazard area designated as such by
the Director of the Federal Emergency Management Agency are
and shall continue to be covered by special flood insurance
under the National Flood Insurance Program.
5.15(h) Each FHA insured Mortgage Loan pledged
hereunder meets all applicable governmental requirements for
such insurance. Each Pledged Mortgage, against which an
Advance is made on the basis of a Purchase Commitment, meets
all requirements of such Purchase Commitment. The Borrowers
shall assure that Pledged Mortgages which are intended to be
used in the formation of Mortgage-backed Securities shall
comply or, prior to the formation of any such Mortgage-backed
Security, shall comply with the requirements of the
governmental instrumentality, department or agency
guaranteeing such Mortgage-backed Security.
5.15(i) For Pledged Mortgages which will be used to
back GNMA Mortgage-backed Securities, the applicable Borrower
has received from GNMA a Confirmation Notice or Confirmation
Notices for Request Additional Commitment Authority and for
Request Pool Numbers, and there remains available thereunder
a commitment on the part of GNMA sufficient to permit the
issuance of GNMA Mortgage-backed Securities in an amount at
least equal to the amount of such Pledged Mortgages
designated by the Borrowers as the Mortgage Loans to be used
to back such GNMA Mortgage-backed Securities; each such
Confirmation Notice is in full force and effect; each of such
Pledged Mortgages has been assigned by the Borrowers to one
of such Pool Numbers and a portion of the available GNMA
Commitment has been allocated thereto by the Borrowers, in an
amount at least equal to such Pledged Mortgages; and each
such assignment and allocation has been reflected in the
books and records of the Borrowers.
5.15(j) At the time of any Advance to Washington
against a Berkshire Loan, (i) the Berkshire Master Agreement
and the Berkshire Master Notes are in full force and effect
and constitute the legal, valid and binding obligations of
the parties thereto, enforceable against such parties in
accordance with their terms, (ii) all of the Mortgages and
pledges of Mortgage Notes included in the "Collateral Pool"
(as defined in the
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Berkshire Master Agreement) are in full force and effect,
constitute the legal, valid and binding obligations of the
parties thereto, enforceable against such parties in
accordance with their terms, and, in the case of Mortgages,
constitute valid, perfected first priority Liens on the
underlying property, subject only to Liens specified as
exceptions in the original title insurance policy related
thereto, and in the case of pledges of Mortgage Notes,
constitute a valid, perfected first priority Lien on such
Mortgage Note, which is in turn secured by valid, perfected,
first priority Liens on the underlying property, subject only
to Liens specified in the original file policy related
thereto; and (iii) such Berkshire Loan is or was made, and
each of Washington and Berkshire LP is, in compliance with
all terms of the Berkshire Master Agreement and the FNMA
Special Pool Purchase Contract related thereto.
5.16 Servicing. Attached hereto as Exhibit E-1 is a true and
complete list of the Borrowers' Servicing Portfolio. All of the
Borrowers' Servicing Contracts are in full force and effect, and
except as otherwise indicated, are unencumbered by Liens. No default
or event which, with notice or lapse of time or both, would become a
default, exists under any such Servicing Contract.
5.17 Special Representations Concerning Servicing Collateral.
Attached hereto as Exhibit E-2 is a true and complete list of the
Borrowers' Pledged Servicing Contracts as of the date of this
Agreement. The Borrowers hereby represent and warrant to the Lender,
as of the Closing Date and as of the date of each Servicing Facility
Advance Request and the making of each Servicing Facility Advance,
that:
5.17(a) The Borrowers are the legal and equitable
owners and holders, free and clear of all Liens (other than
Liens granted hereunder), of the Servicing Contracts pledged
hereunder, and the Servicing Contracts have been and will
continue to be validly pledged or assigned to the Lender,
subject to no other Liens.
5.17(b) The Borrowers have, and will continue to
have, the full right, power and authority to pledge the
Servicing Contracts pledged and to be pledged by them
hereunder, subject to the rights of FNMA, FHLMC, GNMA or any
applicable Investor.
5.17(c) All of the servicing rights under
the Servicing Contracts pledged hereunder hereby constitute
direct servicing rights.
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5.17(d) Each Servicing Contract pledged hereunder is
in full force and effect, each Servicing Contract pledged
hereunder is legal, valid and enforceable in accordance with
its terms and no default or event which, with notice or lapse
of time or both, would become a default, exists under any
such Servicing Contract.
5.17(e) Each right to the payment of money under the
Servicing Contracts pledged hereunder is genuine and
enforceable in accordance with its terms against the parties
obligated to pay the same ("Obligor"), which terms have not
been modified or waived in any respect or to any extent.
5.17(f) To the best of the Borrowers' knowledge, the
amount represented by the Borrowers to the Lender as owing by
an obligor under each Mortgage Loan being serviced under a
Servicing Contract pledged hereunder is the correct amount
actually and unconditionally owing by such obligor.
5.17(g) To the best of the Borrowers' knowledge, no
obligor has any defense, set off, claim or counterclaim
against the Borrowers which can be asserted against the
Lender, whether in any proceeding to enforce the Lender's
rights in the related Mortgage Loan or otherwise.
5.17(h) The Borrowers have not sold, assigned or
otherwise transferred any rights associated with the Mortgage
Loans being serviced under a Servicing Contract pledged
hereunder.
5.17(i) Except for Acknowledgement Agreements, no
consent of any obligor or any other Person is required for
the grant of the security interest provided herein by the
Borrowers in any of the Collateral including, without
limitation, the Servicing Contracts pledged hereunder, or any
computer software being utilized by the Borrowers pursuant to
license, lease or otherwise, other than consents which have
been obtained, nor will any consent need to be obtained upon
the occurrence of an Event of Default for the Lender to
exercise its rights with respect to any of the Collateral
except as set forth in the Acknowledgement Agreements.
6. AFFIRMATIVE COVENANTS.
The Borrowers hereby covenant and agree that, so long as any
of the Commitments is outstanding or there remain any Obligations to
be paid or performed under this Agreement or under any other Loan
Document, the Borrowers shall:
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6.1 Payment of Notes. Punctually pay or cause to be
paid all Obligations payable hereunder and under the Notes in
accordance with the terms hereof and thereof.
6.2 Financial Statements and Other Reports. Deliver to
the Lender:
6.2(a) As soon as available and in any event within
forty-five (45) days after the end of each calendar month,
statements of income and changes in stockholders' equity of
Washington and its Subsidiaries, on a consolidated basis, for
the immediately preceding month and for the period from the
beginning of the fiscal year to the end of such calendar
month, and the related balance sheet as at the end of the
immediately preceding month, all in reasonable detail and
certified as to the fairness of presentation by the chief
financial officer of Washington, subject, however, to
year-end audit adjustments.
6.2(b) As soon as available and in any event within
ninety (90) days after the close of each fiscal year of
Washington, statements of income, changes in stockholders'
equity and cash flow of Washington and its Subsidiaries, on a
consolidated basis, for such year, and the related balance
sheet as at the end of such year (setting forth in
comparative form the corresponding figures for the preceding
fiscal year), all in reasonable detail and accompanied by an
opinion in form and substance satisfactory to the Lender and
prepared by an accounting firm reasonably satisfactory to the
Lender, or other independent certified public accountants of
recognized standing selected by Washington and acceptable to
the Lender, as to said financial statements and a certificate
signed by the chief financial officer of Washington stating
that said financial statements fairly present the financial
condition and results of operations of Washington and its
Subsidiaries as at the end of, and for, such year.
6.2(c) Together with each delivery of financial
statements required in Section 6.2 (a) for the last month of
any fiscal quarter, and each delivery of financial statements
required in Section 6.2(b), an Officer's Certificate
substantially in the form of Exhibit I-MF hereto: (1) setting
forth in reasonable detail all calculations necessary to show
that the Borrowers are in compliance with the requirements of
Sections 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12 and 7.13 hereof
as of the end of such month or year (or, if the Borrowers are
not in compliance, showing the extent of non-compliance and
specifying the period of non-compliance and what actions
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the Borrowers have taken, are taking or propose to take with
respect thereto); (2) certifying that the Borrowers were, as
of the end of the period, in compliance and in good standing
with applicable HUD, GNMA, or Investor net worth
requirements; and (3) stating that the signers have reviewed
the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail
of the transactions and conditions of the Borrowers and their
Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed
the existence during or at the end of such accounting period,
and that the signers do not have knowledge of the existence
as of the date of the Officer's Certificate, of any Default
or Event of Default or if any Default or Event of Default
existed or exists, specifying the nature and period of the
existence thereof and what action the Borrowers have taken,
are taking and propose to take with respect thereto.
6.2(d) As soon as available and in any event within
forty-five (45) days after the end of each calendar month, a
consolidated report (the "Servicing Portfolio Report") as of
the end of the calendar month detailing, as to all Mortgage
Loans the servicing rights to which are owned by the
Borrowers (specified by investor type, recourse and
non-recourse) regardless of whether such Mortgage Loans are
Pledged Mortgages and which report shall indicate Mortgage
Loans which (A) are current and in good standing, (B) are
more than 30, 60 or 90 days past due, respectively, (C) are,
for Mortgage Loans serviced with recourse, more than three
hundred sixty (360) days past due, (D) are the subject of
pending bankruptcy or foreclosure proceedings, or (E) have
been converted (through foreclosure or other proceedings in
lieu thereof) by the Borrowers into real estate owned by the
Borrowers.
6.2(e) As soon as available and in any event within
ninety (90) days after the end of each fiscal year of the
Borrowers, a consolidated report (the "Loan Production
Report") as of the end of the fiscal year, presenting the
total dollar volume and the number of Mortgage Loans
originated or purchased during the fiscal year, specified by
property type and loan type or Investor (e.g. FHA, GNMA,
FNMA, FHLMC, etc.)
6.2(f) Reports in respect of the Pledged Mortgages,
Pledged Securities and Pledged Servicing Contracts, in such
detail and at such times as the Lender in its discretion may
reasonably request at any time or from time to time.
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6.2(g) As of the last day of June and December of
each year (to be delivered with the financial statements
required under Sections 6.2(a) and (b), respectively, as of
such dates), and at any time at the request of the Lender,
obtain an Appraisal of the Pledged Servicing Contracts; if
the borrowers shall at any time fail to obtain an Appraisal
required by this Section 6.2(g), the Lender may obtain such
Appraisal, and the Borrowers shall reimburse the Lender for
its costs and expenses incurred in connection therewith.
6.2(h) As soon as available and in any event within
forty-five (45) days after the end of each calendar quarter,
a valuation of the Pledged Servicing Contracts prepared by
the Borrowers using the methodology and values used in the
most recent Appraisal thereof.
6.2(i) Copies of all regular or periodic financial
and other reports, if any, which the Borrowers shall file
with the Securities and Exchange Commission or any
governmental agency successor thereto and copies of any
audits completed by HUD, GNMA, FNMA or FHLMC. Copies of the
Mortgage Bankers' Financial Reporting Forms (FHLMC Form
1055/FNMA Form 1002) which the Borrowers shall have filed
with FNMA or FHLMC, in such detail and at such times as the
Lender in its direction may request at any time and from time
to time.
6.2(j) From time to time, with reasonable
promptness, such further information regarding the business,
operations, properties or financial condition of the
Borrowers as the Lender may reasonably request.
6.3 Maintenance of Existence; Conduct of Business. Preserve
and maintain their corporate existence in good standing and all of
their rights, privileges, licenses and franchises necessary or
desirable in the normal conduct of their business, including, without
limitation, their eligibility as lender, seller/servicer and issuer
described under Section 5.13 hereof; conduct their businesses in an
orderly and efficient manner; maintain a net worth of acceptable
assets as required for maintaining the Borrowers' eligibility as
lender, seller/servicer and issuer described under Section 5.13
hereof; and make no change in the nature or character of their
businesses or engage in any business in which they were not engaged
on the date of this Agreement.
6.4 Compliance with Applicable Laws. Comply with the
requirements of all applicable laws, rules, regulations and
orders of any governmental authority, a breach of which could
materially adversely affect the business, operations, assets,
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or financial condition of the Borrowers, except where contested in
good faith and by appropriate proceedings.
6.5 Inspection of Properties and Books. Permit authorized
representatives of the Lender or any Participant to discuss the
business, operations, assets and financial condition of the Borrowers
and their Subsidiaries with their officers and employees and to
examine their books of account and make copies or extracts thereof,
all at such reasonable times as the Lender or any Participant may
request; provided, that prior to the occurrence of a Default or an
Event of Default, the Borrowers shall have no obligation to permit any
such visitation or examination on not less than two (2) Business Days
notice from the Lender or any Participant. The Borrowers will provide
their accountants with a copy of this Agreement promptly after the
execution hereof and will instruct their accountants to answer
candidly any and all questions that the officers of the Lender or any
Participant or any authorized representatives of the Lender or any
Participant may address to them in reference to the financial
condition or affairs of the Borrowers and their Subsidiaries. The
Borrowers may have their representatives in attendance at any meetings
between the officers or other representatives of the Lender or any
Participant and the Borrowers' accountants held in accordance with
this authorization.
6.6 Notice. Give prompt Notice to the Lender, after the
Borrowers have actual or constructive notice thereof, of (a) any
action, suit or proceeding instituted by or against either Borrower or
any of their Subsidiaries in any federal or state court or before any
commission or other regulatory body (federal, state or local, domestic
or foreign) which action, suit or proceeding has at issue in excess of
Five Hundred Thousand Dollars ($500,000), or any such proceedings
threatened against either Borrower or any of their Subsidiaries in a
writing to either Borrower or such Subsidiary containing the details
thereof, (b) the filing, recording or assessment of any federal, state
or local tax Lien against either Borrower, or any of their assets or
any of their Subsidiaries, (c) the occurrence of any Event of Default
hereunder or the occurrence of any Default and continuation thereof
for five (5) days, (d) the suspension, revocation or termination of
either Borrower's eligibility, in any respect, as approved lender,
seller/servicer or issuer as described under Section 5.13 hereof, (e)
the involuntary transfer, loss or termination of any Servicing
Contract to which either Borrower is a party, or which is held for
the benefit of either Borrower, and the reason for such transfer,
loss or termination, if known to either Borrower, and (f) any other
action, event or condition of any nature which may lead to or result
in a material adverse effect upon the business, operations, assets, or
financial condition of the Borrowers
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and their Subsidiaries or which, with or without notice or lapse of
time or both, would constitute a default under any other agreement,
instrument or indenture to which either Borrower or any of their
Subsidiaries is a party or to which either Borrower or any of their
Subsidiaries, their properties or assets, may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all
obligations and indebtedness of either Borrower, and cause to be paid
and performed all obligations and indebtedness of their Subsidiaries,
promptly and in accordance with the terms thereof and pay and
discharge or cause to be paid and discharged promptly all taxes,
assessments and governmental charges or levies imposed upon either
Borrower or their Subsidiaries or upon their respective income,
receipts or properties before the same shall become past due, as well
as all lawful claims for labor, materials and supplies or otherwise
which, if unpaid, might become a Lien or charge upon such properties
or any part thereof; provided, however, that either Borrower and their
Subsidiaries shall not be required to pay taxes, assessments or
governmental charges or levies or claims for labor, materials or
supplies for which the Borrowers or their Subsidiaries shall have
obtained an adequate bond or adequate insurance or which are being
contested in good faith and by proper proceedings which are being
reasonably and diligently pursued and for which proper reserves have
been created.
6.8 Insurance. Maintain (a) errors and omissions insurance or
mortgage impairment insurance, and blanket bond coverage, with such
companies and in such amounts as satisfy prevailing requirements
applicable to a lender, seller/servicer and issuer described under
Section 5.13 hereof, and (b) liability insurance and fire and other
hazard insurance on its properties, with responsible insurance
companies approved by the Lender, in such amounts and against such
risks as is customarily carried by similar businesses operating in the
same vicinity; and (c) within thirty (30) days after Notice from the
Lender, obtain such additional insurance as the Lender shall
reasonably require, all at the sole expense of the Borrowers. Copies
of such policies shall be furnished to the Lender without charge upon
request of the Lender.
6.9 Closing Instructions. Indemnify and hold the Lender
harmless from and against any loss, including reasonable attorneys'
fees and costs, attributable to the failure of a title insurance
company, agent or approved attorney to comply with the disbursement or
instruction letter or letters of the Borrowers relating to any
Mortgage Loan. The Lender shall have the right to pre-approve the
closing instructions of the Borrowers to the title insurance company,
agent or attorney in
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any case where the Mortgage Loan to be created at settlement is
intended to be warehoused by the Borrowers to be included as
Collateral pursuant hereto.
6.10 Subordination of Certain Indebtedness. Cause any
indebtedness of either Borrower, incurred after the date of this
Agreement, to any shareholder, director or officer of either Borrower,
or to any Affiliate of either Borrower or of any Subsidiary of either
Borrower, which indebtedness has a term of more than one (1) year or
is in excess of Five Hundred Thousand Dollars ($500,000) to be
subordinated to all Obligations, by the execution of a Subordination
of Debt Agreement in the form of Exhibit F hereto and deliver to the
Lender an executed copy of said Agreement, certified by the corporate
secretary of the applicable Borrower to be true and complete and in
full force and effect.
6.11 Other Loan Obligations. Perform all material obligations
under the terms of each loan agreement, note, mortgage, security
agreement or debt instrument by which either Borrower is bound or to
which any of its property is subject, and promptly notify the Lender
in writing of a declared default under or the termination,
cancellation, reduction or nonrenewal of any of its other lines of
credit or agreements with any other lender. Exhibit J hereto is a true
and complete list of all such lines of credit or agreements as of the
date hereof and the Borrowers hereby agree to give the Lender at least
thirty (30) days Notice before entering into any additional lines of
credit or agreements.
6.12 Use of Proceeds of Advances. Use the proceeds of each
Advance solely for the purpose set forth in Section 2.1(b), 2.3 or
2.4(b) for Advances of that type.
6.13 Special Affirmative Covenants Concerning Collateral.
6.13(a) Warrant and defend the right, title and
interest of the Lender in and to the Collateral against the
claims and demands of all Persons whomsoever.
6.13(b) Service or cause to be serviced all Mortgage
Loans in accordance with the standard requirements of the
issuers of Purchase Commitments covering the same and all
applicable HUD, FNMA and FHLMC requirements, including
without limitation taking all actions necessary to enforce
the obligations of the obligors under such Mortgage Loans.
The Borrowers shall service or cause to be serviced all
Mortgage Loans backing Pledged Securities in accordance with
applicable governmental requirements and requirements of
issuers of Purchase Commitments covering the same. The
Borrowers
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shall hold all escrow funds collected in respect of Pledged
Mortgages and Mortgage Loans backing Pledged Securities in
trust, without commingling the same with non-custodial funds,
and apply the same for the purposes for which such funds were
collected.
6.13(c) Execute and deliver to the Lender such
Uniform Commercial Code financing statements with respect to
the Collateral as the Lender may request. The Borrowers shall
also, at the request of the Lender, execute and deliver to
the Lender, and obtain the execution and delivery by FNMA,
FHLMC and/or GNMA of, Acknowledgment Agreements in the forms
from time to time promulgated by FNMA, FHLMC or GNMA, as
applicable, with respect to the FNMA, FHLMC and/or GNMA
Servicing Contracts included in the Collateral. The Borrowers
shall also execute and deliver to the Lender such further
instruments of sale, pledge or assignment or transfer, and
such powers of attorney, as may reasonably be requested by
the Lender, and shall do and perform all matters and things
necessary or desirable to be done or observed, for the
purpose of effectively creating, maintaining and preserving
the security and benefits intended to be afforded the Lender
under this Agreement. The Lender shall have all the rights
and remedies of a secured party under the Uniform Commercial
Code of Minnesota, or any other applicable law, in addition
to all rights provided for herein.
6.13(d) Notify the Lender within two (2) Business
Days of any default under, or of the termination of, any
Purchase Commitment relating to any Pledged Mortgage,
Eligible Mortgage Pool, or Pledged Security.
6.13(e) Promptly comply in all respects with the
terms and conditions of all Purchase Commitments, and all
extensions, renewals and modifications or substitutions
thereof or thereto. The Borrowers will cause to be delivered
to the Investor the Pledged Mortgages and Pledged Securities
to be sold under each Purchase Commitment not later than
three (3) Business Days prior to the mandatory delivery date
thereof.
6.13(f) Maintain, at their principal office or in a
regional office approved by the Lender, or in the office of a
computer service bureau engaged by the Borrowers and approved
by the Lender and, upon request, make available to the Lender
the originals, or copies in any case where the originals have
been delivered to the Lender or to an Investor, of its
Mortgage Notes and Mortgages included in Pledged Mortgages,
Mortgage-backed Securities delivered to the Lender as Pledged
Securities,
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Purchase Commitments, and all related Mortgage Loan documents
and instruments, and all files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs,
cards, accounting records and other information and data
relating to the Collateral.
6.13(g) Promptly provide the Lender with copies of
any amendment, supplement, restatement or other modification
of the Berkshire Master Agreement, the Berkshire Master Notes
or the FNMA Special Pool Purchase Contract related thereto.
7. NEGATIVE COVENANTS.
The Borrowers hereby covenant and agree that, so long as any
of the Commitments are outstanding or there remain any Obligations to
be paid or performed, the Borrowers shall not, either directly or
indirectly, without the prior written consent of the Lender:
7.1 Contingent Liabilities. Assume, guarantee, endorse, or
otherwise become contingently liable for the obligation of any Person
except by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and excluding the sale
of Mortgage Loans with recourse in the ordinary course of the
Borrowers' businesses.
7.2 Sale or Pledge of Servicing Contracts. Sell, pledge or
grant a security interest in any existing or future Servicing
Contracts of either Borrower other than to the Lender, except as
otherwise expressly permitted in this Agreement, or omit to take any
action required to keep all such Servicing Contracts in full force and
effect; provided, however, that if no Default or Event of Default has
occurred and is continuing, (a) servicing on individual Mortgage Loans
may be sold concurrently with and incidental to the sale of such
Mortgage Loans (with servicing released) in the ordinary course of the
Borrowers' business, and (b) Servicing Contracts may be sold by the
Borrowers or any Subsidiary in the ordinary course of business as long
as (i) after giving effect to any such sale, the requirements of
Section 7.10 will be satisfied, and (ii) after giving effect to any
prepayments of Servicing Facility Advances and the Term Loan Advance
made with the proceeds of such sale, no further prepayments will be
required pursuant to Section 2.8(j) hereof.
7.3 Merger; Sale of Assets; Acquisitions. Liquidate,
dissolve, consolidate or merge or sell any substantial part of
their assets, or acquire any substantial part of the assets of
another other than (a) Nonrecourse Servicing Contracts
acquired in the ordinary course of the Borrowers' business,
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and (b) the stock or assets of a Person engaged principally in
the mortgage banking business.
7.4 Deferral of Subordinated Debt. Pay in advance of the
stated maturity thereof any Subordinated Debt of the Borrowers or, if
a Default or Event of Default hereunder shall have occurred, make any
payment of any kind thereafter on such Subordinated Debt until all
Obligations have been paid and performed in full and any applicable
preference period has expired.
7.5 Loss of Eligibility. Take any action that would cause
either Borrower to lose all or any part of its status as an eligible
lender, seller/servicer and issuer as described under Section 5.13
hereof.
7.6 Debt to Adjusted Tangible Net Worth Ratio. Permit
the ratio of Debt to Adjusted Tangible Net Worth of Washington
and its Subsidiaries, on a consolidated basis, at any time to
exceed 15 to 1.
7.7 Minimum Adjusted Tangible Net Worth. Permit
Adjusted Tangible Net Worth of Washington and its
Subsidiaries, on a consolidated basis, at any time to be less
than Fifteen Million Dollars ($15,000,000).
7.8 Liquidity. Permit the ratio of Liquid Assets to
Adjusted Tangible Net Worth of Washington and its
Subsidiaries, on a consolidated basis, at any time to be less
than twenty-five percent (25%).
7.9 Maximum Pass-Throughs. Permit the ratio of (a) the
aggregate cumulative outstanding amount of advances to or on behalf of
defaulting mortgagors paid or required to have been paid by the
Borrowers on Mortgage Loans and Mortgage-backed Securities to (b)
Adjusted Tangible Net Worth of Washington and its Subsidiaries, on a
consolidated basis, at any time to exceed thirty-five percent (35%).
7.10 Minimum Adjusted Servicing Portfolio. Permit the
outstanding Adjusted Servicing Portfolio of the Borrowers to
be less than Three Billion Dollars ($3,000,000,000).
7.11 Debt Service Coverage Ratio. Permit the Debt
Service Coverage Ratio, measured as of the last day of any
fiscal quarter, to be less than 1.50 to 1.00.
7.12 Delinquency Ratio. Permit the Delinquency Ratio to
exceed ten percent (10%).
7.13 Transactions with Affiliates. Directly or
indirectly (a) make any loan, advance, extension of credit or
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capital contribution to any of its Affiliates, (b) transfer, sell,
pledge, assign or otherwise dispose of any of its assets to or on
behalf of such Affiliates, (c) merge or consolidate with or purchase
or acquire assets from such Affiliates, or (d) pay management fees to
or on behalf of such Affiliates; provided, that nothing in this
Section 7.13 shall restrict transactions between the Borrowers.
7.14 Special Negative Covenants Concerning Collateral.
7.14(a) The Borrowers shall not amend or modify, or
waive any of the terms and conditions of, or settle or
compromise any claim in respect of, any Pledged Mortgages or
Pledged Securities.
7.14(b) The Borrowers shall not sell, assign,
transfer or otherwise dispose of, or grant any option with
respect to, or pledge or otherwise encumber (except pursuant
to this Agreement or as permitted herein) any of the
Collateral or any interest therein.
7.14(c) The Borrowers shall not make any compromise,
adjustment or settlement in respect of any of the Collateral
or accept other than cash in payment or liquidation of the
Collateral.
7.14(d) At any time that a Berkshire Advance is
outstanding, Washington shall not amend, supplement, restate
or otherwise modify the Berkshire Master Agreement, the
Berkshire Master Notes or the FNMA Special Pool Purchase
Contract related thereto.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the
following conditions or events shall be an event of default
("Event of Default"):
8.1(a) Failure to pay the principal of any Advance
when due, whether at stated maturity, by acceleration, or
otherwise; or failure to pay any installment of interest on
any Advance or any other amount due under this Agreement
within ten (10) days after the due date; or failure to pay,
within any applicable grace period, the principal or interest
on any other indebtedness of the Borrowers due the Lender; or
8.1(b) Failure of the Borrowers or any of their
Subsidiaries to pay, or any default in the payment of any
principal or interest on, any other indebtedness or in the
payment of any contingent obligation within any period of
grace provided; breach or default with respect
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to any other material term of any other indebtedness or of
any loan agreement, mortgage, indenture or other agreement
relating thereto, if the effect of such breach or default is
to cause, or to permit the holder or holders thereof (or a
trustee on behalf of such holder or holders) to cause,
indebtedness of the Borrowers or their Subsidiaries in the
aggregate amount of Five Hundred Thousand Dollars ($500,000)
or more to become or be declared due prior to its stated
maturity (upon the giving or receiving of notice, lapse of
time, both, or otherwise); or
8.1(c) Failure of the Borrowers to perform
or comply with any term or condition applicable to them
contained in Sections 6.3, 6.12, and 6.13 or in any Section
of Article 7 of this Agreement; or
8.1(d)(1) Any of the Borrowers' representations or
warranties made or deemed made herein or in any other Loan
Document shall be inaccurate or incomplete in any material
respect on the date as of which made or deemed made, or (2)
any of the Borrower's representations or warranties made or
deemed made in any statement or certificate at any time given
by either Borrower in writing pursuant hereto or thereto
shall be inaccurate or incomplete in any material respect on
the date as of which made or deemed made and, if such
inaccuracy or incompleteness was unintentional, the same has
not been cured within ten (10) days after (i) receipt by the
Borrowers of Notice thereof from the Lender, (ii) receipt by
the Lender of Notice thereof from the Borrowers, or (iii) the
date the Borrowers should have notified the Lender thereof
pursuant to Section 6.6(c); or
8.1(e) The Borrowers shall default in the
performance of or compliance with any term contained in this
Agreement or any other Loan Document other than those
referred to above in Subsections 8.1(a), 8.1(c) or 8.1(d) and
such default shall not have been remedied or waived within
thirty (30) days after the earliest of (i) receipt by the
Borrowers of Notice from the Lender of such default, (ii)
receipt by the Lender of Notice from the Borrowers of such
default, or (iii) the date the Borrowers should have notified
the Lender of such default pursuant to Section 6.6 (c); or
8.1(f) (1) A court having jurisdiction shall enter a
decree or order for relief in respect of either Borrower or
any Subsidiary of either Borrower in an involuntary case
under any applicable bankruptcy, insolvency or other similar
law in respect of either Borrower or any Subsidiary of either
Borrower now or
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hereafter in effect, which decree or order is not stayed;
either Borrower or any Subsidiary of either Borrower shall
consent to the entry of any such decree or order; or a filing
of a voluntary case under any applicable bankruptcy,
insolvency or other similar law in respect of either Borrower
or any Subsidiary of either Borrower has occurred; or any
other similar relief shall be granted under any applicable
federal or state law; or (2) the filing of an involuntary
case in respect of either Borrower or any Subsidiary of
either Borrower under any applicable bankruptcy, insolvency
or other similar law; or a decree or order of a court having
jurisdiction for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having
similar powers over either Borrower or any Subsidiary of
either Borrower, or over all or a substantial part of their
respective property, shall have been entered; or the
involuntary appointment of an interim or permanent receiver,
trustee or other custodian of either Borrower or any
Subsidiary of either Borrower for all or a substantial part
of their respective property; or the issuance of a warrant of
attachment, execution or similar process against any
substantial part of the property of either Borrower or any
Subsidiary of either Borrower, and the continuance of any
such events in Subsection (2) above for sixty (60) days
unless dismissed, bonded off or discharged; or
8.1(g) Either Borrower or any Subsidiary of either
Borrower shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all
or a substantial part of its property; the making by either
Borrower or any Subsidiary of either Borrower of any
assignment for the benefit of creditors; or the inability or
failure of either Borrower or any Subsidiary of either
Borrower, or the admission by either Borrower or any
Subsidiary of either Borrower in writing of its inability, to
pay its debts as such debts become due; or
8.1(h) Failure of either Borrower to perform any
contractual obligations which it may have to repurchase
Mortgage Loans, if such obligations in the aggregate exceed
One Million Dollars ($1,000,000); or
8.1(i) Any money judgment, writ or warrant of
attachment, or similar process involving in any case an
amount in excess of Five Hundred Thousand Dollars ($500,000)
shall be entered or filed against either Borrower or any
Subsidiary of either Borrower or any of their respective
assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of thirty
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(30) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
8.1(j) Any order, judgment or decree shall be
entered against either Borrower decreeing the dissolution or
split up of either Borrower and such order shall remain
undischarged or unstayed for a period in excess of twenty
(20) days; or
8.1(k) Any Plan maintained by either Borrower or any
Subsidiary of either Borrower shall be terminated within the
meaning of Title IV of ERISA or a trustee shall be appointed
by an appropriate United States district court to administer
any Plan, or the Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate
any Plan or to appoint a trustee to administer any Plan if as
of the date thereof such Borrower's liability or any such
Subsidiary's liability (after giving effect to the tax
consequences thereof) to the Pension Benefit Guaranty
Corporation (or any successor thereto) for unfunded
guaranteed vested benefits under the Plan exceeds the then
current value of assets accumulated in such Plan by more than
Twenty-Five Thousand Dollars ($25,000) (or in the case of a
termination involving either Borrower or any Subsidiary of
either Borrower as a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA) the withdrawing employer's
proportionate share of such excess shall exceed such amount);
or
8.1(l) Either Borrower or any Subsidiary of either
Borrower as employer under a Multiemployer Plan shall have
made a complete or partial withdrawal from such Multiemployer
Plan and the plan sponsor of such Multiemployer Plan shall
have notified such withdrawing employer that such employer
has incurred a withdrawal liability in an annual amount
exceeding Twenty-Five Thousand Dollars ($25,000); or
8.1(m) Either Borrower shall purport to disavow its
obligations hereunder or shall contest the validity or
enforceability hereof; or the Lender's security interest on
any portion of the Collateral shall become unenforceable or
otherwise impaired; provided that, subject to the Lender's
approval, no Event of Default shall occur as a result of such
impairment if all Advances made against any such Collateral
shall be paid in full within ten (10) days of the date of
such impairment; or
8.1(n) (a) The Parent shall consent to the
appointment of a conservator or receiver or liquidator in
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any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings of or relating to the
Parent or of or relating to all or substantially all of its
property, or (b) a decree or order of a court or agency or
supervisory authority having jurisdiction over the Parent 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 the winding up or
liquidation of its affairs, shall have been entered against
the Parent, or (c) the Parent shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of any applicable insolvency or
reorganization statute, make any assignment for the benefit
of its creditors or voluntarily suspend payment of its
obligations; or
8.1(o) NHP Financial Services, Ltd. shall cease
owning, directly or indirectly, all of the capital stock of
Washington, or Washington shall cease owning, directly, all
of the capital stock of Huntoon; or
8.2 Remedies.
8.2(a) Upon the occurrence of any Event of Default
described in Sections 8.1(f) or 8.1(g), the Commitments
shall be terminated and the unpaid principal amount of and
accrued interest on the Notes and all other Obligations shall
automatically become due and payable, without presentment,
demand or other requirements of any kind, all of which are
hereby expressly waived by the Borrowers.
8.2(b) Upon the occurrence of any Event of Default,
other than those described in Sections 8.1(f) and 8.1(g),
the Lender may, by Notice to the Borrowers, terminate the
Commitments and/or declare all Obligations to be immediately
due and payable, whereupon the same shall forthwith become
due and payable, together with all accrued interest thereon,
and the obligation of the Lender to make any Advances shall
thereupon terminate.
8.2(c) Upon the occurrence of any Event of Default,
the Lender may also do any of the following:
(1) Foreclose upon or otherwise enforce its
security interest in and Lien on the Collateral to
secure all payments and performance of the
Obligations in any manner permitted by law or
provided for hereunder.
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(2) Notify all obligors in respect of
Collateral that the Collateral has been assigned to
the Lender and that all payments thereon are to be
made directly to the Lender or such other party as
may be designated by the Lender; settle, compromise,
or release, in whole or in part, any amounts owing
on the Collateral, any such obligor or any Investor
or any portion of the Collateral, on terms
acceptable to the Lender; enforce payment and
prosecute any action or proceeding with respect to
any and all Collateral; and where any such
Collateral is in default, foreclose on and enforce
security interests in, such Collateral by any
available judicial procedure or without judicial
process and sell property acquired as a result of
any such foreclosure.
(3) Act, or contract with a third party to
act, as servicer or subservicer of each item of
Collateral requiring servicing and perform all
obligations required in connection with Servicing
Contracts and Purchase Commitments, such third
party's fees to be paid by the Borrowers.
(4) Require the Borrowers to assemble the
Collateral and/or books and records relating thereto
and make such available to the Lender at a place to
be designated by the Lender.
(5) Enter onto property where any
Collateral or books and records relating thereto are
located and take possession thereof with or without
judicial process.
(6) Prior to the disposition of the
Collateral, prepare it for disposition in any manner
and to the extent the Lender deems appropriate.
(7) Exercise all rights and remedies of a
secured creditor under the Uniform Commercial Code
of Minnesota or other applicable law, including, but
not limited to, selling or otherwise disposing of
the Collateral, or any part thereof, at one or more
public or private sales, whether or not such
Collateral is present at the place of sale, for cash
or credit or future delivery, on such terms and in
such manner as the Lender may determine, including,
without limitation, sale pursuant to any applicable
Purchase Commitment. If notice is required under
such applicable law, the Lender will give the
Borrowers not less than ten (10) days'
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notice of any such public sale or of the date after
which any private sale may be held. The Borrowers
agree that ten (10) days' notice shall be reasonable
notice. The Lender may, without notice or
publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by
announcement at the time and place fixed for the
sale, and such sale may be made at any time or place
to which the same may be so adjourned. In case of
any sale of all or any part of the Collateral on
credit or for future delivery, the Collateral so
sold may be retained by the Lender until the selling
price is paid by the purchaser thereof, but the
Lender shall not incur any liability in case of the
failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure,
such Collateral may again be sold upon like notice.
The Lender may, however, instead of exercising the
power of sale herein conferred upon it, proceed by a
suit or suits at law or in equity to collect all
amounts due upon the Collateral or to foreclose the
pledge of and sell the Collateral or any portion
thereof under a judgment or decree of a court or
courts of competent jurisdiction, or both.
(8) Proceed against the Borrowers on the
Notes.
8.2(d) The Lender shall incur no liability as a
result of the sale or other disposition of the Collateral, or
any part thereof, at any public or private sale or
disposition. The Borrowers hereby waive (to the extent
permitted by law) any claims they may have against the Lender
arising by reason of the fact that the price at which the
Collateral may have been sold at such private sale was less
than the price which might have been obtained at a public
sale or was less than the aggregate amount of the outstanding
Advances and the unpaid interest accrued thereon, even if the
Lender accepts the first offer received and does not offer
the Collateral to more than one offeree, provided such sale
was commercially reasonable in all other respects. Any sale
of Collateral pursuant to the terms of a Purchase Commitment,
or any other disposition of Collateral arranged by the either
Borrower, whether before or after the occurrence of an Event
of Default, shall be deemed to have been made in a
commercially reasonable manner.
8.2(e) The Borrowers acknowledge that Mortgage Loans
and Mortgage-backed Securities are collateral of a type which
is customarily sold on a recognized market.
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The Borrowers waive any right they may have to prior notice
of the sale of any Pledged Mortgage or Pledged Security, and
agrees that the Lender may purchase any Pledged Mortgages or
Pledged Securities at a private sale of such Collateral.
8.2(f) The Borrowers specifically waive and releases
(to the extent permitted by law) any equity or right of
redemption, all rights of redemption, stay or appraisal which
the Borrowers have or may have under any rule of law or
statute now existing or hereafter adopted, and any right to
require the Lender to (1) proceed against any Person, (2)
proceed against or exhaust any of the Collateral or pursue
its rights and remedies as against the Collateral in any
particular order, or (3) pursue any other remedy in its
power. The Lender shall not be required to take any steps
necessary to preserve any rights of the Borrowers against
holders of mortgages prior in lien to the Lien of any
Mortgage included in the Collateral or to preserve rights
against prior parties.
8.2(g) The Lender may, but shall not be obligated
to, advance any sums or do any act or thing necessary to
uphold and enforce the Lien and priority of, or the security
intended to be afforded by, any Mortgage included in the
Collateral, including, without limitation, payment of
delinquent taxes or assessments and insurance premiums. All
advances, charges, costs and expenses, including reasonable
attorneys' fees and disbursements, incurred or paid by the
Lender in exercising any right, power or remedy conferred by
this Agreement, or in the enforcement hereof, together with
interest thereon, at the Default Rate, from the time of
payment until repaid, shall become a part of the principal
balance outstanding hereunder and under the Notes.
8.2(h) No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or
remedy provided hereunder, at law or in equity shall operate
as a waiver thereof; nor shall any single or partial exercise
by the Lender of any right, power or remedy provided
hereunder, at law or in equity preclude any other or further
exercise thereof or the exercise of any other right, power or
remedy. Without intending to limit the foregoing, all
defenses based on the statute of limitations are hereby
waived by the Borrowers to the extent permitted by law. The
remedies herein provided are cumulative and are not exclusive
of any remedies provided at law or in equity.
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8.2(i) The Borrowers acknowledge that the Borrowers
(or either of them) and the Lender have entered into, and may
from time to time hereafter enter into, agreements
("Acknowledgment Agreements") with FNMA, FHLMC, GNMA or any
other Investor in order to obtain the consent of FNMA, FHLMC,
GNMA or such other Investor to the assignment of and security
interest granted in the Servicing Contracts pursuant to
Section 3 hereof, as the same may be amended from time to
time. The Borrowers further acknowledge that the
Acknowledgment Agreements may contain certain provisions
concerning the enforcement by the Lender of its security
interest in the Servicing Contracts subject thereto. The
Borrowers agree that the disposition of their rights in any
Servicing Contract pursuant to the terms of the applicable
Acknowledgment Agreement shall be deemed commercially
reasonable within the meaning of Section 9-504(3) of the
Uniform Commercial Code of Minnesota. The Borrowers hereby
waive any claims they might otherwise have against the Lender
as a result of the Lender's compliance with the terms of any
Acknowledgment Agreement.
8.3 Application of Proceeds. The proceeds of any sale,
disposition or other enforcement of the Lender's security interest in
all or any part of the Collateral shall be applied by the Lender:
First, to the payment of the costs and expenses of such sale
or enforcement, including reasonable compensation to the Lender's
agents and counsel, and all expenses, liabilities and advances made or
incurred by or on behalf of the Lender in connection therewith;
Second, to the payment of interest accrued and unpaid on
the Notes;
Third, to the payment of any other Obligations due (other
than principal and interest) under this Agreement and the Loan
Documents;
Fourth, to the payment of the outstanding principal
balance of the Notes; and
Finally, to the payment to the Borrowers, or to their
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
If the proceeds of any such sale, disposition or other
enforcement are insufficient to cover the costs and expenses of such
sale, as aforesaid, and the payment in full of all Obligations, the
Borrowers shall remain liable for any deficiency.
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8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby
appointed the attorney-in-fact of the Borrowers, with full power of
substitution, for the purpose of carrying out the provisions hereof
and taking any action and executing any instruments which the Lender
may deem necessary or advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable and coupled with
an interest. Without limiting the generality of the foregoing, the
Lender shall have the right and power to give notices of its security
interest in the Collateral to any Person, either in the names of the
Borrowers or in their own name, to endorse all Pledged Mortgages or
Pledged Securities payable to the order of either Borrower, to change
or cause to be changed the book-entry registration or name of
subscriber or Investor on any Pledged Security, or to receive, endorse
and collect all checks made payable to the order of either Borrower
representing any payment on account of the principal of or interest
on, or the proceeds of sale of, any of the Pledged Mortgages or
Pledged Securities and to give full discharge for the same. Except to
the extent the Lender is granted the power to take any action covered
by the foregoing power of attorney prior to the occurrence of an Event
of Default under the Loan Documents, the Lender agrees not to exercise
the foregoing power of attorney prior to the occurrence of an Event of
Default.
8.5 Right of Set-Off. If the Borrowers shall default in the
payment of the Notes, any interest accrued thereon, or any other sums
which may become payable hereunder when due, or in the performance of
any of its other obligations or liabilities under this Agreement, the
Lender, shall have the right, at any time and from time to time,
without notice, to set-off and to appropriate or apply any and all
property or indebtedness of any kind at any time held or owing by the
Lender to or for the credit or the account of the Borrowers against
and on account of the Obligations of the Borrowers under the Notes and
this Agreement, irrespective of whether or not the Lender shall have
made any demand hereunder and whether or not said Obligations shall
have matured.
9. NOTICES.
All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly
provided hereunder, be in writing and shall be delivered in person or
telecopied or mailed, first class or delivered by overnight courier,
return receipt requested, postage prepaid, addressed to the respective
parties hereto at their respective addresses hereinafter set forth or,
as to any such party, at such other address as may be designated by it
in a Notice to the other. All Notices shall be conclusively deemed to
have been properly given or made when duly
Washington/Huntoon:6/13/96
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delivered, in person, by telecopy or by overnight courier, or if
mailed, on the date of receipt as noted on the return receipt,
addressed as follows:
if to the Borrowers: Washington Mortgage Financial
Group, Ltd.
WMF/Huntoon, Paige Associates
Limited
1593 Spring Hill Road, Suite 400
Vienna, VA 22182
Attention: Howard Perkins, CFO
Telecopier No.: (703) 610-1405
if to the Lender: Residential Funding Corporation
4800 Montgomery Lane, Suite 300
Bethesda, Maryland 20814
Attention: Lisa Carlson, Director
Telecopier No.: (301) 215-6288
with a copy to: Residential Funding Corporation
8400 Normandale Lake Boulevard
Suite 600
Minneapolis, Minnesota 55437
Attention: Sandra L. Oakes, Esq.
Telecopier No.: (612) 832-7190
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Borrowers shall: (a) pay a documentation production fee
of Four Thousand Dollars ($4,000) in connection with the preparation
and negotiation of this Agreement; (b) pay such additional
documentation production fees, as the Lender may require and all
reasonable out-of-pocket costs and expenses of the Lender, including,
without limitation, reasonable fees and service charges of counsel
(including allocated costs of internal counsel), in connection with
the amendment, enforcement and administration of this Agreement, the
Notes, and other Loan Documents and the making and repayment of the
Advances and the payment of interest thereon (provided, that this
clause (b) shall not apply to the preparation or negotiation of this
Agreement); (c) indemnify, pay, and hold harmless the Lender and any
holder of the Notes from and against, any and all present and future
stamp, documentary and other similar taxes with respect to the
foregoing matters and save the Lender and the holder or holders of the
Notes harmless from and against any and all liabilities with respect
to or resulting from any delay or omission to pay such taxes; and (d)
indemnify, pay and hold harmless the Lender and any of its officers,
directors, employees or agents and any subsequent holder of the Notes
(collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, judgments,
suits, and
Washington/Huntoon:6/13/96
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<PAGE> 80
reasonable costs, expenses and disbursements of any kind or nature
whatsoever (including without limitation, the reasonable fees and
disbursements of counsel of the Indemnitees (including allocated costs
of internal counsel) in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnitees
shall be designated a party thereto) which may be imposed upon,
incurred by or asserted against such Indemnitees in any manner
relating to or arising out of this Agreement, the Notes, or any other
Loan Document or any of the transactions contemplated hereby or
thereby (the "Indemnified Liabilities"); provided, however, that the
Borrowers shall have no obligation hereunder with respect to
Indemnified Liabilities arising from any action or inaction by the
Borrowers explicitly directed by the Lender in writing, or the gross
negligence or willful misconduct of any such Indemnitees. To the
extent that the undertaking to indemnify, pay and hold harmless as set
forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Borrowers shall contribute
the maximum portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them. The agreement
of the Borrowers contained in Subsection (d) shall survive the
expiration or termination of this Agreement and the payment in full of
the Notes. Reasonable attorneys' fees and disbursements incurred in
enforcing, or on appeal from, a judgment pursuant hereto shall be
recoverable separately from and in addition to any other amount
included in such judgment, and this clause is intended to be severable
from the other provisions of this Agreement and to survive and not be
merged into such judgment. As to Subsection (d), the Lender and any
holder of the Notes which is an assignee of the Lender shall use its
best efforts to give Borrowers' notice of any such investigative,
administrative or judicial proceeding, and the Borrowers shall have
the right to consult in the defense of or the negotiation relating to
any such matter at Borrowers' expense.
11. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Lender
hereunder shall be prepared in accordance with GAAP, applied on a
basis consistent with that applied in preparing the financial
statements as at the end of and for the last fiscal year ended (except
to the extent otherwise required to conform to good accounting
practice).
12. MISCELLANEOUS.
12.1 Terms Binding Upon Successors; Survival of
Representations. The terms and provisions of this Agreement
Washington/Huntoon:6/13/96
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shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. All representations,
warranties, covenants and agreements herein contained on the part of
the Borrowers shall survive the making of any Advance and the
execution of the Notes, and shall be effective so long as any of the
Commitments are outstanding hereunder or there remain any Obligations
to be paid or performed.
12.2 Assignment. This Agreement may not be assigned by the
Borrowers. This Agreement and the Notes along with the Lender's
security interest in any or all of the Collateral, may, at any time,
be transferred or assigned, in whole or in part, by the Lender, and
any assignee thereof may enforce this Agreement, the Notes and such
security interest.
12.3 Amendments. Except as otherwise provided in this
Agreement, this Agreement may not be amended, modified or supplemented
unless such amendment, modification or supplement is set forth in a
writing signed by the parties hereto.
12.4 Governing Law. This Agreement and the other Loan
Documents shall be governed by the laws of the State of
Minnesota, without reference to its principles of conflicts of
laws.
12.5 Participations. The Lender may at any time sell, assign
or grant participations in, or otherwise transfer to any other Person
(a "Participant"), all or part of the Obligations. Without limitation
of the exclusive right of the Lender to collect and enforce such
Obligations, the Borrowers agree that each disposition will give rise
to a debtor-creditor relationship of the Borrowers to the Participant,
and the Borrowers authorize each Participant, upon the occurrence of
an Event of Default, to proceed directly by right of setoff, banker's
lien, or otherwise, against any assets of the Borrowers which may be
in the hands of such Participant. The Borrowers authorize the Lender
to disclose to any prospective Participant and any Participant any and
all information in the Lender's possession concerning the Borrowers,
this Agreement and the Collateral.
12.6 Relationship of the Parties. This Agreement provides for
the making of Advances by the Lender, in its capacity as a lender, to
the Borrowers, in their capacity as borrowers, and for the payment of
interest, repayment of principal by the Borrowers to the Lender, and
for the payment of certain fees by the Borrowers to the Lender. The
relationship between the Lender and the Borrowers is limited to that
of creditor/secured party, on the one hand, and debtors, on the other
hand. The provisions herein for compliance with financial covenants
and delivery of financial
Washington/Huntoon:6/13/96
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<PAGE> 82
statements are intended solely for the benefit of the Lender to
protect its interests as lender in assuring payments of interest and
repayment of principal and payment of certain fees, and nothing
contained in this Agreement shall be construed as permitting or
obligating the Lender to act as a financial or business advisor or
consultant to the Borrowers, as permitting or obligating the Lender to
control the Borrowers or to conduct the Borrowers' operations, as
creating any fiduciary obligation on the part of the Lender to the
Borrowers, or as creating any joint venture, agency, or other
relationship between the parties hereto other than as explicitly and
specifically stated in this Agreement. The Borrowers acknowledge that
they have had the opportunity to obtain the advice of experienced
counsel of its own choosing in connection with the negotiation and
execution of this Agreement and to obtain the advice of such counsel
with respect to all matters contained herein. The Borrowers further
acknowledge that they are experienced with respect to financial and
credit matters and have made their own independent decisions to apply
to the Lender for credit and to execute and deliver this Agreement.
12.7 Severability. If any provision of this Agreement shall
be declared to be illegal or unenforceable in any respect, such
illegal or unenforceable provision shall be and become absolutely null
and void and of no force and effect as though such provision were not
in fact set forth herein, but all other covenants, terms, conditions
and provisions hereof shall nevertheless continue to be valid and
enforceable.
12.8 Operational Reviews. From time to time upon request, the
Borrowers shall permit the Lender or its representative access to
their premises and records for the purpose of conducting a review of
the Borrowers' general mortgage business methods, policies, and
procedures, auditing loan files and reviewing financial and
operational aspects of the Borrowers' businesses.
12.9 Consent to Credit References. The Borrowers hereby
consent to the disclosure of information regarding the Borrowers and
their relationships with the Lender to Persons making credit inquiries
to the Lender. This consent is revocable by the Borrowers at any time
upon Notice to the Lender as provided in Section 9 hereof.
12.10 Consent to Jurisdiction. The Borrowers hereby agree
that any action or proceeding under the Loan Documents, the Notes or
any document delivered pursuant hereto may be commenced against them
in any court of competent jurisdiction within the State of Minnesota,
by service of process upon the Borrowers by first class registered or
certified mail, return receipt requested, addressed to the Borrowers
at their address
Washington/Huntoon:6/13/96
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<PAGE> 83
last known to the Lender. The Borrowers agree that any such suit,
action or proceeding arising out of or relating to this Agreement or
any other such document may be instituted in the Hennepin County,
State District Court or in the United States District Court for the
District of Minnesota at the option of the Lender; and the Borrowers
hereby waive any objection to the jurisdiction or venue of any such
court with respect to, or the convenience of any court as a forum for,
any such suit, action or proceeding. Nothing herein shall affect the
right of the Lender to accomplish service of process in any other
manner permitted by law or to commence legal proceedings or otherwise
proceed against the Borrowers in any other jurisdiction or court.
12.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute but one and the same
instrument.
12.12 Entire Agreement. This Agreement, the Notes and the
other Loan Documents represent the final agreement among the parties
hereto and thereto with respect to the subject matter hereof and
thereof, and may not be contradicted by evidence of prior or
contemporaneous oral agreements among such parties. There are no oral
agreements among the parties with respect to the subject matter hereof
and thereof.
12.13 WAIVER OF JURY TRIAL. THE BORROWERS AND THE LENDER EACH
HEREBY (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN,
KNOWINGLY AND VOLUNTARILY, BY THE BORROWERS AND THE LENDER, AND THIS
WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT OF A JURY TRIAL WOULD OTHERWISE ACCRUE.
THE LENDER AND THE BORROWERS IS EACH HEREBY AUTHORIZED AND REQUESTED
TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE
EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER,
THE BORROWERS AND THE LENDER EACH HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE OTHER
PARTY'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF
ITS REPRESENTATIVES OR AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO
ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
12.14 Joint and Several Liability. The promises and
agreements herein shall be construed to be and are hereby
declared to be the joint and several promises and agreements
of each of the Borrowers and shall constitute the joint and
several obligation of each of the Borrowers and shall be fully
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binding upon and enforceable against each of the Borrowers. The
release of any party to this Agreement shall not affect or release the
joint and several liability of any other party. The Lender may, at its
option, enforce this Agreement against one or both of the Borrowers,
and the Lender shall not be required to resort to enforcement against
each of the Borrowers and the failure to proceed against or join each
of the Borrowers shall not affect the joint and several liability of
each of the Borrowers.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ HOWARD S. PERKINS
---------------------------------------
Its: EVP
--------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ HOWARD S. PERKINS
---------------------------------------
Its: Vice Chairman
--------------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ LISA F. CARLSON
---------------------------------------
Its: Director
--------------------------------------
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the EVP of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
Washington/Huntoon:6/13/96
78
<PAGE> 85
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the Vice Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 25th, 1996, before me, a Notary Public, personally appeared
Lisa F. Carlson, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that she executed the same in her
authorized capacity, and that by her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ ALAETA S. MYERS
-------------------------------
Notary Public
(SEAL) My Commission Expires: 11/23/96
ALAETA S. MYERS
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires November 23, 1996
Washington/Huntoon:6/13/96
79
<PAGE> 86
EXHIBIT A-1
WAREHOUSING PROMISSORY NOTE
$150,000,000 Date: June 14, 1996
FOR VALUE RECEIVED, the undersigned, WASHINGTON MORTGAGE
FINANCIAL GROUP, LTD., a Delaware corporation, and WMF/HUNTOON, PAIGE
ASSOCIATES LIMITED, a Delaware corporation (herein collectively called the
"Borrowers", and individually as "Co-Borrower"), hereby promises to pay to the
order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"
or, together with its successors and assigns, the "Holder") whose principal
place of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis,
Minnesota 55437, or at such other place as the Holder may designate from time
to time, the principal sum of One Hundred Fifty Million Dollars ($150,000,000)
or so much thereof as may be outstanding from time to time pursuant to the
Warehousing Credit and Security Agreement described below, and to pay interest
on said principal sum or such part thereof as shall remain unpaid from time to
time, from the date of each Advance until repaid in full, and all other fees
and charges due under the Agreement, at the rates and at the times set forth in
the Agreement. All payments hereunder shall be made in lawful money of the
United States and in immediately available funds.
This Note is given to evidence an actual warehouse line of
credit in the above amount and is the Warehousing Promissory Note referred to
in that certain Warehousing Credit and Security Agreement ("the Agreement")
dated the date hereof between the Borrowers and the Lender, as the same may be
amended or supplemented from time to time, and is entitled to the benefits
thereof. Reference is hereby made to the Agreement (which is incorporated
herein by reference as fully and with the same effect as if set forth herein at
length) for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note may be prepaid in whole or in part at any time
without premium or penalty.
Should this Note be placed in the hands of attorneys for
collection, the Borrowers agree to pay, in addition to principal and interest,
fees and charges due under the Agreement, any and all costs of collecting this
Note, including reasonable attorneys' fees and expenses.
Washington/Huntoon:6/13/96 1
<PAGE> 87
The Borrowers hereby waive demand, notice, protest and
presentment.
The promises and agreements herein shall be construed to be
and are hereby declared to be the joint and several promises and agreements of
each Co-Borrower and shall constitute the joint and several obligation of each
Co-Borrower and shall be fully binding upon and enforceable against each
Co-Borrower. The release of any party to this Note shall not affect or release
the joint and several liability of any other party. The Lender may at its
option enforce this Note against one or all of the Co-Borrower, and the Lender
shall not be required to resort to enforcement against each Co-Borrower and the
failure to proceed against or join each Co-Borrower shall not affect the joint
and several liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with
the laws of the State of Minnesota, without reference to its principles of
conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as
of the day and year first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
----------------------------------
Its:
---------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
----------------------------------
Its:
---------------------------------
Washington/Huntoon:6/13/96 2
<PAGE> 88
STATE OF ________________ )
) ss
COUNTY OF ______________ )
On _________________, 1996, before me, a Notary Public,
personally appeared ________________________________, the ____________________
of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
---------------------------------
Notary Public
(SEAL) My Commission Expires:
-----------
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1996, before me, a Notary Public,
personally appeared ________________________________, the __ __________________
of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------
Notary Public
(SEAL) My Commission Expires:
----------
Washington/Huntoon:6/13/96 3
<PAGE> 89
EXHIBIT A-2
TERM LOAN PROMISSORY NOTE
$10,000,000 Date: June 14, 1996
FOR VALUE RECEIVED, the undersigned, WASHINGTON MORTGAGE
FINANCIAL GROUP, LTD., a Delaware corporation, and WMF/HUNTOON, PAIGE
ASSOCIATES LIMITED, a Delaware corporation (herein collectively called the
"Borrowers", and individually as "Co-Borrower"), hereby promises to pay to the
order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"
or, together with its successors and assigns, the "Holder") whose principal
place of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis,
Minnesota 55437, or at such other place as the Holder may designate from time
to time, the principal sum of Ten Million Dollars ($10,000,000) or so much
thereof as may be outstanding from time to time pursuant to the Warehousing
Credit and Security Agreement described below, and to pay interest on said
principal sum or such part thereof as shall remain unpaid from time to time,
from the date of each Advance until repaid in full, and all other fees and
charges due under the Agreement, at the rates and at the times set forth in the
Agreement. All payments hereunder shall be made in lawful money of the United
States and in immediately available funds.
This Note is given to evidence an actual warehouse line of
credit in the above amount and is the Term Loan Promissory Note referred to in
that certain Warehousing Credit and Security Agreement ("the Agreement") dated
the date hereof between the Borrowers and the Lender, as the same may be
amended or supplemented from time to time, and is entitled to the benefits
thereof. Reference is hereby made to the Agreement (which is incorporated
herein by reference as fully and with the same effect as if set forth herein at
length) for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note may be prepaid in whole or in part at any time
without premium or penalty.
Should this Note be placed in the hands of attorneys for
collection, the Borrowers agree to pay, in addition to principal and interest,
fees and charges due under the Agreement, any and all costs of collecting this
Note, including reasonable attorneys' fees and expenses.
Washington/Huntoon:6/13/96 1
<PAGE> 90
The Borrowers hereby waive demand, notice, protest and
presentment.
The promises and agreements herein shall be construed to be
and are hereby declared to be the joint and several promises and agreements of
each Co-Borrower and shall constitute the joint and several obligation of each
Co-Borrower and shall be fully binding upon and enforceable against each
Co-Borrower. The release of any party to this Note shall not affect or release
the joint and several liability of any other party. The Lender may at its
option enforce this Note against one or all of the Co-Borrower, and the Lender
shall not be required to resort to enforcement against each Co-Borrower and the
failure to proceed against or join each Co-Borrower shall not affect the joint
and several liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with
the laws of the State of Minnesota, without reference to its principles of
conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as
of the day and year first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
--------------------------------------
Its:
-------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
--------------------------------------
Its:
-------------------------------------
Washington/Huntoon:6/13/96 2
<PAGE> 91
STATE OF ________________ )
) ss
COUNTY OF ______________ )
On _________________, 1996, before me, a Notary Public,
personally appeared ________________________________, the ___________________
of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
---------------------------------
Notary Public
(SEAL) My Commission Expires:
-----------
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1996, before me, a Notary Public,
personally appeared ________________________________, the ____________________
of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
---------------------------------
Notary Public
(SEAL) My Commission Expires:
-----------
Washington/Huntoon:6/13/96 3
<PAGE> 92
EXHIBIT A-3
SERVICING FACILITY PROMISSORY NOTE
$10,000,000 Date: June 14, 1996
FOR VALUE RECEIVED, the undersigned, WASHINGTON MORTGAGE
FINANCIAL GROUP, LTD., a Delaware corporation, and WMF/HUNTOON, PAIGE
ASSOCIATES LIMITED, a Delaware corporation (herein collectively called the
"Borrowers", and individually as "Co-Borrower"), hereby promises to pay to the
order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"
or, together with its successors and assigns, the "Holder") whose principal
place of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis,
Minnesota 55437, or at such other place as the Holder may designate from time
to time, the principal sum of Ten Million Dollars ($10,000,000) or so much
thereof as may be outstanding from time to time pursuant to the Warehousing
Credit and Security Agreement described below, and to pay interest on said
principal sum or such part thereof as shall remain unpaid from time to time,
from the date of each Advance until repaid in full, and all other fees and
charges due under the Agreement, at the rates and at the times set forth in the
Agreement. All payments hereunder shall be made in lawful money of the United
States and in immediately available funds.
This Note is given to evidence an actual warehouse line of
credit in the above amount and is the Servicing Facility Promissory Note
referred to in that certain Warehousing Credit and Security Agreement ("the
Agreement") dated the date hereof between the Borrowers and the Lender, as the
same may be amended or supplemented from time to time, and is entitled to the
benefits thereof. Reference is hereby made to the Agreement (which is
incorporated herein by reference as fully and with the same effect as if set
forth herein at length) for a description of the Collateral, a statement of the
covenants and agreements, a statement of the rights and remedies and securities
afforded thereby and other matters contained therein. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given them in
the Agreement.
This Note may be prepaid in whole or in part at any time
without premium or penalty.
Should this Note be placed in the hands of attorneys for
collection, the Borrowers agree to pay, in addition to principal and interest,
fees and charges due under the Agreement, any and all costs of collecting this
Note, including reasonable attorneys' fees and expenses.
Washington/Huntoon:6/13/96 1
<PAGE> 93
The Borrowers hereby waive demand, notice, protest and
presentment.
The promises and agreements herein shall be construed to be
and are hereby declared to be the joint and several promises and agreements of
each Co-Borrower and shall constitute the joint and several obligation of each
Co-Borrower and shall be fully binding upon and enforceable against each
Co-Borrower. The release of any party to this Note shall not affect or release
the joint and several liability of any other party. The Lender may at its
option enforce this Note against one or all of the Co-Borrower, and the Lender
shall not be required to resort to enforcement against each Co-Borrower and the
failure to proceed against or join each Co-Borrower shall not affect the joint
and several liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with
the laws of the State of Minnesota, without reference to its principles of
conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as
of the day and year first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
-------------------------------------------
Its:
------------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
-------------------------------------------
Its:
------------------------------------------
Washington/Huntoon:6/13/96 2
<PAGE> 94
STATE OF ________________ )
) ss
COUNTY OF ______________ )
On _________________, 1996, before me, a Notary Public,
personally appeared ________________________________, the __ __________________
of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
----------------------------------
Notary Public
(SEAL) My Commission Expires:
------------
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1996, before me, a Notary Public,
personally appeared ________________________________, the __ __________________
of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
----------------------------------
Notary Public
(SEAL) My Commission Expires:
------------
Washington/Huntoon:6/13/96 3
<PAGE> 95
EXHIBIT B
(INTENTIONALLY OMITTED)
Washington/Huntoon:6/13/96
<PAGE> 96
EXHIBIT C-MF
REQUEST FOR ADVANCE AGAINST MULTIFAMILY, HEALTH CARE
AND COMMERCIAL MORTGAGE LOANS
<TABLE>
<S> <C>
_____ THIRD PARTY ORIGINATION
_____ CONVENTIONAL MORTGAGE LOAN
_____ FNMA _____ FHLMC _____ OTHER
_____ REFUNDER
_____ FNMA DUS MORTGAGE LOAN
_____ REFUNDER
_____ FHA PROJECT MORTGAGE LOAN _____ GNMA
_____ SECOND
_____ REFUNDER
_____ FHA CONSTRUCTION MORTGAGE LOAN
_____ COMMERCIAL MORTGAGE LOAN
_____ CONDUIT MORTGAGE LOAN
</TABLE>
Mortgage Company: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED
<TABLE>
<S> <C>
Loan No.: __________________________________ Warehouse Date: ___________________
Project Name: ______________________________ Contract/Pool No.: ________________
Mortgage Note Amount:_______________________ Interest Rate: ____________________
Mortgage Note Date: _______________________
Advance Amount: ____________________________
Approved Warehouse Amt: ____________________ Endorsement Amt: _________________
Cumulative Endorsement Amt: ________________
Investor: __________________________________ Expiration Date: _________________
Committed Purchase Price: __________________
Title Company/Closing Agent: __________________________________________________________________
Title Contact Person: ______________________ Phone No.: _______________________
Security Rate: ________ Issue Date: ________ Maturity Date: ___________________
</TABLE>
WIRE TRANSFER INFORMATION
<TABLE>
<S> <C>
Wire Amount:_________________________________ Date of Wire: ___________
Receiving Bank:______________________________ ABA No.: ___________
City & State: ________________________________________________________________________
Credit Account Name:___________________________ Number: ____________
Advise:________________________________________ Phone: ____________
</TABLE>
For new value this day received, and as collateral security for the
payment of any and all indebtedness and liability of the Mortgage Company under
that certain Credit and Security Agreement dated as of June 14, 1996, as may be
amended from time to time, by and between the Company and RESIDENTIAL FUNDING
CORPORATION (the "Lender"), the Company creates and grants in favor and for the
benefit of the Lender a security interest in and to the Mortgage Note
evidencing the Mortgage Loan described in this Advance Request.
Washington/Huntoon:6/13/96
<PAGE> 97
The Company agrees to cause the Mortgage Note to be delivered to the
Lender, on the next Business Day following the date of the Advance made to fund
the Mortgage Loan.
AUTHORIZED SIGNATURE(S)
- - -------------------------- ---------------------------------
- 2 -
Washington/Huntoon:6/13/96
<PAGE> 98
EXHIBIT C-MF/BER
REQUEST FOR ADVANCE AGAINST BERKSHIRE LOANS
Mortgage Company: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD.
<TABLE>
<S> <C>
Berkshire Loan Amount:_________________ Warehouse Date:________________
Berkshire Loan Date:___________________ Interest Rate:_________________
Berkshire Note Balance:________________
RFC Advance Amount:____________________
Approved Warehouse Amt: _______________ Endorsement Amt: _____________
Cumulative Endorsement Amt: ___________
Investor:________________________ Expiration Date: _______________
Investor Purchase Price: _____________________________
Title Company/Closing Agent: ______________________________________________________________________
Title Contact Person (if applicable):_________________ Phone No.: ______________
Security Rate: ________ Issue Date: ________ Maturity Date: _________
</TABLE>
WIRE TRANSFER INFORMATION
<TABLE>
<S> <C>
Wire Amount:_________________________________ Date of Wire: ___________
Receiving Bank:______________________________ ABA No.: ___________
City & State: _____________________________________________________________________________________
Credit Account Name:___________________________ Number: ____________
Advise:________________________________________ Phone: ____________
</TABLE>
AUTHORIZED SIGNATURE(S)
- - -------------------------- ---------------------------------
WAMtg./Huntoon:6/13/96
<PAGE> 99
EXHIBIT C-SER
SERVICING ACQUISITION ADVANCE REQUEST
Date:_________________, 199_
Reference is made to that certain Credit and Security Agreement
between WASHINGTON MORTGAGE FINANCIAL GROUP, INC., a Delaware corporation,
WMF/PAIGE, ASSOCIATES LIMITED, a Delaware corporation (the "Borrowers"), and
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"), dated
as of June 14, 1996 (as the same may be amended, modified, supplemented,
renewed or restated from time to time, the "Agreement"). All capitalized terms
used herein and all Section numbers given herein refer to those terms and
Sections set forth in the Agreement. This Servicing Acquisition Advance
Request is submitted to the Lender pursuant to Section 2.5(a).
The undersigned hereby requests a Servicing Acquisition Advance for a
Servicing Acquisition in the aggregate principal amount of $_______ to be made
on __________, 199_.
The Servicing Collateral Value as of the date of the requested
Advance, including the value of the Servicing Acquisition to be funded by this
Servicing Acquisition Advance, will be $__________. The Borrowers represent
and warrant that they have no reason to believe that such amount is incorrect.
The aggregate principal amount of the Servicing Facility Advances outstanding
after giving effect to the Servicing Facility Advance requested hereby will not
exceed the Servicing Facility Commitment Amount, and the aggregate principal
amount of the Term Loan Advance and the Servicing Facility Advances outstanding
after giving effect to the Servicing Facility Advance requested hereby will not
exceed the Servicing Collateral Value as set forth in the preceding sentence.
The amount of the requested Servicing Acquisition Advance does not exceed the
maximum amount permitted therefor under Section 2.4(b)(1)(ii) of the Agreement.
Attached hereto are the following documents submitted pursuant to
Section 2.5(b) of the Agreement:
_____ 1. A counterpart of the Purchase Agreement and all other
Servicing Acquisition Documents.
_____ 2. A current Servicing Portfolio Report.
_____ 3. A copy of the most recent Appraisal of the Servicing
Contracts currently owned by the Borrowers, if
required by the Lender.
_____ 4. An Appraisal of the Nonrecourse Servicing Contracts
to be acquired, if requested by the Lender.
<PAGE> 100
EXHIBIT C-SER
Page 2
_____ 5. Letter of direction from the Borrowers to the Lender
directing disbursement of the proceeds of the
Servicing Acquisition Advance to the seller under the
Servicing Purchase Agreement.
_____ 6. Prior to the final disbursement of proceeds for
a particular Servicing Acquisition all consents from
and notices to FNMA, FHLMC or GNMA required for the
Borrowers to assume the Servicing Contracts to be
acquired and FNMA and FHLMC acknowledgements.
The representations and warranties of the Borrowers set forth in
Section 5 of the Agreement are true and correct in all material respects on and
as of the date hereof as if made on and as of such date.
No Event of Default has occurred and is continuing.
Since the Statement Date, there has been no material adverse change in
the business, financial condition or results of operation of the Borrowers and
their Subsidiaries, taken as a whole.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:___________________________
Its:__________________________
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:___________________________
Its:__________________________
Washington/Huntoon:6/13/96
<PAGE> 101
EXHIBIT C-WC
WORKING CAPITAL ADVANCE REQUEST
Date:
-------------------
Reference is made to that certain Credit and Security Agreement
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation and
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware corporation (the
"Borrowers"), and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Lender"), dated as of June 14, 1996 (as the same may be amended, modified,
supplemented, renewed or restated from time to time, the "Agreement"). All
capitalized terms used herein and all Section numbers given herein refer to
those terms and Sections set forth in the Agreement. This Working Capital
Advance Request is submitted to the Lender pursuant to Section 2.5(a) of the
Agreement.
The undersigned hereby requests a Working Capital Advance in the
aggregate principal amount of $________________ to be made on __________,
199___. The amount of the Working Capital Advances requested are not more than
the amount permitted by the Agreement to be borrowed pursuant to this Advance
Request.
The Servicing Collateral Value as of the date hereof is
$_______________. The Borrowers represent and warrant that they have no reason
to believe that such amount is incorrect. The aggregate principal amount of
the Servicing Facility Advances outstanding after giving effect to the
Servicing Facility Advance requested hereby will not exceed the Servicing
Facility Commitment Amount, and the aggregate principal amount of the Term Loan
Advance and the Servicing Facility Advances outstanding after giving effect to
the Servicing Facility Advance requested hereby will not exceed the Servicing
Collateral Value as set forth in the preceding sentence.
The Borrowers hereby certify that no Default or Event of Default has
occurred and is continuing and that all of the Borrowers' representations and
warranties in this Advance Request and the Agreement are currently true and
correct and (to the extent applicable on or after their respective dates) are
hereby republished. Since the Statement Date, there has been no material
adverse change in the business, financial condition or results of operation of
the Borrowers and their Subsidiaries, taken as a whole. The Borrowers
acknowledge that the Lender will rely on the truth of each statement in this
Advance Request in making the requested Working Capital Advances.
METHOD OF ADVANCE
<TABLE>
<S> <C>
( ) Wire Transfer
Amount of Wire: __________________ Date of Wire:_____________________
Credit Acct. No.: ________________ Credit Acct. Name:________________
ABA No.: _________________________ Bank Name:________________________
Account to Debit: ________________ City & State:_____________________
Ref: ________________ Advise: ___________________ Phone: _____________
</TABLE>
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
FOR RFC INTERNAL USE ONLY
Repetitive Code:____________________ Date:_________________________
Wire Initiator's Initials:__________ Wire Verifier's Initials:_____
Washington/Huntoon:6/13/96
<PAGE> 102
EXHIBIT D-MF/BER
PROCEDURES AND DOCUMENTATION FOR
WAREHOUSING BERKSHIRE LOANS
The following procedures and documentation requirements must be
observed in all respects by Washington. All documents must be satisfactory to
the Lender in its sole discretion. Terms used below, which are not otherwise
defined, shall have the meanings given them in the Agreement. The term
"Mortgagee" as used below shall have the same meaning as the term "Washington".
The FNMA form numbers referred to herein are for convenience only and
Washington shall use the equivalent forms required at the time of delivery of
the Mortgage Loans or Mortgage-backed Securities.
I. FOR EACH ADVANCE:
The Lender must receive the following:
(1) Original signed Request for Advance (Exhibit C-MF).
(2) In the case of the initial Berkshire Advance, the original
Berkshire Master Notes, endorsed by Washington in blank and
without recourse (fax with original to follow within one (1)
Business Day).
(3) Original Advance Confirmation Instrument with respect to the
Berkshire Loan (for initial Berkshire Advance, fax with
original to follow within one (1) Business Day).
(4) Original Fannie Mae Participation Certificate evidencing
FNMA's 100% participation interest in such Berkshire Loan (for
initial Berkshire Advance, fax with original to follow within
one (1) Business Day).
(5) Copy of Investor's Purchase Commitment for the
Mortgage-backed Security.
(6) In the case of (a) the initial Berkshire Advance and (b) the
first Berkshire Advance made after an additional Mortgage or
pledged Mortgage Note is added to the Collateral Pool under
the Berkshire Master Agreement, a copy of the title insurance
commitment to issue a policy of title insurance marked to show
the final policy exceptions (within one (1) Business Day).
(7) Check payable to the Lender for the Warehousing Fee (if
applicable).
II. DELIVERY OF DOCUMENTS
Upon instruction by Washington, accompanied by signed Securities Delivery
Instructions in the form attached hereto as Schedule I, the Lender will make
arrangements for delivery of the original Advance Confirmation Instrument and
Fannie Mae Participation Certificate to the FNMA office specified by Washington
under a
Washington/Huntoon:6/13/96
<PAGE> 103
cover letter referring to the bailee agreement among Washington, the Lender and
FNMA with respect to the Berkshire Master Notes. Upon receipt of a
Mortgage-backed Security, the Lender will deliver such Mortgage-backed Security
to the Investor which issued the Purchase Commitment. Mortgage-backed
Securities will be released to the Investor only upon payment of the purchase
proceeds to the Lender. Cash proceeds of sales of Mortgage-backed Securities
shall be applied to any amounts outstanding under the Commitments. Provided no
Default exists, the Lender shall return any excess proceeds of the sale of
Mortgage-backed Securities to the Borrowers.
- 2 -
Washington/Huntoon:6/13/96
<PAGE> 104
SCHEDULE I
RESIDENTIAL FUNDING CORPORATION
WAREHOUSING LENDING DIVISION
Security Delivery Instructions
INSTRUCTIONS MUST BE RECEIVED TWO (2) BUSINESS DAYS IN ADVANCE OF
PICK-UP/DELIVERY
<TABLE>
<S> <C>
BOOK-ENTRY DATE: ______________________ SETTLEMENT DATE: _____________________________________
ISSUER:________________________________ SECURITY: $___________________________________________
NO. OF CERTIFICATES: __________________ 1)__________________________
2)__________________________
3)__________________________
CUSIP #______________
Pool #_______________ MI#______________ Coupon Rate:__________________________________________
Issue Date:(M/D/Y) _______________________ Maturity Date:(M/D/Y)________________________________
POOL TYPE (circle one):
GNMA: GNMA I GNMA II
FHLMC: FIXED ARM DISCOUNT NOTE
FNMA: FIXED ARM DISCOUNT NOTE DEBENTURES REMIC
- - -----------------------------------------------------------------------------------------------------
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
- - -----------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE:________________________________________________________________________________
TITLE: ________________________________________________________________________________
</TABLE>
<PAGE> 105
EXHIBIT D-MF/CONV/DUS
PROCEDURES AND DOCUMENTATION FOR WAREHOUSING
CONVENTIONAL MULTIFAMILY, FNMA DUS, HEALTH CARE AND
COMMERCIAL MORTGAGE LOANS
The following procedures and documentation requirements must
be observed in all respects by the Company. All documents must be satisfactory
to the Lender in its sole discretion. Terms used below, which are not
otherwise defined, shall have the meanings given them in the Agreement. The
FNMA and FHLMC form numbers referred to herein are for convenience only and the
Company shall use the equivalent forms required at the time of delivery of the
Pledged Mortgage or Pledged Security.
I. AT LEAST THREE (3) BUSINESS DAYS PRIOR TO THE ADVANCE DATE:
The Lender must receive a letter signed by the Company
providing the following information on the Pledged Mortgage:
(1) Mortgagor's name;
(2) Project name;
(3) Company's case/loan number;
(4) Expected Advance date;
(5) Mortgage Note Amount;
(6) Name and address of title company or
settlement attorney and contact person.
II. AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF AN ADVANCE:
The Lender must receive the following:
(1) Original signed Request for Advance (Exhibit
C-MF);
(2) For FHLMC-committed Conventional Mortgage Loans the
signed Conventional Multifamily Immediate Delivery Purchase
Contract and Prior Approval Conversion Amendment (FHLMC Form
64A);
(3) For FNMA-committed Conventional Mortgage Loans, a copy of
the signed Mortgage Purchase and Delivery Commitment (FNMA
Form 4257);
(4) For FNMA DUS Mortgage Loans, a copy of the signed FNMA
Mandatory Delivery Commitment-Multifamily Delegated
Underwriting;
(5) For other Conventional Mortgage Loans, Health Care Mortgage
Loans and Commercial Mortgage Loans, a copy of the Purchase
Commitment for the Pledged Mortgage;
(6) If a Mortgage-backed Security is to be issued, a copy of
Purchase Commitment for the Pledged Security;
(7) If Participation Certificate is to be issued, a copy of
Participation and Servicing Agreement;
Washington/Huntoon:6/13/96 Rev:12/13/95
<PAGE> 106
(8) Original Lender escrow instructions letter to the title
company or the settlement attorney, countersigned by an
authorized representative of the title company or the
settlement attorney to be involved with the transaction;
(9) If the Company is not the mortgagee on the Mortgage, a copy
of the assignment of Mortgage by the mortgagee to the Company
which was sent for recordation on or before the date of the
Advance;
(10) Original assignment of the Mortgage to the Lender in
recordable form but unrecorded;
(11) Original assignment of the security agreement to the
Lender in recordable form but unrecorded;
(12) Original assignment of the UCC financing statements to the
Lender in recordable form but unrecorded; and
(13) Check payable to the Lender for the Warehousing Fee (if
applicable).
Upon receipt of the letter required under Section I above, in form and
substance satisfactory to the Lender, the Lender will issue its escrow
instruction letter to the title company or the settlement attorney.
The Advance, when wired by the Lender to the title company or the
settlement attorney, shall be held in an escrow account of the title
company or the settlement attorney and disbursed in accordance with
the closing letter of the Company or its counsel when authorized by
the Lender in its escrow instruction letter. No Advance will be made
by the Lender prior to its receipt of all Collateral Documents
required under Section II above. Disbursement will be authorized only
after the title company or settlement attorney takes possession, on
behalf of the Lender, of the signed Mortgage Note, endorsed by the
Company in blank and without recourse, and the title company has
issued its title insurance policy. Immediately after disbursement,
the title company or settlement attorney shall be required to transmit
the Mortgage Note and certified true copy of the title insurance
policy directly to the Lender. In the event the Pledged Mortgage is
not closed and the related Mortgage recorded by 3:00 p.m. on the date
of the Advance, the title company or the settlement attorney is
instructed to return the Advance immediately to the Lender.
The foregoing arrangements, permitting funding of the Advance when the
Mortgage Note has been delivered to a third person on behalf of, and
as agent and bailee for the Lender, and before the Mortgage Note is
received by the Lender, are for the convenience of the Company. All
risk of loss or nondelivery of the Mortgage Note is that of the
Company, and the Lender has no liability or responsibility therefor.
Washington/Huntoon:6/13/96 - 2 - Rev:12/13/95
<PAGE> 107
III. ON NEXT BUSINESS DAY FOLLOWING THE ADVANCE DATE:
The Lender must receive the following:
(1) The original Mortgage Note, endorsed by the Company in blank
and without recourse. If the Company is not the named holder
of the Mortgage Note, the Mortgage Note must bear an
endorsement from the holder to the Company;
(2) A copy of the title insurance policy or the title insurance
commitment to issue a policy marked to show the final policy
exceptions, which:
(a) Names as insured the Company and/or
the Investor, and their successors
and assigns, as their interests may
appear;
(b) Shows effective date and time which
is on or after the date and time of
disbursement of the Advance from
escrow; and
(c) Sets forth an insured amount which
is equal to or greater than the Advance amount.
(3) If a Participation Certificate is issued, original
Participation Certificate evidencing one hundred percent
(100%) of the undivided interests in the pool of Pledged
Mortgages;
(4) If a Participation Certificate is issued, original signed
Stock/Bond Power or equivalent Assignment for the
Participation Certificate issued from the Company to the
Lender (or from the Investor to the Lender if the
Participation Certificate was issued in the name of the
Investor);
IV. AS SOON AS POSSIBLE FOLLOWING THE ADVANCE DATE, AND NO LATER THAN
ONE (1) BUSINESS DAY PRIOR TO THE DATE THE INVESTOR OR THE APPROVED
CUSTODIAN MUST RECEIVE THE PLEDGED MORTGAGE:
The Lender must receive the following:
(1) Signed shipping instructions for the delivery of the
Pledged Mortgage including the following:
(a) Name and address of the Investor or
the Approved Custodian to which the
Collateral Documents are to be
shipped, the desired shipping date
and the preferred method of
delivery;
(b) For delivery of the Participation
Certificate, the name and address of
the Investor to which the
Participation Certificate is to be
delivered;
(c) Name of project securing the Pledged Mortgage;
(d) Date the Investor or the Approved Custodian must
receive the Pledged Mortgage; and
(e) Instructions for endorsement of the Mortgage Note.
(2) For FHLMC-committed Conventional Mortgage Loans, the
following additional documents must be received:
Washington/Huntoon:6/13/96 - 3 - Rev:12/13/95
<PAGE> 108
(a) Original Contract Delivery Summary
(FHLMC Form 381) marked to indicate
that the mortgages being delivered
are subject to a security interest.
(b) For cash payments, the signed
original Wire Transfer Authorization
for a Cash Warehouse Delivery (FHLMC
Form 987), showing the Lender as
warehouse lender and specifying the
Cash Collateral Account as the
receiving account for loan purchase
proceeds.
(c) Completed, but not signed, Warehouse
Lender Release of Security Interest
(FHLMC Form 996), to be signed by
the Lender.
(3) For FNMA-committed Conventional Mortgage Loans and FNMA DUS
Mortgage Loans, the following additional documents must be
received:
(a) For cash payments, the signed
original Wire Transfer Request (FNMA
Form 4639), specifying the Cash
Collateral Account as the receiving
account for loan purchase proceeds.
(b) Executed bailee letter with Schedule A (in form
approved by FNMA and the Lender).
(4) The remainder of the documents required for shipping to the
Investor as specified by the Investor or in the applicable
Seller/Servicer Guide.
The Lender exclusively shall deliver the Mortgage Note and other
original Collateral Documents evidencing the Pledged Mortgage and
related pool documents to an Investor or an Approved Custodian, unless
otherwise agreed in writing.
V. IF A MORTGAGE-BACKED SECURITY IS TO BE ISSUED BY FNMA, AS SOON AS
POSSIBLE FOLLOWING CLOSING, BUT NO LATER THAN ONE (1) BUSINESS DAY
PRIOR TO SETTLEMENT DATE FOR A PLEDGED SECURITY THE LENDER MUST
RECEIVE:
(1) An original Delivery Schedule (FNMA Form 2014), instructing
FNMA to issue the Mortgage-backed Security in the name of the
Company, to deliver the Pledged Security to the Lender's
custody account at Chemical Bank NY (CHEMICAL
NYC/GEOCUST/MR9229490), and bearing the following
instructions: "These instructions may not be changed without
the prior written approval of Residential Funding Corporation,
Preston A. Lyvers Director or Patti Erfan, Director."
(2) The signed Securities Delivery Instructions form attached
hereto as Schedule I.
Upon instruction by the Company, the Lender shall complete the endorsement of
the Mortgage Note. If no Mortgage-backed Security is to be issued, the Lender
shall deliver the Mortgage Note and the other documents required for shipping
to the Investor as specified
Washington/Huntoon:6/13/96 - 4 - Rev:12/13/95
<PAGE> 109
by the Investor or in the applicable Seller/Servicer Guide with a bailee letter
to the Investor who issued the Purchase Commitment for the Pledged Mortgage or
to an Approved Custodian for such Investor. If a Mortgage-backed Security is
to be issued, the Lender shall deliver the Mortgage Note, the other documents
required for shipping and the Delivery Schedule with a bailee letter to FNMA or
to an Approved Custodian for FNMA. If Participation Certificates are to be
issued, the Lender will retain possession of the original Mortgage Note until
the proceeds of the sale of all related Participation Certificates have been
received by the Lender.
Upon receipt of a Pledged Security, the Lender will deliver the Pledged
Security to the Investor which issued the Purchase Commitment for the Pledged
Security. The Pledged Security will be released to the Investor only upon
payment of the purchase proceeds to the Lender. Cash proceeds of the sale of a
Pledged Mortgage or a Pledged Security shall be applied to the related Advance
outstanding under the Commitment. Provided no Default exists, the Lender shall
return any excess proceeds of the sale of a Pledged Mortgage or a Pledged
Security to the Company, unless otherwise instructed in writing.
- 5 -
Washington/Huntoon:6/13/96 Rev:12/13/95
<PAGE> 110
SCHEDULE I
RESIDENTIAL FUNDING CORPORATION
WAREHOUSING LENDING DIVISION
Security Delivery Instructions
INSTRUCTIONS MUST BE RECEIVED TWO (2) BUSINESS DAYS IN ADVANCE OF
PICK-UP/DELIVERY
<TABLE>
<S> <C>
BOOK-ENTRY DATE: ______________________ SETTLEMENT DATE: _____________________________________
ISSUER:________________________________ SECURITY: $___________________________________________
NO. OF CERTIFICATES: __________________ 1)__________________________
2)__________________________
3)__________________________
CUSIP #______________
Pool #_______________ MI#______________ Coupon Rate:__________________________________________
Issue Date:(M/D/Y) _______________________ Maturity Date:(M/D/Y)________________________________
POOL TYPE (circle one):
GNMA: GNMA I GNMA II
FHLMC: FIXED ARM DISCOUNT NOTE
FNMA: FIXED ARM DISCOUNT NOTE DEBENTURES REMIC
- - -----------------------------------------------------------------------------------------------------
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
- - -----------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE:________________________________________________________________________________
TITLE: ________________________________________________________________________________
</TABLE>
<PAGE> 111
EXHIBIT D-MF/FHA
PROCEDURES AND DOCUMENTATION FOR WAREHOUSING
FHA PROJECT LOANS AND FHA CONSTRUCTION MORTGAGE LOANS
The following procedures and documentation requirements must
be observed in all respects by the Company. All documents must be satisfactory
to the Lender in its sole discretion. Terms used below, which are not
otherwise defined, shall have the meanings given them in the Agreement. The HUD
form numbers referred to herein are for convenience only and the Company shall
use the equivalent forms required at the time of delivery of a Pledged Mortgage
or a Pledged Security.
I. AT LEAST THREE (3) BUSINESS DAYS PRIOR TO THE ADVANCE DATE:
The Lender must receive a letter signed by the Company
providing the following information on the Pledged Mortgage:
(1) Mortgagor's name;
(2) Project name;
(3) Company's case/loan number;
(4) Expected Advance date;
(5) Mortgage Note Amount;
(6) Name and address of Company's counsel to be present
at closing; and
(7) Name and address of title company or settlement
attorney and contact person.
II. AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE ADVANCE DATE:
The Lender must receive the following:
(1) Original signed Request for Advance (Exhibit C-MF);
(2) Copy of FHA Firm Commitment to insure;
(3) If no Mortgage-backed Security is to be issued, a
copy of Purchase Commitment for the Pledged Mortgage;
(4) If a Mortgage-backed Security is to be issued:
(a) Copy of Purchase Commitment for the
Mortgage-backed Security;
(b) Copy of Confirmation Notice for Request
Additional Commitment Authority from GNMA;
and
(c) Copy of Confirmation Notice for Request Pool
Numbers.
(5) If Pledged Mortgage is an FHA Construction Mortgage
Loan, then, in addition to (3) and (4) above, a copy
of Purchase Commitment for related FHA Project
Mortgage Loan or, if a Mortgage-backed Security is to
be issued backed by the related FHA Project Mortgage
Loan, a copy of the Purchase Commitment for the
Mortgage-backed Security;
Washington/Huntoon:6/13/96 Rev:12/12/95
<PAGE> 112
(6) If Participation Certificate is to be issued, a copy
of Participation and Servicing Agreement;
(7) Original Lender closing instructions letter to the
Company's counsel, countersigned by the counsel to be
involved with the transaction;
(8) Original Lender escrow instructions letter to the
title company or the settlement attorney,
countersigned by an authorized representative of the
title company or the settlement attorney to be
involved with the transaction;
(9) For FHA Construction Mortgage Loans, a copy of the
Application for Insurance of Advance of Mortgage
Proceeds (HUD Form 92403) signed by an authorized
representative of HUD;
(10) Original assignment of the Mortgage to the Lender in
recordable form but unrecorded;
(11) Original assignment of the security agreement to the
Lender in recordable form but unrecorded;
(12) Original assignment of the UCC financing statements
to the Lender in recordable form but unrecorded;
and
(13) Check payable to the Lender for the Warehousing
Fee, if applicable.
Upon receipt of the Company's letter required under Section I
above, the Lender will issue its closing instructions letter
to the Company's counsel and its escrow instructions letter to
the title company or the settlement attorney. The Advance,
when wired by the Lender to the title company or the
settlement attorney, shall be held in an escrow account of the
title company or the settlement attorney and disbursed in
accordance with the closing instructions letter of the Company
or its counsel when authorized by the Lender in its escrow
instructions letter. No Advance will be made by the Lender
prior to its receipt of all Collateral Documents required
under Section II above.
At closing, the title company or the settlement attorney shall
take possession on behalf of, and as agent and bailee for the
Lender, of (a) the signed Mortgage Note, endorsed by the
Company in blank and without recourse, and (b) the title
insurance policy.
After taking possession of the Mortgage Note and the title
insurance policy, the title company or the settlement attorney
is authorized to release the Mortgage Note and the title
insurance policy to Company's counsel pursuant to a trust
receipt signed by the Company's counsel, in a form approved by
the Lender. The trust receipt requires the Company's counsel
to (a) acknowledge receipt of the Mortgage Note, (b)
acknowledge the security interest of the Lender in the
Mortgage Note, (c) agree that the Mortgage Note is being
delivered to the Company's counsel solely for the purpose of
- 2 -
Washington/Huntoon:6/13/96 Rev:12/12/95
<PAGE> 113
obtaining HUD's endorsement, and (d) deliver the Mortgage
Note, endorsed by HUD, and the title insurance policy directly
to the Lender.
The title company or the settlement attorney is authorized to
disburse the Advance from escrow upon advice of the Company's
counsel, which may be telephonic, that the Mortgage Note has
been endorsed by HUD.
The foregoing arrangements, permitting funding of the Advance
when the Mortgage Note has been delivered to a third person on
behalf of, and as agent and bailee for the Lender, and before
the Mortgage Note is received by the Lender, are for the
convenience of the Company. All risk of loss or nondelivery
of the Mortgage Note is that of the Company, and the Lender
has no liability or responsibility therefor.
III. ON NEXT BUSINESS DAY FOLLOWING THE ADVANCE DATE:
The Lender must receive the following:
(1) Original signed Mortgage Note, endorsed by the
Company in blank and without recourse and endorsed
for insurance by HUD;
(2) Original title insurance policy, which:
(a) Contains recording information filled in on
the schedules pertaining to the Pledged
Mortgage, UCC financing statements and
regulatory agreement;
(b) Names as insured the "Mortgagee and/or the
Secretary of the Department of Housing and
Urban Development, and their successors and
assigns, as their interests may appear";
(c) Shows effective date and time which is on or
after the date and time of disbursement of
the Advance from escrow; and
(d) Sets forth an insured amount which is equal
to or greater than the Advance amount.
(3) If a Participation Certificate is issued, original
Participation Certificate evidencing one hundred
percent (100%) of the undivided interests in the
pool of Pledged Mortgages;
(4) If a Participation Certificate is issued, original
signed Stock/Bond Power or equivalent Assignment for
the Participation Certificate issued from the
Company to the Lender (or from the Investor to the
Lender if the Participation Certificate was issued
in the name of the Investor).
IV. AS SOON AS POSSIBLE FOLLOWING THE ADVANCE DATE, AND NO LATER
THAN ONE (1) BUSINESS DAY PRIOR TO DATE THE INVESTOR OR THE
APPROVED CUSTODIAN MUST RECEIVE THE PLEDGED MORTGAGE:
- 3 -
Washington/Huntoon:6/13/96 Rev:12/12/95
<PAGE> 114
The Lender must receive signed shipping instructions for the
delivery of the Pledged Mortgage including the following:
(1) Name and address of the Investor or the Approved
Custodian to which the Collateral Documents are to be
shipped, the desired shipping date and the preferred
method of delivery;
(2) For delivery of the Participation Certificate, the
name and address of the Investor to which the
Participation Certificate is to be delivered;
(3) Name of project securing the Pledged Mortgage;
(4) Date the Investor or the Approved Custodian must
receive the Pledged Mortgage; and
(5) Instructions for endorsement of the Mortgage Note.
The Lender exclusively shall deliver the Mortgage Note and
other original Collateral Documents evidencing the Pledged
Mortgage and related pool documents to an Investor or an
Approved Custodian, unless otherwise agreed in writing.
V. IF GNMA MORTGAGE-BACKED SECURITY IS TO BE ISSUED, AS SOON AS
POSSIBLE FOLLOWING CLOSING, BUT NO LATER THAN ONE (1) BUSINESS
DAYS PRIOR TO SETTLEMENT DATE FOR A PLEDGED SECURITY THE
LENDER MUST RECEIVE:
(1) The signed original Schedule of Subscribers (HUD Form
11705) instructing GNMA to issue the Mortgage-backed
Security in the name of the Company and designating
Chemical Bank NY as agent for the Lender, as the
subscriber, and to deliver the Pledged Security to
the Lender's custody account at Chemical Bank NY
(CHEMICAL BANK AS AGENT FOR RESIDENTIAL FUNDING
CORPORATION SEG ACCT MANUF/CUST/MR9229490) and
bearing the following instructions: "These
instructions may not be changed without prior written
approval of Residential Funding Corporation, Preston
A. Lyvers, Vice President or Patti Erfan, Regional
Operations Manager."
(2) Completed but not signed Release of Security Interest
(HUD Form 11711A) to be signed by the Lender.
(3) The signed Securities Delivery Instructions form
attached hereto as Schedule I.
Upon instruction by the Company, the Lender shall complete the endorsement of
the Mortgage Note. If no GNMA Mortgage-backed Security is to be issued, the
Lender shall deliver the Mortgage Note and title insurance policy with a bailee
letter to the Investor who issued the Purchase Commitment for the Pledged
Mortgage or an Approved Custodian for the Investor. If a GNMA Mortgage-backed
Security is to be issued, the Lender shall deliver the Mortgage Note, the title
insurance policy, the Release of
- 4 -
Washington/Huntoon:6/13/96 Rev:12/12/95
<PAGE> 115
Security Interest, and the Schedule of Subscribers with a bailee letter to an
Approved Custodian for GNMA.
Upon receipt of a Pledged Security, the Lender will deliver the Pledged
Security to the Investor which issued the Purchase Commitment for the Pledged
Security. The Pledged Security will be released to the Investor only upon
payment of the purchase proceeds to the Lender. Cash proceeds of the sale of a
Pledged Mortgage or a Pledged Security shall be applied to the related Advance
outstanding under the Commitment. Provided no Default exists, the Lender shall
return any excess proceeds of the sale of a Pledged Mortgage or a Pledged
Security to the Company, unless otherwise instructed in writing.
VI. FOR SUBSEQUENT FHA CONSTRUCTION MORTGAGE LOAN ADVANCES:
A. AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF
THE ADVANCE:
The Lender must receive the following:
(1) Original signed Request for Advance (Exhibit
C-MF); and
(2) Application for Insurance of Advance of
Mortgage Proceeds (HUD Form 92403) signed
by authorized representative of HUD.
B. ON THE DAY OF THE ADVANCE:
The Lender must receive evidence of title insurance
coverage in an amount equal to the amount of the
Advance (verbal assurance from the title company to
be followed by a copy of the title insurance policy
endorsement immediately following closing).
C. AS SOON AS POSSIBLE FOLLOWING THE ADVANCE DATE, AND
NO LATER THAN ONE (1) BUSINESS DAY PRIOR TO DATE THE
INVESTOR OR THE APPROVED CUSTODIAN MUST RECEIVE THE
PLEDGED MORTGAGE:
FOLLOW SAME INSTRUCTIONS AS SECTION IV ABOVE.
D. IF A GNMA MORTGAGE-BACKED SECURITY IS TO BE ISSUED:
FOLLOW SAME INSTRUCTIONS AS SECTION V ABOVE.
- 5 -
Washington/Huntoon:6/13/96 Rev:12/12/95
<PAGE> 116
SCHEDULE I
RESIDENTIAL FUNDING CORPORATION
WAREHOUSING LENDING DIVISION
Security Delivery Instructions
INSTRUCTIONS MUST BE RECEIVED TWO (2) BUSINESS DAYS IN ADVANCE OF
PICK-UP/DELIVERY
<TABLE>
<S> <C>
BOOK-ENTRY DATE: ______________________ SETTLEMENT DATE: _____________________________________
ISSUER:________________________________ SECURITY: $___________________________________________
NO. OF CERTIFICATES: __________________ 1)__________________________
2)__________________________
3)__________________________
CUSIP #______________
Pool #_______________ MI#______________ Coupon Rate:__________________________________________
Issue Date:(M/D/Y) _______________________ Maturity Date:(M/D/Y)________________________________
POOL TYPE (circle one):
GNMA: GNMA I GNMA II
FHLMC: FIXED ARM DISCOUNT NOTE
FNMA: FIXED ARM DISCOUNT NOTE DEBENTURES REMIC
- - -----------------------------------------------------------------------------------------------------
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $________________________________________
_______________________________ ( ) Free Delivery
- - -----------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE:________________________________________________________________________________
TITLE: ________________________________________________________________________________
</TABLE>
<PAGE> 117
EXHIBIT D-SA [OMITTED]
EXHIBIT E-1 [OMITTED]
EXHIBIT E-2 [OMITTED]
EXHIBIT F-1
RESIDENTIAL FUNDING CORPORATION
SUBORDINATION OF DEBT AGREEMENT
_______________________, 19___
To: Residential Funding Corporation
8400 Normandale Lake Blvd., Suite 600
Minneapolis, Minnesota 55437
(hereinafter referred to as the "Lender")
The undersigned (hereinafter referred to as the "Creditor"),
creditor of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
(hereinafter referred to as the "Company"), desires that the Lender extend or
continue to extend such financial accommodations to the Company as the Company
may require and as the Lender may deem proper. For the purpose of inducing the
Lender to grant, continue or renew such financial accommodations, and in
consideration thereof, the Creditor agrees as follows:
1. That at the present time the Company is indebted to the
Creditor in the principal amounts set forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
TYPE OF FACILITY OF DEBT FROM THE
OR LOAN COMPANY
<S> <C>
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
</TABLE>
(Notes, if any, are to be delivered to the Lender)
2. That all claims of the Creditor against the Company now or
hereafter existing are and shall be at all times subject and
subordinate to any and all claims now or hereafter which the
Lender may have against the Company (and all extensions,
renewals, modifications, replacements and substitutions of or
for the same), for so long as any such claim or claims of the
Lender shall exist.
3. That the Creditor shall not (a) except to the extent expressly
permitted in Section 4 hereof, receive payment of or collect,
in whole or in part, or sue upon, any claim or claims now or
hereafter existing which the Creditor may hold against the
Washington/Huntoon:6/13/96 1
<PAGE> 118
Company; (b) sell, assign, transfer, pledge, hypothecate or
encumber such claim or claims except subject expressly to this
Agreement; (c) enforce any lien the Creditor may now or in the
future have on any debt owing by the Company to the Creditor;
and/or (d) join in any petition in bankruptcy, assignment for
the benefit of creditors or creditors' agreement, except as
directed by the Lender, so long as any claim of the Lender
against the Company, or commitment of the Lender to extend
credit to the Company, is in existence.
4. So long as no event described in clauses (a) through (d) of
Section 6 below (a "Liquidation Event") shall have occurred
and no default shall have occurred in payment or performance
of any obligation of the Company to the Lender, regularly
scheduled payments of interest and principal on the claims of
the Creditor may be made as and when the same become due and
payable (it being understood that no prepayment shall be made
of such claims and no modification or acceleration, for
default or otherwise, of such maturity dates shall be
permitted). After the occurrence of a Liquidation Event or of
default in payment or performance of any obligation of the
Company to the Lender, no interest and no principal payments
on the claims of the Creditor shall be made without the prior
written consent of the Lender. The subordination of claims of
the Creditor hereunder shall remain in effect so long as there
shall be outstanding any obligation of the Company to the
Lender (for this purpose, the Company shall be deemed
obligated to the Lender so long as the Lender shall have
outstanding any commitment to make any loan to the Company,
whether or not any such loan shall have been made or
advanced).
5. In the event that any Creditor receives a payment from the
Company in violation of the terms of this Agreement, such
Creditor (a) shall hold such money in trust for the benefit of
Lender, (b) shall segregate such payment from (and shall not
commingle such payment with any of) the other funds of such
Creditor, and (c) shall forthwith remit such payment to Lender
in the exact form received (but with any necessary
endorsement).
6. In case of (a) any assignment by the Company for the benefit
of creditors, (b) any bankruptcy proceedings instituted by or
against the Company, (c) the appointment of any receiver for
the Company's business or assets, or (d) any dissolution or
winding up of the affairs of the Company, the Company and any
assignee, trustee in bankruptcy, receiver, or other person or
persons in charge, are hereby directed to pay to the Lender
the full amount of the Lender's claim against the Company
before making any payment of principal or interest to the
Creditor and the Creditor hereby sells, transfers, sets over
and assigns to the Lender all claims the Creditor may now or
Washington/Huntoon:6/13/96 2
<PAGE> 119
hereafter have against the Company and in any security
therefor, and the proceeds thereof, and all rights to any
payments, dividends or other distributions arising therefrom.
If the Creditor does not file a proper claim or proof of debt
in the form required in such proceeding prior to thirty (30)
days before the expiration of the time to file such claim in
such proceedings, then the Lender has the right (but no
obligation) to do so and is hereby authorized to file an
appropriate claim or claims for and on behalf of the Creditor.
7. For violation of this Agreement, the Creditor shall be liable
to the Lender for all loss and damage sustained by reason of
such breach, and upon any such violation, the Lender may
accelerate the maturity of its claims against the Company, at
the Lender's option.
8. The Creditor will, at any time and from time to time, promptly
execute and deliver all further instruments and documents, and
take all further action, that may be reasonably necessary in
order to protect any right or interest granted hereby or to
enable the Lender to exercise and enforce its rights and
remedies hereunder.
9. The Creditor will not amend, extend or in any way modify the
terms of its claims against the Company, as such terms exist
as of the date of this Agreement, without the prior written
consent of the Lender. The Creditor agrees to provide to the
Lender, upon the occurrence thereof, notice of the existence
of any event of default (however defined or described) under
any document or agreement relating to its claims against the
Company, or any condition, act or event, which with the giving
of notice or the passage of time or both would constitute an
event of default (however defined or described) thereunder.
10. All rights and interest of the Lender hereunder, and all
agreements and obligations of the Creditor hereunder, shall
remain in full force and effect irrespective of:
(a) any sale, assignment, pledge, encumbrance or
other disposition of the claims of the Lender against the
Company (the "Senior Claims") and/or any document or
instrument executed in connection therewith;
(b) any change in the time, manner or place of
payment of, or in any other terms of, all or any of the Senior
Claims, or any refinancing thereof, or any other amendment,
modification, extension or renewal of or waiver of or any
consent to departure from any document or instrument relating
thereto, including, without limitation, changes in the terms
of the repayment of loan proceeds, modifications, extensions
or renewals of payment dates, changes in interest rate or the
Washington/Huntoon:6/13/96 3
<PAGE> 120
advancement of additional funds by the Lender in its
discretion; or
(c) any exchange, release or nonperfection of any
collateral, or any release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the
Senior Claims.
11. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment or
performance of all or any portion of the Senior Claims is
rescinded or must otherwise be returned by the Lender or any
other party to the documents relating thereto upon the
insolvency, bankruptcy or reorganization of any such party or
otherwise, all as though such payment had not been made.
12. The Creditor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to this Agreement
and any requirement that the Lender protect, secure, perfect
or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action
against the Creditor or any other person or entity or any
collateral.
13. No failure on the part of the Lender to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided
are cumulative and not exclusive of any remedies provided by
law.
14. No amendment or waiver of any provision of this Agreement nor
consent to any departure by the Creditor therefrom shall in
any event be effective unless the same shall be in writing and
signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
15. The Creditor agrees to pay upon demand, to the Lender the
amount of any and all expenses, including the reasonable fees
and expenses of its counsel and all court costs and other
reasonable litigation expenses, including but not limited to
expert witness fees, document copying expenses, exhibit
preparation costs, and courier, postage and communication
expenses, which the Lender may incur in connection with the
exercise or enforcement of any of its rights or interest
hereunder.
16. All notices, request and demands that may be required or
otherwise provided for or contemplated under the terms of this
Agreement shall, whether or not so stated, be in writing, and
Washington/Huntoon:6/13/96 4
<PAGE> 121
shall be given by any of the following means: (a) personal
delivery; (b) reputable overnight courier service; or (c)
registered or certified first class mail, return receipt
requested. Any notice, request or demand sent pursuant to
clause (a) above shall be deemed received upon personal
delivery, and if sent pursuant to clause (b) shall be deemed
received on the next business day following delivery to the
courier service, and if sent pursuant to clause (c) shall be
deemed received three (3) days following deposit in the mail.
The addresses for notices are as follows:
If to the Creditor, addressed to:
----------------------------------
----------------------------------
----------------------------------
If to the Lender, addressed to :
Residential Funding Corporation
4800 Montgomery Lane, Suite 300
Bethesda, Maryland 20814
Attention: Lisa Carlson, Director
Telecopier No.: (301) 215-6288
Such addresses may be changed by written notice to the other
parties given in the manner provided above.
17. This Agreement shall be governed in all respects by the laws
of the State of Minnesota and shall be binding upon and shall
inure to the benefit of the Creditor, the Lender and the
Company, and their respective heirs, executors,
administrators, personal representatives, successors and
assigns. This Agreement and any claim or claims of the Lender
pursuant hereto may be assigned by the Lender, in whole or in
part, at any time, without notice to the Creditor or the
Company.
----------------------------------
(CREDITOR)
Washington/Huntoon:6/13/96 5
<PAGE> 122
[THE FOLLOWING ACKNOWLEDGEMENT IS TO BE USED FOR A CORPORATION.]
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 19___ before me, a Notary Public,
personally appeared ________________________________, the ____________________
of _____________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same in his/her authorized capacity, and that by his/her signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
----------------------------------
Notary Public
(SEAL) My Commission Expires:
------------
[THE FOLLOWING ACKNOWLEDGEMENT IS TO BE USED FOR AN INDIVIDUAL.]
STATE OF _______________ )
) ss
COUNTY OF ______________ )
The foregoing instrument was acknowledged before me this _____
day of _________________, 19__, by _____________________________.
----------------------------------
Notary Public
My Commission Expires:
------------
Washington/Huntoon:6/13/96 6
<PAGE> 123
ACCEPTANCE OF SUBORDINATION OF DEBT
AGREEMENT BY THE COMPANY
The Company named in the Subordination of Debt Agreement set
forth hereinbefore, hereby (i) represents and warrants to the Lender that it is
presently indebted to the Creditor executing said Subordination of Debt
Agreement in the aggregate principal amount of _____________________________
Dollars ($______________________); and (ii) accepts and consents to the
Subordination of Debt Agreement, and agrees to be bound by all of the
provisions thereof and to recognize all priorities and other rights granted
thereby to RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, its
successors and assigns, and to perform in accordance therewith.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
--------------------------------
Its:
-------------------------------
Dated:
---------------------
Washington/Huntoon:6/13/96 7
<PAGE> 124
EXHIBIT F-2
RESIDENTIAL FUNDING CORPORATION
SUBORDINATION OF DEBT AGREEMENT
_______________________, 19___
To: Residential Funding Corporation
8400 Normandale Lake Blvd., Suite 600
Minneapolis, Minnesota 55437
(hereinafter referred to as the "Lender")
The undersigned (hereinafter referred to as the "Creditor"),
creditor of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware corporation
(hereinafter referred to as the "Company"), desires that the Lender extend or
continue to extend such financial accommodations to the Company as the Company
may require and as the Lender may deem proper. For the purpose of inducing the
Lender to grant, continue or renew such financial accommodations, and in
consideration thereof, the Creditor agrees as follows:
1. That at the present time the Company is indebted to the
Creditor in the principal amounts set forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
TYPE OF FACILITY OF DEBT FROM THE
OR LOAN COMPANY
<S> <C>
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
</TABLE>
(Notes, if any, are to be delivered to the Lender)
2. That all claims of the Creditor against the Company now or
hereafter existing are and shall be at all times subject and
subordinate to any and all claims now or hereafter which the
Lender may have against the Company (and all extensions,
renewals, modifications, replacements and substitutions of or
for the same), for so long as any such claim or claims of the
Lender shall exist.
3. That the Creditor shall not (a) except to the extent expressly
permitted in Section 4 hereof, receive payment of or collect,
in whole or in part, or sue upon, any claim or claims now or
hereafter existing which the Creditor may hold against the
Washington/Huntoon:6/13/96 1
<PAGE> 125
Company; (b) sell, assign, transfer, pledge, hypothecate or
encumber such claim or claims except subject expressly to this
Agreement; (c) enforce any lien the Creditor may now or in the
future have on any debt owing by the Company to the Creditor;
and/or (d) join in any petition in bankruptcy, assignment for
the benefit of creditors or creditors' agreement, except as
directed by the Lender, so long as any claim of the Lender
against the Company, or commitment of the Lender to extend
credit to the Company, is in existence.
4. So long as no event described in clauses (a) through (d) of
Section 6 below (a "Liquidation Event") shall have occurred
and no default shall have occurred in payment or performance
of any obligation of the Company to the Lender, regularly
scheduled payments of interest and principal on the claims of
the Creditor may be made as and when the same become due and
payable (it being understood that no prepayment shall be made
of such claims and no modification or acceleration, for
default or otherwise, of such maturity dates shall be
permitted). After the occurrence of a Liquidation Event or of
default in payment or performance of any obligation of the
Company to the Lender, no interest and no principal payments
on the claims of the Creditor shall be made without the prior
written consent of the Lender. The subordination of claims of
the Creditor hereunder shall remain in effect so long as there
shall be outstanding any obligation of the Company to the
Lender (for this purpose, the Company shall be deemed
obligated to the Lender so long as the Lender shall have
outstanding any commitment to make any loan to the Company,
whether or not any such loan shall have been made or
advanced).
5. In the event that any Creditor receives a payment from the
Company in violation of the terms of this Agreement, such
Creditor (a) shall hold such money in trust for the benefit of
Lender, (b) shall segregate such payment from (and shall not
commingle such payment with any of) the other funds of such
Creditor, and (c) shall forthwith remit such payment to Lender
in the exact form received (but with any necessary
endorsement).
6. In case of (a) any assignment by the Company for the benefit
of creditors, (b) any bankruptcy proceedings instituted by or
against the Company, (c) the appointment of any receiver for
the Company's business or assets, or (d) any dissolution or
winding up of the affairs of the Company, the Company and any
assignee, trustee in bankruptcy, receiver, or other person or
persons in charge, are hereby directed to pay to the Lender
the full amount of the Lender's claim against the Company
before making any payment of principal or interest to the
Creditor and the Creditor hereby sells, transfers, sets over
and assigns to the Lender all claims the Creditor may now or
Washington/Huntoon:6/13/96 2
<PAGE> 126
hereafter have against the Company and in any security
therefor, and the proceeds thereof, and all rights to any
payments, dividends or other distributions arising therefrom.
If the Creditor does not file a proper claim or proof of debt
in the form required in such proceeding prior to thirty (30)
days before the expiration of the time to file such claim in
such proceedings, then the Lender has the right (but no
obligation) to do so and is hereby authorized to file an
appropriate claim or claims for and on behalf of the Creditor.
7. For violation of this Agreement, the Creditor shall be liable
to the Lender for all loss and damage sustained by reason of
such breach, and upon any such violation, the Lender may
accelerate the maturity of its claims against the Company, at
the Lender's option.
8. The Creditor will, at any time and from time to time, promptly
execute and deliver all further instruments and documents, and
take all further action, that may be reasonably necessary in
order to protect any right or interest granted hereby or to
enable the Lender to exercise and enforce its rights and
remedies hereunder.
9. The Creditor will not amend, extend or in any way modify the
terms of its claims against the Company, as such terms exist
as of the date of this Agreement, without the prior written
consent of the Lender. The Creditor agrees to provide to the
Lender, upon the occurrence thereof, notice of the existence
of any event of default (however defined or described) under
any document or agreement relating to its claims against the
Company, or any condition, act or event, which with the giving
of notice or the passage of time or both would constitute an
event of default (however defined or described) thereunder.
10. All rights and interest of the Lender hereunder, and all
agreements and obligations of the Creditor hereunder, shall
remain in full force and effect irrespective of:
(a) any sale, assignment, pledge, encumbrance or
other disposition of the claims of the Lender against the
Company (the "Senior Claims") and/or any document or
instrument executed in connection therewith;
(b) any change in the time, manner or place of
payment of, or in any other terms of, all or any of the Senior
Claims, or any refinancing thereof, or any other amendment,
modification, extension or renewal of or waiver of or any
consent to departure from any document or instrument relating
thereto, including, without limitation, changes in the terms
of the repayment of loan proceeds, modifications, extensions
or renewals of payment dates, changes in interest rate or the
Washington/Huntoon:6/13/96 3
<PAGE> 127
advancement of additional funds by the Lender in its
discretion; or
(c) any exchange, release or nonperfection of any
collateral, or any release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the
Senior Claims.
11. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment or
performance of all or any portion of the Senior Claims is
rescinded or must otherwise be returned by the Lender or any
other party to the documents relating thereto upon the
insolvency, bankruptcy or reorganization of any such party or
otherwise, all as though such payment had not been made.
12. The Creditor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to this Agreement
and any requirement that the Lender protect, secure, perfect
or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action
against the Creditor or any other person or entity or any
collateral.
13. No failure on the part of the Lender to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided
are cumulative and not exclusive of any remedies provided by
law.
14. No amendment or waiver of any provision of this Agreement nor
consent to any departure by the Creditor therefrom shall in
any event be effective unless the same shall be in writing and
signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
15. The Creditor agrees to pay upon demand, to the Lender the
amount of any and all expenses, including the reasonable fees
and expenses of its counsel and all court costs and other
reasonable litigation expenses, including but not limited to
expert witness fees, document copying expenses, exhibit
preparation costs, and courier, postage and communication
expenses, which the Lender may incur in connection with the
exercise or enforcement of any of its rights or interest
hereunder.
16. All notices, request and demands that may be required or
otherwise provided for or contemplated under the terms of this
Agreement shall, whether or not so stated, be in writing, and
Washington/Huntoon:6/13/96 4
<PAGE> 128
shall be given by any of the following means: (a) personal
delivery; (b) reputable overnight courier service; or (c)
registered or certified first class mail, return receipt
requested. Any notice, request or demand sent pursuant to
clause (a) above shall be deemed received upon personal
delivery, and if sent pursuant to clause (b) shall be deemed
received on the next business day following delivery to the
courier service, and if sent pursuant to clause (c) shall be
deemed received three (3) days following deposit in the mail.
The addresses for notices are as follows:
If to the Creditor, addressed to:
----------------------------------
----------------------------------
----------------------------------
If to the Lender, addressed to :
Residential Funding Corporation
4800 Montgomery Lane, Suite 300
Bethesda, Maryland 20814
Attention: Lisa Carlson, Director
Telecopier No.: (301) 215-6288
Such addresses may be changed by written notice to the other
parties given in the manner provided above.
17. This Agreement shall be governed in all respects by the laws
of the State of Minnesota and shall be binding upon and shall
inure to the benefit of the Creditor, the Lender and the
Company, and their respective heirs, executors,
administrators, personal representatives, successors and
assigns. This Agreement and any claim or claims of the Lender
pursuant hereto may be assigned by the Lender, in whole or in
part, at any time, without notice to the Creditor or the
Company.
---------------------------------
(CREDITOR)
Washington/Huntoon:6/13/96 5
<PAGE> 129
[THE FOLLOWING ACKNOWLEDGEMENT IS TO BE USED FOR A CORPORATION.]
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 19___ before me, a Notary Public,
personally appeared ________________________________, the ____________________
of _____________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same in his/her authorized capacity, and that by his/her signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
----------------------------------
Notary Public
(SEAL) My Commission Expires:
-----------
[THE FOLLOWING ACKNOWLEDGEMENT IS TO BE USED FOR AN INDIVIDUAL.]
STATE OF _______________ )
) ss
COUNTY OF ______________ )
The foregoing instrument was acknowledged before me this _____
day of _________________, 19__, by _____________________________.
----------------------------------
Notary Public
My Commission Expires:
------------
Washington/Huntoon:6/13/96 6
<PAGE> 130
ACCEPTANCE OF SUBORDINATION OF DEBT
AGREEMENT BY THE COMPANY
The Company named in the Subordination of Debt Agreement set
forth hereinbefore, hereby (i) represents and warrants to the Lender that it is
presently indebted to the Creditor executing said Subordination of Debt
Agreement in the aggregate principal amount of _____________________________
Dollars ($______________________); and (ii) accepts and consents to the
Subordination of Debt Agreement, and agrees to be bound by all of the
provisions thereof and to recognize all priorities and other rights granted
thereby to RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, its
successors and assigns, and to perform in accordance therewith.
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
Dated:
--------------------------------------
Washington/Huntoon:6/13/96 7
<PAGE> 131
EXHIBIT G
SUBSIDIARIES
<TABLE>
<CAPTION>
STATES
QUALIFIED
TO DO
NAME INCORPORATED BUSINESS OWNED (%)
- - ---- ------------ --------- ---------
<S> <C> <C> <C>
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD.
- - -----------------------------------------
WMF/Huntoon, Paige Associates Limited DE 08/08/79 CA, VA, NJ 100%
Sheffield Acquisition Corp. TN 10/07/92 Inactive 100%
Vienna Mortgage Corporation VA 06/06/84 Inactive 100%
WMF/HUNTOON, PAIGE ASSOCIATED LIMITED
- - -------------------------------------
None
</TABLE>
<PAGE> 132
EXHIBIT H
FORM OF OPINION OF COUNSEL
Residential Funding Corporation
Attention: Sandra L. Oakes
8400 Normandale Lake Blvd., Suite 600
Minneapolis, Minnesota 55437
Re: $150,000,000 Loan (the "Loan") under Credit and Security
Agreement (the "Agreement") by and between RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation (the "Lender") and
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware
corporation ("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation ("Huntoon") (hereinafter
collectively referred to as the "Borrowers") and secured by
the "Collateral" (as defined in the Agreement).
Gentlemen:
We are special counsel to the Borrowers in connection with the
Loan. As counsel, we have prepared and/or examined the following documents:
1. Executed copy of the Warehousing Promissory Note, dated June
14, 1996, made by the Borrowers payable to the order of the
Lender, in the principal amount of One Hundred Fifty Million
Dollars ($150,000,000).
2. Executed copy of the Term Loan Promissory Note, dated June 14,
1996, made by the Borrowers payable to the order of the
Lender, in the principal amount of Ten Million Dollars
($10,000,000).
3. Executed copy of the Servicing Facility Promissory Note, dated
June 14, 1996, made by the Borrowers payable to the order of
the Lender, in the principal amount of Ten Million Dollars
($10,000,000).
4. Executed copy of the Credit and Security Agreement by and
between the Borrowers and the Lender, dated June 14, 1996 (the
"Agreement").
5. Undated UCC Financing Statements perfecting a security
interest in collateral, tangible and intangible.
6. The Articles of Incorporation of Washington, together with
amendments thereto, as certified by the Secretary of State of
the State of Delaware.
Washington/Huntoon:6/13/96 1
<PAGE> 133
7. The Bylaws of Washington, as certified on
__________________________, 19____ by the Secretary of
Washington as then being complete, accurate and in effect.
8. Resolutions of the Board of Directors of Washington, adopted
at a meeting held on ____________________, 19_____, as
certified by the Secretary of Washington on
_________________________, 19_____ as then being complete,
accurate and in effect, authorizing the borrowing of the Loan
and the execution and delivery of and performance under the
Agreement.
9. Certificate of Good Standing for Washington, dated
______________________, 19_____, issued by the Secretary of
State of the State of Delaware.(1)
10. The Articles of Incorporation of Huntoon, together with
amendments thereto, as certified by the Secretary of State of
the State of Delaware.
11. The Bylaws of Huntoon, as certified on
__________________________, 19____ by the Secretary of Huntoon
as then being complete, accurate and in effect.
12. Resolutions of the Board of Directors of Huntoon, adopted at a
meeting held on ____________________, 19_____, as certified by
the Secretary of Huntoon on __________________________, 19____
as then being complete, accurate and in effect, authorizing
the borrowing of the Loan and the execution and delivery of
and performance under the Agreement.
13. Certificate of Good Standing for Huntoon, dated
______________________, 19_____, issued by the Secretary of
State of the State of Delaware.(2)
The above enumerated items, numbered 1, 2 and 3 are
collectively referred to as the "Loan Documents."
The opinions which follow are subject to the following
assumptions, limitations and qualifications:
- - ---------------------
(1)A certificate of good standing, dated as of a date within ninety (90)
days of the date of the Agreement, for the state where the Company is
incorporated and for each state where the Company is transacting business as
a foreign corporation should be listed.
(2)A certificate of good standing, dated as of a date within ninety (90)
days of the date of the Agreement, for the state where the Company is
incorporated and for each state where the Company is transacting business as
a foreign corporation should be listed.
Washington/Huntoon:6/13/96 2
<PAGE> 134
A. We have assumed the genuineness of all signatures, other than
of the Borrowers, the authenticity of all documents submitted
to us as originals, and the conformity with the original
documents of all documents submitted to us as reproduced
copies, and the authenticity of all such latter documents.
B. We have assumed the organization, existence, good standing and
capacity of all persons and entities other than the Borrowers,
and that such parties, other than the Borrowers, have the
right, power and authority to execute and deliver the Loan
Documents and to perform thereunder.
C. We have assumed that the Lender's obligations under the
Agreement are within the powers of the Lender and have been
duly and validly authorized and that the Agreement has been
duly executed and validly delivered by the Lender.
D. As to various questions of fact material to this opinion, we
have made such factual inquiries of the Borrowers, and have
examined such other documents and made such examinations of
applicable laws, as we have deemed necessary for purposes of
the opinions expressed herein. However, where we state that a
matter is to the best of our knowledge, we have relied upon
the written statements of the officers of the Borrowers, with
no inquiry as to the facts other than as necessary to
establish that such reliance was reasonable on our part.
Based upon such examinations and investigations, and such
other investigations and examinations as we have deemed necessary for the
purposes of the opinions expressed herein, and subject to the assumptions
stated above in paragraphs A through D, inclusive, and in our capacity as
special counsel for the Borrowers, we are of the opinion that:
[OPINIONS CONCERNING WASHINGTON]
1. Washington is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in
which it is incorporated and has the full legal power and
authority to own its property and to carry on its business as
currently conducted.
2. Washington is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where
the ownership of its property or the conduct of its business
makes such qualification necessary.
3. Washington has the power and authority to execute, deliver and
perform the Loan Documents. The execution, delivery and
performance of the Loan Documents by Washington, including
without limitation, the borrowings under the Agreement and the
Washington/Huntoon:6/13/96 3
<PAGE> 135
pledge of the Collateral, have been duly and validly
authorized by all necessary actions on the part of
Washington.
4. The Loan Documents have been duly executed and delivered by
Washington. The Loan Documents constitute the legal, valid
and binding obligations of Washington and are enforceable in
accordance with their respective terms against Washington,
except that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws
affecting the rights of creditors, and general principles of
equity.
5. Washington is not an "investment company" or "controlled" by
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
[OPINIONS CONCERNING HUNTOON]
6. Huntoon is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which
it is incorporated and has the full legal power and authority
to own its property and to carry on its business as currently
conducted.
7. Huntoon is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where
the ownership of its property or the conduct of its business
makes such qualification necessary.
8. Huntoon has the power and authority to execute, deliver and
perform the Loan Documents. The execution, delivery and
performance of the Loan Documents by Huntoon, including
without limitation, the borrowings under the Agreement and the
pledge of the Collateral, have been duly and validly
authorized by all necessary actions on the part of Huntoon.
9. The Loan Documents have been duly executed and delivered by
Huntoon. The Loan Documents constitute the legal, valid and
binding obligations of Huntoon and are enforceable in
accordance with their respective terms against Huntoon, except
that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the
rights of creditors, and general principles of equity.
10. Huntoon is not an "investment company" or "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
[OPINIONS CONCERNING BOTH BORROWERS]
11. Upon delivery to the Lender of those items of Collateral
consisting of promissory notes secured by mortgages or deeds
Washington/Huntoon:6/13/96 4
<PAGE> 136
of trust ("Pledged Mortgages") or mortgage-backed securities
("Pledged Securities"), or in the case of Pledged Securities
issued in book-entry form or issued in certificated form and
delivered to a clearing corporation (as such term is defined
in the Uniform Commercial Code) or its nominee, upon (a)
registration of such Pledged Securities in the name of a
financial intermediary (as such term is defined in the Uniform
Commercial Code) in an account containing only customer
securities, (b) the notation of Lender's security interest in
such Pledged Securities on the records of such financial
intermediary, by book entry or otherwise, and (c) the sending
by such financial intermediary to the Lender of confirmation
of such notation, the Lender will have a valid and perfected
first security interest therein. We assume, in giving this
opinion, that such items of Collateral will be owned by one of
the Borrowers and that, at the time the Lender's security
interest is noted on the records of any financial
intermediary, such Pledged Securities will be free of any
interest created through the Federal Reserve Bank, clearing
corporation and/or financial intermediary. With respect to
Pledged Mortgages, the laws of certain jurisdictions may
require the recordation of an assignment of such deeds of
trust or mortgages in order to perfect a security interest in
the deed of trust or mortgage (as opposed to the notes secured
thereby). If the Lender does not record its assignment of
deeds of trust or mortgages in such jurisdictions, we express
no opinion as to the Lender's perfected security interest in
such deeds of trust and mortgages (as opposed to the notes
secured thereby) constituting part of the Collateral.
12. The execution, delivery and performance by the Borrowers of
the Loan Documents will not (i) conflict with or violate any
provision of the Articles of Incorporation or By-laws of
either Borrower; (ii) require any license, approval or other
action by any governmental authority that has not been
obtained; (iii) to the best of our knowledge, result in the
creation of any lien, charge or encumbrance upon any property
or assets of either Borrower other than in favor of the
Lender; (iv) to the best of our knowledge, result in a
violation or breach of any term or provision, constitute a
default under, or result in or require the acceleration of any
indebtedness of either Borrower pursuant to, any agreement or
other instrument to which either Borrower may be bound or to
which Huntoon or any of its property may be subject; or (v)
result in any violation of the provisions of any law or any
order of any court or, to the best of our knowledge, any
governmental agency, to which either Borrower may be bound or
to which either Borrower or any of its property may be
subject.
13. To the best of our knowledge, there are no actions, suits, or
proceedings pending or threatened against or affecting either
Washington/Huntoon:6/13/96 5
<PAGE> 137
Borrower, in any court or before any arbitrator or
governmental authority which, if adversely determined, may
reasonably be expected to result in any material and adverse
change in the business, operations, assets or financial
condition of Huntoon as a whole.
14. The making of the Advances as contemplated by the Agreement
will not violate Regulation G of the Board of Governors of the
Federal Reserve System.
This opinion may be relied upon by you and your successors and
assigns and by any participant in the Loan.
All capitalized terms used herein, not otherwise defined
herein, shall have the meanings given such terms in the Agreement.
Very truly yours,
------------------------------------
By:
---------------------------------
Washington/Huntoon:6/13/96 6
<PAGE> 138
EXHIBIT I-MF
OFFICER'S CERTIFICATE
Reference is made to that certain Credit and Security Agreement
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon," Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers"), and RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation (the "Lender"), dated as of June 14, 1996 (as the same may
be amended, modified, supplemented, renewed or restated from time to time, the
"Agreement"). All capitalized terms used herein and all Section numbers given
herein refer to those terms and Sections set forth in the Agreement. This
Officer's Certificate is submitted to the Lender pursuant to Section 6.2(c) of
the Agreement.
The undersigned hereby certifies to the Lender that as of the close of
business on ____________, 19__ ("Statement Date",) and with respect to the
Borrowers and their Subsidiaries on a consolidated basis:
1. As illustrated in the attached calculations supporting this
Officer's Certificate, the Borrowers met the covenants set
forth in Sections 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, and
7.13, or if the Borrowers did not meet any of such covenants,
a detailed explanation is attached setting forth the nature
and period of the existence of the Default and the action the
Borrowers have taken, are taking, and propose to take with
respect thereto.
2. No Servicing Contracts have been sold or pledged by the
Borrowers except as permitted under the terms of the
Agreement.
3. No payments in advance of the scheduled maturity date have been made
with respect to any Subordinated Debt. The Borrowers have incurred no
Debt required to be subordinated pursuant to Section 6.10.
4. The Borrowers were in compliance with the applicable HUD, GNMA, and
Investor net worth requirements, and in good standing with VA, HUD,
GNMA, and each Investor.
5. I have reviewed the terms of the Agreement and have made, or caused to
be made under my supervision, a review in reasonable detail of the
transactions and conditions of the Borrowers (and, if applicable,
their Subsidiaries) and such review has not disclosed the existence,
and I have no knowledge of the existence, of any Default or Event of
Default, or if any
Washington/Huntoon:6/13/96
1
<PAGE> 139
Default or Event of Default existed or exists, a detailed explanation
is attached specifying the nature and period of the existence of the
Default and the action the Borrowers have taken, are taking and
propose to take with respect thereto.
6. Pursuant to Section 6.2 of the Agreement, enclosed are the financial
statements of the Borrowers as of the Statement Date. The financial
statements for the period ending on the Statement Date fairly present
the financial condition and results of operations of the Borrowers
(and, if applicable, its Subsidiaries) as at the Statement Date.
Dated:
--------------------------------------
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
----------------------------------
Its:
---------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
----------------------------------
Its:
---------------------------------
Washington/Huntoon:6/13/96
2
<PAGE> 140
CALCULATIONS SUPPORTING OFFICER'S CERTIFICATE
Borrowers Names: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED and its
Subsidiaries
Statement Date:
All financial calculations set forth herein are as of the Statement Date.
<TABLE>
<CAPTION>
<S> <C>
I. TANGIBLE NET WORTH
Tangible Net Worth of Washington is:
Excess of total assets over total liabilities: $_________
Plus: Loan loss reserves: $_________
Plus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $_________
Minus: Advances to owners, officers or
Affiliates: $_________
Minus: Investments in Affiliates: $_________
Minus: Assets pledged to secure liabilities
not included in Debt: $_________
Minus: Intangible assets: $_________
Minus: Any other HUD nonacceptable assets: $_________
Minus: Other assets unacceptable to the
Lender: $_________
TANGIBLE NET WORTH $_________
II. ADJUSTED TANGIBLE NET WORTH
A. Adjusted Tangible Net Worth of Washington is:
Tangible Net Worth (from IA above) $_________
Minus: Capitalized excess servicing fees: $_________
Minus: Capitalized servicing rights: $_________
Plus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $_________
Plus: .005 times Adjusted Servicing Portfolio
(from IIIA below): $_________
ADJUSTED TANGIBLE NET WORTH $_________
B. Requirements of Section 7.7 of the Agreement:
MINIMUM ADJUSTED TANGIBLE NET WORTH OF $15,000,000.
C. COVENANT SATISFIED:______ COVENANT NOT SATISFIED: ______
</TABLE>
Washington/Huntoon:6/13/96
3
<PAGE> 141
<TABLE>
<S> <C> <C>
III. ADJUSTED SERVICING PORTFOLIO
A. Adjusted Servicing Portfolio of the Borrowers is:
Servicing Portfolio owned by the Borrowers is: $_________
Minus: The unpaid principal balance of Mortgage Loans:
Past due 60 days or more: $_________
That are Commercial, FNMA DUS,
or FHA co-insured: $_________
Sold with recourse: $_________
For which the Servicing Contracts
are pledged: $_________
Serviced by Borrowers for others under
subservicing arrangements: $_________
ADJUSTED SERVICING PORTFOLIO $_________
B. Requirements of Section 7.10 of the Agreement:
ADJUSTED SERVICING PORTFOLIO OF $3,000,000,000.
C. COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
IV. DEBT OF THE BORROWERS
Total liabilities $_________
Minus: Loan loss reserves: $_________
of the Statement Date (or any portion
thereof): $_________
Minus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $_________
DEBT $_________
V. RATIO OF DEBT TO ADJUSTED TANGIBLE NET WORTH
A. The ratio of Debt to Adjusted Tangible Net Worth (IV to
II.A) is: ________to 1
B. Requirements of Section 7.6 of the Agreement:
The ratio of Debt to Adjusted Tangible Net Worth shall not
exceed 15 to 1.
C. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
VI. LIQUID ASSETS OF THE BORROWERS
Cash $_________
Plus: Funds on deposit in any United States bank $_________
</TABLE>
Washington/Huntoon:6/13/96
4
<PAGE> 142
<TABLE>
<S> <C>
Plus: Investment grade commercial paper $_________
Plus: Money market funds $_________
Plus: Marketable securities $_________
Plus: Mortgage Loans and Mortgage-backed Securities
held for sale $_________
Minus: Outstanding liabilities secured by Mortgage Loans
and Mortgage-backed Securities held for sale $_________
LIQUID ASSETS $_________
VII. LIQUIDITY
A. The ratio of Liquid Assets to Adjusted Tangible Net Worth
(V to II) is: ________to 1
B. Requirements of Section 7.8 of the Agreement:
The ratio of Liquid Assets to Adjusted Tangible Net Worth
shall not be less than twenty-five percent (25%).
C. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
VIII. MAXIMUM PASS-THROUGHS
A. The aggregate cumulative outstanding amount of advances to or
on behalf of defaulting mortgagors paid or required to have
been paid by the Borrowers on Mortgage Loans and
Mortgage-backed Securities ("Pass-throughs") is:
$_________
B. The ratio of Pass-throughs to Adjusted Tangible Net Worth
(VII.A to II.A) is: __________to 1
C. Requirements of Section 7.9 of the Agreement:
The ratio of Pass-throughs to Adjusted Tangible Net Worth
shall not exceed thirty-five percent (35%).
D. COVENANT SATISFIED:______ COVENANT NOT SATISFIED:_____
IX. DEBT SERVICE COVERAGE RATIO
A. Net income for the previous four quarters: $_________
Plus: Income tax expenses: $_________
Minus: Income taxes paid: $_________
Plus: Depreciation, amortization and other non-cash
deductions: $_________
Minus: Non-cash revenue: $_________
Minus: Dividends and distributions: $_________
Plus: Term Loan/Servicing Facility interest
expenses: $_________
FUNDS FROM OPERATIONS $_________
</TABLE>
Washington/Huntoon:6/13/96
5
<PAGE> 143
<TABLE>
<S> <C> <C>
B. Scheduled Term Loan/Servicing Facility principal payment
(following four quarters): $_________
Plus: Term Loan/Servicing Facility interest expenses
(previous four quarters):
$_________
Annual debt payments $_________
C. The ratio of XA to XB is: __________to 1.00
D. Requirements of Section 7.11 of the Agreement:
Permit the Debt Service Coverage Ratio, measured as of the
first day of any fiscal quarter, to be less than 1.50 to
1.00.
E. COVENANT SATISFIED:______ COVENANT NOT SATISFIED: ______
X. DELINQUENCY RATIO
A. Unpaid Principal Balance of Mortgage Loans Serviced that
are:
30 or more days past due: $_________
Foreclosure: $_________
In Bankruptcy: $_________
TOTAL $_________
B. Unpaid Principal Balance of all Mortgage Loans Serviced
by Borrowers: $_________
C. The ratio of XIA to XIB (expressed as a percentage): __________%
D. Requirements of Section 7.12 of the Agreement:
The Delinquency Ratio shall not exceed 10%.
E. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
XI. TRANSACTIONS WITH AFFILIATES
A. Loans, advances, and extensions of credit made by the
Borrowers to their Affiliates total: $_________
B. Capital contributions made by the Borrowers to their
Affiliates total: $_________
C. Management fees paid to Affiliates during the current
fiscal year total: $_________
D. Transfers, sales, pledges, assignments or other
dispositions of assets made by the Borrowers to their
Affiliates total: $_________
</TABLE>
Washington/Huntoon:6/13/96
6
<PAGE> 144
E. Requirements of Section 7.13 of the Agreement:
1. No loans, advances or extensions of credit shall be
made by the Borrowers to Affiliates.
COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
2. No capital contributions shall be made by the
Borrowers to any Affiliate.
COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
3. No transfers, sales, pledges assignments or other
dispositions of assets by the Borrowers to
Affiliates.
COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
4. No Management fees shall be paid by the Borrowers
to Affiliates.
COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
Washington/Huntoon:6/13/96
<PAGE> 145
EXHIBIT J
SCHEDULE OF EXISTING LINES OF CREDIT
<TABLE>
<CAPTION>
LENDER NAME COMMITMENT AMOUNT EXPIRATION DATE
- - ----------- ----------------- ---------------
<S> <C> <C>
Residential Funding Corporation $80 million 5/31/96
Residential Funding Corporation $10 million 6/96
NationsBank $15 million 5/31/96
Sequoia National Bank $500,000 4/01/97
</TABLE>
<PAGE> 146
EXHIBIT K-1
FORM FOR FUNDING BANK
LETTER AGREEMENT
(Letterhead of the Company)
June 14, 1996
The First National Bank of Chicago
One North State Street
Chicago, IL 60602
Gentlemen:
The undersigned, WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. (the
"Company"), hereby authorizes The First National Bank of Chicago (the "Funding
Bank") to permit Residential Funding Corporation (the "Lender") to debit and
access information on the Company's accounts held by the Funding Bank as
outlined below. The Company hereby directs and authorizes the Funding Bank to
follow the directions of the Lender in debiting such accounts.
The Company authorizes the Lender to access account information from
time to time for the Company's operating account no.________________________
(the "Operating Account") for the purpose of verifying balance information. In
addition, the Company requests that the Lender, and the Company hereby
authorizes the Lender, to debit the Operating Account to the extent necessary
to cover (a) wires to be initiated by the Lender in accordance with the
Company's instructions as set forth in the Request for Advance for the purposes
permitted in the Credit and Security Agreement (the "Agreement") by and between
the Company and the Lender; and (b) for amounts due and owing to the Lender,
including but not limited to principal, interest and fees.
Upon the termination or expiration of the Agreement, the Company
hereby authorizes the Lender to close the Operating Account and any other
accounts which have been established by the Company and the Lender to
facilitate transactions under the Agreement, and the Company directs the
Funding Bank to follow the directions of the Lender in closing such accounts.
The Company hereby directs and authorizes the Funding Bank to follow all of the
foregoing instructions of the Lender.
Very truly yours,
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
ACKNOWLEDGED AND AGREED THIS
_______DAY OF_____________, 19___.
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Its:
-----------------------------------
Washington/Huntoon:6/13/96
<PAGE> 147
EXHIBIT K-2
FORM FOR FUNDING BANK
LETTER AGREEMENT
(Letterhead of the Company)
June 14, 1996
The First National Bank of Chicago
One North State Street
Chicago, IL 60602
Gentlemen:
The undersigned, WMF/HUNTOON, PAIGE ASSOCIATES LIMITED (the
"Company"), hereby authorizes The First National Bank of Chicago (the "Funding
Bank") to permit Residential Funding Corporation (the "Lender") to debit and
access information on the Company's accounts held by the Funding Bank as
outlined below. The Company hereby directs and authorizes the Funding Bank to
follow the directions of the Lender in debiting such accounts.
The Company authorizes the Lender to access account information from
time to time for the Company's operating account no.______________________ (the
"Operating Account") for the purpose of verifying balance information. In
addition, the Company requests that the Lender, and the Company hereby
authorizes the Lender, to debit the Operating Account to the extent necessary
to cover (a) wires to be initiated by the Lender in accordance with the
Company's instructions as set forth in the Request for Advance for the purposes
permitted in the Credit and Security Agreement (the "Agreement") by and between
the Company and the Lender; and (b) for amounts due and owing to the Lender,
including but not limited to principal, interest and fees.
Upon the termination or expiration of the Agreement, the Company
hereby authorizes the Lender to close the Operating Account and any other
accounts which have been established by the Company and the Lender to
facilitate transactions under the Agreement, and the Company directs the
Funding Bank to follow the directions of the Lender in closing such accounts.
The Company hereby directs and authorizes the Funding Bank to follow all of the
foregoing instructions of the Lender.
Very truly yours,
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
ACKNOWLEDGED AND AGREED THIS
_______DAY OF_____________, 19___.
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Its:
-----------------------------------
Washington/Huntoon:6/13/96
<PAGE> 148
EXHIBIT L
TERMS OF GUARANTEED OBLIGATIONS
Each Borrower hereby agrees to the following terms with respect to
Advances made by the Lender to the other Borrower:
1. Each Borrower irrevocably, unconditionally and absolutely
guarantees to the Lender the due and prompt payment, and not just the
collectibility, of the principal of, and interest, fees and late charges and
all other indebtedness, if any, on the Advances made to the other Borrower when
due, whether at maturity, by acceleration or otherwise all at the times and
places and at the rates described in, and otherwise according to the terms of
the Notes and the Agreement, whether now existing or hereafter created or
arising.
2. Each Borrower further hereby irrevocably, unconditionally and
absolutely guarantees to the Lender the due and prompt performance by the other
Borrower of all duties, agreements and obligations of the other Borrower
contained in the Notes and the Agreement, and the due and prompt payment of all
costs and expenses incurred, including, without limitation, attorneys' fees,
court costs and all other litigation expenses (including but not limited to
expert witness fees, exhibit preparation, and courier, postage, communication
and document copying expenses), in enforcing the payment and performance of the
Notes and the Agreement from the other Borrower (the payment and performance of
the items set forth in Paragraphs 1 and 2 of this Exhibit M are collectively
referred to as the ("Other Borrower Debt").
3. In the event the other Borrower shall at any time fail to pay the
Lender any Other Borrower Debt when due, whether by acceleration or otherwise,
each Borrower promises to pay such amount to the Lender forthwith, together
with all collection costs and expenses, including, without limitation,
attorneys' fees, court costs and all other litigation expenses (including but
not limited to expert witness fees, exhibit preparation, and courier, postage,
communication and document copying expenses).
4. Each Borrower does hereby (a) agree to any modifications of any
terms or conditions of any Other Borrower Debt and/or to any extensions or
renewals of time of payment or performance by the other Borrower; (b) agree
that it shall not be necessary for the Lender to resort to legal remedies
against the other Borrower, nor to take any action against any other Person
obligated (an "Obligor") on or against any collateral for payment or
performance of the Other Borrower Debt before proceeding against such Borrower;
(c) agree that no release of the other Borrower or any other guarantor or
Obligor, or of any collateral, for the Other Borrower Debt, whether by
operation of law or by any act of the Lender, with or without notice to such
Borrower, shall release such Borrower;
Washington/Huntoon:6/13/96
<PAGE> 149
and (d) waive notice of demand, dishonor, notice of dishonor, protest, and
notice of protest and waive, to the extent permitted by law, all benefit of
valuation, appraisement, and exemptions under the laws of the State of
Minnesota or any other state or territory of the United States.
5. The obligations of each Borrower for the Other Borrower Debt shall
be primary, absolute and unconditional, and shall remain in full force and
effect without regard to, and shall not be impaired or affected by: (a) the
genuineness, validity, regularity or enforceability of, or any amendment or
change in the Agreement or the Notes, or any change in or extension of the
manner, place or terms of payment of, all or any portion of the Other Borrower
Debt; (b) the taking or failure to take any action to enforce the Agreement or
the Notes, or the exercise or failure to exercise any remedy, power or
privilege contained therein or available at law or otherwise, or the waiver by
the Lender of any provisions of the Agreement or the Notes; (c) any impairment,
modification, change, release or limitation in any manner of the liability of
the other Borrower or its estate in bankruptcy, or of any remedy for the
enforcement of the other Borrower's liability, resulting from the operation of
any present or future provision of the bankruptcy laws or any other statute or
regulation, or the dissolution, bankruptcy, insolvency, or reorganization of
the other Borrower; (d) the merger or consolidation of the other Borrower, or
any sale or transfer by the other Borrower of all or part of its assets or
property; (e) any claim such Borrower may have against the other Borrower or
any other Obligor, including any claim of contribution; (f) the release, in
whole or in part, of any other guarantor (if more than one), the other Borrower
or any other Obligor; (g) any other action or circumstance which (with or
without notice to or knowledge of such Borrower) might in any manner or to any
extent vary the risks of such Borrower or otherwise constitute a legal or
equitable discharge or defense, it being understood and agreed by each Borrower
that its obligations for the Other Borrower Debt shall not be discharged except
by the full payment and performance of the Other Borrower Debt.
6. The Lender shall have the right to determine how, when and what
application of payments and credits, if any, whether derived from either
Borrower or from any other source, shall be made on the Obligations and any
other indebtedness owed by either Borrower and/or any other Obligor to the
Lender; provided, that no payments made by either Borrower to the Lender shall
be applied to any Obligations or other indebtedness not then due and payable.
7. The obligations of each Borrower hereunder shall continue to be
effective, or be automatically reinstated, as the case may be, if at any time
the performance or the payment, as the case may be, in whole or in part, of any
of the Other Borrower Debt is rescinded or must otherwise be restored or
returned by the Lender
- 2 -
Washington/Huntoon:6/13/96
<PAGE> 150
(as a preference, fraudulent conveyance or otherwise) upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of either Borrower or
any other person or upon or as a result of the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to either
Borrower or any other Person, or any substantial part of its property, or
otherwise, all as though such payments had not been made. If an Event of
Default shall at any time have occurred and be continuing or shall exist and
declaration of default or acceleration under or with respect to the Other
Borrower Debt shall at such time be prevented by reason of the pendency against
either Borrower or any other Person of a case or proceeding under a bankruptcy
or insolvency law, each Borrower agrees that its obligations for the Other
Borrower Debt shall be deemed to have been declared in default or accelerated
with the same effect as if such obligations had been declared in default and
accelerated in accordance with their respective terms and each Borrower shall
forthwith perform or pay, as the case may be, as required hereunder in
accordance with the terms hereunder without further notice or demand.
8. Each Borrower hereby irrevocably waives any claim or other rights
that he may now or hereafter acquire against other Borrower that arises from
the existence, payment, performance or enforcement of such Borrower's
obligations for the Other Borrower Debt, including any right of subrogation,
reimbursement, exoneration or indemnification, any right to participate in any
claim or remedy of the Lender against the other Borrower or any collateral that
the Lender now has or hereafter acquires, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including the
right to take or receive from the other Borrower directly or indirectly, in
cash or other property or by set-off or in any manner, payment or security on
account of such claim or other rights. If any amount shall be paid to either
Borrower in violation of the preceding sentence and the Other Borrower Debt
shall not have been paid and performed in full, such amount shall be deemed to
have been paid to such Borrower for the benefit of, and held in trust for, the
Lender and shall forthwith be paid to the Lender to be credited and applied to
the Other Borrower Debt, whether matured or unmatured. Notwithstanding the
blanket waiver of subrogation rights as set forth above, each Borrower hereby
specifically acknowledges that any subrogation rights which it may have against
the other Borrower or any collateral that the Lender now has or hereafter
acquires may be destroyed by a nonjudicial foreclosure of the collateral. This
may give such Borrower a defense to a deficiency judgment against it. Such
Borrower hereby irrevocably waives such defense. Each Borrower acknowledges
that it will receive direct and indirect benefits from the arrangements
contemplated by the Agreement and the Notes and that the waivers set forth in
this Section are knowingly made in contemplation of such benefits.
- 3 -
Washington/Huntoon:6/13/96
<PAGE> 151
9. No postponement or delay on the part of the Lender in the
enforcement of any right with respect to the Obligations of either Borrower,
including, without limitation, the Other Borrower Debt, shall constitute a
waiver of such right and all rights of the Lender hereunder shall be cumulative
and not alternative and shall be in addition to any other rights granted to the
Lender in any other agreement or by law.
10. Any indebtedness of either Borrower now or hereafter held by the
other Borrower is hereby subordinated to the indebtedness of the Borrowers to
the Lender, and such indebtedness of either Borrower to the other Borrower
shall, if the Lender so requests, be collected, enforced and received by the
Borrower to which it is owed as trustee for the Lender and be paid over to the
Lender on account of the indebtedness of the other Borrower to the Lender.
- 4 -
Washington/Huntoon:6/13/96
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT TO
CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 8th day of August, 1996 by and between
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington") and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon", Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers") and RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation (the "Lender").
WHEREAS, the Borrowers and the Lender have entered into a revolving
warehouse, term loan and servicing facility with a present Commitment Amount of
One Hundred Seventy Million ($170,000,000), to finance the origination and
acquisition of Mortgage Loans as evidenced by a Warehousing Promissory Note in
the principal sum of One Hundred Fifty Million Dollars ($150,000,000), a Term
Loan Promissory Note in the principal sum of Ten Million Dollars ($10,000,000)
and a Servicing Facility Promissory Note in the principal sum of Ten Million
Dollars ($10,000,000), each dated as of June 14, 1996 and by a Credit and
Security Agreement dated as of June 14, 1996, as the same may have been amended
or supplemented (the "Agreement");
WHEREAS, the Borrowers have requested the Lender to amend certain
terms of the Agreement and the Lender has agreed to such amendment of the
Agreement subject to the terms and conditions of this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants, agreements and conditions hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined
shall have their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date") of this Amendment shall
be August 8th, 1996, the date on which the Borrowers have complied with all the
terms and conditions of this Amendment.
3. Section 1.1 of the Agreement shall be amended to delete the
definition of "Adjusted Tangible Net Worth" in its entirety, replacing it with
the following definition:
WAMtg:8/8/96 -1-
<PAGE> 2
"Adjusted Tangible Net Worth" means with respect to any Person
at any date, the Tangible Net Worth of such Person at such date,
excluding capitalized excess servicing fees and capitalized servicing
rights, plus one percent (1%) of the Adjusted Servicing Portfolio, and
plus deferred taxes arising from capitalized excess servicing fees and
capitalized servicing rights.
4. Exhibit I-SF to the Agreement is deleted in its entirety and
replaced with the new Exhibit I-SF attached to this Amendment. All references
in this Amendment and the Agreement to Exhibit I-SF shall be deemed to refer to
the new Exhibit I-SF.
5. The Borrowrs shall deliver to the Lender (a) an executed
original of this Amendment; (b) an executed Certificate of Secretary with
corporate resolutions; and (c) a Two Hundred Fifty Dollar ($250) document
production fee.
6. The Borrowers represent, warrant and agree that (a) there
exists no Default or Event of Default under the Loan Documents, (b) the Loan
Documents continue to be the legal, valid and binding agreements and
obligations of the Company enforceable in accordance with their terms, as
modified herein, (c) the Lender is not in default under any of the Loan
Documents and the Borrowers have no offset or defense to its performance or
obligations under any of the Loan Documents, (d) the representations contained
in the Loan Documents remain true and accurate in all respects, and (e) there
has been no material adverse change in the financial condition of Washington on
the date of the Agreement to the date of this Amendment.
7. Except as hereby expressly modified, the Agreement shall
otherwise be unchanged and shall remain in full force and effect, and the
Borrowers ratify and reaffirm all of their obligations thereunder.
8. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
when so executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument.
WAMtg:8/8/96 -2-
<PAGE> 3
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ SHEKAR NARASIMHAN
---------------------------------
Its: President & CEO
--------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ SHEKAR NARASIMHAN
--------------------------------
Its: Chairman
--------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ F.J. RICE, III
--------------------------------
Its: Managing Director
--------------------------------
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On August 9, 1996, before me, a Notary Public, personally appeared
SHEKAR NARASIMHAN,the President/CEO of WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
--------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
WAMtg:8/8/96 -3-
<PAGE> 4
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On August 9, 1996, before me, a Notary Public, personally appeared
[NAME], the Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
--------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On August 16th, 1996, before me, a Notary Public, personally appeared
Fred J. Rice, III, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ ALAETA S. MYERS
--------------------------------
Notary Public
(SEAL) My Commission Expires: 11/23/96
---------
ALAETA S. MYERS
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires November 23,1996
WAMtg:8/8/96 -4-
<PAGE> 5
EXHIBIT I-MF
OFFICER'S CERTIFICATE
Reference is made to that certain Credit and Security Agreement
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon," Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers"), and RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation (the "Lender"), dated as of June 14, 1996 (as the same may
be amended, modified, supplemented, renewed or restated from time to time, the
"Agreement"). All capitalized terms used herein and all Section numbers given
herein refer to those terms and Sections set forth in the Agreement. This
Officer's Certificate is submitted to the Lender pursuant to Section 6.2(c) of
the Agreement.
The undersigned hereby certifies to the Lender that as of the close of
business on ______________________, 19_____ ("Statement Date",) and with
respect to the Borrowers and their Subsidiaries on a consolidated basis:
1. As illustrated in the attached calculations supporting this Officer's
Certificate, the Borrowers met the covenants set forth in Sections
7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12 and 7.13, or if the Borrowers did
not meet any of such covenants, a detailed explanation is attached
setting forth the nature and period of the existence of the Default
and the action the Borrowers have taken, are taking, and propose to
take with respect thereto.
2. No Servicing Contracts have been sold or pledged by the Borrowers
except as permitted under the terms of the Agreement.
3. No payments in advance of the scheduled maturity date have been made
with respect to any Subordinated Debt. The Borrowers have incurred no
Debt required to be subordinated pursuant to Section 6.10.
4. The Borrowers were in compliance with the applicable HUD, GNMA, and
Investor net worth requirements, and in good standing with VA, HUD,
GNMA, and each Investor.
5. I have reviewed the terms of the Agreement and have made, or caused to
be made under my supervision, a review in reasonable detail of the
transactions and conditions of the Borrowers (and, if applicable,
their Subsidiaries) and such review has not disclosed the existence,
and I have no knowledge of the existence, of any Default or Event of
Default, or if any
WAMtg:8/8/96 -1-
<PAGE> 6
Default or Event of Default existed or exists, a detailed explanation
is attached specifying the nature and period of the existence of the
Default and the action the Borrowers have taken, are taking and
propose to take with respect thereto.
6. Pursuant to Section 6.2 of the Agreement, enclosed are the financial
statements of the Borrowers as of the Statement Date. The financial
statements for the period ending on the Statement Date fairly present
the financial condition and results of operations of the Borrowers
(and, if applicable, its Subsidiaries) as at the Statement Date.
Dated:
------------------------------
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
---------------------------------
Its:
--------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
---------------------------------
Its:
--------------------------------
WAMtg:8/8/96 -2-
<PAGE> 7
CALCULATIONS SUPPORTING OFFICER'S CERTIFICATE
Borrowers Names: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED and its
Subsidiaries
Statement Date:
-----------------------------------
All financial calculations set forth herein are as of the Statement Date.
<TABLE>
<CAPTION>
I. TANGIBLE NET WORTH
<S> <C>
Tangible Net Worth of Washington is:
Excess of total assets over total liabilities: $
--------
Plus: Loan loss reserves: $
--------
Plus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $
--------
Minus: Advances to owners, officers or
Affiliates: $
--------
Minus: Investments in Affiliates: $
--------
Minus: Assets pledged to secure liabilities
not included in Debt: $
--------
Minus: Intangible assets: $
--------
Minus: Any other HUD nonacceptable assets: $
--------
Minus: Other assets unacceptable to the
Lender: $
--------
TANGIBLE NET WORTH $
------------
</TABLE>
<TABLE>
<CAPTION>
II. ADJUSTED TANGIBLE NET WORTH
<S> <C> <C>
A. Adjusted Tangible Net Worth of Washington is:
Tangible Net Worth (from IA above) $
--------
Minus: Capitalized excess servicing fees: $
--------
Minus: Capitalized servicing rights: $
--------
Plus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $
--------
Plus: 1% times Adjusted Servicing Portfolio
(from IIIA below): $
--------
ADJUSTED TANGIBLE NET WORTH $
------------
</TABLE>
B. Requirements of Section 7.7 of the Agreement:
MINIMUM ADJUSTED TANGIBLE NET WORTH OF $15,000,000.
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
WAMtg:8/8/96 -3-
<PAGE> 8
<TABLE>
<CAPTION>
III. ADJUSTED SERVICING PORTFOLIO
<S> <C>
A. Adjusted Servicing Portfolio of the Borrowers is:
Servicing Portfolio owned by the Borrowers is: $
--------
Minus: The unpaid principal balance of Mortgage Loans:
Past due 60 days or more: $
--------
That are Commercial, FNMA DUS,
or FHA co-insured: $
--------
Sold with recourse: $
--------
For which the Servicing Contracts
are pledged: $
--------
Serviced by Borrowers for others under
subservicing arrangements: $
--------
ADJUSTED SERVICING PORTFOLIO
$
--------------
</TABLE>
B. Requirements of Section 7.10 of the Agreement:
ADJUSTED SERVICING PORTFOLIO OF $3,000,000,000.
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
<TABLE>
<CAPTION>
IV. DEBT OF THE BORROWERS
<S> <C>
Total liabilities $
--------
Minus: Loan loss reserves: $
--------
Minus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $
--------
Minus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $
--------
DEBT $
-------------
</TABLE>
V. RATIO OF DEBT TO ADJUSTED TANGIBLE NET WORTH
A. The ratio of Debt to Adjusted Tangible Net Worth
(IV to II.A) is: ______ to 1
B. Requirements of Section 7.6 of the Agreement:
The ratio of Debt to Adjusted Tangible Net Worth shall not
exceed 15 to 1.
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
WAMtg:8/8/96 -4-
<PAGE> 9
<TABLE>
<CAPTION>
VI. LIQUID ASSETS OF THE BORROWERS
<S> <C>
Unrestricted and Unencumbered Cash $
-------
Plus: Funds on deposit in any United States bank $
-------
Plus: Investment grade commercial paper $
-------
Plus: Money market funds $
-------
Plus: Marketable securities $
-------
Plus: Mortgage Loans and Mortgage-backed Securities
held for sale $
-------
Minus: Outstanding liabilities secured by Mortgage Loans
and Mortgage-backed Securities held for sale $
-------
LIQUID ASSETS $
------------
</TABLE>
VII. LIQUIDITY
A. The ratio of Liquid Assets to Adjusted Tangible Net Worth
(V to II) is: ______ to 1
B. Requirements of Section 7.8 of the Agreement:
The ratio of Liquid Assets to Adjusted Tangible Net Worth
shall not be less than twenty-five percent (25%).
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
VIII. MAXIMUM PASS-THROUGHS
A. The aggregate cumulative outstanding amount of advances to or
on behalf of defaulting mortgagors paid or required to have
been paid by the Borrowers on Mortgage Loans and
Mortgage-backed Securities ("Pass-throughs") is:
$
-------
B. The ratio of Pass-throughs to Adjusted Tangible Net Worth
(VII.A to II.A) is: ______ to 1
C. Requirements of Section 7.9 of the Agreement:
The ratio of Pass-throughs to Adjusted Tangible Net Worth
shall not exceed thirty-five percent (35%).
D. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
WAMtg:8/8/96 -5-
<PAGE> 10
<TABLE>
<S> <C>
IX. DEBT SERVICE COVERAGE RATIO
A. Net income for the previous four quarters: $
--------
Plus: Income tax expenses: $
--------
Minus: Income taxes paid: $
--------
Plus: Depreciation, amortization and other non-cash
deductions: $
--------
Minus: Non-cash revenue: $
--------
Minus: Dividends and distributions: $
--------
Plus: Term Loan/Servicing Facility interest expenses: $
--------
FUNDS FROM OPERATIONS $
--------
B. Scheduled Term Loan/Servicing Facility principal payment
(following four quarters): $
--------
Plus: Term Loan/Servicing Facility interest expenses
(previous four quarters): $
--------
Annual debt payments $
------------
</TABLE>
C. The ratio of XA to XB is: _______ to 1.00
D. Requirements of Section 7.11 of the Agreement:
Permit the Debt Service Coverage Ratio, measured as of the
first day of any fiscal quarter, to be less than 1.50 to 1.00.
E. COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
X. DELINQUENCY RATIO
<TABLE>
<CAPTION>
A. Unpaid Principal Balance of Mortgage Loans Serviced that
are:
<S> <C>
30 or more days past due: $
--------
Foreclosure: $
--------
In Bankruptcy: $
--------
TOTAL $
--------
B. Unpaid Principal Balance of all Mortgage Loans
Serviced by Borrowers: $
--------------
</TABLE>
C. The ratio of XIA to XIB (expressed as a percentage):
_________%
D. Requirements of Section 7.12 of the Agreement:
The Delinquency Ratio shall not exceed 10%.
E. COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
WAMtg:8/8/96 -6-
<PAGE> 11
<TABLE>
<CAPTION>
XI. TRANSACTIONS WITH AFFILIATES
<S> <C> <C>
A. Loans, advances, and extensions of credit made
by the Borrowers to their Affiliates total: $
--------
B. Capital contributions made by the Borrowers to
their Affiliates total: $
--------
C. Management fees paid to Affiliates during the
current fiscal year total: $
--------
D. Transfers, sales, pledges, assignments or other
dispositions of assets made by the Borrowers to
their Affiliates total: $
--------
</TABLE>
E. Requirements of Section 7.13 of the Agreement:
1. No loans, advances or extensions of credit shall be made by the
Borrowers to Affiliates.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
2. No capital contributions shall be made by the Borrowers to any
Affiliate.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
3. No transfers, sales, pledges assignments or other dispositions of
assets by the Borrowers to Affiliates.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
4. No Management fees shall be paid by the Borrowers to Affiliates.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
WAMtg:8/8/96 -7-
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDMENT TO
CREDIT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 20th day of December 1996, by and
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon," Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers"), and RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation (the "Lender").
WHEREAS, the Borrowers and the Lender have entered into a revolving
warehouse facility with a present Warehousing Commitment Amount of One Hundred
Fifty Million Dollars ($150,000,000), to finance the origination and
acquisition of Mortgage Loans as evidenced by a Warehousing Promissory Note in
the principal sum of One Hundred Fifty Million Dollars ($150,000,000), dated as
of June 14, 1996 (the "Warehousing Note"), and by a Credit and Security
Agreement dated as of June 14, 1996, as the same may have been amended or
supplemented (the "Agreement");
WHEREAS, the Borrowers and the Lender have entered into a servicing
facility with a present Servicing Facility Commitment Amount of Ten Million
Dollars ($10,000,000) as evidenced by a Servicing Facility Promissory Note in
the principal sum of Ten Million Dollars ($10,000,000), dated as of June 14,
1996, a Term Loan Promissory Note in the principal sum of Ten Million Dollars
($10,000,000), dated as of June 14, 1996, and the Agreement;
WHEREAS, the Borrowers have also entered into a term loan facility
with a present Term Loan Commitment Amount of Ten Million Dollars ($10,000,000)
as evidenced by a Term Loan Promissory Note in the principal sum of Ten Million
Dollars ($10,000,000), dated as of June 14, 1996, a Term Loan Promissory Note
in the principal sum of Ten Million Dollars ($10,000,000), dated as of June 14,
1996, and the Agreement;
WHEREAS, the Borrowers have requested the Lender to amend the
Agreement to allow for the warehousing of Conduit Mortgage Loans, and the
Lender has agreed to such amendment of the Agreement subject to the terms and
conditions of this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants, agreements and conditions hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
-1-
Washington/Huntoon:12/17/96
<PAGE> 2
1. All capitalized terms used herein and not otherwise
defined shall have their respective meanings set forth in the
Agreement.
2. The effective date ("Effective Date") of this Amendment shall be
December 23, 1996, the date on which the Borrowers have complied with all the
terms and conditions of this Amendment.
3. Section 1.1 of the Agreement shall be amended by adding
the following definitions in the appropriate alphabetical order:
"Conduit Advance" means an Advance made against a
Conduit Mortgage Loan.
"Conduit Mortgage Loan" means a Multifamily Mortgage Loan
that is not subject to a Purchase Commitment, but that has been
underwritten in accordance with the Underwriting Guidelines and is
eligible for sale under FNMA's Multifamily Mortgage Loan conduit
program or under another conduit program acceptable to the Lender, in
its sole discretion.
"Conduit Rate" means a floating rate of interest which is
equal to one and three-quarters percent (1.75%) per annum over LIBOR.
The Conduit Rate will be adjusted as of the effective date of each
weekly change in LIBOR. The Lender's determination of the Conduit Rate
as of any date of determination shall be conclusive and binding,
absent manifest error.
"Hedging Arrangements" means, with respect to any Person, any
agreements or other arrangement (including, without limitation,
interest rate swap agreements, interest rate cap agreements and
forward sale agreements) entered into by such Person to protect itself
against changes in interest rates.
"Pledged Hedging Account" has the meaning set forth in
Section 3.1(g) hereof.
"Pledged Hedging Arrangement" has the meaning set forth
in Section 3.1(g) hereof.
"Property Debt Service Coverage Ratio" means, at any date of
determination for any Multifamily Property that secures a Mortgage
Loan pledged or to be pledged hereunder, the ratio of (a) the net
operating income of the Multifamily Property, as determined by the
Borrowers in accordance with Rating Agency guidelines, to (b)
projected interest expense and scheduled payments in respect of the
Multifamily Mortgage Loan for the twelve (12) months after such date
of determination.
-2-
Washington/Huntoon:12/17/96
<PAGE> 3
"Rating Agency" means a nationally recognized statistical
rating organization that rates securities backed by Mortgage Loans
similar to Conduit Mortgage Loans.
"Underwriting Guidelines" means any underwriting guidelines
adopted by FNMA in connection with its Multifamily Mortgage Loan
conduit program as in effect from time to time, or any underwriting
guidelines adopted by the sponsor of any other Multifamily Mortgage
Loan conduit program approved by the Lender as in effect from time to
time provided such underwriting guidelines have been approved by, or
conform to the standards of, at least two Rating Agencies.
4. Section 1.1 of the Agreement shall be amended to delete the
definitions of "Collateral Value" and "Warehousing Rate" in their entirety,
replacing them with the following definition:
"Collateral Value" means (a) with respect to any Mortgage
Loan as of the date of determination, the lesser of (i) the amount of
any Advance made against such Mortgage Loan under Section 2.1(c)
hereof or (ii) the Fair Market Value of such Mortgage Loan, (b) in the
event Pledged Mortgages have been exchanged for Pledged Securities,
the aggregate Fair Market Value of the Pledged Mortgages backing such
Pledged Securities, (c) with respect to Pledged Hedging Arrangements
held in the Pledged Hedging Account, the net amount payable to the
Borrowers, if any, under such Pledged Hedging Arrangements if the same
were terminated as of the date of determination and (d) with respect
to cash, the amount of such cash.
"Warehousing Rate" means a floating rate of interest which is
equal to three-quarters of one percent (0.75%) per annum over LIBOR.
The Warehousing Rate will be adjusted as of the effective date of each
weekly change in LIBOR. The Lender's determination of the Warehousing
Rate as of any date of determination shall be conclusive and binding,
absent manifest error.
5. Section 2.1(b)(1) of the Agreement shall be deleted in
its entirety and the following shall be substituted in lieu
thereof:
(1) No Warehousing Advance shall be made against a
Mortgage Loan, other than a Conduit Mortgage Loan, which is
not covered by a Purchase Commitment for either the Mortgage
Loan or the Mortgage-backed Securities or Participation
Certificates to be created on the basis of such Mortgage
Loan.
-3-
Washington/Huntoon:12/17/96
<PAGE> 4
6. Section 2.1(b) of the Agreement shall be further amended
to add the following sections after Section 2.1(b)(7):
(8) The aggregate amount of Conduit Advances
outstanding at any one time shall not exceed Fifty
Million Dollars ($50,000,000).
(9) No Advance shall be made against a Conduit
Mortgage Loan unless it (i) is underwritten in compliance
with the Underwriting Guidelines, (ii) is secured by a
Multifamily Property that has a Property Debt Service
Coverage Ratio of no less than 1.15 to 1.00 and (iii) has an
original Mortgage Note Amount not greater then eighty percent
(80%) of the lesser of (A) the value of the related Mortgage
Property, as determined by the appraisal thereof described in
Section 5.15(c)(5) hereof, or (B) if such Conduit Mortgage
Loan was used to finance the purchase of such Mortgage
Property, the purchase price thereof.
7. Section 2.1(c) of the Agreement shall be amended to add
the following section after Section 2.1(c)(6):
(7) A Warehousing Advance made against a Conduit
Mortgage Loan pledged hereunder, ninety-seven percent (97%) of
the Mortgage Note Amount.
8. Section 2.7(a) of the Agreement shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
2.7(a) Prior to the occurrence of an Event of Default, the
unpaid amount of each Warehousing Advance, other than a Conduit
Advance, shall bear interest, from the date of such Warehousing
Advance until paid in full, at the Warehousing Rate. Prior to the
occurrence of an Event of Default, the unpaid amount of each Conduit
Advance shall bear interest, from the date of such Conduit Advance
until paid in full, at the Conduit Rate.
9. The first two paragraphs of Section 2.7(d) of the
Agreement shall be deleted in their entirety and the following
shall be substituted in lieu thereof:
2.7(d) The Borrowers shall be entitled to receive certain
benefits based on the average monthly Eligible Balances of the
Borrowers maintained at a Designated Bank. For the purposes hereof,
all Advances shall be called the "Applicable Advances." After the end
of each calendar month, the Lender will calculate the interest due for
the applicable month, by electing a portion ("Balance Funded Portion")
of the Applicable Advances
-4-
Washington/Huntoon:12/17/96
<PAGE> 5
which is equal to the lesser of (a) the Applicable Advances
outstanding during such month or (b) the average amount of Eligible
Balances on deposit with a Designated Bank during such month. The
Balance Funded Portion of the Applicable Advances shall bear interest
at balance funded rates of (a) three-quarters of one percent (0.75%)
per annum for the Balance Funded Portion of Warehousing Advances other
than Conduit Advances, (b) three and one-half percent (3.50%) per
annum for the Balance Funded Portion of Servicing Facility Advances,
(c) three percent (3.00%) per annum for the Balance Funded Portion of
the Term Loan Advance, and (d) one and three-quarters percent (1.75%)
per annum for the Balance Funded Portion of Conduit Advances.
The Balance Funded Portion of the Applicable Advances
outstanding for a month shall be determined by (b) first, deducting
the average amount of the Term Loan Advance outstanding for a month
from the average amount of Eligible Balances during such month, but
only to the extent of the average amount of Eligible Balances, (b)
second, to the extent Eligible Balances remain for such month,
deducting the average amount of the Servicing Facility Advances
outstanding for a month from the remaining average amount of Eligible
Balances during such month, but only to the extent of the remaining
average amount of Eligible Balances, (c) third, to the extent Eligible
Balances remain for such month, deducting the average amount of
Conduit Advances outstanding for a month from the remaining average
amount of Eligible Balances during such month, but only to the extent
of the remaining average amount of Eligible Balances, and (d) fourth,
to the extent Eligible Balances remain for such month, deducting the
average amount of Warehousing Advances other than Conduit Advances
outstanding for a month from the remaining average amount of Eligible
Balances during such month, but only to the extent of the remaining
average amount of Eligible Balances.
10. Sections 2.8(f)(1) and (5) are deleted in their entirety
and the following are substituted therefor:
(1) For an FHA Construction Mortgage Loan, ninety
(90) days elapse from the date of each Advance made by the
Lender against such Pledged Mortgage, and for any other
Mortgage Loan other than a Pledged Mortgage to be exchanged
for a FNMA Mortgage-backed Security or a Conduit Mortgage
Loan, ninety (90) days elapse from the date of the initial
Advance made by the Lender against such Pledged Mortgage,
whether or not such Pledged Mortgage is included in an
Eligible Mortgage Pool.
-5-
Washington/Huntoon:12/17/96
<PAGE> 6
(5) For a Conventional Multifamily Mortgage Loan,
FNMA DUS Mortgage Loan, FHA Project Mortgage Loan, HUD 241
Mortgage Loan, FHA Construction Mortgage Loan, Conduit
Mortgage Loan or Conventional Health Care Mortgage Loan, one
(1) Business Day elapses from the date an Advance was made
against any Mortgage Loan, without receipt of those
Collateral Documents relating to such Mortgage Loan required
to be delivered on such date under Exhibit D-MF/CONV/DUS,
Exhibit D-MF/FHA, or Exhibit D-MF/BER hereto, or such
Collateral Documents, upon examination by the Lender, are
found not to be in compliance with the requirements of this
Agreement or the related Purchase Commitment.
11. Section 2.8(f) of the Agreement shall be further amended
to add the following section immediately after Section 2.8(f)(12):
(13) Two hundred seventy (270) days elapse from the
date of the initial Conduit Advance made by the Lender
against a Conduit Mortgage Loan, whether or not such Pledged
Mortgage is included in an Eligible Mortgage Pool.
12. Section 3.1 of the Agreement is hereby amended to reletter the
existing Sections 3.1(g), (h) and (i) as Sections 3.1(h), (i) and (j), and to
add the following section immediately after Section 3.1(i) and before the last
paragraph thereof:
3.1(g) All right, title and interest of the Borrowers in and
to any Hedging Arrangements entered into to protect the Borrowers
against changes in the value of the Pledged Mortgages and Pledged
Securities resulting from changes in interest rates (the "Pledged
Hedging Arrangements") and the Borrowers' accounts in which the
Pledged Hedging Arrangements are held (collectively, the "Pledged
Hedging Account"), including, without limitation, all rights to
payment arising under Pledged Hedging Arrangements or from the Pledged
Hedging Account.
13. Section 3.3 of the Agreement shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
3.3 Delivery of Additional Collateral or Mandatory
Prepayment. At any time that the aggregate Collateral Value of the
Pledged Mortgages, Pledged Securities, Hedging Arrangements that the
Lender has agreed to include in the calculation of Collateral Value
and cash then pledged hereunder is less than the aggregate amount of
the Warehousing Advances then outstanding hereunder, the Lender may
request, and the Borrowers shall within
-6-
Washington/Huntoon:12/17/96
<PAGE> 7
two (2) Business Days after Notice by the Lender (a) deliver to the
Lender for pledge hereunder additional Mortgage Loans, Mortgage-backed
Securities and/or cash, with a Collateral Value sufficient to cover
the difference between the Collateral Value of the Pledged Mortgages,
Pledged Securities, Hedging Arrangements and cash pledged and the
aggregate amount of Warehousing Advances outstanding hereunder, and/or
(b) repay the Warehousing Advances in an amount sufficient to reduce
the aggregate balance thereof outstanding to or below the Collateral
Value of the Pledged Mortgages, Pledged Securities, Hedging
Arrangements and cash pledged hereunder.
14. Section 5.13 of the Agreement is amended to add the
following after Section 5.13(e):
5.13(f) Washington is a FNMA approved and qualified lender,
seller and/or servicer under FNMA's Multifamily Mortgage Loan conduit
program.
15. Section 5.15(c)(6) of the Agreement shall be deleted in
its entirety and the following shall be substituted in lieu
thereof:
(6) complies and will continue to comply with the
terms of this Agreement and (i) if such Mortgage Loan is
subject to a Purchase Commitment, with the related Purchase
Commitment, or (ii) otherwise, with standard practice in the
secondary market for Multifamily Mortgage Loans to be used to
back Mortgage-backed Securities.
16. Section 6.2 of the Agreement shall be amended to add the
following after Section 6.2(j):
6.2(k) As soon as available and in any event within two (2)
Business Days after the end of each week, a hedging report (the
"Hedging Report") as of the end of such week, setting forth the
Company's portfolio of Conduit Mortgage Loans that are Pledged
Mortgages, the expected sale dates, the Hedging Arrangements relating
thereto, and such other information as the Lender may request relating
to the market risks of such Pledged Mortgages.
17. Section 6.13 of the Agreement shall be amended to add the
following after Section 6.13(g):
6.13(h) Maintain Hedging Arrangements with respect to the
risk that the market value of the Company's portfolio of Conduit
Mortgage Loans held for sale
-7-
Washington/Huntoon:12/17/96
<PAGE> 8
(including, without limitation, any such Mortgage Loans that are
Pledged Mortgages) will change as a result of changes in interest
rates prior to the sale of such Mortgage Loans effectively mitigating
the risk that the value of such Mortgage Loans will change as a result
of changes in interest rates. The Company shall maintain the Pledged
Hedging Arrangements with Persons satisfactory to the Lender and
shall, at the request of the Lender, enter into, and cause such
Persons to enter into, agreements satisfactory to the Lender with
respect to Lender's security interest in the Pledged Hedging
Arrangements.
18. Sections 7.6 and 7.7 of the Agreement shall be deleted in
their entirety and the following shall be substituted in lieu
thereof:
7.6 Debt to Adjusted Tangible Net Worth Ratio.
Permit the ratio of Debt to Adjusted Tangible Net Worth
of Washington and its Subsidiaries, on a consolidated
basis, at any time to exceed 15 to 1.
7.10 Minimum Adjusted Tangible Net Worth. Permit
Adjusted Tangible Net Worth of Washington and its
Subsidiaries, on a consolidated basis, at any time to be
less than Twenty-Five Million Dollars ($25,000,000).
19. Exhibits C-MF and D-MF/CONV/DUS to the Agreement are hereby
deleted in their entirety and replaced with the new Exhibits C-MF and
D-MF/CONV/DUS/COND attached to this Amendment. All references in the Agreement
to Exhibits C-MF and D-MF/CONV/DUS shall be deemed to refer to the new Exhibits
C-MF and DMF/CONV/DUS/COND.
20. Exhibit I-MF to the Agreement is deleted in its entirety and
replaced with the new Exhibit I-MF attached to this Amendment. All references
in this Amendment and the Agreement to Exhibit I-MF shall be deemed to refer to
the new Exhibit I-MF.
21. The Borrowers shall deliver to the Lender (a) an executed original
of this Amendment; an executed Certificate of Secretary with corporate
resolutions; and (b) a Two Hundred Fifty Dollar ($250) document production fee.
22. The Borrowers represent, warrant and agree that (a) there exists
no Default or Event of Default under the Loan Documents, (b) the Loan Documents
continue to be the legal, valid and binding agreements and obligations of the
Borrowers enforceable in accordance with their terms, as modified herein, (c)
the Lender is not in default under any of the Loan Documents and the Borrowers
have no offset or defense to its performance or obligations under any of the
Loan Documents, (d) the representations contained in the
-8-
Washington/Huntoon:12/17/96
<PAGE> 9
Loan Documents remain true and accurate in all respects, and (e) there has been
no material adverse change in the financial condition of the Borrowers from the
date of the Agreement to the date of this Amendment.
23. Except as hereby expressly modified, the Agreement shall otherwise
be unchanged and shall remain in full force and effect, and the Borrowers
ratify and reaffirm all of their obligations thereunder.
24. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ SHEKAR NARASIMHAN
------------------------------------
Its: President/CEO
-----------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ SHEKAR NARASIMHAN
------------------------------------
Its: Chairman
-----------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ LISA F. CARLSON
------------------------------------
Its: Director
-----------------------------------
-9-
Washington/Huntoon:12/17/96
<PAGE> 10
STATE OF VIRGINIA )
) SS
COUNTY OF FAIRFAX )
On December 20, 1996, before me, a Notary Public, personally appeared
Shekar Narasimhan, the President/CEO of WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
STATE OF VIRGINIA )
) SS
COUNTY OF FAIRFAX )
On December 20, 1996, before me, a Notary Public, personally appeared
Shekar Narasimhan, the Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
-10-
Washington/Huntoon:12/17/96
<PAGE> 11
STATE OF MARYLAND )
) SS
COUNTY OF MONTGOMERY )
On December 23rd, 1996, before me, a Notary Public, personally
appeared Lisa F. Carlson, the Director of RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that she executed the same in her authorized
capacity, and that by her signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ TRACEY D. CHAMBERS
-------------------------------
Notary Public
(SEAL) My Commission Expires: 10/31/00
TRACY D. CHAMBERS
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 31, 2000
-11-
Washington/Huntoon:12/17/96
<PAGE> 12
EXHIBIT C-MF
REQUEST FOR ADVANCE AGAINST MULTIFAMILY, HEALTH CARE
AND COMMERCIAL MORTGAGE LOANS
<TABLE>
<S> <C>
______ THIRD PARTY ORIGINATION
______ CONVENTIONAL MORTGAGE LOAN
______ FNMA _____ FHLMC ______ OTHER
REFUNDER
______ FNMA DUS MORTGAGE LOAN
______ REFUNDER
______ FHA PROJECT MORTGAGE LOAN _______ GNMA
______ SECOND
______ REFUNDER
______ FHA CONSTRUCTION MORTGAGE LOAN
______ COMMERCIAL MORTGAGE LOAN
______ CONDUIT MORTGAGE LOAN
<CAPTION>
Mortgage Company: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and WMF/HUNTOON, PAIGE
ASSOCIATES LIMITED
<S> <C>
Loan No.:__________________________________________________________ Warehouse Date:________________________
Project Name:______________________________________________________ Contract/Pool No.:_____________________
Mortgage Note Amount:______________________________________________ Interest Rate:_________________________
Mortgage Note Date:________________________________________________
Advance Amount:____________________________________________________
Approved Warehouse Amt:____________________________________________ Endorsement Amt:______________________
Cumulative Endorsement Amt:________________________________________
Investor:__________________________________________________________ Expiration Date:______________________
Committed Purchase Price:__________________________________________
Title Company/Closing Agent:_______________________________________
Title Contact Person:______________________________________________ Phone No.:____________________________
Security Rate:_________ Issue Date:________________________________ Maturity Date:________________________
WIRE TRANSFER INFORMATION
Wire Amount:_______________________________________________________ Date of Wire:________________
Receiving Bank:____________________________________________________ ABA No.:________________
City & State:____________________________________________________________________________________________________________________
Credit Account Name:_______________________________________________ Number:_________________
Advise:____________________________________________________________ Phone:_________________
</TABLE>
For new value this day received, and as collateral security for the
payment of any and all indebtedness and liability of the Mortgage Company under
that certain Credit and Security Agreement dated as of June 14, 1996, as may be
amended from time to time, by and between the Company and RESIDENTIAL FUNDING
CORPORATION (the "Lender"), the Company creates and grants in favor and for the
benefit of the Lender a security interest in and to the Mortgage Note evidencing
the Mortgage Loan described in this Advance Request.
The Company agrees to cause the Mortgage Note to be delivered to the
Lender, on the next Business Day following the date of the Advance made to fund
the Mortgage Loan.
AUTHORIZED SIGNATURE(S)
- - -------------------------------- ----------------------------------------
Washington/Huntoon:12/17/96
<PAGE> 13
EXHIBIT D-MF/CONV/DUS/COND
PROCEDURES AND DOCUMENTATION FOR WAREHOUSING
CONVENTIONAL MULTIFAMILY, FNMA DUS, HEALTH CARE AND COMMERCIAL
MORTGAGE LOANS
The following procedures and documentation requirements must
be observed in all respects by the Company. All documents must be
satisfactory to the Lender in its sole discretion. Terms used
below, which are not otherwise defined, shall have the meanings
given them in the Agreement. The FNMA and FHLMC form numbers
referred to herein are for convenience only and the Company shall
use the equivalent forms required at the time of delivery of the
Pledged Mortgage or Pledged Security.
I. AT LEAST THREE (3) BUSINESS DAYS PRIOR TO THE ADVANCE DATE:
The Lender must receive a letter signed by the Company
providing the following information on the Pledged Mortgage:
(1) Mortgagor's name;
(2) Project name;
(3) Company's case/loan number;
(4) Expected Advance date;
(5) Mortgage Note Amount;
(6) Name and address of title company or settlement attorney
and contact person.
II. AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF AN ADVANCE:
The Lender must receive the following:
(1) Original signed Request for Advance (Exhibit C-MF);
(2) For FHLMC-committed Conventional Mortgage Loans the
signed Conventional Multifamily Immediate Delivery
Purchase Contract and Prior Approval Conversion Amendment
(FHLMC Form 64A);
(3) For FNMA-committed Conventional Mortgage Loans, a copy of
the signed Mortgage Purchase and Delivery Commitment
(FNMA Form 4257);
(4) For FNMA DUS Mortgage Loans, a copy of the signed FNMA
Mandatory Delivery Commitment-Multifamily Delegated
Underwriting;
(5) For other Conventional Mortgage Loans, Health Care
Mortgage Loans and Commercial Mortgage Loans, a copy of
the Purchase Commitment for the Pledged Mortgage;
(6) If a Mortgage-backed Security is to be issued, a copy of
Purchase Commitment for the Pledged Security;
(7) If Participation Certificate is to be issued, a copy of
Participation and Servicing Agreement;
Washington/Huntoon:12/17/96 Rev:12/13/95
<PAGE> 14
(8) Original Lender escrow instructions letter to the title
company or the settlement attorney, countersigned by an
authorized representative of the title company or the
settlement attorney to be involved with the transaction;
(9) If the Company is not the mortgagee on the Mortgage, a
copy of the assignment of Mortgage by the mortgagee to
the Company which was sent for recordation on or before
the date of the Advance;
(10) Original assignment of the Mortgage to the Lender in
recordable form but unrecorded;
(11) Original assignment of the security agreement to the
Lender in recordable form but unrecorded;
(12) Original assignment of the UCC financing statements to
the Lender in recordable form but unrecorded; and
(13) Check payable to the Lender for the Warehousing Fee (if
applicable).
Upon receipt of the letter required under Section I above, in
form and substance satisfactory to the Lender, the Lender will
issue its escrow instruction letter to the title company or
the settlement attorney. The Advance, when wired by the
Lender to the title company or the settlement attorney, shall
be held in an escrow account of the title company or the
settlement attorney and disbursed in accordance with the
closing letter of the Company or its counsel when authorized
by the Lender in its escrow instruction letter. No Advance
will be made by the Lender prior to its receipt of all
Collateral Documents required under Section II above.
Disbursement will be authorized only after the title company
or settlement attorney takes possession, on behalf of the
Lender, of the signed Mortgage Note, endorsed by the Company
in blank and without recourse, and the title company has
issued its title insurance policy. Immediately after
disbursement, the title company or settlement attorney shall
be required to transmit the Mortgage Note and certified true
copy of the title insurance policy directly to the Lender. In
the event the Pledged Mortgage is not closed and the related
Mortgage recorded by 3:00 p.m. on the date of the Advance, the
title company or the settlement attorney is instructed to
return the Advance immediately to the Lender.
The foregoing arrangements, permitting funding of the Advance
when the Mortgage Note has been delivered to a third person on
behalf of, and as agent and bailee for the Lender, and before
the Mortgage Note is received by the Lender, are for the
convenience of the Company. All risk of loss or nondelivery
of the Mortgage Note is that of the Company, and the Lender
has no liability or responsibility therefor.
- 2 -
Washington/Huntoon:12/17/96 Rev:12/13/95
<PAGE> 15
III. ON NEXT BUSINESS DAY FOLLOWING THE ADVANCE DATE:
The Lender must receive the following:
(1) The original Mortgage Note, endorsed by the Company in
blank and without recourse. If the Company is not the
named holder of the Mortgage Note, the Mortgage Note must
bear an endorsement from the holder to the Company;
(2) A copy of the title insurance policy or the title
insurance commitment to issue a policy marked to show the
final policy exceptions, which:
(a) Names as insured the Company and/or the Investor,
and their successors and assigns, as their
interests may appear;
(b) Shows effective date and time which is on or after
the date and time of disbursement of the Advance
from escrow; and
(c) Sets forth an insured amount which is equal to or
greater than the Advance amount.
(3) If a Participation Certificate is issued, original
Participation Certificate evidencing one hundred percent
(100%) of the undivided interests in the pool of Pledged
Mortgages;
(4) If a Participation Certificate is issued, original signed
Stock/Bond Power or equivalent Assignment for the
Participation Certificate issued from the Company to the
Lender (or from the Investor to the Lender if the
Participation Certificate was issued in the name of the
Investor);
IV. AS SOON AS POSSIBLE FOLLOWING THE ADVANCE DATE, AND NO LATER
THAN ONE (1) BUSINESS DAY PRIOR TO THE DATE THE INVESTOR OR
THE APPROVED CUSTODIAN MUST RECEIVE THE PLEDGED MORTGAGE:
The Lender must receive the following:
(1) Signed shipping instructions for the delivery of the
Pledged Mortgage including the following:
(a) Name and address of the Investor or the Approved
Custodian to which the Collateral Documents are to
be shipped, the desired shipping date and the
preferred method of delivery;
(b) For delivery of the Participation Certificate, the
name and address of the Investor to which the
Participation Certificate is to be delivered;
(c) Name of project securing the Pledged Mortgage;
(d) Date the Investor or the Approved Custodian must
receive the Pledged Mortgage; and
(e) Instructions for endorsement of the Mortgage Note.
(2) For FHLMC-committed Conventional Mortgage Loans, the
following additional documents must be received:
- 3 -
Washington/Huntoon:12/17/96 Rev:12/13/95
<PAGE> 16
(a) Original Contract Delivery Summary (FHLMC Form 381)
marked to indicate that the mortgages being
delivered are subject to a security interest.
(b) For cash payments, the signed original Wire
Transfer Authorization for a Cash Warehouse
Delivery (FHLMC Form 987), showing the Lender as
warehouse lender and specifying the Cash Collateral
Account as the receiving account for loan purchase
proceeds.
(c) Completed, but not signed, Warehouse Lender Release
of Security Interest (FHLMC Form 996), to be signed
by the Lender.
(3) For FNMA-committed Conventional Mortgage Loans, FNMA DUS
Mortgage Loans and FNMA Conduit Mortgage Loans, the
following additional documents must be received:
(a) For cash payments, the signed original Wire
Transfer Request (FNMA Form 4639), specifying the
Cash Collateral Account as the receiving account
for loan purchase proceeds.
(b) Executed bailee letter with Schedule A (in form
approved by FNMA and the Lender).
(c) For Conduit Mortgage Loans, a copy of the signed
Mortgage Purchase and Delivery Commitment and, if
applicable, the Purchase Commitment for the related
Pledged Security.
(4) The remainder of the documents required for shipping to
the Investor as specified by the Investor or in the
applicable Seller/Servicer Guide.
The Lender exclusively shall deliver the Mortgage Note and
other original Collateral Documents evidencing the Pledged
Mortgage and related pool documents to an Investor or an
Approved Custodian, unless otherwise agreed in writing.
Payment for FNMA Conduit Mortgage Loans shall always be made
in cash.
V. IF A MORTGAGE-BACKED SECURITY IS TO BE ISSUED BY FNMA, AS SOON
AS POSSIBLE FOLLOWING CLOSING, BUT NO LATER THAN ONE (1)
BUSINESS DAY PRIOR TO SETTLEMENT DATE FOR A PLEDGED SECURITY
THE LENDER MUST RECEIVE:
(1) An original Delivery Schedule (FNMA Form 2014),
instructing FNMA to issue the Mortgage-backed Security in
the name of the Company, to deliver the Pledged Security
to the Lender's custody account at Chemical Bank NY
(CHEMICAL NYC/GEOCUST/MR9229490), and bearing the
following instructions: "These instructions may not be
changed without the prior written approval of Residential
Funding Corporation, Preston A. Lyvers Director or Patti
Erfan, Director."
(2) The signed Securities Delivery Instructions form attached
hereto as Schedule I.
- 4 -
Washington/Huntoon:12/17/96 Rev:12/13/95
<PAGE> 17
Upon instruction by the Company, the Lender shall complete the
endorsement of the Mortgage Note. If no Mortgage-backed Security is
to be issued, the Lender shall deliver the Mortgage Note and the
other documents required for shipping to the Investor as specified
by the Investor or in the applicable Seller/Servicer Guide with a
bailee letter to the Investor who issued the Purchase Commitment
for the Pledged Mortgage or to an Approved Custodian for such
Investor. If a Mortgage-backed Security is to be issued and in the
case of FNMA Conduit Mortgage Loans, the Lender shall deliver the
Mortgage Note, the other documents required for shipping and the
Delivery Schedule with a bailee letter to FNMA or to an Approved
Custodian for FNMA. If Participation Certificates are to be
issued, the Lender will retain possession of the original Mortgage
Note until the proceeds of the sale of all related Participation
Certificates have been received by the Lender.
Upon receipt of a Pledged Security, the Lender will deliver the
Pledged Security to the Investor which issued the Purchase
Commitment for the Pledged Security. The Pledged Security will be
released to the Investor only upon payment of the purchase proceeds
to the Lender. Cash proceeds of the sale of a Pledged Mortgage or
a Pledged Security shall be applied to the related Advance
outstanding under the Commitment. Provided no Default exists, the
Lender shall return any excess proceeds of the sale of a Pledged
Mortgage or a Pledged Security to the Company, unless otherwise
instructed in writing.
- 5 -
Washington/Huntoon:5/22/97 Rev:12/13/95
<PAGE> 18
SCHEDULE I
RESIDENTIAL FUNDING CORPORATION
WAREHOUSING LENDING DIVISION
Security Delivery Instructions
INSTRUCTIONS MUST BE RECEIVED TWO (2) BUSINESS DAYS IN ADVANCE OF
PICK-UP/DELIVERY
<TABLE>
<CAPTION>
<S> <C>
BOOK-ENTRY DATE: ______________________ SETTLEMENT DATE:__________________________________
ISSUER:________________________________ SECURITY: $_______________________________________
NO. OF CERTIFICATES: __________________ 1)__________________________
2)__________________________
3)__________________________
CUSIP #______________
Pool #_______________ MI#______________ Coupon Rate:_____________________________
Issue Date:(M/D/Y) _________________________ Maturity Date:(M/D/Y)____________________
<CAPTION>
POOL TYPE (circle one):
GNMA: GNMA I GNMA II
FHLMC: FIXED ARM DISCOUNT NOTE
FNMA: FIXED ARM DISCOUNT NOTE DEBENTURES REMIC
- - --------------------------------------------------------------------------------------------
<S> <C>
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $_______________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $_______________________________________
_______________________________ ( ) Free Delivery
DELIVER TO:_______________________________ ( ) Versus Payment
_______________________________ DVP AMT. $_______________________________________
_______________________________ ( ) Free Delivery
- - --------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE:________________________________________________________________________
TITLE: ___________________________________________________________________________
</TABLE>
<PAGE> 19
EXHIBIT I-MF
OFFICER'S CERTIFICATE
Reference is made to that certain Credit and Security Agreement
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon," Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers"), and RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation (the "Lender"), dated as of June 14, 1996 (as the same may
be amended, modified, supplemented, renewed or restated from time to time, the
"Agreement"). All capitalized terms used herein and all Section numbers given
herein refer to those terms and Sections set forth in the Agreement. This
Officer's Certificate is submitted to the Lender pursuant to Section 6.2(c)
of the Agreement.
The undersigned hereby certifies to the Lender that as of the close of
business on __________, 19__ ("Statement Date",) and with respect to the
Borrowers and their Subsidiaries on a consolidated basis:
1. As illustrated in the attached calculations supporting this Officer's
Certificate, the Borrowers met the covenants set forth in Sections
7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, and 7.13, or if the Borrowers
did not meet any of such covenants, a detailed explanation is attached
setting forth the nature and period of the existence of the Default
and the action the Borrowers have taken, are taking, and propose to
take with respect thereto.
2. No Servicing Contracts have been sold or pledged by the Borrowers
except as permitted under the terms of the Agreement.
3. No payments in advance of the scheduled maturity date have been made
with respect to any Subordinated Debt. The Borrowers have incurred no
Debt required to be subordinated pursuant to Section 6.10.
4. The Borrowers were in compliance with the applicable HUD, GNMA, and
Investor net worth requirements, and in good standing with VA, HUD,
GNMA, and each Investor.
5. I have reviewed the terms of the Agreement and have made, or caused to
be made under my supervision, a review in reasonable detail of the
transactions and conditions of the Borrowers (and, if applicable,
their Subsidiaries) and such review has not disclosed the existence,
and I have no knowledge of the existence, of any Default or Event of
Default, or if any
-1-
Washington/Huntoon:12/17/96
<PAGE> 20
Default or Event of Default existed or exists, a detailed explanation
is attached specifying the nature and period of the existence of the
Default and the action the Borrowers have taken, are taking and
propose to take with respect thereto.
6. Pursuant to Section 6.2 of the Agreement, enclosed are the financial
statements of the Borrowers as of the Statement Date. The financial
statements for the period ending on the Statement Date fairly present
the financial condition and results of operations of the Borrowers
(and, if applicable, its Subsidiaries) as at the Statement Date.
Dated:
-----------------------------
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
Washington/Huntoon:12/17/96 -2-
<PAGE> 21
<TABLE>
<CAPTION>
CALCULATIONS SUPPORTING OFFICER'S CERTIFICATE
Borrowers Names: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED and its
Subsidiaries
Statement Date: ________________________________________________________________
All financial calculations set forth herein are as of the Statement Date.
<S> <C> <C>
I. TANGIBLE NET WORTH
Tangible Net Worth of Washington is:
Excess of total assets over total liabilities: $_________
Plus: Loan loss reserves: $_________
Plus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $_________
Minus: Advances to owners, officers or
Affiliates: $_________
Minus: Investments in Affiliates: $_________
Minus: Assets pledged to secure liabilities
not included in Debt: $_________
Minus: Intangible assets: $_________
Minus: Any other HUD nonacceptable assets: $_________
Minus: Other assets unacceptable to the
Lender: $_________
TANGIBLE NET WORTH $_________
II. ADJUSTED TANGIBLE NET WORTH
A. Adjusted Tangible Net Worth of Washington is:
Tangible Net Worth (from IA above) $_________
Minus: Capitalized excess servicing fees: $_________
Minus: Capitalized servicing rights: $_________
Plus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $_________
Plus: .005 times Adjusted Servicing Portfolio
(from IIIA below): $_________
ADJUSTED TANGIBLE NET WORTH $_________
B. Requirements of Section 7.7 of the Agreement:
MINIMUM ADJUSTED TANGIBLE NET WORTH OF $25,000,000.
C. Covenant Satisfied: _______ Covenant Not Satisfied: _______
</TABLE>
-3-
Washington/Huntoon:12/17/96
<PAGE> 22
<TABLE>
<S> <C> <C>
III. ADJUSTED SERVICING PORTFOLIO
A. Adjusted Servicing Portfolio of the Borrowers is:
Servicing Portfolio owned by the Borrowers is: $_________
Minus: The unpaid principal balance of Mortgage Loans:
Past due 60 days or more: $_________
That are Commercial, FNMA DUS,
or FHA co-insured: $_________
Sold with recourse: $_________
For which the Servicing Contracts
are pledged: $_________
Serviced by Borrowers for others under
subservicing arrangements: $_________
ADJUSTED SERVICING PORTFOLIO $______________
B. Requirements of Section 7.10 of the Agreement:
ADJUSTED SERVICING PORTFOLIO OF $3,000,000,000.
C. COVENANT SATISFIED:_______ COVENANT NOT SATISFIED:____
IV. DEBT OF THE BORROWERS
Total liabilities $_________
Minus: Loan loss reserves: $_________
Minus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $_________
Minus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $_________
DEBT $______________
V. RATIO OF DEBT TO ADJUSTED TANGIBLE NET WORTH
A. The ratio of Debt to Adjusted Tangible Net Worth (IV to
II.A) is: _______to 1
B. Requirements of Section 7.6 of the Agreement:
The ratio of Debt to Adjusted Tangible Net Worth shall not
exceed 15 to 1.
C. COVENANT SATISFIED:_______ COVENANT NOT SATISFIED:_______
</TABLE>
-4-
Washington/Huntoon:12/17/96
<PAGE> 23
<TABLE>
<S> <C> <C>
VI. LIQUID ASSETS OF THE BORROWERS
Unrestricted and Unencumbered Cash $_________
Plus: Funds on deposit in any United States bank $_________
Plus: Investment grade commercial paper $_________
Plus: Money market funds $_________
Plus: Marketable securities $_________
Plus: Mortgage Loans and Mortgage-backed Securities
held for sale $_________
Minus: Outstanding liabilities secured by Mortgage Loans
and Mortgage-backed Securities held for sale $_________
LIQUID ASSETS $_________
VII. LIQUIDITY
A. The ratio of Liquid Assets to Adjusted Tangible Net Worth
(V to II) is: ________to 1
B. Requirements of Section 7.8 of the Agreement:
The ratio of Liquid Assets to Adjusted Tangible Net Worth
shall not be less than twenty-five percent (25%).
C. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
VIII. MAXIMUM PASS-THROUGHS
A. The aggregate cumulative outstanding amount of advances to or
on behalf of defaulting mortgagors paid or required to have
been paid by the Borrowers on Mortgage Loans and
Mortgage-backed Securities ("Pass-throughs") is:
$_________
B. The ratio of Pass-throughs to Adjusted Tangible Net Worth
(VII.A to II.A) is: ________to 1
C. Requirements of Section 7.9 of the Agreement:
The ratio of Pass-throughs to Adjusted Tangible Net Worth
shall not exceed thirty-five percent (35%).
D. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
</TABLE>
-5-
Washington/Huntoon:12/17/96
<PAGE> 24
<TABLE>
<S> <C> <C>
IX. DEBT SERVICE COVERAGE RATIO
A. Net income for the previous four quarters: $_________
Plus: Income tax expenses: $_________
Minus: Income taxes paid: $_________
Plus: Depreciation, amortization and other non-cash
deductions: $_________
Minus: Non-cash revenue: $_________
Minus: Dividends and distributions: $_________
Plus: Term Loan/Servicing Facility interest
expenses: $_________
FUNDS FROM OPERATIONS $_________
B. Scheduled Term Loan/Servicing Facility principal payment
(following four quarters): $_________
Plus: Term Loan/Servicing Facility interest expenses
(previous four quarters):
$_________
Annual debt payments $_________
C. The ratio of XA to XB is: ________to 1.00
D. Requirements of Section 7.11 of the Agreement:
Permit the Debt Service Coverage Ratio, measured as of the
first day of any fiscal quarter, to be less than 1.50 to
1.00.
E. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
X. DELINQUENCY RATIO
A. Unpaid Principal Balance of Mortgage Loans Serviced that
are:
30 or more days past due: $_________
Foreclosure: $_________
In Bankruptcy: $_________
TOTAL $_________
B. Unpaid Principal Balance of all Mortgage Loans Serviced
by Borrowers: $_________
C. The ratio of XIA to XIB (expressed as a percentage): __________%
D. Requirements of Section 7.12 of the Agreement:
The Delinquency Ratio shall not exceed 10%.
E. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED: ______
</TABLE>
-6-
Washington/Huntoon:12/17/96
<PAGE> 25
<TABLE>
<S> <C> <C>
XI. TRANSACTIONS WITH AFFILIATES
A. Loans, advances, and extensions of credit made by the
Borrowers to their Affiliates total: $_________
B. Capital contributions made by the Borrowers to their
Affiliates total: $_________
C. Management fees paid to Affiliates during the current
fiscal year total: $_________
D. Transfers, sales, pledges, assignments or other
dispositions of assets made by the Borrowers to their
Affiliates total: $_________
E. Requirements of Section 7.13 of the Agreement:
1. No loans, advances or extensions of credit shall be
made by the Borrowers to Affiliates.
COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
2. No capital contributions shall be made by the
Borrowers to any Affiliate.
COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
3. No transfers, sales, pledges assignments or other
dispositions of assets by the Borrowers to
Affiliates.
COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
4. No Management fees shall be paid by the Borrowers
to Affiliates.
COVENANT SATISFIED:______ COVENANT NOT SATISFIED:______
</TABLE>
-7-
Washington/Huntoon:12/17/96
<PAGE> 1
EXHIBIT 10.8
THIRD AMENDMENT TO
CREDIT AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 12th day of May 1997, by
and between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware
corporation ("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation ("Huntoon," Washington and Huntoon
are hereinafter collectively referred to as the "Borrowers"), and
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Lender").
WHEREAS, the Borrowers and the Lender have entered into a
revolving warehouse facility with a present Warehousing Commitment
Amount of One Hundred Fifty Million Dollars ($150,000,000), to
finance the origination and acquisition of Mortgage Loans as
evidenced by a Warehousing Promissory Note in the principal sum of
One Hundred Fifty Million Dollars ($150,000,000), dated as of June
14, 1996 (the "Warehousing Note"), and by a Credit and Security
Agreement dated as of June 14, 1996, as the same may have been
amended or supplemented (the "Agreement");
WHEREAS, the Borrowers and the Lender have entered into a
servicing facility with a present Servicing Facility Commitment
Amount of Ten Million Dollars ($10,000,000) as evidenced by a
Servicing Facility Promissory Note in the principal sum of Ten
Million Dollars ($10,000,000), dated as of June 14, 1996.
WHEREAS, the Borrowers have also entered into a term loan
facility with a present Term Loan Commitment Amount of Ten Million
Dollars ($10,000,000) as evidenced by a Term Loan Promissory Note
in the principal sum of Ten Million Dollars ($10,000,000), dated as
of June 14, 1996, a Term Loan Promissory Note in the principal sum
of Ten Million Dollars ($10,000,000), dated as of June 14, 1996,
and the Agreement;
WHEREAS, the Borrowers have requested the Lender to amend the
certain terms of the Agreement, and the Lender has agreed to such
amendment of the Agreement subject to the terms and conditions of
this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing and
of the mutual covenants, agreements and conditions hereinafter set
forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise
defined shall have their respective meanings set forth in the
Agreement.
-1-
Washington/Huntoon:5/13/97
<PAGE> 2
2. The effective date ("Effective Date") of this Amendment
shall be May 14, 1997, the date on which the Borrowers have complied with
all the terms and conditions of this Amendment.
3. Section 1.1 of the Agreement shall be amended to delete
the definition of "Servicing Facility Rate" in its entirety,
replacing it with the following definition:
"Servicing Facility Rate" means a floating rate of
interest per annum equal to three percent (3.00%) per annum
over LIBOR. The Servicing Facility Rate shall be adjusted on
and as of the effective date of each weekly change in LIBOR.
The Lender's determination of the Servicing Facility Rate as
of any date of determination shall be conclusive and binding,
absent manifest error.
4. Sections 7.7 and 7.8 of the Agreement shall be deleted in
their entirety and the following shall be substituted in lieu thereof:
7.7 Minimum Adjusted Tangible Net Worth. Permit
Adjusted Tangible Net Worth of Washington and its
Subsidiaries, on a consolidated basis, at any time to be
less than Fifteen Million Dollars ($15,000,000).
7.8 Liquidity. Permit the ratio of Liquid Assets to
Tangible Net Worth of Washington and its Subsidiaries, on a
consolidated basis, at any time to be less than twenty-five
percent (25%).
5. Washington is in Default under the terms of the Liquidity
covenant of Section 7.8 of the Agreement. The Lender hereby agrees
to waive its Default rights with respect to the breach of the
Liquidity covenant for the period from March 31, 1997 through the
Effective Date of this Amendment. This waiver applies only to the
specific instance described herein. It is not a waiver of any
subsequent Default of the same provision of the Agreement, nor is
it a waiver of any other Default of the Agreement.
6. Exhibit I-MF to the Agreement is deleted in its entirety
and replaced with the new Exhibit I-MF attached to this Amendment.
All references in this Amendment and the Agreement to Exhibit I-MF
shall be deemed to refer to the new Exhibit I-MF.
7. The Borrowers shall deliver to the Lender (a) an executed
original of this Amendment; an executed Certificate of Secretary
with corporate resolutions; and (b) a Two Hundred Fifty Dollar
($250) document production fee.
-2-
Washington/Huntoon:5/13/97
<PAGE> 3
8. The Borrowers represent, warrant and agree that (a) there
exists no Default or Event of Default under the Loan Documents, (b)
the Loan Documents continue to be the legal, valid and binding
agreements and obligations of the Borrowers enforceable in
accordance with their terms, as modified herein, (c) the Lender is
not in default under any of the Loan Documents and the Borrowers
have no offset or defense to its performance or obligations under
any of the Loan Documents, (d) the representations contained in the
Loan Documents remain true and accurate in all respects, and (e)
there has been no material adverse change in the financial
condition of the Borrowers from the date of the Agreement to the
date of this Amendment.
9. Except as hereby expressly modified, the Agreement shall
otherwise be unchanged and shall remain in full force and effect,
and the Borrowers ratify and reaffirm all of their obligations
thereunder.
10. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be
an original, but all of which shall together constitute one and the
same instrument.
IN WITNESS WHEREOF, the Borrowers and the Lender have caused
this Amendment to be duly executed on their behalf by their duly
authorized officers as of the day and year above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ SHEKAR NARASIMHAN
-----------------------------------------
Its: President & CEO
----------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ SHEKAR NARASIMHAN
-----------------------------------------
Its: Chairman
----------------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ LISA F. CARLSON
-----------------------------------------
Its: Director
----------------------------------------
-3-
Washington/Huntoon:5/13/97
<PAGE> 4
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On May 15, 1997, before me, a Notary Public, personally appeared
SHEKAR NARASIMHAN, the President & CEO of WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On May 15, 1997, before me, a Notary Public, personally appeared
SHEKAR NARASIMHAN,the Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
-4-
Washington/Huntoon:5/13/97
<PAGE> 5
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On May 15, 1997, before me, a Notary Public, personally appeared
Lisa F. Carlson, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ ALAETA S. MYERS
-------------------------------
Notary Public
(SEAL) My Commission Expires: 11/01/00
---------
-5-
Washington/Huntoon:5/13/97
<PAGE> 6
EXHIBIT I-MF
OFFICER'S CERTIFICATE
Reference is made to that certain Credit and Security Agreement
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Washington"), and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation ("Huntoon," Washington and Huntoon are hereinafter collectively
referred to as the "Borrowers"), and RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation (the "Lender"), dated as of June 14, 1996 (as the same may
be amended, modified, supplemented, renewed or restated from time to time, the
"Agreement"). All capitalized terms used herein and all Section numbers given
herein refer to those terms and Sections set forth in the Agreement. This
Officer's Certificate is submitted to the Lender pursuant to Section 6.2(c) of
the Agreement.
The undersigned hereby certifies to the Lender that as of the close
of business on_______________________, 19__ ("Statement Date",) and with
respect to the Borrowers and their Subsidiaries on a consolidated basis:
1. As illustrated in the attached calculations supporting this Officer's
Certificate, the Borrowers met the covenants set forth in Sections
7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12 and 7.13, or if the Borrowers did
not meet any of such covenants, a detailed explanation is attached
setting forth the nature and period of the existence of the Default
and the action the Borrowers have taken, are taking, and propose to
take with respect thereto.
2. No Servicing Contracts have been sold or pledged by the Borrowers
except as permitted under the terms of the Agreement.
3. No payments in advance of the scheduled maturity date have been made
with respect to any Subordinated Debt. The Borrowers have incurred no
Debt required to be subordinated pursuant to Section 6.10.
4. The Borrowers were in compliance with the applicable HUD, GNMA, and
Investor net worth requirements, and in good standing with VA, HUD,
GNMA, and each Investor.
5. I have reviewed the terms of the Agreement and have made, or caused
to be made under my supervision, a review in reasonable detail of the
transactions and conditions of the Borrowers (and, if applicable,
their Subsidiaries) and such review has not disclosed the existence,
and I have no knowledge of the existence, of any Default or Event of
Default, or if any
-1-
Washington/Huntoon:5/13/97
<PAGE> 7
Default or Event of Default existed or exists, a detailed
explanation is attached specifying the nature and period of
the existence of the Default and the action the Borrowers have
taken, are taking and propose to take with respect thereto.
6. Pursuant to Section 6.2 of the Agreement, enclosed are the
financial statements of the Borrowers as of the Statement
Date. The financial statements for the period ending on the
Statement Date fairly present the financial condition and
results of operations of the Borrowers (and, if applicable,
its Subsidiaries) as at the Statement Date.
Dated:
-----------------------------
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By:
-------------------------------------
Its:
------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:
-------------------------------------
Its:
------------------------------------
-2-
Washington/Huntoon:5/13/97
<PAGE> 8
CALCULATIONS SUPPORTING OFFICER'S CERTIFICATE
Borrowers Names: WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED and its
Subsidiaries
Statement Date:___________________________________
All financial calculations set forth herein are as of the Statement
Date.
<TABLE>
<S> <C> <C>
I. TANGIBLE NET WORTH
Tangible Net Worth of Washington is:
Excess of total assets over total liabilities: $____________
Plus: Loan loss reserves: $____________
Plus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $____________
Minus: Advances to owners, officers or
Affiliates: $____________
Minus: Investments in Affiliates: $____________
Minus: Assets pledged to secure liabilities
not included in Debt: $____________
Minus: Intangible assets: $____________
Minus: Any other HUD nonacceptable assets: $____________
Minus: Other assets unacceptable to the
Lender: $____________
TANGIBLE NET WORTH $_____________________
II. ADJUSTED TANGIBLE NET WORTH
A. Adjusted Tangible Net Worth of Washington is:
Tangible Net Worth (from IA above) $____________
Minus: Capitalized excess servicing fees: $____________
Minus: Capitalized servicing rights: $____________
Plus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $____________
Plus: .005 times Adjusted Servicing Portfolio
(from IIIA below): $____________
ADJUSTED TANGIBLE NET WORTH $_____________________
B. Requirements of Section 7.7 of the Agreement:
MINIMUM ADJUSTED TANGIBLE NET WORTH OF $15,000,000.
C. Covenant Satisfied: ______ Covenant Not Satisfied: ______
</TABLE>
-3-
Washington/Huntoon:5/13/97
<PAGE> 9
<TABLE>
<S> <C> <C>
III. ADJUSTED SERVICING PORTFOLIO
A. Adjusted Servicing Portfolio of the Borrowers is:
Servicing Portfolio owned by the Borrowers is: $____________
Minus: The unpaid principal balance of Mortgage Loans:
Past due 60 days or more: $____________
That are Commercial, FNMA DUS,
or FHA co-insured: $____________
Sold with recourse: $____________
For which the Servicing Contracts
are pledged: $____________
Serviced by Borrowers for others under
subservicing arrangements: $____________
ADJUSTED SERVICING PORTFOLIO $_____________________
B. Requirements of Section 7.10 of the Agreement:
ADJUSTED SERVICING PORTFOLIO OF $3,000,000,000.
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
IV. DEBT OF THE BORROWERS
Total liabilities $____________
Minus: Loan loss reserves: $____________
Minus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $____________
Minus: Deferred taxes arising from capitalized
excess servicing fees and capitalized
servicing rights: $____________
DEBT $_____________________
V. RATIO OF DEBT TO ADJUSTED TANGIBLE NET WORTH
A. The ratio of Debt to Adjusted Tangible Net Worth
(IV to II.A) is: ______ to 1
B. Requirements of Section 7.6 of the Agreement:
The ratio of Debt to Adjusted Tangible Net Worth shall
not exceed 15 to 1.
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
</TABLE>
-4-
Washington/Huntoon:5/13/97
<PAGE> 10
<TABLE>
<S> <C>
VI. LIQUID ASSETS OF THE BORROWERS
Unrestricted and Unencumbered Cash $____________
Plus: Funds on deposit in any United States bank $____________
Plus: Investment grade commercial paper $____________
Plus: Money market funds $____________
Plus: Marketable securities $____________
Plus: Mortgage Loans and Mortgage-backed Securities
held for sale $____________
Minus: Outstanding liabilities secured by Mortgage Loans
and Mortgage-backed Securities held for sale $____________
LIQUID ASSETS $______________________
VII. LIQUIDITY
A. The ratio of Liquid Assets to Tangible Net Worth
(VI to I) is: ______ to 1
B. Requirements of Section 7.8 of the Agreement:
The ratio of Liquid Assets to Tangible Net Worth shall
not be less than twenty-five percent (25%).
C. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
VIII. MAXIMUM PASS-THROUGHS
A. The aggregate cumulative outstanding amount of advances
to or on behalf of defaulting mortgagors paid or required
to have been paid by the Borrowers on Mortgage Loans and
Mortgage-backed Securities ("Pass-throughs") is:
$____________
B. The ratio of Pass-throughs to Adjusted Tangible Net Worth
(VIII.A to I.A) is: ______ to 1
C. Requirements of Section 7.9 of the Agreement:
The ratio of Pass-throughs to Adjusted Tangible Net Worth
shall not exceed thirty-five percent (35%).
D. COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
</TABLE>
-5-
Washington/Huntoon:5/13/97
<PAGE> 11
<TABLE>
<S> <C>
IX. DEBT SERVICE COVERAGE RATIO
A. Net income for the previous four quarters: $____________
Plus: Income tax expenses: $____________
Minus: Income taxes paid: $____________
Plus: Depreciation, amortization and other non-cash
deductions: $____________
Minus: Non-cash revenue: $____________
Minus: Dividends and distributions: $____________
Plus: Term Loan/Servicing Facility interest
expenses: $____________
FUNDS FROM OPERATIONS $_____________________
B. Scheduled Term Loan/Servicing Facility principal payment
(following four quarters): $____________
Plus: Term Loan/Servicing Facility interest expenses
(previous four quarters):
$____________
Annual debt payments $____________
C. The ratio of XA to XB is: _______to 1.00
D. Requirements of Section 7.11 of the Agreement:
Permit the Debt Service Coverage Ratio, measured as of
the first day of any fiscal quarter, to be less than 1.50
to 1.00.
E. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
X. DELINQUENCY RATIO
A. Unpaid Principal Balance of Mortgage Loans Serviced that
are:
30 or more days past due: $____________
Foreclosure: $____________
In Bankruptcy: $____________
TOTAL $_____________________
B. Unpaid Principal Balance of all Mortgage Loans Serviced
by Borrowers: $____________
C. The ratio of XIA to XIB (expressed as a percentage): _________%
D. Requirements of Section 7.12 of the Agreement:
The Delinquency Ratio shall not exceed 10%.
E. COVENANT SATISFIED:_____ COVENANT NOT SATISFIED:_____
</TABLE>
-6-
Washington/Huntoon:5/13/97
<PAGE> 12
<TABLE>
<S> <C>
XI. TRANSACTIONS WITH AFFILIATES
A. Loans, advances, and extensions of credit made by the
Borrowers to their Affiliates total: $_____________
B. Capital contributions made by the Borrowers to their
Affiliates total: $_____________
C. Management fees paid to Affiliates during the current
fiscal year total: $_____________
D. Transfers, sales, pledges, assignments or other
dispositions of assets made by the Borrowers to their
Affiliates total: $_____________
E. Requirements of Section 7.13 of the Agreement:
1. No loans, advances or extensions of credit shall be
made by the Borrowers to Affiliates.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
2. No capital contributions shall be made by the
Borrowers to any Affiliate.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
3. No transfers, sales, pledges assignments or other
dispositions of assets by the Borrowers to
Affiliates.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
4. No Management fees shall be paid by the Borrowers
to Affiliates.
COVENANT SATISFIED:____ COVENANT NOT SATISFIED:____
</TABLE>
-7-
Washington/Huntoon:5/13/97
<PAGE> 1
EXHIBIT 10.9
WAREHOUSING PROMISSORY NOTE
$150,000,000 Date: June 14, 1996
FOR VALUE RECEIVED, the undersigned, WASHINGTON MORTGAGE FINANCIAL
GROUP, LTD., a Delaware corporation, and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation (herein collectively called the "Borrowers", and
individually as "CoBorrower"), hereby promises to pay to the order of
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender" or,
together with its successors and assigns, the "Holder") whose principal place
of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time,
the principal sum of One Hundred Fifty Million Dollars ($150,000,000) or so
much thereof as may be outstanding from time to time pursuant to the
Warehousing Credit and Security Agreement described below, and to pay interest
on said principal sum or such part thereof as shall remain unpaid from time to
time, from the date of each Advance until repaid in full, and all other fees
and charges due under the Agreement, at the rates and at the times set forth in
the Agreement. All payments hereunder shall be made in lawful money of the
United States and in immediately available funds.
This Note is given to evidence an actual warehouse line of credit in
the above amount and is the Warehousing Promissory Note referred to in that
certain Warehousing Credit and Security Agreement ("the Agreement") dated the
date hereof between the Borrowers and the Lender, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note may be prepaid in whole or in part at any time without
premium or penalty.
Should this Note be placed in the hands of attorneys for collection,
the Borrowers agree to pay, in addition to principal and interest, fees and
charges due under the Agreement, any and all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
Washington/Huntoon:6/13/96
1
<PAGE> 2
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are
hereby declared to be the joint and several promises and agreements of each
Co-Borrower and shall constitute the joint and several obligation of each
Co-Borrower and shall be fully binding upon and enforceable against each
Co-Borrower. The release of any party to this Note shall not affect or release
the joint and several liability of any other party. The Lender may at its
option enforce this Note against one or all of the Co-Borrower, and the Lender
shall not be required to resort to enforcement against each Co-Borrower and the
failure to proceed against or join each CoBorrower shall not affect the joint
and several liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws
of the State of Minnesota, without reference to its principles of conflicts of
law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the
day and year first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ HOWARD S. PERKINS
-------------------------------------
Its: EVP
------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ HOWARD S. PERKINS
-------------------------------------
Its: Vice Chairman
------------------------------------
Washington/Huntoon:6/13/96
2
<PAGE> 3
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the EVP of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD.,
a Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the Vice Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
Washington/Huntoon:6/13/96
3
<PAGE> 1
EXHIBIT 10.10
TERM LOAN PROMISSORY NOTE
$10,000,000 Date: June 14, 1996
FOR VALUE RECEIVED, the undersigned, WASHINGTON MORTGAGE FINANCIAL
GROUP, LTD., a Delaware corporation, and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation (herein collectively called the "Borrowers", and
individually as "CoBorrower"), hereby promises to pay to the order of
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender" or,
together with its successors and assigns, the "Holder") whose principal place
of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time,
the principal sum of Ten Million Dollars ($10,000,000) or so much thereof as
may be outstanding from time to time pursuant to the Warehousing Credit and
Security Agreement described below, and to pay interest on said principal sum
or such part thereof as shall remain unpaid from time to time, from the date of
each Advance until repaid in full, and all other fees and charges due under the
Agreement, at the rates and at the times set forth in the Agreement. All
payments hereunder shall be made in lawful money of the United States and in
immediately available funds.
This Note is given to evidence an actual warehouse line of credit in
the above amount and is the Term Loan Promissory Note referred to in that
certain Warehousing Credit and Security Agreement ("the Agreement") dated the
date hereof between the Borrowers and the Lender, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note may be prepaid in whole or in part at any time without
premium or penalty.
Should this Note be placed in the hands of attorneys for collection,
the Borrowers agree to pay, in addition to principal and interest, fees and
charges due under the Agreement, any and all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
Washington/Huntoon:6/13/96
1
<PAGE> 2
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are
hereby declared to be the joint and several promises and agreements of each
Co-Borrower and shall constitute the joint and several obligation of each
Co-Borrower and shall be fully binding upon and enforceable against each
Co-Borrower. The release of any party to this Note shall not affect or release
the joint and several liability of any other party. The Lender may at its
option enforce this Note against one or all of the Co-Borrower, and the Lender
shall not be required to resort to enforcement against each Co-Borrower and the
failure to proceed against or join each CoBorrower shall not affect the joint
and several liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws
of the State of Minnesota, without reference to its principles of conflicts of
law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the
day and year first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ HOWARD S. PERKINS
-------------------------------------
Its: EVP
------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ HOWARD S. PERKINS
-------------------------------------
Its: Vice Chairman
------------------------------------
Washington/Huntoon:6/13/96
2
<PAGE> 3
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the EVP of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18 , 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the Vice Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
Washington/Huntoon:6/13/96
3
<PAGE> 1
EXHIBIT 10.11
SERVICING FACILITY PROMISSORY NOTE
$10,000,000 Date: June 14, 1996
FOR VALUE RECEIVED, the undersigned, WASHINGTON MORTGAGE FINANCIAL
GROUP, LTD., a Delaware corporation, and WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation (herein collectively called the "Borrowers", and
individually as "CoBorrower"), hereby promises to pay to the order of
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender" or,
together with its successors and assigns, the "Holder") whose principal place
of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time,
the principal sum of Ten Million Dollars ($10,000,000) or so much thereof as
may be outstanding from time to time pursuant to the Warehousing Credit and
Security Agreement described below, and to pay interest on said principal sum
or such part thereof as shall remain unpaid from time to time, from the date of
each Advance until repaid in full, and all other fees and charges due under the
Agreement, at the rates and at the times set forth in the Agreement. All
payments hereunder shall be made in lawful money of the United States and in
immediately available funds.
This Note is given to evidence an actual warehouse line of credit in
the above amount and is the Servicing Facility Promissory Note referred to in
that certain Warehousing Credit and Security Agreement ("the Agreement") dated
the date hereof between the Borrowers and the Lender, as the same may be
amended or supplemented from time to time, and is entitled to the benefits
thereof. Reference is hereby made to the Agreement (which is incorporated
herein by reference as fully and with the same effect as if set forth herein at
length) for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note may be prepaid in whole or in part at any time without
premium or penalty.
Should this Note be placed in the hands of attorneys for collection,
the Borrowers agree to pay, in addition to principal and interest, fees and
charges due under the Agreement, any and all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
Washington/Huntoon:6/13/96
1
<PAGE> 2
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are
hereby declared to be the joint and several promises and agreements of each
Co-Borrower and shall constitute the joint and several obligation of each
Co-Borrower and shall be fully binding upon and enforceable against each
Co-Borrower. The release of any party to this Note shall not affect or release
the joint and several liability of any other party. The Lender may at its
option enforce this Note against one or all of the Co-Borrower, and the Lender
shall not be required to resort to enforcement against each Co-Borrower and the
failure to proceed against or join each CoBorrower shall not affect the joint
and several liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws
of the State of Minnesota, without reference to its principles of conflicts of
law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the
day and year first above written.
WASHINGTON MORTGAGE FINANCIAL GROUP,
LTD., a Delaware corporation
By: /s/ HOWARD S. PERKINS
-------------------------------------
Its: EVP
------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By: /s/ HOWARD S. PERKINS
-------------------------------------
Its: Vice Chairman
------------------------------------
Washington/Huntoon:6/13/96
2
<PAGE> 3
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the EVP of WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
---------
STATE OF VIRGINIA )
) ss
COUNTY OF FAIRFAX )
On June 18, 1996, before me, a Notary Public, personally appeared
Howard S. Perkins, the Vice Chairman of WMF/HUNTOON, PAIGE ASSOCIATES LIMITED,
a Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ JOANNE G. FRYE
-------------------------------
Notary Public
(SEAL) My Commission Expires: 2/28/99
--------
Washington/Huntoon:6/13/96
3
<PAGE> 1
EXHIBIT 10.12
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
RESIDENTIAL FUNDING CORPORATION Lisa F. Carlson
4800 Montgomery Lane Director
Suite 300 301-215-6212
Bethesda, MD 20814 FAX 301-215-6288
301-215-6200 E-mail: [email protected]
</TABLE>
February 27, 1997
Washington Mortgage Financial Group, Ltd.
WMF/Huntoon, Paige Associates Limited
1593 Spring Hill Road, Suite 400
Vienna, VA 22182
Attention: Howard S. Perkins
Re: Warehousing Credit and Security Agreement dated as of June 14,
1996, as amended or supplemented ("Agreement") by and between
RESIDENTIAL FUNDING CORPORATION ("Lender") and WASHINGTON
MORTGAGE FINANCIAL GROUP, LTD. and WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED ("Company")
Gentlemen:
All capitalized terms used herein and not otherwise defined shall have
their respective meanings set forth in the Agreement.
The Company has requested the Lender to provide warehouse financing for
certain Mortgage Loans as described on the attached Exhibit A (the "Pledged
Mortgages").
In order to finance the Pledged Mortgages, the Lender hereby agrees to
waive Section 2.1(b)(5) of the Agreement for the Advances against such
Pledged Mortgages. This waiver applies only to the specific instance
described herein. It is not a waiver of any other section of the Agreement.
Except as hereby expressly modified, the Agreement shall be otherwise
unchanged and shall remain in full force and effect, and the Company ratifies
and reaffirms all of its obligations thereunder.
This waiver shall terminate automatically on March 7, 1997, unless the
Lender has received a copy of this letter acknowledged by the Company.
Very truly yours,
RESIDENTIAL FUNDING CORPORATION
By: /s/ LISA F. CARLSON
-------------------------------
ITS: Director
-------------------------------
L e a d e r s h i p i n H o u s i n g A m e r i c a(SM)
<PAGE> 2
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. and WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED
February 27, 1997
Page 2
ACKNOWLEDGED AND ACCEPTED THIS 28th DAY OF February, 1997.
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware
corporation
By: /s/ HOWARD S. PERKINS
---------------------------------------------
Its: EVP
---------------------------------------------
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a Delaware
corporation
By: /s/ HOWARD S. PERKINS
--------------------------------------------
Its: EVP
---------------------------------------------
cc: Tony Perez, WMF/Huntoon, Paige Associates
Sandra L. Oakes, Esq.
<PAGE> 3
EXHIBIT A
SCHEDULE OF CONSTRUCTION SERVICING CLOSING
<TABLE>
<CAPTION>
FACE PRINCIPAL BALANCE
LOAN NAME FHA ID GNMA PL AMOUNT BALANCE AVAILABLE
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
GEORGETOWN 06135461 413200-CL 10,563,100 8,826,412 1,736,688
CENTRAL STAT. 05435559 413205-CL 6,221,000 5,210,533 1,010,467
---------- ---------- ---------
SUB-TOTAL 2 16,784,100 14,036,945 2,747,155
TECHWOOD 06135460 FHA PC 3,972,600 2,822,786 1,149,814
SUNSET GDNS 06635225 FHA PC 11,822,200 11,387,829 434,371
SIR CHARLES 12635254 FHA PC 19,633,200 17,481,116 2,152,084
---------- ---------- ---------
SUB-TOTAL 3 35,428,000 31,691,731 3,736,269
TOTAL 5 52,212,100 45,728,676 6,483,424
</TABLE>
<PAGE> 1
[WASHINGTON MORTGAGE FINANCIAL GROUP LETTERHEAD]
October 25, 1996
PERSONAL & CONFIDENTIAL
Mr. Michael D. Ketcham
1656 Montgomery Drive
Vienna, VA 22182
Dear Mike:
I am very pleased to extend you the offer to become Executive Vice President -
Operations and Chief Financial Officer. Not only do I believe you will make an
immediate contribution from a financial and operational perspective, but I also
sincerely believe that you possess outstanding general management potential.
The terms of our offer are as follows:
SALARY
- - - Upon starting at Washington Mortgage, you will earn a base salary of
$175,000 per year;
- - - You will be reviewed in June and again December of 1997 for promotion to
Chief Operating Officer, and if that occurs, your salary will be adjusted
commensurate with those responsibilities;
- - - If you are unprepared to assume the Chief Operating Officer's position,
your salary will be adjusted to $185,000 effective in January of 1988,
- - - The COO position will have all business units reporting to it along with
corporate operations and will effectively run the company on a day-to-day
basis.
ANNUAL CASH INCENTIVE
- - - A bonus will be paid to you of at least $70,000 in February of 1997 for
1996 performance; and at least $87,500 in February of 1998 for 1997
performance assuming a satisfactory evaluation.
- - - Your 1997 cash incentive range (to be paid in February of 1998) will be 0%
to 100% of salary, with 50% representing target and 100% representing the
maximum incentive. Elements of these plans are being put into place now
and you will be intimately involved in establishing the corporate, business
unit and individual performance measures for the company.
EQUITY
- - - At the November 1996 meeting of NHP's Board of Directors, a grant of 25,000
option shares of NHP will be awarded at the-then fair market value, that
will have a life of 10 years and will vest over five years on a prorated
basis;
<PAGE> 2
Mr. Michael D. Ketcham
October 25, 1996
Page 2
- - - If annual option awards occur going forward, you would be one of the
individuals eligible for an award in 1997 and beyond. There will be
definition provided to this program at such time as the NHP board acts on
revisions to the overall compensation structure.
- - - Your options will vest immediately if a change of control takes place with
NHP. You have 90 days to exercise already-vested options upon termination
of employment as an officer of NHP.
- - - In recent years, most public companies have adopted executive
stock-ownership plans. Current NHP Guidelines would mandate your
ownership of $52,500 of NHP stock from any sources including 401(K), within
three years of employment.
BENEFITS
- - - You will be eligible for the standard benefits program offered by
Washington Mortgage, as well as certain executive benefit programs like
$500,000 life and disability plus reasonable reimbursement of personal cell
phone expenses.
SEVERANCE ARRANGEMENT
- - - If you are released without cause within the first 24 months of employment,
one year's salary will be due, payable monthly for twelve months plus the
above benefits program and outplacement assistance. This may be renewed
after 24 months pending NHP Board decisions on overall compensation
structure.
Mike, assuming this letter details our understanding, I would like you to sign
one original document, and return it to me immediately.
On behalf of myself, Rod and the other senior executives at our organization, we
are thrilled to have you join us.
Warmest regards,
/s/ SHEKAR NARASIMHAN
Shekar Narasimhan
President & CEO
Accepted this 30th day of October, 1996.
/s/ MICHAEL D. KETCHAM
- - --------------------------
Michael D. Ketcham
SN/jgf
<PAGE> 1
THE WMF GROUP, LTD.
EXHIBIT 11
COMPUTATION OF NET INCOME (LOSS PER SHARE)
<TABLE>
<CAPTION>
PRO FORMA FOR THE PERIOD FOR THE PERIOD
FOR THE PERIOD FOR THE YEAR APRIL 1, 1996 JANUARY 1,
JANUARY 1, 1997 ENDED TO 1996 TO YEAR ENDED
TO MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, ------------------------
1997 1996 1996 1996 1995 1994
--------------- --------------- --------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $67,485 $884,727 $1,155,165 $305,209 $777,007 $(161,840)
Weighted-average share outstanding:
Shares outstanding, beginning of period 4,217,478 4,217,478 4,217,478 4,217,478 6,216,812 6,216,812
Shares repurchased on April 1, 1995 - - - - 1,999,334 -
Weighted-average shares outstanding 4,217,478 4,217,478 4,217,478 4,217,478 4,717,312 6,216,812
NET INCOME (LOSS) PER SHARE $.02 $.21 $.27 $.07 $.16 $(.03)
</TABLE>
<PAGE> 1
Exhibit 16
Securities and Exchange Commission May 23, 1997
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for The WMF Group, Ltd. and Subsidiary
(formerly WMF Holdings Ltd. and Subsidiaries) and, under the date of March 27,
1996, we reported on the consolidated financial statements of WMF Holdings Ltd.
and Subsidiaries as of and for the years ended December 31, 1995 and 1994. In
July 1996, we were replaced as the principal accountants. We have read The WMF
Group, Ltd. statements included under Item 14 of its registration statement on
Form 10, dated May 23, 1997, and we agree with such statements.
Very truly yours
KPMG PEAT MARWICK LLP
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF WMF GROUP, LTD. AS OF AUGUST 4, 1997
WMF GROUP, LTD. (A DELAWARE CORPORATION)
WASHINGTON MORTGAGE FINANCIAL GROUP, LTD. (A DELAWARE
CORPORATION)
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED (A DELAWARE
CORPORATION)
WMF PROCTOR, LTD. (A MICHIGAN CORPORATION)
PROCTOR & ASSOCIATES OF WESTERN MICHIGAN, INC. (A
MICHIGAN CORPORATION)
Note: An entity is a "subsidiary" of another entity if a majority interest is
owned by the other entity.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,506,964
<SECURITIES> 3,894,525
<RECEIVABLES> 30,949,964
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,947,370
<PP&E> 1,889,153
<DEPRECIATION> 434,706
<TOTAL-ASSETS> 73,897,732
<CURRENT-LIABILITIES> 38,242,287
<BONDS> 6,211,745
0
0
<COMMON> 42,175
<OTHER-SE> 22,553,340
<TOTAL-LIABILITY-AND-EQUITY> 73,897,732
<SALES> 0
<TOTAL-REVENUES> 7,440,667
<CGS> 0
<TOTAL-COSTS> 6,771,925
<OTHER-EXPENSES> 174,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253,234
<INCOME-PRETAX> 241,411
<INCOME-TAX> 173,926
<INCOME-CONTINUING> 67,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,485
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PRELIMINARY COPY DATED AUGUST 4, 1997
INFORMATION STATEMENT
THE WMF GROUP, LTD.
1593 SPRING HILL ROAD, SUITE 400
VIENNA, VIRGINIA 22182
(703) 610-1400
This information statement is being furnished by NHP Incorporated, a
Delaware corporation ("NHP"), in connection with the distribution (the "Share
Distribution") by NHP to the holders of shares of NHP Common Stock, par value
$.01 per share (the "NHP Common Stock"), of all of the issued and outstanding
common stock, par value $.01 per share (the "Company Common Stock"), of The WMF
Group, Ltd. (along with its subsidiaries the "Company") (formerly known as NHP
Financial Services, Ltd. and WMF Holdings Ltd.), a Delaware corporation and a
wholly-owned subsidiary of NHP. On May 9, 1997, NHP distributed to each holder
of record of NHP Common Stock ("NHP Stockholders") on May 2, 1997, one right (a
"Right") for each share of NHP Common Stock pursuant to a Rights Agreement,
dated as of April 21, 1997 between NHP, the Company and The First National Bank
of Boston (the "Rights Agreement"). Subject to certain conditions, each holder
of Rights is entitled to one-third of a share of Company Common Stock for each
Right at the earlier of (i) the effective time of the proposed Merger between
NHP and a wholly owned subsidiary of Apartment Investment and Management Company
("AIMCO") and (ii) December 1, 1997 (such time being referred to as the
"Maturity Time"). NHP Stockholders will receive cash in respect of fractional
shares of Company Common Stock that would otherwise be distributed at the rate
of $9.15 per share of Company Common Stock. Upon completion of the Share
Distribution, the Company will operate independently of NHP.
The NHP Stockholders will not be required to pay any consideration for the
shares of Company Common Stock they receive in the Distribution. There is no
current public trading market for the Company Common Stock and there is no
guarantee that a public trading market will be sustained. WMF intends to seek
approval for quotation of the shares of Company Common Stock on the Nasdaq Stock
Market upon issuance, but there is no assurance that such approval will be
obtained or that an active market will develop following the Share Distribution.
IN REVIEWING THIS INFORMATION STATEMENT, STOCKHOLDERS SHOULD CAREFULLY
CONSIDER THE MATTERS DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON
PAGE 6.
THIS INFORMATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS ABOUT
BUSINESS STRATEGIES, MARKET POTENTIAL, FUTURE FINANCIAL PERFORMANCE AND OTHER
MATTERS. SUCH STATEMENTS INVOLVE MANY RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH STATEMENTS, INCLUDING, WITHOUT
LIMITATION, THOSE RISKS AND UNCERTAINTIES DESCRIBED UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 6.
---------------------
THE SECURITIES DESCRIBED HEREIN 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 INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS INFORMATION STATEMENT IS , 1997
<PAGE> 2
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form 10 (including exhibits, schedules and
amendments thereto, the "Company Form 10") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") with respect to the Company Common
Stock. This Information Statement, while forming a part of the Company Form 10,
does not contain all of the information set forth in the Company Form 10.
Reference is hereby made to the Company Form 10 for further information with
respect to the Company and the securities to be distributed to the NHP
Stockholders in the Share Distribution. Statements contained herein concerning
the provisions of documents filed as exhibits to the Company Form 10 are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
The Company Form 10 is available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the Regional Offices of the SEC at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates, or on the Internet at http://www.sec.gov.
Following the Share Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the SEC that will
be available for inspection and copying at the SEC's public reference facilities
referred to above. Copies of such material can be obtained by mail at prescribed
rates by writing to the Public Reference Branch of the SEC at the address
referred to above. In addition, it is expected that reports, proxy statements
and other information concerning the Company will be available for inspection at
the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
Questions concerning the Share Distribution should be directed to Ann Torre
Grant at (703) 394-2420. After the Share Distribution, holders of Company Common
Stock having inquires related to their investment in the Company should contact
Michael D. Ketcham at (703) 610-1400.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 1
The Company......................................................................... 1
The Distribution of Company Common Stock............................................ 2
Dividend Policy..................................................................... 3
Risk Factors........................................................................ 3
Summary Financial Information....................................................... 4
RISK FACTORS.......................................................................... 6
Absence of Prior Trading Market and Possible Volatility of Stock Price.............. 6
Need for Additional Capital......................................................... 6
Risks of Inability to Complete or Successfully Integrate Acquisitions or Enter into
New Business Lines............................................................... 7
Relationship with NHP; Potential Conflicts of Interest.............................. 7
Control by Majority Stockholders.................................................... 8
Risk of Loss on Mortgage Loans Sold Under DUS Program............................... 8
Retained Risks of Mortgage Loans Sold............................................... 9
Risks of Loss from Changes in General Economic Conditions........................... 9
Possible Loss of Value from Impairment of Mortgage Servicing Rights................. 9
Risks of Loss of Certain Advanced Funds............................................. 10
Losses Upon Termination of Certain Servicing Contracts.............................. 10
Uncertainties Resulting from Government Regulation and Changes in Government
Programs......................................................................... 10
Risks of Securitization............................................................. 11
Risks of Hedging Transactions....................................................... 11
Reliance on Key Personnel........................................................... 11
Dependance on Sales Staff........................................................... 12
Competition......................................................................... 12
No Anticipated Stockholder Distributions............................................ 12
Substantial Number of Shares Eligible for Future Sale............................... 12
Anti-Takeover Provisions............................................................ 12
THE DISTRIBUTION OF COMPANY COMMON STOCK.............................................. 14
Description of the Distribution..................................................... 14
Expenses of the Distribution........................................................ 15
Reasons for the Distribution........................................................ 15
Federal Income Tax Consequences of the Rights Distribution and the Maturity of the
Rights........................................................................... 15
Effect on Outstanding NHP Options................................................... 17
Effect of the Share Distribution on Ownership of NHP and the Company................ 17
Restrictions on Transfer............................................................ 17
ARRANGEMENTS BETWEEN NHP AND THE COMPANY AFTER THE SHARE DISTRIBUTION................. 19
CAPITALIZATION........................................................................ 20
SELECTED FINANCIAL DATA............................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION........................................................................... 22
Overview............................................................................ 22
Results of Operations -- Summary.................................................... 22
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996..... 23
1996 Results of Operations Compared to 1995......................................... 25
1995 Results of Operations Compared to 1994......................................... 27
Liquidity and Capital Resources..................................................... 28
Inflation........................................................................... 30
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
New Accounting Standards.............................................................. 30
INDUSTRY OVERVIEW..................................................................... 32
BUSINESS.............................................................................. 33
Company Overview...................................................................... 33
Strategic Objectives.................................................................. 33
Mortgage Origination.................................................................. 34
Mortgage Underwriting................................................................. 37
Mortgage Servicing.................................................................... 37
Interest Rate Sensitivity............................................................. 38
Regulation............................................................................ 39
Competition........................................................................... 40
Legal Proceedings..................................................................... 40
Employees............................................................................. 40
Properties............................................................................ 41
MANAGEMENT OF THE COMPANY............................................................. 42
Directors and Executive Officers...................................................... 42
Executive Compensation................................................................ 44
Directors Compensation................................................................ 45
Employment Contracts and Related Matters.............................................. 46
Compensation Committee Interlocks and Insider Participation........................... 46
RELATED PARTY TRANSACTIONS............................................................ 47
PRINCIPAL STOCKHOLDERS OF THE COMPANY................................................. 48
DESCRIPTION OF THE COMPANY CAPITAL STOCK.............................................. 50
General............................................................................... 50
Common Stock.......................................................................... 50
Preferred Stock....................................................................... 50
Director and Officer Liability........................................................ 50
Certain Provisions Affecting Stockholders............................................. 51
Transfer Agent & Registrar............................................................ 51
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 51
</TABLE>
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information appearing elsewhere in this Information
Statement. Except as set forth in the financial statements or as otherwise noted
herein, all information contained in this Information Statement gives effect to
a 789.94 for one stock split of the Company Common Stock (as defined herein)
which occurred on , 1997. Unless the context requires
otherwise, references to the "Company" refer to The WMF Group, Ltd. (formerly
known as NHP Financial Services, Ltd.) and its subsidiaries.
THE COMPANY
The Company is one of the largest independent commercial mortgage bankers
in the United States as measured by servicing portfolio size based on a 1996
survey (the "MBA Survey") published by the Mortgage Bankers Association of
America (the "MBA") and the largest originator of multifamily and healthcare
loans insured by the Federal Housing Administration (the "FHA") based on
statistics provided by the U.S. Department of Housing and Urban Development. The
Company originates, underwrites, structures, places, sells and services
multifamily and commercial real estate loans. Through its relationships with
government sponsored entities ("GSEs"), investment banks, life insurance
companies, commercial banks and other investors, the Company provides and
arranges financing to owners of multifamily and commercial real estate on a
nationwide basis using both a retail and wholesale network. The Company
generates revenues through origination fees, servicing fees, net interest income
on loans held for sale and placement fees. As of June 1996, the Company was the
tenth largest servicer of multifamily and commercial real estate loans in the
country based on the MBA Survey. In the year ended December 31, 1996 and the
first quarter of 1997, the Company originated $1.1 billion and $259.8 million,
respectively, of multifamily and commercial real estate mortgages.
The Company believes that it is well positioned to compete effectively in
the commercial real estate financing industry based on its capitalization,
geographic scope and services provided. The commercial and multifamily mortgage
banking industry is increasingly characterized by expensive technological
demands, large and sophisticated infrastructure for real estate underwriting and
risk evaluation, and the rapid emergence of the securitized market. These
developments will, in the Company's judgment, lead to the creation of
sophisticated and well-capitalized mortgage finance enterprises. The Company
seeks to use its existing infrastructure and leverage its market position to
increase market share of its established businesses and grow its non-multifamily
commercial business.
The Company seeks to increase reported earnings and cash flow through (i)
acquisitions and internal growth, (ii) design and delivery of new mortgage
products including bridge loan products and participating loan products, and
(iii) expansion into related businesses such as due diligence services and
issuance of commercial mortgage backed securities. At any given time, the
Company may be in discussions with one or more potential acquisition targets in
the multifamily and commercial mortgage businesses. See "Business -- Strategic
Objectives." There can be no assurance that such discussions will result in an
acquisition or that future acquisitions, if completed, would be successful or
that the Company will successfully develop any particular product or enter into
any particular product line. As a result of acquisitions and internal growth,
the Company has increased loan originations from approximately $240 million in
1992 to approximately $1.1 billion in 1996 for a compound annual growth rate of
46.9 percent, and its servicing portfolio has grown from approximately $3.0
billion to $6.2 billion for a compound annual growth rate of 20.0 percent. In
1996 alone, the Company increased its portfolio of serviced mortgages from $4.4
billion to $6.2 billion primarily as a result of the acquisitions of Proctor &
Associates of Michigan, Inc. ("Proctor") and substantially all of the assets of
American Capital Resource, Inc. ("ACR") (the acquisitions of Proctor and ACR are
referred to herein as the "Proctor Acquisition" and the "ACR Acquisition,"
respectively.) In April 1997 the Company acquired substantially all of the
mortgage banking assets of Askew Investment Company (the "Askew Acquisition"),
further increasing its mortgage servicing portfolio by approximately $425
million.
The Company is a Delaware corporation formed in October 1992 to hold the
operations of WMF Huntoon, Paige Associates Limited ("WMF Huntoon Paige") and
Washington Mortgage Financial Group, Ltd. ("Washington Mortgage"), which are now
wholly-owned subsidiaries of the Company. WMF Huntoon
1
<PAGE> 6
Paige has carried on the business of originating and servicing multifamily and
healthcare mortgages insured by the FHA under various owners and under various
names since 1979 and was acquired by Washington Mortgage in 1991. Washington
Mortgage and entities it has acquired have carried on the business of
originating and servicing multifamily and commercial mortgages under various
owners and under various names since 1984. The Company was acquired by NHP
Incorporated ("NHP") on April 1, 1996. The principal executive offices of the
Company are located at 1593 Spring Hill Road, Suite 400, Vienna, Virginia 22182,
phone (703) 610-1400. See "The Business of the Company" for more information.
THE DISTRIBUTION OF COMPANY COMMON STOCK
DESCRIPTION OF THE DISTRIBUTION
On May 9, 1997, NHP distributed to each holder of record of NHP Common
Stock at the close of business on May 2, 1997, one right (a "Right") for each
outstanding share of NHP Common Stock (the "Rights Distribution"). Each Right
entitles the holder to receive from the Company, or any successor thereof, a
distribution (the "Share Distribution" and, with the Rights Distribution, the
"Distribution") of one-third of a share of Company Common Stock, subject to the
terms of a Rights Agreement, dated as of April 21, 1997 (the "Rights Agreement")
between NHP, the Company and The First National Bank of Boston, as Rights Agent.
The Rights distributed on May 9, 1997 are evidenced by the certificates of NHP
Common Stock then outstanding. NHP Common Stock issued after May 9, 1997 and
prior to the Maturity Time (as defined below) will have a legend and reference
to the Rights Agreement. Subject to certain conditions, the Rights will mature
and NHP will distribute shares of Company Common Stock at the earlier of (i) the
effective time of the Merger (as defined below) and (ii) December 1, 1997 (such
time being referred to as the "Maturity Time").
Pursuant to the Rights Agreement, NHP will distribute all of the issued and
outstanding shares of the Company's Common Stock held by NHP to holders of
Rights as governed by the Rights Agreement. NHP Stockholders will receive cash
in respect of fractional shares of Company Common Stock that would otherwise be
distributed at the rate of $9.15 per share of Company Common Stock. The NHP
stockholders will not be required to pay any consideration for the shares of
Company Common Stock they receive in the Share Distribution. See "The
Distribution of Company Common Stock -- Description of the Distribution."
REASONS FOR THE DISTRIBUTION
Apartment Investment and Management Company ("AIMCO"), AIMCO/NHP
Acquisition Corp., a wholly-owned subsidiary of AIMCO ("Merger Sub") and NHP
have entered into an Agreement and Plan of Merger, dated as of April 21, 1997
(the "Merger Agreement"), pursuant to which Merger Sub will, subject to the
terms and conditions provided in the Merger Agreement, merge with and into NHP
(the "Merger"), thereby making NHP, as the surviving corporation, a wholly-owned
subsidiary of AIMCO (the "Surviving Corporation"). In addition, AIMCO purchased
approximately 51 percent of the outstanding shares of NHP Common Stock on May 5,
1997 pursuant to a stock purchase agreement (the "Stock Purchase Agreement")
among AIMCO, Demeter Holdings Corporation ("Demeter") and Capricorn Investors,
L.P. ("Capricorn"). AIMCO required that the Rights Distribution occur as a
condition to the Merger and the purchase of shares of NHP Common Stock, and NHP
believes that completion of the Merger while allowing current stockholders of
NHP the opportunity to retain an interest in the business of the Company
maximizes the value that stockholders of NHP will receive in connection with the
Merger. In addition, even if NHP were not acquired by AIMCO, NHP believes that
the Share Distribution, and the Company's subsequent status as a public company,
will allow investors to evaluate better the merits and outlook of the Company's
business. The Share Distribution would also give NHP stockholders and other
potential investors the flexibility to direct their investment to their specific
area of interest, property management or financial services, or to continue to
retain an interest in both areas. See "The Distribution of Company Common
Stock -- Description of the Distribution."
2
<PAGE> 7
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
NHP expects to recognize gain as a result of the Rights Distribution
combined with the later maturity of the Rights. The amount of gain recognized by
NHP will be the excess of the fair market value of the Company over NHP's tax
basis in the Company. NHP's tax basis in the Company Common Stock as of December
31, 1996 was approximately $23,400,000, and is subject to further adjustment
reflecting the Company's 1997 earnings and distributions. NHP expects to have
regular federal income tax net operating losses available in a sufficient amount
to offset the gain under the regular federal income tax, but does not expect to
have sufficient alternative minimum tax net operating losses available to offset
the gain under the federal alternative minimum tax.
The Rights Distribution is expected to be treated for federal income tax
purposes as a dividend to the NHP stockholders of record on May 2, 1997 to the
extent of the current and accumulated earnings and profits of NHP. The amount of
the distribution is the fair market value of the Company on the date of the
distribution of the Rights (the "Rights Distribution Date"). The portion of the
Rights Distribution that will be treated as a dividend cannot be finally
determined until the end of NHP's taxable year that includes the Rights
Distribution. The portion of the Rights Distribution in excess of the amount
treated as a dividend will be treated as a tax free return of basis to the
extent of an NHP Stockholder's basis in NHP Common Stock, and as a capital gain
to the extent such portion exceeds the NHP Stockholder's basis in NHP Common
Stock. For a more complete discussion of certain federal income tax consequences
of the Distribution, see "The Distribution of Company Common Stock -- Federal
Income Tax Consequences of the Rights Distribution and the Maturity of the
Rights." NHP Stockholders are urged to consult their own tax advisors.
RELATIONSHIP BETWEEN NHP AND THE COMPANY AFTER THE SHARE DISTRIBUTION
As a result of the Share Distribution, the Company will cease to be a
subsidiary of or otherwise affiliated with NHP and will thereafter operate as an
independent, publicly held company. However, as indicated under "Management,"
one director of NHP is a director of the Company and may continue in such dual
capacity at least until the Merger if the Share Distribution occurs before the
Merger. The Company and NHP will also enter into certain agreements providing
for (a) the orderly separation of NHP and the Company and the making of the
Share Distribution and (b) the allocation of certain tax and other liabilities.
See "Arrangements Between NHP and the Company after the Share Distribution."
DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on the
Company Common Stock in the foreseeable future. The decision whether to apply
any legally available funds to the payment of dividends on the Company Common
Stock will be made by the Board of Directors of the Company (the "Company
Board") from time to time in the exercise of its business judgment, taking into
account the Company's financial condition, results of operations, existing and
proposed commitments for use of the Company's funds and other relevant factors.
See "Description of Company Capital Stock -- Common Stock." The Company's
ability to pay dividends may be restricted from time to time by financial
covenants in its credit agreements or in arrangements with or regulations of
government sponsored entities.
RISK FACTORS
In reviewing this Information Statement, stockholders should carefully
consider the matters described under the heading "Risk Factors" beginning on
page 6.
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<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following table sets forth selected financial and operating data of the
Company as of and for each of the years in the four-year period ended December
31, 1995, as of and for the three-month period ended March 31, 1996, as of and
for the nine-month period ended December 31, 1996 and as of and for the three-
month period ended March 31, 1997 (unaudited). The data for the three-month
period ended March 31, 1996 and the nine-month period ended December 31, 1996
are presented separately as a result of the acquisition of the Company, which
was formerly known as WMF Holdings Ltd., by NHP effective April 1, 1996 (the
"Acquisition.") The table also sets forth pro forma income statement data for
the year ended December 31, 1996 giving effect to the Acquisition as though it
occurred January 1, 1996. The selected financial data of the Company as of and
for each of the years in the four-year period ended December 31, 1995, as of and
for the three-month period ended March 31, 1996 and March 31, 1997 (which is
unaudited) and as of and for the nine-month period ended December 31, 1996 were
derived from the Company's consolidated financial statements. The pro forma data
(which are unaudited) are derived from the footnotes to the Company's
consolidated financial statements contained elsewhere in this Information
Statement. The pro forma results are not necessarily indicative of operating
results that would have been achieved had the Acquisition actually occurred on
January 1, 1996. Additionally, the pro forma operating results are not intended
to be a projection of results of future operations. The selected financial and
operating data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements, pro forma financial statements and related notes included elsewhere
herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY WMF HOLDINGS LTD. AND SUBSIDIARIES
----------------------------------------- ----------------------------------------------------------------
3 MONTHS 9 MONTHS 3 MONTHS
ENDED PRO FORMA ENDED ENDED YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, ---------------------------------------------------
1997 1996(1) 1996 1996 1995 1994 1993 1992
----------- ------------ ------------ ---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA
Revenues............ $ 7,440 $ 30,301 $ 23,473 $ 6,828 $ 21,999 $ 17,061 $ 16,271 $ 10,655
Expenses............ $ 7,373 $ 29,416 $ 22,318 $ 6,523 $ 21,222 $ 17,223 $ 15,550 $ 10,612
Net income (loss)... $ 67 $ 885 $ 1,155 $ 305 $ 777 $ (162) $ 721 $ 43
Net income (loss)
per share (2)..... $ .02 $ 0.21 $ 0.27 $ 0.07 $ 0.16 $ (0.03) $ 0.12 $ 0.01
Weighted average
shares outstanding
(2)............... 4,217,478 4,217,478 4,217,478 4,217,478 4,717,312 6,216,812 6,216,812 6,216,812
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, DECEMBER 31, MARCH 31, ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ------------ ---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Mortgage loans held
for sale.......... $ 28,683 $ 40,263 $ 23,116 $ 32,462 $ 5,110 $ 44,738 $ 32,401
Servicing rights.... $ 22,751 $ 22,460 $ 8,477 $ 8,466 $ 8,100 $ 7,150 $ 8,319
Total assets........ $ 73,898 $ 88,097 $ 48,976 $ 57,176 $ 31,689 $ 65,347 $ 50,233
Total debt (3)...... $ 34,497 $ 46,136 $ 34,108 $ 43,304 $ 15,271 $ 51,652 $ 39,059
Shareholder's
equity............ $ 22,596 $ 22,528 $ 4,324 $ 4,018 $ 6,241 $ 6,403 $ 5,682
OTHER DATA
Operating cash flow
(4)............... $ (918) $ 10,701 $ 819 $ 4,981 $ 1,244 -- -- $
EBITDA (5).......... $ 1,782 $ 8,256 $ 6,502 $ 1,754 $ 4,743 $ 2,497 $ 3,481 $ 1,829
</TABLE>
- - ---------------
(1) Adjusted to reflect results of operations for the twelve months ended
December 31, 1996, as if the acquisition had occurred January 1, 1996.
Adjustments include all income amounts for the three months ended March 31,
1996 and additional amortization of $575,648.
(2) Gives effect to a 789.94 per share stock split, which is the stock split
that would have been required pursuant to the terms of the Rights Agreement
if the Share Distribution had occurred on March 7, 1997. The actual stock
split will be such that the number of shares of Company Common Stock held by
NHP on the Share Distribution date will equal one-third of the number of
shares of NHP Common Stock outstanding on such date.
4
<PAGE> 9
(3) Includes $5,000,000 of notes to the Company's former shareholder as of March
31, 1996 and December 31, 1995, and $2,000,000 of notes to the Company's
former shareholder as of December 31, 1994 and 1993 all of which were repaid
in conjunction with the Acquisition.
(4) Operating cash flow represents the amount of cash generated from operating
activities as determined using generally accepted accounting principles
("GAAP").
(5) EBITDA is a non-GAAP presentation of the Company's performance and consists
of income from operations before non-warehouse interest expense, income
taxes, depreciation and amortization. EBITDA is included because it is used
in the industry as a measure of a company's operating performance, but
should not be construed as an alternative either (i) to income from
operations (determined in accordance with GAAP) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with GAAP). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses and EBITDA as measured by the Company may not be comparable to EBITDA
as measured by other companies.
5
<PAGE> 10
RISK FACTORS
An investment in the Company Common Stock involves certain risks, including
those described below, which can adversely affect the value of the Company
Common Stock. Neither NHP nor the Company makes, nor is any other person
authorized to make, any representation as to the future market value of the
Company Common Stock.
ABSENCE OF PRIOR TRADING MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the date of this Information Statement and until the Share
Distribution, the Company has been and will be a part of NHP and there has been
no trading market for the Company Common Stock. Although there was an active
trading market for NHP Common Stock, the Company is unable to predict the extent
of the market for the Company Common Stock or the prices at which such shares
will trade. The price at which the Company Common Stock trades will be
determined by the marketplace and may be influenced by many factors, including,
among others, the number of shares available in the market, the trading volume
of the Company Common Stock, investor perception of the Company and of the
business and general economic and market conditions. The prices at which the
Company Common Stock trades may fluctuate broadly.
Although the Company intends to apply for the Company Common Stock to be
quoted on the Nasdaq Stock Market, there can be no assurance that the
application will be granted or, if granted, that the Company will continue to
meet the requirements for the quotation of the Company Common Stock on the
Nasdaq Stock Market. Regardless of whether the Company Common Stock is quoted on
the Nasdaq Stock Market or trades in the over-the-counter market with quotations
being published in the OTC Bulletin Board and the NQB Pink Sheets, there can be
no assurance that an effective trading market will develop or, if one does
develop, that it will be maintained, nor can there be any assurance as to the
prices at which the Company Common Stock will trade following the Share
Distribution.
A "when-issued" trading market in the Company Common Stock may develop on
or about the effective date of the registration statement of which this
information statement is a part. The existence of such a market means that
shares can be traded prior to the time certificates are actually available or
issued. Whether or not there is a "when-issued" market prior to the availability
of certificates, until an orderly market for the Company Common Stock develops,
the prices at which shares of such stock will trade may be affected by an
imbalance of supply and demand.
NEED FOR ADDITIONAL CAPITAL
General. The Company's ability to execute its strategy depends to a
significant degree on its ability to incur indebtedness and obtain equity
capital. Prior to the Share Distribution, the Company had access to the
resources of NHP including NHP's cash flow, borrowings under NHP's credit
facility and NHP's access to the debt and equity markets. For example, in 1996
and 1997, the Company obtained from NHP financing totalling approximately $8
million for two acquisitions. Following the Share Distribution, the Company will
have to rely on its own resources to obtain capital. Through existing lines of
credit which the Company expects will remain available for the foreseeable
future following the Share Distribution, the Company has access to sufficient
capital to repay amounts provided by NHP in connection with recent acquisitions,
carry on its existing level of business and complete some additional
acquisitions, but may need additional capital to complete further acquisitions
or acquisitions of significant size. Other than as described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," which describes the material
terms, maturities and covenants for its existing debt obligations, the Company
has no commitments for additional borrowings or sales of equity capital and
there can be no assurance that the Company will be successful in consummating
any future financing transactions on terms satisfactory to the Company, if at
all. Factors which could affect the Company's access to the capital markets, or
the costs of such capital, include changes in interest rates, general economic
conditions and the perception in the capital markets of the Company's business,
results of operations, leverage, financial condition and business prospects.
Each of these factors is to a large extent subject to economic, financial,
competitive and other factors beyond the Company's control. In addition,
covenants under the Company's future debt
6
<PAGE> 11
securities and credit facilities may significantly restrict the Company's
ability to incur additional indebtedness and to issue preferred stock. As of
June 30, 1997, these covenants would have limited the Company to incurring
additional indebtedness of approximately $35.2 million. The Company's ability to
repay its outstanding indebtedness at maturity may depend on its ability to
refinance such indebtedness, which could be adversely affected if the Company
does not have access to the capital markets for the sale of additional debt or
equity securities through public offerings or private placements on terms
reasonably satisfactory to the Company.
Dependence on Warehouse Financing. The Company's mortgage lending business
depends upon warehouse facilities with financial institutions or institutional
lenders to finance the Company's temporary holding of loans between loan closing
and mortgage investor funding. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Implementation of the Company's growth strategy requires continued
availability of warehouse facilities and may require increases in the capacity
of warehouse facilities. The present warehouse facilities, which had an
aggregate capacity of $185.0 million (of which $164.1 was unused) as of June 30,
1997 expire within one year. Although the Company has successfully renewed its
warehouse credit agreements in the past, there can be no assurance that such
financing will be available on terms reasonably satisfactory to the Company. The
inability of the Company to arrange additional warehouse facilities or to extend
or replace existing facilities when they expire would impair the Company's
ability to generate revenue through the origination of mortgages or the
servicing of mortgages originated and sold.
RISKS OF INABILITY TO COMPLETE OR SUCCESSFULLY INTEGRATE ACQUISITIONS OR ENTER
INTO NEW BUSINESS LINES
The Company has implemented a strategy of expanding its business both
internally and through acquisitions of other mortgage originating and servicing
companies and intends to continue to seek additional acquisition candidates. In
addition, the Company is increasing its presence in origination and servicing of
commercial mortgages other than mortgages on multifamily properties, which had
traditionally been the focus of the Company's business. See
"Business -- Strategic Objectives." The process of integrating acquired
businesses with differing markets, customer bases, financial products, systems
and managements into the Company's operations may result in unforeseen
difficulties and may require a disproportionate amount of management's attention
and the Company's resources. These difficulties may be particularly acute in
connection with the Company's expansion into business lines outside of its
traditional multifamily business. Originating and servicing commercial mortgages
may be more difficult than originating and servicing multifamily mortgages in a
number of respects including the following: (i) the Company must develop new
borrower, correspondent and investor relationships; (ii) the commercial mortgage
segment consists of many different asset types, such as office buildings, retail
facilities and hotels, with varying operating characteristics, whereas the
multifamily mortgage segment is more uniform with respect to asset types; and
(iii) unlike the multifamily segment, liquidity in the commercial segment does
not benefit from the involvement of GSEs and the FHA. The Company's ability to
support, manage and control continued growth is dependent upon, among other
things, its ability to hire, train, retain, supervise and manage its workforce
and to continue to develop the skills necessary for the Company to compete
successfully in its new business lines. In particular, the success of certain
acquisitions may be dependent upon the Company's ability to retain and motivate
key employees of the acquired business. No assurance can be given that the
Company will successfully meet all of these challenges. Nor can assurance be
given that additional suitable acquisition candidates can be identified,
financed and purchased on acceptable terms, or that future acquisitions, if
completed, will be successful. If the Company is unable to successfully complete
additional acquisitions, earnings per share or cash flow may be adversely
affected and the market value of the Company's shares may decline.
RELATIONSHIP WITH NHP; POTENTIAL CONFLICTS OF INTEREST
From April 1, 1996 until the Maturity Time, the Company has operated as a
subsidiary of NHP. On or before the Maturity Time, the Company and NHP will
enter into the Separation Agreement. See "Arrangements Between NHP and the
Company After the Share Distribution." This agreement is expected to provide,
among other things, for NHP and the Company to indemnify each other from tax and
other
7
<PAGE> 12
liabilities relating to their respective businesses prior to and following the
Share Distribution. The terms of the agreement that will govern the relationship
between the Company and NHP will be established by NHP in consultation with the
Company's management prior to the Share Distribution while the Company is a
wholly-owned subsidiary of NHP. The terms of the agreement may not be the same
as they would be if the agreement were the result of arms'-length negotiations.
Accordingly, there can be no assurance that the terms and conditions of the
agreement will not be more or less favorable to the Company than those that
might have been obtained from unaffiliated third parties. Adverse developments
or material disputes with NHP following the Share Distribution could have a
material adverse effect on the Company.
CONTROL BY MAJORITY STOCKHOLDERS
After the Share Distribution, Demeter (a solely controlled affiliate of the
President and Fellows of Harvard College) will own approximately 39.3 percent of
the outstanding Company Common Stock. See "Principal Stockholders of the
Company." In addition, Capricorn will hold approximately 9.1 percent of the
outstanding Company Common Stock, but the Company understands that Capricorn
intends to distribute these shares to its partners. Capricorn's partners include
Phemus Corporation ("Phemus"), an affiliate of Demeter, which has a 20 percent
interest in Capricorn. Capricorn Investors II, L.P. ("Capricorn II"), whose
general partner is managed by the person who controls the general partner of
Capricorn, has entered into a commitment pursuant to which it would, following
the negotiation and execution of definitive documentation and subject to the
satisfaction of the conditions that will be specified therein, acquire
additional shares of the Company, as a result of which it would hold
approximately 11.5 percent of the issued and outstanding shares of the Company.
Messrs. Eisenson and Palmer, directors of the Company, are officers of Demeter
and Phemus, and Mr. Winokur, also a director of the Company, controls the
managing general partner of Capricorn and is the manager of the general partner
of Capricorn II. In addition, Phemus owns limited partnership interests in
Capricorn and Capricorn II, and Mr. Winokur is a member of the board of
directors of Harvard Management Company, Inc., an affiliate of Demeter and
Phemus. If Capricorn II were to complete the proposed investment, then Demeter
and Capricorn II would together have the requisite votes to elect all the
Company's directors and to approve or disapprove stockholder matters with
respect to the affairs and policies of the Company that are determined by
majority votes of the stockholders of the Company. Furthermore, because of their
shareholdings, Demeter and Capricorn II will likely have the ability to cause or
prevent a sale of the Company or other transaction resulting in a change of
control even if such a transaction is in the interest of other stockholders.
Moreover, given the size of its holding, Demeter may exercise effective control
over such matters on its own.
RISK OF LOSS ON MORTGAGE LOANS SOLD UNDER DUS PROGRAM
The Company is an approved lender under the Federal National Mortgage
Association's ("Fannie Mae") Delegated Underwriting and Servicing ("DUS")
Program. Under this program, the Company originates, places and services
multifamily loans for Fannie Mae without having to obtain Fannie Mae's prior
approval for each loan. This program requires the Company to share the risk of
loss by paying a portion of the losses on mortgages it originates under the
program, up to 20 percent of the original principal balance of the loan.
Additionally, changes in the Company's estimates of defaults under the DUS
Program could materially impact the value of rights to service. See "Possible
Loss of Value from Impairment of Mortgage Servicing Rights." The Company is
required to maintain a letter of credit or cash balances sufficient to cover a
probability based assessment of its portion of any such losses. As of March 31,
1997, the unpaid principal balance of loans placed in the DUS Program by the
Company totaled $795.3 million (out of a total of $6.5 billion principal balance
of all loans serviced by the Company). As of March 31, 1997, the Company had a
reserve to provide for future loan losses under the DUS Program of $4.6 million
and a $4.2 million letter of credit to secure losses under the program. While
the Company believes that this reserve is sufficient, actual loan losses under
the DUS Program could exceed this reserve and could have a materially adverse
effect on the Company's performance, which in turn may adversely affect the
price of WMF Common Stock.
8
<PAGE> 13
RETAINED RISKS OF MORTGAGE LOANS SOLD
In connection with the Company's origination and sale of certain mortgage
loans, the Company must make certain representations and warranties concerning
mortgages originated by the Company and sold to mortgage investors. These
representations and warranties cover such matters as title to mortgaged
property, lien priority, environmental reviews and certain other matters. The
Company's representations and warranties rely in part on similar representations
and warranties made by the borrower or others. The Company would have a claim
against the borrower or another party in the event of a breach of any
representations or warranties that are made by the borrower or others; however,
the Company's ability to recover on any such claim would be dependent upon the
financial condition of the party against which such claim is asserted. In
addition, the Company makes some representations and warranties even though it
does not receive similar representations and warranties from borrowers or
others, and the Company is not entitled to indemnity with respect to violations
of such representations and warranties. There can be no assurance that the
Company will not experience a material loss as a result of representations and
warranties it makes, which loss may in turn adversely affect the Company
operations.
RISKS OF LOSS FROM CHANGES IN GENERAL ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate could adversely affect the Company's business.
See "Business -- Interest Rate Sensitivity." In particular, an economic slowdown
will generally reduce the Company's origination and sales of mortgages, which
generated approximately half of the Company's revenue in 1996. In addition,
periods of economic slowdown or recession, whether general, regional or
industry-related, may increase the risk of default on multifamily and commercial
mortgage loans, which may also have an adverse effect on the Company's business,
financial condition and results of operations. The Company may experience losses
as a result of reduced servicing fees from mortgages that are foreclosed and may
experience losses from non-payment on mortgages in the DUS Program described
under "-- Risk of Loss on Mortgage Loans Sold Under DUS Program." Such periods
also may be accompanied by decreased demand for multifamily or commercial
properties, resulting in declining values of properties securing outstanding
loans, thereby weakening collateral coverage and increasing the possibility of
losses in the event of default. Significant increases in properties for sale
during recessionary economic periods may depress the prices at which foreclosed
properties may be sold or delay the timing of such sales. There can be no
assurance that the multifamily or commercial markets will be adequate for the
sale of foreclosed properties and any material deterioration of such markets
could reduce recoveries from the sale of repossession inventory.
Changes in the relationship between short-term and long-term interest rates
could also affect the Company's results of operations, which in turn could
affect the Company's outstanding securities. The Company earns net interest
income, typically based upon long-term rates earned on loans net of the
short-term borrowing costs to finance such loans, on loans held between loan
closing and mortgage investor funding. During 1996 and the six months ended June
30, 1997, net interest income amounted to 9.8 percent and 9.9 percent,
respectively, of total revenue of the Company. If long-term interest rates
decreased relative to short-term interest rates, the Company's net interest
income would, under certain circumstances, decline and could, under certain
circumstances, become a net interest expense. Additionally, decreases in
short-term interest rates would reduce the Company's income from placement fees.
POSSIBLE LOSS OF VALUE FROM IMPAIRMENT OF MORTGAGE SERVICING RIGHTS
Pursuant to generally accepted accounting principles ("GAAP") mortgage
banking firms are required to recognize as a separate asset the right to service
mortgage loans, whether those rights are retained upon sale of mortgages
originated by the firm or acquired by purchase, if it is practicable to
determine the fair value of the servicing rights. Accordingly, upon origination
and sale of a mortgage and to the extent that it is practicable to determine the
fair value of the servicing rights, the Company is required to recognize income
equal to the value of the retained rights, and to amortize the value of the
rights over the life of the retained rights. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- New Accounting
Standards." The value of this asset is evaluated for impairment based on the
excess of the carrying amount
9
<PAGE> 14
of the mortgage servicing rights over their fair value. The fair value may be
affected by various factors including changes in mortgage prepayments (which
tend to increase as prevailing long-term interest rates decline and decrease as
such interest rates rise), higher than expected loan defaults, lower than
expected short-term interest rates, and other factors which impact the net cash
flow generated from such servicing rights. Other key factors that impact the
estimated fair value of commercial and multifamily mortgage servicing rights
include prepayment penalty terms (including lockout and yield maintenance
requirements), the underlying loans' average custodial balances and short-term
interest rates. The Company's operating results will be adversely affected to
the extent that impairment occurs, which in turn may affect the price of Company
Common Stock. Although the Company has not recorded any impairment in 1995, 1996
and through June 30, 1997, it may record impairment at any time in the future.
No assurance can be given that the factors that cause impairment will
approximate the Company's estimates or that such capitalized mortgage servicing
rights could be sold at their stated value, if at all.
RISK OF LOSS OF CERTAIN ADVANCED FUNDS
When borrowers are delinquent in making monthly payments on multifamily and
commercial mortgage loans serviced by the Company, the Company may be required
to advance interest payments with respect to such delinquent loans to the extent
that the Company deems such advances ultimately recoverable. In addition, the
Company may be required to advance funds for the payment of real estate taxes
and insurance. At March 31, 1997, the Company had made principal, interest and
other servicing advances of $2.3 million. These advances require funding from
the Company's capital resources but have priority of repayment to the Company
from collections or recoveries on the loans. The Company would incur expenses,
which may be material, if the full amount of these advances is not repaid.
LOSSES UPON TERMINATION OF CERTAIN SERVICING CONTRACTS
Mortgage servicing contracts covering approximately $1.1 billion or 18
percent of the principal balance of mortgages serviced by the Company (as of
March 31, 1997) are terminable upon 30 days notice by the holder of the serviced
mortgage. These contracts are generally for the servicing of mortgages held by
insurance companies. The percentage of mortgages covered by contracts with such
termination provisions may increase to the extent the Company increases its
servicing of mortgages held by insurance companies. The remainder of the
Company's mortgages are for a term equal to the life of the mortgage and are
terminable by the holder of the mortgage only for cause, upon payment to the
Company of a termination fee or upon prepayment or other early termination of
the mortgage. Termination of a significant amount of these mortgage servicing
contracts could have an adverse effect on the Company's operations to the extent
the Company could not adequately replace the contracts with new contracts.
UNCERTAINTIES RESULTING FROM GOVERNMENT REGULATION AND CHANGES IN GOVERNMENTAL
PROGRAMS
The operations of the Company are subject to regulation by federal, state
and local government authorities (such as the FHA and the Government National
Mortgage Association ("Ginnie Mae")), various laws and judicial and
administrative decisions, and regulations of government sponsored entities (such
as Fannie Mae and the Federal Home Loan Mortgage Corporation ("Freddie Mac"))
that purchase mortgages originated and/or serviced by the Company. See
"Business -- Regulation." These laws, regulations and decisions require the
Company, among other things, to maintain a minimum net worth and minimum lines
of credit, to submit financial reports, and to maintain a quality control plan
for the underwriting, origination and servicing of loans. These laws and
regulations also impose requirements and restrictions affecting, among other
things, the Company's loan originations, credit activities, maximum interest
rates, finance and other charges, disclosures to customers, the terms of secured
transactions, collection, repossession and claims handling procedures, personnel
qualifications, and other trade practices. Although the Company believes that it
is in compliance in all material respects with applicable local, state and
federal laws, rules and regulations and with the requirements of entities
purchasing mortgages, there can be no assurance that more restrictive laws,
rules, regulations or requirements will not be adopted in the future that could
make compliance more difficult or expensive, restrict the Company's ability to
originate, purchase, sell or service loans, further limit or restrict
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the amount of interest and other charges earned on loans originated or purchased
by the Company, further limit or restrict the terms of loan agreements, or
otherwise adversely affect the business or prospects of the Company. If the
Company were unable to comply with these regulations, or were found to be in
violation of the regulations, the Company could lose the opportunity to
originate, sell or service mortgages in certain jurisdictions or to originate
mortgages on behalf of, sell mortgages to or service mortgages held by certain
institutions. The inability to originate, sell or service mortgages with respect
to a participating jurisdiction or a particular entity could have a material
adverse effect on the Company.
Approximately 44.8 percent of loans originated by the Company in 1996 and
approximately 53.1 percent of loans serviced by the Company as of December 31,
1996 were insured by the FHA. A change in the law governing FHA programs,
regulations relating to those programs or other changes to the programs could
affect the availability of, or the ability of the Company to originate or
service, FHA-insured mortgages. Any such change could therefore have a material
adverse effect on the Company and its results of operations.
The Company must obtain the prior consent of Fannie Mae, Freddie Mac and
the State of Arizona prior to a change in control of the Company, which may
include the Share Distribution. The Company has no reason to believe that any
such consents required in connection with the Share Distribution will not be
granted. If the Company failed to receive any such consents, it would lose the
net income (if any) generated by loans originated in or held by any of these
entities.
RISKS OF SECURITIZATION
The Company has historically received commitments from third-party mortgage
investors to purchase loans at predetermined prices prior to origination. In the
future, the Company may decide to securitize mortgage loans by pooling and
subsequently selling them in the secondary market without pre-existing investor
purchase commitments. Adverse changes in interest rates, the secondary market or
in the assets securing the mortgages could impair the Company's ability to sell
these loans on profitable terms or on a timely basis. Any such impairment could
have a material adverse effect upon the Company's business and results of
operations.
RISK OF HEDGING TRANSACTIONS
The Company has entered into hedging arrangements on a limited basis to
reduce the effects of interest rate movements, and may in the future enter into
additional arrangements particularly if the Company increases its securitization
of mortgage loans. See "Risk of Loss from Changes in General Economic
Conditions." The instruments entered into to date have been swap contracts, and
future arrangements may also include futures contracts and the short sale of
financial instruments such as U.S. Treasury bonds. Such transactions may be used
for other purposes, including managing the effect of interest rate changes on
lines of credit with variable interest rates and on the value of uncommitted
loans held for sale (to the extent the Company elects to hold such loans). The
Company intends to use hedging instruments to manage risk, and not for
speculative purposes. Such transactions could nevertheless cause the Company to
recognize losses depending on the terms of the instrument, the performance by
counter-parties and actual interest rate movements.
RELIANCE ON KEY PERSONNEL
The Company is dependent upon the efforts and abilities of a number of its
current key management, including J. Roderick Heller, III, the Company's
Chairman, and Shekar Narasimhan, the Company's President and Chief Executive
Officer. The success of the Company depends to a large extent upon its ability
to retain and continue to attract key employees through its compensation plans,
including employee stock options. The loss of certain of these employees or the
Company's inability to retain or attract key employees in the future could have
an adverse effect upon the Company's operations.
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DEPENDENCE ON SALES STAFF
The Company is dependent upon the efforts and abilities of its twenty-eight
person sales staff. The success of the Company depends to a large extent upon
its ability to retain and continue to attract sales personnel through its
compensation policies, including commission arrangements and its employee stock
option plan. If sales staff responsible for a significant portion of the
Company's annual loan origination volume were to terminate their employment with
the Company for any reason, the Company's loan origination volume, and thus its
operating results, could be adversely affected.
COMPETITION
The Company operates throughout the United States and it faces different
levels of competition in various individual markets. Generally, competition is
fragmented with very few national competitors, and many local and regional
competitors. The profile and business practices of competitors may change,
however, because the multifamily and commercial mortgage industry is undergoing
a period of consolidation. Certain of the Company's competitors are larger and
have greater financial resources, including greater access to and lower cost of
capital, than the Company. In addition, the Company's business is characterized
by low barriers to entry, and new competitors have recently been successful in
raising the capital necessary to enter the business. An increase in competition
in markets in which the Company has significant operations could reduce the
level of loan origination or the amount of servicing the Company obtains or
retains and could reduce the fees the Company is able to charge.
NO ANTICIPATED STOCKHOLDER DISTRIBUTIONS
It is not anticipated that the Company will pay cash dividends on Company
Common Stock in the foreseeable future. The decision whether to apply legally
available funds to the payment of dividends on the Company Common Stock will be
made by the Board of Directors of the Company from time to time in exercise of
its business judgment, taking into account, among other things, the Company's
results of operations and financial condition, any then existing or proposed
commitments by the Company for the use of available funds, and the Company's
obligations with respect to the holders of any then outstanding indebtedness or
preferred stock. The Company's ability to pay dividends may be restricted from
time to time by financial covenants in its credit agreements or in arrangements
with or regulations of government sponsored entities.
SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Company Common Stock in the public market
following the Share Distribution could have an adverse effect on the market
price of the Common Stock. Of the approximately 4.8 million shares to be
outstanding after the Share Distribution and the Capricorn Transaction (as
defined below), approximately 2.9 million shares will be held by Demeter,
Capricorn (prior to any distribution of shares to its partners) and Capricorn
II. These shares will be subject to sale either without restriction or subject
to the volume limitations of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), if Demeter and Capricorn are considered
affiliates of the Company as that term is defined in Rule 144. Sale of a
substantial number of these shares at any time or over time could adversely
affect the market price of the Company Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, as amended ("Section 203"). Under Section 203, a
resident domestic corporation may not engage in a business combination with a
person who owns (or within three years prior, did own) 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years after the date such person became an interested
stockholder, unless (i) prior to such date the board of directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the corporation's
voting stock outstanding at the
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time the transaction commenced, or (iii) on or subsequent to such date the
business combination is approved by the board of directors and authorized by the
affirmative vote of holders of at least two-thirds of the outstanding voting
stock which is not owned by the interested stockholder. The Company has not
exempted itself from the provisions of Section 203, and Section 203 could make a
takeover of the Company more difficult or deter potential purchasers from
seeking to acquire the Company. Additionally, the Company's Certificate of
Incorporation and By-laws allow the Company to issue, without stockholder
approval, preferred stock having voting rights senior to those of the Common
Stock, which could have the effect of making a takeover of the Company more
difficult or deter potential purchasers from seeking to acquire the Company.
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THE DISTRIBUTION OF COMPANY COMMON STOCK
DESCRIPTION OF THE DISTRIBUTION
The Share Distribution will be made at the earlier of (i) the effective
time of the proposed Merger between NHP and a wholly owned subsidiary of AIMCO
and (ii) December 1, 1997 (such time being referred to as the "Maturity Time")
to holders of Rights on the basis of one-third of a share of Company Common
Stock for each Right. The Share Distribution is conditioned on receipt of all
necessary consents, and therefore may not be completed until consent to the
Share Distribution is received from the lenders under NHP's bank credit
facility. Accordingly, if this consent is not received prior to the earlier of
the effective time of the Merger or December 1, 1997, the Maturity Time will be
deferred until the consent is received.
If the Maturity Time is the effective time of the Merger, NHP Stockholders
will receive their shares of Company Common Stock when they exchange their NHP
Common Stock for Class A Common Stock of AIMCO, par value $.01 per share ("AIMCO
Common Stock"). If the Maturity Time is December 1, 1997, NHP Stockholders of
record immediately prior to the Maturity Time will receive certificates
evidencing the shares of Company Common Stock. No certificates or scrip
representing fractional shares of Company Common Stock will be issued. NHP
Stockholders will receive cash in lieu of fractional shares of Company Common
Stock that would otherwise be distributed at a rate of $9.15 per share of
Company Common Stock.
The Rights were issued May 9, 1997 to stockholders of record of NHP Common
Stock on May 2, 1997 on the basis of one Right for each share of NHP Common
Stock. In addition, one Right was attached to and issued with each share of NHP
Common Stock issued after May 2, 1997, and one Right will be issued with each
share of NHP Common Stock issued prior to the Maturity Time. At the close of
business on May 9, 1997, 12,655,439 shares of NHP Common Stock were outstanding
and held of record by 49 holders. NHP believes there are approximately 400
beneficial owners of shares of NHP Common Stock as of May 9, 1997. If the Share
Distribution occurred on that date, an aggregate of approximately 4,218,479
shares of Company Common Stock would have been distributed to such holders. NHP
is prohibited by the Rights Agreement and the Merger Agreement from issuing
additional shares of NHP Common Stock, except in connection with the exercise of
outstanding stock options. NHP therefore believes the number of shares of
Company Common Stock to be issued in the Share Distribution will not differ
significantly from the amount set forth above.
AIMCO has agreed to hold all Rights distributed with respect to shares of
NHP Common Stock that it acquires pursuant to the Stock Purchase Agreement in
trust for Demeter and Capricorn and certain assignees of Capricorn. AIMCO has
agreed to deliver to Demeter and Capricorn and certain assignees of Capricorn
the shares of Company Common Stock AIMCO would be entitled to receive in the
Share Distribution.
Capricorn II has entered into a commitment pursuant to which it would,
following the negotiation and execution of definitive documentation and subject
to the satisfaction of the conditions that will be specified therein, purchase
546,448 shares of Company Common Stock at the time of the Share Distribution for
a price of $9.15 per share (the "Capricorn Transaction"). The Company also
expects to issue at a nominal purchase price pursuant to the terms and
conditions of an Employee Stock Purchase Plan (the "ESPP") it intends to adopt
prior to the Share Distribution, 25 shares of Company Common Stock to each
employee of the Company who is not eligible for participation in a Key Employee
Incentive Plan ("KEIP") the Company also intends to adopt. In addition, the ESPP
is expected to provide that each employee (including those participating in the
KEIP) will have an option to acquire up to 1,000 shares of Company Common Stock
for a price of $9.15 per share, which option shall be exercisable for 10
business days commencing upon effectiveness of an appropriate registration
statement under the Securities Act.
In connection with the Rights Distribution, Demeter and Capricorn have
agreed that they will not, for a period ending April 1, 1998, purchase any
shares of Common Stock at a price of less than $9.15 per share and that, except
in certain situations, for a period of one year following the Share
Distribution, they will not sell, in one or more related transactions, more than
50 percent of the shares held by them at the Maturity Time without requiring the
purchaser of the shares to offer to purchase the shares of all holders of the
Company's Common Stock or propose a merger, each on terms comparable to those on
which Demeter or Capricorn sells. In addition, Capricorn II has agreed that, if
the Capricorn Transaction is completed, for a period of 90 days following the
Share Distribution, it will not purchase any shares of Company Common Stock on
the open
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market unless it has been notified by the Company that the Company will not be
buying any shares of Company Common Stock in open market transactions. Capricorn
II has also agreed that, if during the period of one year following the Share
Distribution it (together with its affiliates, which shall not include Capricorn
for this purpose) is the single largest shareholder of the Company and holds
more than 20% of the shares of the Company, it will not sell, in one or more
related transactions, more than 50 percent of the shares held by it at the time
of the sale without requiring the purchaser of the shares to offer to purchase
the shares of all holders of the Company's Common Stock on terms comparable to
those on which Capricorn II sells.
EXPENSES OF THE DISTRIBUTION
It is estimated that the direct legal, financial advisory, accounting,
printing, mailing and other expenses (including the fees of NHP's and the
Company's transfer agents) will total approximately $500,000, and will be borne
by NHP. These expenses do not include any of the costs associated with the time
spent by NHP's and the Company's officers and legal, accounting and other
personnel in connection with the Distribution or other internal costs of NHP or
the Company. Upon request, NHP will pay the reasonable expenses of brokerage
firms, custodians, nominees and fiduciaries who are record holders of NHP Common
Stock for forwarding this Information Statement to the beneficial owners of such
shares.
REASONS FOR THE DISTRIBUTION
AIMCO, Merger Sub and NHP have entered into an Agreement and Plan of
Merger, dated as of April 21, 1997 (the "Merger Agreement") pursuant to which
Merger Sub will, subject to the terms and conditions provided in the Merger
Agreement, merge with and into NHP (the "Merger"), thereby making NHP, as the
surviving corporation, a wholly-owned subsidiary of AIMCO (the "Surviving
Corporation"). In addition, AIMCO/NHP Holdings, Inc., a Delaware corporation and
an unconsolidated subsidiary of AIMCO ("ANHI") purchased approximately 51
percent of the outstanding shares of NHP Common Stock on May 5, 1997 pursuant to
the Stock Purchase Agreement among AIMCO, Demeter and Capricorn. AIMCO required
that the Rights Distribution occur as a condition to the Merger and its purchase
of shares of NHP Common Stock, and NHP believes that completion of the Merger
while allowing current NHP Stockholders the opportunity to retain an interest in
the business of the Company maximizes the value that NHP Stockholders will
receive in connection with the Merger. In addition, even if NHP were not merged
with AIMCO, NHP believes that the Share Distribution, and the Company's
subsequent status as a public company, will allow investors to evaluate better
the merits and outlook of the Company's business. The Share Distribution would
also give NHP Stockholders and other potential investors the flexibility to
direct their investment to their specific area of interest, property management
or financial services, or to continue to retain an interest in both areas.
FEDERAL INCOME TAX CONSEQUENCES OF THE RIGHTS DISTRIBUTION AND THE MATURITY OF
THE RIGHTS
The following discussion summarizes certain United States federal income
tax consequences of the Rights Distribution by NHP to NHP Stockholders and the
maturity of the Rights. Wilmer, Cutler & Pickering, which has acted as tax
counsel to NHP in connection with the preparation and filing of the registration
statement on Form 10 of which this Information Statement is a part, has reviewed
the following discussion and is of the opinion that it fairly summarizes the
U.S. federal income tax considerations that are likely to be material to a
holder of NHP Common Stock. The summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings, and judicial decisions
as of the date hereof, all of which may be repealed, revoked or modified so as
to result in federal income tax consequences different from those described
below. Such changes could be applied retroactively in a manner that could
adversely affect an NHP Stockholder. In addition, the authorities on which this
summary is based are subject to various interpretations. It is therefore
possible that the federal income tax treatment of the distribution, holding, and
disposition of the Rights and the Company Common Stock may differ from the
treatment described below.
This summary applies only to NHP Stockholders who own NHP Common Stock held
as a capital asset, and does not deal with special situations, such as those of
dealers in securities or currencies, financial institutions, insurance
companies, persons holding the Company Common Stock as part of a hedging or
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conversion transaction or a straddle, persons whose "functional currency" is not
the U.S. dollar, foreign investors, and certain U.S. expatriates.
This summary is for general information only. It does not address all
aspects of U.S. federal income taxation that may be relevant to holders of NHP
Common Stock in light of their particular circumstances, nor does it address any
tax consequences arising under the laws of any state, local, or foreign taxing
jurisdiction. NHP Stockholders should consult their tax advisors about the
particular United States federal income tax consequences to them of the Rights
Distribution, the maturity of the Rights, or the holding and disposition of the
Company Common Stock, as well as any tax consequences arising under the laws of
any state, local, or foreign taxing jurisdiction.
Effect of the Rights Distribution and Maturity of the Rights on NHP
NHP expects to recognize gain for federal income tax purposes as a result
of the Rights Distribution combined with the later maturity of the Rights. The
amount of gain recognized by NHP will be the excess of the fair market value of
the Company over NHP's tax basis in the Company. NHP's tax basis in the Company
Common Stock as of December 31, 1996 was approximately $23,400,000, and is
subject to further adjustment reflecting the Company's 1997 earnings and
distributions. The gain so recognized will be a capital gain, and will be added
to the regular taxable income and the alternative minimum taxable income of NHP
for the taxable year in which the Rights Distribution occurs. NHP does not
expect to have sufficient alternative minimum tax net operating losses available
to offset such gain, so that the 20 percent federal alternative minimum tax will
likely apply to most or all of such gain. NHP does expect to have regular
federal income tax net operating losses available in a sufficient amount to
offset such gain under the regular federal income tax, although the amount of
available loss carryovers has not been finally determined. In the event that the
fair market value of the Company is less than NHP's tax basis, NHP will not be
permitted to claim any loss for federal income tax purposes.
Effect of the Rights Distribution and Maturity of the Rights on NHP
Stockholders
The Rights Distribution is expected to be treated for federal income tax
purposes as a dividend to the NHP stockholders of record on May 2, 1997 to the
extent of the current and accumulated earnings and profits of NHP. The amount of
the distribution is the fair market value of the Company shares covered by the
Rights on the Rights Distribution Date. The portion of the Rights Distribution
that will be treated as a dividend cannot be finally determined until the end of
NHP's taxable year that includes the Rights Distribution. The portion of the
Rights Distribution in excess of the amount treated as a dividend will be
treated as a tax free return of basis to the extent of an NHP Stockholder's
basis in NHP Common Stock, and as a capital gain to the extent such portion
exceeds the NHP Stockholder's basis in NHP Common Stock. Such capital gain will
be a long-term capital gain to the extent the NHP Stockholder's holding period
in the NHP Common Stock exceeds one year. An NHP Stockholder's basis in NHP
Common Stock will be reduced (but not below zero) by the portion of the
Distribution in excess of the amount treated as a dividend.
Domestic corporations that satisfy the holding period rules of Internal
Revenue Code section 246(c) with respect to NHP Common Stock, and that receive a
Rights Distribution, will generally be entitled to a 70 percent dividends
received deduction for the dividend portion of the distribution. However, if the
corporation's NHP Common Stock is "debt-financed portfolio stock" for the
purposes of Internal Revenue Code section 246A, the corporation's dividends
received deduction will be reduced to the extent provided by that section. In
addition, the dividend portion of the distribution may be an "extraordinary
dividend" for the purpose of Internal Revenue Code section 1059, which would
require a corporation owning NHP Common Stock for less than 2 years before the
"announcement date" of the Rights Distribution to reduce its basis in its NHP
Common Stock by the nontaxed portion of the dividend. Under current law, if the
nontaxed portion of the dividend exceeds the corporation's basis in its NHP
Common Stock, the excess will be taxed as gain on the sale or disposition of
such stock, but the tax would be deferred until the corporation actually sells
or disposes of its NHP Common Stock. However, the Taxpayer Relief Act of 1997
that has been passed in both the House of Representatives and the Senate
contains an amendment to Section 1059, which would require a corporation to
recognize such excess as taxable gain on the Rights Distribution Date. The
provision is
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proposed to be effective for distributions after May 3, 1995. Domestic
corporations that are NHP Stockholders should consult their tax advisors
concerning these issues.
An NHP Stockholder will have basis in the Rights equal to the amount of the
Rights Distribution to such stockholder. The maturity of the rights should not
be a taxable event to NHP Stockholders. A stockholder of NHP will have basis in
the shares of Company Common Stock equal to such stockholder's basis in the
Rights prior to the maturity of the Rights.
EFFECT ON OUTSTANDING NHP OPTIONS
Certain directors, officers and employees of NHP and its subsidiaries
(including the Company) have been granted options to purchase shares of NHP
Common Stock (the "NHP Options"). The NHP Options have been granted pursuant to
various stock option plans of NHP (the "NHP Plans"). Immediately prior to the
Share Distribution, each NHP Option will be divided into two separately
exercisable options: (i) an option to purchase Company Common Stock (an "Add-on
Company Option"), exercisable for the number of shares of Company Common Stock
that would have been issued in the Share Distribution in respect of the shares
of NHP Common Stock subject to the applicable NHP Option, if such NHP Option had
been exercised in full immediately prior to the Maturity Time, and containing
substantially equivalent terms as the existing NHP Option, and (ii) an option to
purchase NHP Common Stock (the "Adjusted NHP Option"), exercisable for the same
number of shares of NHP Common Stock as the corresponding NHP Option had been.
The per share exercise price of such NHP Option will be allocated between the
Add-on Company Option and the Adjusted NHP Option based on a ratio of the
assumed value of Company Common Stock to the combined value of Company Common
Stock and NHP Common Stock, and all other terms of such NHP Option will remain
the same in all material respects. Adjusted NHP Options held by employees of the
Company who will no longer be employees of NHP after the Share Distribution and
Add-on Company Options held by employees of NHP who are not employees of the
Company will vest at the time of the Share Distribution and will be exercisable
for a period of ninety days following the Share Distribution. In connection with
the Merger, the Adjusted NHP Option will be converted into an option to receive
AIMCO Common Stock, with each option to acquire one share of NHP Common Stock
being converted into an option to acquire .74766 of a share of AIMCO Common
Stock with the exercise price adjusted accordingly.
As a result of the foregoing, certain persons who remain NHP (or AIMCO)
employees or non employee directors after the Share Distribution and certain
persons who were NHP employees prior to the Share Distribution but become
employees of the Company after the Share Distribution will hold both Adjusted
NHP (or AIMCO) Options and separate Add-on Company Options. The obligations with
respect to the Adjusted NHP (or AIMCO) Options and Add-on Company Options will
be the obligations of NHP (or AIMCO) and the Company, respectively.
EFFECT OF THE SHARE DISTRIBUTION ON OWNERSHIP OF NHP AND THE COMPANY
As a result of the Share Distribution, NHP's interests in the financial
services business will be owned and operated by a separate publicly held
company. Excluding the effect of the Capricorn Transaction and the Merger, the
NHP Stockholders would own the same interest in each of the Company and NHP that
they held in NHP immediately prior to the Maturity Time, but in the form of
separate securities, NHP Common Stock and Company Common Stock. The transfer
agent and registrar for the Company Common Stock is expected to be The Bank of
Boston, N.A.
Excluding the effect of the Merger, the Share Distribution would not affect
the number of outstanding shares of NHP Common Stock or the rights of any NHP
Stockholder with respect thereto.
RESTRICTIONS ON TRANSFER
Shares of the Company Common Stock distributed to the NHP Stockholders
pursuant to the Share Distribution will be freely transferable under the
Securities Act, except for shares received by any persons who may be deemed to
be "affiliates" of the Company as that term is defined in Rule 144 promulgated
under the Securities Act. Persons who may be deemed to be affiliates of the
Company after the Share Distribution
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generally include individuals or entities that control, are controlled by, or
are under common control with, the Company and may include certain officers and
directors of the Company as well as principal stockholders of the Company.
Persons who are affiliates of the Company will be permitted to sell their shares
of the Company Common Stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act. Demeter, Capricorn and Capricorn II will also be subject to
certain restrictions on their sales of shares as described under "The
Distribution -- Description of the Distribution."
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ARRANGEMENTS BETWEEN NHP AND
THE COMPANY AFTER THE SHARE DISTRIBUTION
Following the Share Distribution, the Company and NHP (which is currently
owned 51 percent by AIMCO and which, following the Merger, will be a
wholly-owned subsidiary of AIMCO) will operate independently, and neither will
have any stock ownership, beneficial or otherwise, in the other. For the
purposes of governing certain of the ongoing relationships between the Company
and NHP after the Share Distribution, and to provide mechanisms for an orderly
transition, on or before the Maturity Time, the Company and NHP will enter into
a Separation Agreement (the "Separation Agreement") and Tax Sharing Agreement
(the "Tax Sharing Agreement"). The terms of the Separation Agreement and the Tax
Sharing Agreement have not yet been determined, and pursuant to the Merger
Agreement, the terms must be reasonably acceptable to AIMCO. The Separation
Agreement and the Tax Sharing Agreement will be agreed to while the Company is a
wholly-owned subsidiary of NHP and therefore the terms may not be the same as
they would be if the agreements were the result of arms'-length negotiations
between independent parties. See "Risk Factors -- Relationship With NHP;
Potential Conflicts of Interest."
Although the terms of the Separation Agreement are not expected to be
determined until shortly before the date of the Share Distribution, the Company
currently expects that the terms will include the following. There can be no
assurance that the terms of the Separation Agreement will not be less favorable
to the stockholders of the Company than the terms set out below.
Indemnification. The Separation Agreement is expected to provide for cross
indemnification designed to place with the Company the responsibility for
liabilities of the business carried on by the Company prior to the Share
Distribution and place on NHP responsibility for liabilities of all other
business carried on by NHP prior to the Share Distribution. In addition, the
Separation Agreement is expected to provide for indemnification by the Company
of NHP and its officers, directors and controlling persons relating to this
Information Statement, except as to certain matters, for which NHP is expected
to indemnify the Company.
Tax Sharing Arrangement. The Tax Sharing Agreement is expected to provide
for the payment by the Company to NHP of tax liabilities of the Company,
computed on a stand-alone basis, for periods when the Company is affiliated with
NHP, and for certain procedural matters relating to the preparation of tax
returns and responses to Internal Revenue Service proceedings relating to taxes
incurred by NHP or the Company prior to or in connection with the Share
Distribution.
Treatment of NHP and Company Options. The Separation Agreement is expected
to provide for the amendment of all NHP Options issued to NHP employees,
officers and directors so that each NHP Option will be converted into an
Adjusted NHP Option and an Add-on Company Option, all on the terms and
conditions set forth in "The Distribution of Company Common Stock -- Effect on
Outstanding NHP Options."
Repayment of Borrowing. At December 31, 1996, the Company owed NHP
approximately $3.4 million. This indebtedness was incurred in connection with
the Company's acquisition of Proctor on December 31, 1996. The Company incurred
an additional $4.6 million of indebtedness to NHP on April 16, 1997 in
connection with the Askew Acquisition. The Separation Agreement is expected to
require the Company to repay all amounts owed to NHP at the time of the Share
Distribution.
Contribution of Excess Cash Flow. The Merger Agreement relating to the
AIMCO Merger contains a provision requiring NHP to contribute to the Company an
amount equal to NHP's Free Cash Flow (as defined in the Merger Agreement) since
February 1, 1997 to the extent it exceeds the transaction costs incurred by NHP
in connection with the Merger.
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<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997. This table should be read in conjunction with the Consolidated
Financial Statements of the Company.
<TABLE>
<CAPTION>
MARCH 31, 1997
MARCH 31, 1997(1) (AS ADJUSTED)(2)
----------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
LONG-TERM DEBT:
Servicing acquisition term loan......................... $ 6,211,745 $ 6,211,745
Servicing acquisition/working capital line-of-credit.... -- 9,000,000
SHAREHOLDER'S EQUITY:
Common stock, $.01 par value,
7,899,380 shares authorized,
4,217,479 issued and outstanding...................... 42,175 42,175
Additional paid-in capital.............................. 21,330,690 21,330,690
Retained earnings....................................... 1,222,650 1,222,650
----------------- ----------------
Total stockholder's equity......................... 22,595,515 22,595,515
----------------- ----------------
Total capitalization............................... $28,807,260 $ 37,807,260
============== =============
</TABLE>
- - ---------------
(1) Gives effect to a 789.94 per share stock split effective
, 1997. Additional shares may be issued to NHP so that
the number of shares of Company Common Stock held by NHP on the Share
Distribution Date will equal one-third of the number of shares of NHP Common
Stock outstanding on such date.
(2) Gives effect to borrowings of $9,000,000 to repay intercompany payables to
NHP prior to the Share Distribution.
20
<PAGE> 25
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of the
Company as of and for each of the years in the four-year period ended December
31, 1995, as of and for the three-month period ended March 31, 1996 and as of
and for the nine-month period ended December 31, 1996 and as of and for the
three-month period ended March 31, 1997 (unaudited). The data for the
three-month period ended March 31, 1996 and the nine-month period ended December
31, 1996 are presented separately as a result of the Acquisition. The table also
sets forth pro forma income statement data for the year ended December 31, 1996
giving effect to the Acquisition as though it occurred January 1, 1996. The
selected financial data of the Company as of and for each of the years in the
four-year period ended December 31, 1995, as of and for the three-month period
ended March 31, 1996 and March 31, 1997 (which is unaudited) and as of and for
the nine-month period ended December 31, 1996 were derived from the Company's
consolidated financial statements. The pro forma data (which are unaudited) are
derived from the footnotes to the Company's consolidated financial statements
contained elsewhere in this Information Statement. The pro forma results are not
necessarily indicative of operating results that would have been achieved had
the Acquisition actually occurred on January 1, 1996. Additionally, the pro
forma operating results are not intended to be a projection of results of future
operations. The selected financial and operating data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, pro forma financial
statements and related notes included elsewhere herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY WMF HOLDINGS LTD. AND SUBSIDIARIES
----------------------------------------- ----------------------------------------------------------------
3 MONTHS 9 MONTHS 3 MONTHS
ENDED PRO FORMA ENDED ENDED YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, ---------------------------------------------------
1997 1996(1) 1996 1996 1995 1994 1993 1992
----------- ------------ ------------ ---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA
Revenues............ $ 7,440 $ 30,301 $ 23,473 $ 6,828 $ 21,999 $ 17,061 $ 16,271 $ 10,655
Expenses............ $ 7,373 $ 29,416 $ 22,318 $ 6,523 $ 21,222 $ 17,223 $ 15,550 $ 10,612
Net income (loss)... $ 67 $ 885 $ 1,155 $ 305 $ 777 $ (162) $ 721 $ 43
Net income (loss)
per share (2)..... $ .02 $ 0.21 $ 0.27 $ 0.07 $ 0.16 $ (0.03) $ 0.12 $ 0.01
Weighted average
shares outstanding
(2)............... 4,217,478 4,217,478 4,217,478 4,217,478 4,717,312 6,216,812 6,216,812 6,216,812
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, DECEMBER 31, MARCH 31, ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ------------ ---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Mortgage loans held
for sale.......... $ 28,683 $ 40,263 $ 23,116 $ 32,462 $ 5,110 $ 44,738 $ 32,401
Servicing rights.... $ 22,751 $ 22,460 $ 8,477 $ 8,466 $ 8,100 $ 7,150 $ 8,319
Total assets........ $ 73,898 $ 88,097 $ 48,976 $ 57,176 $ 31,689 $ 65,347 $ 50,233
Total debt (3)...... $ 34,497 $ 46,136 $ 34,108 $ 43,304 $ 15,271 $ 51,652 $ 39,059
Shareholder's
equity............ $ 22,596 $ 22,528 $ 4,324 $ 4,018 $ 6,241 $ 6,403 $ 5,682
OTHER DATA
Operating cash
flow(4)........... $ (918) $ 10,701 $ 819 $ 4,981 $ 1,244 -- -- $ --
EBITDA (4).......... $ 1,782 $ 8,256 $ 6,502 $ 1,754 $ 4,743 $ 2,497 $ 3,481 $ 1,829
</TABLE>
- - ---------------
(1) Adjusted to reflect results of operations for the twelve months ended
December 31, 1996, as if the acquisition had occurred January 1, 1996.
Adjustments include all income amounts for the three months ended March
31,1996 and additional amortization of $575,648.
(2) Gives effect to a 789.94 per share stock split, which is the stock split
that would have been required pursuant to the terms of the Rights Agreement
if the Share Distribution had occurred on March 7, 1997. The actual stock
split will be such that the number of shares of Company Common Stock held by
NHP on the Share Distribution date will equal one-third of the number of
shares of NHP Common Stock outstanding on such date.
(3) Includes $5,000,000 of notes to the Company's former shareholder as of March
31, 1996 and December 31, 1995, and $2,000,000 of notes to the Company's
former shareholder as of December 31, 1994 and 1993 all of which were repaid
in conjunction with the Acquisition.
(4) Operating cash flow represents the amount of cash generated from operating
activities as determined using GAAP.
(5) EBITDA is a non-GAAP presentation of the Company's performance and consists
of income from operations before non-warehouse interest expense, income
taxes, depreciation and amortization. EBITDA is included because it is used
in the industry as a measure of a company's operating performance, but
should not be construed as an alternative either (i) to income from
operations (determined in accordance with GAAP) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with GAAP). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses and EBITDA as measured by the Company may not be comparable to EBITDA
as measured by other companies.
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
OVERVIEW
On April 1, 1996, NHP acquired all of the outstanding capital stock of the
Company for consideration of approximately $21 million, in the form of $16.8
million in cash and 210,000 shares of NHP Common Stock. (For periods prior to
NHP's acquisition of the Company, the Company is referred to as "WMF Holdings.")
The following discussion and analysis presents the significant changes in
financial condition and results of operations of the Company for the three
months ended March 31, 1997 and the nine months ended December 31, 1996, and the
significant changes in financial condition and results of operations of WMF
Holdings for the three months ended March 31, 1996 and the years ended December
31, 1995 and 1994. The results of operations of acquired businesses are included
in the Company's and WMF Holdings' Consolidated Financial Statements from the
date of acquisition. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included in this
Information Statement.
As discussed in "Business," the Company has experienced significant growth
in its net income, revenues, annual production volume and servicing volume
during each of the three years ended December 31, 1996, 1995 and 1994. The
Company seeks to continue to expand its business through (i) acquisitions and
internal growth; (ii) design and delivery of new mortgage products; and (iii)
expansion into related businesses. On a going-forward basis, to the extent that
the Company is successful in completing acquisitions, the Company will
experience increased expenses associated with the amortization of goodwill and
acquired mortgage servicing rights and, if the acquisitions are financed by
additional indebtedness, an increase in interest expense. Through the
acquisitions, the Company's primary focus is to increase its mortgage
origination capabilities and servicing portfolio. Accordingly, such acquisitions
may result in a short-term decrease in income from operations during the period
from acquisition through a period necessary to integrate the acquired companies.
RESULTS OF OPERATIONS -- SUMMARY
The Company's primary business activities are commercial and multifamily
loan servicing, loan origination and sales of the loans to investors in the
secondary market. Revenues from mortgage banking activities are earned from the
origination of commercial and multifamily real estate mortgage loans and the
servicing of such loans. The Company's revenue includes loan servicing fees,
gains on sale of mortgage loans, interest income on loans prior to sale,
"placement fees" (revenue earned relating to utilization of escrow funds),
origination fee income and other income.
The Company's revenue is significantly influenced by the timing of
origination and sales of mortgage loans and is somewhat sensitive to economic
factors such as the general level of interest rates and demand for commercial
and multifamily real estate. As a result, future revenues may fluctuate due to
changes in these factors. See "Risk Factors -- Risks of Loss from Changes in
General Economic Conditions." Therefore, the Company's historical results may
not be indicative of future periods.
22
<PAGE> 27
The following table sets forth information derived from the Company's
consolidated statements of operations for each of the periods presented in
dollars and as a percentage of revenue.
SUMMARY FINANCIAL INFORMATION
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------- WMF HOLDINGS LTD. AND SUBSIDIARIES
PERIOD FROM ---------------------------------------------------------------------
JANUARY 1, 1997 PERIOD FROM PERIOD FROM YEAR ENDED DECEMBER 31,
TO APRIL 1, 1996 TO JANUARY 1, 1996 TO --------------------------------------------
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996 1995 1994
--------------- --------------------- --------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Servicing
fees,
net........ $2,726 36.7% $ 7,274 31.0% $ 2,055 30.1% $ 7,860 35.7% $ 6,182 36.2%
Gain on sale
of mortgage
loans,
net........ 2,407 32.4 8,113 34.6 2,107 30.9 6,334 28.8 4,532 26.6
Interest
income..... 933 12.5 3,388 14.4 862 12.6 3,291 15.0 2,089 12.2
Placement fee
income..... 1,125 15.1 3,823 16.3 1,136 16.6 3,999 18.2 2,244 13.2
Other........ 249 3.3 875 3.7 668 9.8 515 2.3 2,014 11.8
------ ----- -------- --------- --------- -------- -------- -------- -------- --------
Total
revenue... 7,440 100.0 23,473 100.0 6,828 100.0 21,999 100.0 17,061 100.0
------ ----- -------- --------- --------- -------- -------- -------- -------- --------
EXPENSES
Salaries and
employee
benefits... 3,557 47.8 9,975 42.5 2,770 40.5 9,208 41.9 7,324 42.9
General and
administrative... 1,800 24.2 5,237 22.3 1,168 17.1 5,153 23.4 4,314 25.3
Provision for
loan
servicing
losses..... 174 2.4 969 4.1 285 4.2 856 3.9 654 3.9
Interest..... 253 3.4 1,012 4.3 308 4.5 2,144 9.7 2,250 13.2
Depreciation
and
amortization... 1,415 19.0 3,981 17.0 551 8.1 2,369 10.8 1,926 11.3
Losses from
Beverly
Hills
Securities.. -- 0.0 -- 0.0 600 8.8 692 3.1 720 4.2
------ ----- -------- --------- --------- -------- -------- -------- -------- --------
Total
expenses... 7,199 96.8 21,174 90.2 5,682 83.2 20,422 92.8 17,188 100.8
------ ----- -------- --------- --------- -------- -------- -------- -------- --------
Income (loss)
before
income
taxes...... 241 3.2 2,299 9.8 1,146 16.8 1,577 7.2 (127) (0.8)
Income
taxes...... 174 2.3 1,144 4.9 841 12.3 800 3.6 35 0.2
------ ----- -------- --------- --------- -------- -------- -------- -------- --------
Net income
(loss)..... $ 67 0.9% $ 1,155 4.9% $ 305 4.5% $ 777 3.6% $ (162) (1.0)%
====== ===== ======== ======= ======== ======= ======= ===== ======= =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
As a result of the acquisition of the Company by NHP, all assets and
liabilities acquired were recorded at their fair value which resulted in an
increase of the recorded value of the Company's servicing rights of $10.7
million and goodwill of $5.1 million. The increase in these assets has resulted
in additional amortization expense during the three months ended March 31, 1997
compared to the three months ended March 31, 1996 of approximately $573,000.
Such additional amortization expense is the primary reason for the decline in
net income between the three months ended March 31, 1997 and March 31, 1996. For
purposes of comparing the three months ended March 31, 1997 to the three months
ended March 31, 1996, no other income statement amounts have been impacted by
the acquisition.
Consolidated revenue was $7.4 million and $6.8 million for the three months
ended March 31, 1997 and 1996, respectively. This 9 percent increase primarily
reflects the increased servicing portfolio which resulted from loan servicing
acquisitions of $1.5 billion during 1996 and increased loan origination activity
of $218 million for the three months ended March 31, 1997 compared to $166
million in the three months ended 1996.
Servicing fees were $2.7 million and $2.1 million for the three months
ended March 31, 1997 and 1996, respectively. Revenue related to mortgage
servicing is based upon the unpaid principal balance of loans serviced. The
increase in servicing fees is a result of the principal balance of the Company's
servicing portfolio increasing from $4.5 billion on March 31, 1997 to $6.5
billion on March 31, 1997. The increase in the servicing portfolio is
attributable primarily to loan originations of $1.2 billion and the acquisitions
of Proctor and ACR which added rights to service loans with principal balances
of $1.3 billion during for the period March 31, 1996 through March 31, 1997. The
percentage increase in servicing fee revenue of 29 percent is less than the 44
percent increase in the servicing portfolio because the contractual servicing
fee percentage on the added servicing, primarily for insurance companies, is
less than the Company's historical average servicing rate.
23
<PAGE> 28
Gain on sale of mortgage loans of $2.4 million and $2.1 million for the
three months ended March 31, 1997 and 1996, respectively represents a 14 percent
increase. For the three months ended March 31, 1997 and 1996, respectively, the
Company originated $218 million and $166 million mortgage loans. The 14 percent
increase on gain on sale of mortgage loans is a result of the increase in loans
originated.
Interest income of $933,000 and $862,000 for the three months ended March
31, 1997 and 1996, respectively, increased due to the increase in originations
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996, as discussed above.
Placement fee income of $1.1 million and $1.1 million for the three months
ended March 31, 1997 and 1996, respectively, was the result of earnings on
invested mortgagor escrow amounts. Earnings on such amounts have remained
constant even though the Company's escrows increased from $203 million on March
31, 1996 to $248 million on March 31, 1997. This is a result of the Company's
increased originations for the three months ended March 31, 1997 compared to the
three months ended March 31, 1996 which results in increased warehousing of the
originated loans which utilize escrow balances to reduce interest expense
related to the warehousing of loans rather than the generation of placement fee
income.
Other income of $249,000 and $668,000 for the three months ended March 31,
1997 and 1996, respectively, was the result of loan modifications, prepayment
penalties and recoveries. The $419,000 decrease is primarily related to the
recovery of approximately $475,000 in escrow advances during the three months
ended March 31, 1996 that had previously been written off.
The Company's total expenses consist of salaries and benefits (including
commissions), other general and administrative expenses, operating interest
expense, provision for loan servicing losses, amortization of mortgage servicing
rights, and other depreciation and amortization.
Salaries and benefits, the largest category of costs for the Company,
increase with loan production due primarily to the payment of commissions on
loan originations. Salaries and benefits of $3.6 million and $2.7 million for
the three months ended March 31, 1997 and 1996, respectively, represents a
$900,000 increase. This increase is due primarily to increased originations, as
discussed above, and the acquisitions of ACR and Proctor which occurred
subsequent to the three months ended March 31, 1996. These two acquisitions
significantly increased the Company's number of employees from 126 at March 31,
1996 to 206 at March 31, 1997.
General and administrative expenses consist of professional fees, travel,
management information, occupancy, telephone and equipment rental, and other
expenses. General and administrative expenses were $1.8 million and $1.2 million
for the three months ended March 31, 1997 and 1996, respectively. This $600,000
increase is a result of costs associated with acquisitions and the resulting
additional offices.
The Company increased the provision for loan servicing losses by $174,000
and $285,000 for the three months ended March 31, 1997 and 1996, respectively.
The decrease in addition to reserves is the result of Management's
determination, as part of its ongoing monthly assessment of the reserve, that
current market conditions do not require any greater increase in reserves. The
Company's principal balance of Fannie Mae DUS loans in the servicing portfolio
was $795 million and $647 million as of March 31, 1997 and 1996, respectively.
Interest expense of $253,000 and $308,000 for the three months ended March
31, 1997 and 1996, respectively, decreased due to the Company negotiating,
effective January 1, 1997, a lower cost of borrowing in connection with its
warehouse line of credit used to originate loans.
Depreciation and amortization of $1.4 million and $0.5 million for the
three months ended March 31, 1997 and 1996, respectively, represents a $0.9
million increase. Approximately $573,000 of this increase is due to the
increased asset bases as a result of the acquisition of the Company by NHP
discussed above. The remainder of the increase is primarily a result of the
amortization of additional servicing rights acquired during the period as a
result of $7.8 million of acquisitions and recorded originated servicing rights
between March 31, 1996 and March 31, 1997.
24
<PAGE> 29
Losses from Beverly Hills Securities of $0 and $600,000 for the three
months ended March 31, 1997 and 1996, respectively, decreased due to the Company
writing off its investment/advances in Beverly Hills Securities during the first
quarter of 1996.
1996 RESULTS OF OPERATIONS COMPARED TO 1995
As a result of the April 1, 1996 acquisition of the Company by NHP, all
assets and liabilities acquired were recorded at their fair value which resulted
in an increase of the recorded value of the Company's servicing rights of $10.7
million and goodwill of $5.1 million. The increase in these assets has resulted
in additional amortization expense during the nine months ended December 31,
1996 of $1.7 million. No other income statement amounts have been impacted by
the acquisition.
Consolidated revenue was $23.5 million and $6.8 million for the nine months
ended December 31, 1996 and the three months ended March 31, 1996, respectively.
Combined revenues were $30.3 million for the twelve months ended December 31,
1996, a 37.7 percent increase over consolidated revenue of $22.0 million for the
year ended December 31, 1995. These increases reflected the increased servicing
portfolio which resulted from acquisitions and the increased loan origination
activity in 1996.
Servicing fees were $7.3 million for the nine months ended December 31,
1996 and $2.0 million for the three months ended March 31, 1996. Servicing fee
income for the twelve months ended December 31, 1996 was $9.3 million, an
increase of $1.4 million or 18.7 percent from $7.9 million in 1995. Revenue
related to mortgage servicing is based upon the unpaid principal balance of
loans serviced. The principal balance on these loans was $6.2 billion at
December 31, 1996, as compared to $4.5 billion at March 31, 1996, and $4.4
billion at December 31, 1995. The increases are attributable primarily to loan
originations of $962 million for the nine months ended December 31, 1996, $168
million for the three months ended March 31, 1996, and the Proctor and ACR
Acquisitions which added rights to service loans with principal balances of $1.3
billion as of December 31, 1996.
Gain on sale of mortgage loans of $8.1 million for the nine months ended
December 31, 1996 and $2.1 million for the three months ended March 31, 1996 was
the result of the loan originations discussed above. Gain on sale of mortgage
loans for the twelve months ended December 31, 1996 was $10.2 million, an
increase of $3.9 million or 61.4 percent from $6.3 million in 1995 due to the
increased gains from origination of permanent FHA loans and increased
originations of $326 million during 1996 relative to 1995. In addition, the
Company began allocating the cost to originate loan servicing to a separate
asset for originated permanent FHA mortgage loans pursuant to the Company's
adoption of SFAS No. 122 on January 1, 1996. See Note 2 to the Consolidated
Financial Statements appearing elsewhere in this Information Statement for more
information. Prior to 1996, the Company treated all costs incurred to originate
loans and loan servicing as a component of the loan originated. As a result, the
basis of permanent FHA loans originated was lower, resulting in additional gains
of $2.7 million and $150,000 for the nine months ended December 31, 1996 and the
three months ended March 31, 1996, respectively.
Interest income of $3.4 million for the nine months ended December 31,1996
and $0.9 million for the three months ended March 31, 1996 increased because the
average amount of loans held for sale increased from $37.3 million to $48.1
million for the three months ended March 31, 1996 and the nine months ended
December 31, 1996. Combined interest income of $4.3 million for the twelve
months ended December 31, 1996 was $1.0 million or 29.1 percent greater than
1995 interest income of $3.3 million because of higher average amounts of
mortgage loans held for sale.
Placement fee income of $3.8 million for the nine months ended December
31,1996 and $1.1 million for the three months ended March 31, 1996 was the
result of earnings on invested mortgagor escrow amounts. Placement fee income
for the twelve months ended December 31, 1996 was $4.9 million, an increase of
$0.9 million or 24.0 percent from $4.0 million in 1995. Earnings on such amounts
have increased as the mortgage servicing portfolio has increased.
Other income of $0.9 million for the nine months ended December 31, 1996
and $0.7 million for the three months ended March 31, 1996 was the result of
income from loan modifications, prepayment penalties
25
<PAGE> 30
and recoveries. Other income for the twelve months ended December 31, 1996 was
$1.5 million, an increase of $1.0 million or 199.3 percent from $0.5 million in
1995. Approximately $0.5 million of this increase is attributable to a recovery
of escrow advances during 1996 that had previously been written off and the
remainder is primarily attributable to an increase of approximately $0.5 million
in termination and extension fees during 1996.
The Company's total expenses consist of salaries and benefits (including
commissions), other general and administrative expenses, operating interest
expense, provision for loan servicing losses, amortization of mortgage servicing
rights, and other depreciation and amortization.
Salaries and benefits, the largest category of costs for the Company,
increase with loan production due primarily to the payment of commissions on
loan originations. Salaries and employee benefits of $10.0 million and $2.8
million for the nine months ended December 31, 1996 and the three months ended
March 31, 1996, respectively, were 42.5 percent and 40.5 percent of total
revenues, respectively. Salaries and employee benefits for the twelve months
ended December 31, 1996 were $12.8 million, an increase of $3.6 million or 38.4
percent from $9.2 million in 1995. The increase in these costs is directly
correlated to the increase in revenue since most of the Company's sales
professionals are compensated based on loan origination fees. Combined salaries
and employee benefits on a consolidated basis remained relatively constant as a
percent of total revenues at 42.1 percent in 1996 and 41.9 percent for 1995.
General and administrative expenses consist of professional fees, travel,
management information systems, occupancy, telephone and equipment rental, and
other expenses. General and administrative expenses were $5.2 million and $1.2
million for the nine months ended December 31, 1996 and the three months ended
March 31, 1996. General and administrative expenses for the twelve months ended
December 31, 1996 were $6.4 million, an increase of $1.3 million or 24.3 percent
from $5.1 million in 1995 resulting from the costs associated with acquisitions,
the acquisition of additional offices, and increased production volume during
1996.
The Company increased the provision for loan servicing losses by $1.0
million in the nine months ended December 31, 1996 and $0.3 million for the
three months ended March 31, 1996. The provision for loan servicing losses for
the twelve months ended December 31, 1996 was $1.3 million, an increase of $0.4
million or 46.4 percent from $0.9 million in 1995. The increase is due to the
increase of the related principal balance of Fannie Mae DUS loans in the
servicing portfolio which was $776 million at December 31, 1996, $647 million at
March 31, 1996, and $648 million at December 31, 1995.
Interest expense of $1.0 million and $0.3 million for the nine months ended
December 31, 1996 and the three months ended March 31, 1996, respectively
increased due to the increase in the average amount of loans held for sale
discussed above. Combined interest expense of $1.3 million for the twelve months
ended December 31, 1996 was $0.8 million or 38.5 percent less than interest
expense of $2.1 million for the year ended December 31, 1995 due to the
repayment of a $5.0 million loan from the Company's previous shareholder in the
first quarter of 1996 partially offset by the increase in average amount of
mortgage loans held for sale.
Depreciation and amortization of $4.0 million and $0.5 million for the nine
months ended December 31, 1996 and the three months ended March 31, 1996,
respectively increased due to the increased asset bases as a result of the
acquisition of the Company by NHP discussed above. Combined depreciation and
amortization of $4.5 million for the twelve months ended December 31, 1996 was
$2.1 million or 91.3 percent greater than depreciation and amortization of $2.4
million for the year ended December 31, 1995. Most of this increase is
attributable to the $1.7 million of additional amortization expense resulting
from both goodwill and the increased value of mortgage servicing rights after
the acquisition of the Company by NHP. The acquisition costs of both the ACR and
Proctor Acquisitions were allocated to the acquired assets based upon their fair
values. Such assets are being amortized over the life of the related assets
which is based upon the period of expected fees from servicing rights or loans
included in the production pipeline. The impact of such acquisitions was not
material to 1996 operations.
26
<PAGE> 31
In July 1994, the Company exchanged its stock in WMF Residential Mortgage
Corporation ("Residential"), a wholly-owned subsidiary, for a 40 percent limited
partnership interest in Beverly Hills Securities Company, Ltd. ("Beverly").
Residential and Beverly specialized in the origination, purchase, sale, and
servicing of single family residential mortgage loans. No gain or loss was
recognized on the exchange. The Company recognized $692,000 and $720,000 in
equity losses relating to Beverly during 1995 and 1994, respectively. At
December 31, 1995, the carrying value of the Company's investment in Beverly was
written off as a result of operating losses and concerns about the
recoverability of the investment. The Company's exposure was limited to its
original investment amount in and advances to Beverly. The Company had advanced
approximately $1,086,000 to Beverly at December 31, 1995. During 1996,
approximately $532,000 of the advance to Beverly was collected and the remaining
balance was written off.
1995 RESULTS OF OPERATIONS COMPARED TO 1994
Consolidated revenue for the year ended December 31, 1995 was $22.0
million, a 28.9 percent increase over consolidated revenue of $17.1 million for
the year ended December 31, 1994. The increase reflected the increased servicing
portfolio and the increased origination and loan sale activity in 1995.
For the year ended December 31, 1995, the Company originated $803.0 million
in commercial and multifamily loans, a 55.0 percent increase over the $518.0
million of origination volume for 1994. The increased origination level was
primarily attributable to the additional sales and refinancing activity in the
marketplace. All servicing rights associated with the 1995 originations were
retained by the Company in its servicing portfolio. The 1995 activity resulted
in an increase in servicing fees, gain on sale of mortgage loans, interest
income and placement fee income.
Servicing fees, net of guarantee fees and pool insurance fees, on a
consolidated basis in 1995 were $7.9 million, an increase of $1.7 million or
27.1 percent from $6.2 million in 1994. The increase in servicing fees is
attributable to a $787.4 million or 22.0 percent increase in the Company's
servicing portfolio since December 31, 1994, resulting from both servicing
portfolio acquisitions and loan origination volume.
Gain on sale of mortgage loans was $6.3 million in 1995, an increase of
$1.8 million or 39.8 percent from $4.5 million in 1994. The increase in gain on
sale of mortgage loans is attributable to a $285.0 million, or 55.0 percent
increase in 1995 production volume compared to 1994 production volume of $518.0
million.
Interest income was $3.3 million in 1995, an increase of $1.2 million or
57.6 percent from $2.1 million in 1994. The increase in interest income occurred
because the average monthly balance of mortgage loans held for sale in 1995
increased $13.9 million or 104.2 percent as a result of the increase in
production volume in 1995.
Placement fee income was $4.0 million in 1995, an increase of $1.8 million
or 78.2 percent from $2.2 million in 1994. This increase was the result of
increased earnings on invested mortgagor escrow amounts. Earnings on such
amounts have increased as the mortgage servicing portfolio increased to $4.4
billion at December 31, 1995, an increase of approximately $787.4 million or
22.0 percent over the $3.6 billion in loans serviced at December 31, 1994. In
addition, the Company was able to negotiate a more favorable earnings rate for
invested escrow funds during 1995.
Other income was $0.5 million in 1995, a decrease of $1.5 million or 74.4
percent from $2.0 million in 1994. The decrease in other income is primarily
attributable to (1) a decrease of $0.7 million in prepayment penalties from 1994
as a result of the refinance activity caused by lower interest rates during 1994
relative to 1995, and (2) a decrease of $0.7 million in rental income on the
Sheffield Court Apartments due to the sale of that property in February 1995, as
discussed below.
Sheffield Acquisition Corp. ("SAC") was incorporated on October 7, 1992 as
a wholly-owned subsidiary of Washington Mortgage, to acquire and manage one
multifamily property known as the Sheffield Court Apartments. This apartment
complex was the underlying collateral for a loan originated and serviced by the
Company and sold to a life insurance company. The Company maintained a 20
percent recourse liability on the loan. The loan subsequently defaulted and the
life insurance company acquired and then sold the property to SAC for a purchase
price of $2,000,000, with participation debt of $1,800,000 provided by the life
insurance
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company. The Company guaranteed $400,000 of the note. In February 1995, the
Company sold the Sheffield Court Apartments for $2,464,000, paid off the note
with the life insurance company and realized a loss of approximately $54,000.
Washington Mortgage dissolved SAC in 1996.
Salaries and employee benefits on a consolidated basis in 1995 were $9.2
million, an increase of $1.9 million or 25.7 percent from $7.3 million in 1994.
The increase in these costs is directly correlated to the increase in revenue
since most of the Company's sales professionals are compensated based on loan
origination fees. Salaries and employee benefits on a consolidated basis
remained relatively constant as a percent of total revenues at 41.9 percent and
42.9 percent for 1995 and 1994, respectively.
General and administrative expenses on a consolidated basis in 1995 were
$5.1 million, an increase of $0.8 million or 19.5 percent from $4.3 million in
1994, representing 23.4 percent and 25.3 percent of total revenue, respectively.
The increase is primarily attributable to a legal settlement of $550,000 in
1995, and the related legal fees, as discussed below.
In October 1990, the Federal Deposit Insurance Corporation ("FDIC")
terminated a servicing agreement between Vienna Mortgage Corporation ("VMC"), a
former subsidiary of the Company, and The National Bank of Washington ("NBW"),
which had been placed into receivership. The FDIC disavowed the contract of NBW,
and VMC disputed the authority of the FDIC to terminate the loan servicing
agreement without the payment of a $770,000 termination fee, which was
stipulated in the servicing agreement with NBW. VMC, using set-off provisions,
held back the $770,000 on the date of transfer of the terminated servicing
rights to the FDIC. In July 1991, the FDIC filed suit and in December 1991
obtained a judgment against VMC for the $770,000 plus accrued interest. VMC
appealed the U.S. District Court judgment to the U.S. Court of Appeals for the
Fourth Circuit, which affirmed the District Court's decision. VMC subsequently
petitioned the United States Supreme Court for a hearing, but the petition was
denied in the fall of 1993. During 1995, the Company settled the judgment by
paying $550,000 on behalf of VMC. The Company has no further liability in this
matter. VMC was dissolved after the settlement with the FDIC.
Interest expense decreased from $2.3 million in 1994 to $2.1 million in
1995, a decrease of 4.7 percent. Even though the average loans held for sale
increased in 1995 from 1994 balances, the Company was able to negotiate more
favorable interest rates thereby resulting in a decreased interest expense.
Depreciation and amortization expense increased from $1.9 million in 1994
to $2.4 million in 1995, an increase of $0.5 million or 23.0 percent as a result
of additional purchased mortgage servicing rights in 1995. However, depreciation
and amortization expense remained relatively constant as a percent of total
revenue at 10.8 percent and 11.3 percent for 1995 and 1994, respectively.
Losses from Beverly Hills Securities of $692,000 in 1995 and $720,000 in
1994 relate to equity losses in the Company's investment in Beverly, as
discussed previously.
LIQUIDITY AND CAPITAL RESOURCES
Cash outflow from operating activities for the period January 1, 1997
through March 31, 1997 of $0.9 million decreased from operating cash inflow of
$0.8 million for the period January 1, 1996 through March 31, 1996. Such
decrease was due to: (i) reduced accounts payable and accrued expenses; (ii)
reduced other liabilities; and (iii) increased servicing advances.
The Company's principal capital needs are the financing of loan funding
activities, servicing advances, and the acquisition of commercial and
multifamily mortgage companies and servicing portfolios. To meet these needs,
the Company currently utilizes the following warehouse lines of credit, credit
lines and term loans.
The Company currently maintains two warehouse lines of credit, amounting to
$165 million. The warehouse lines are secured by the related mortgage loans held
for sale and bear interest at a rate equal to (i) the London Interbank Offered
Rate ("LIBOR") plus 3/4 percentage points (with respect to one facility for $150
million) and (ii) the prime rate (with respect to the other facility for $15
million). To the extent the Company maintains compensating balances, the rate on
the $150 million line is reduced to the amount of the
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spread over LIBOR and the rate on the $15 million line is reduced to one and one
half percent. The lines have one year terms and expire August 1997 in the case
of the $150 million facility and March 31, 1997 in the case of the $15 million
facility. The credit limit for the $150 million line has been temporarily
increased at times to allow increased borrowings beyond the limit. The Company
recently completed an agreement for a third warehouse line of credit for $35
million for 1997. The purpose of this line of credit is to fund multifamily and
commercial mortgages originated by the Company, fund advances required by the
Company as a primary servicer and fund liquidity advances required by the
Company as a master servicer of collateralized mortgage-backed securities. The
base interest rates on this line of credit are 0.50 to 0.75 percent for
balance-funded borrowings and LIBOR plus 50 to 75 basis points for
non-balance-funded borrowings.
The Company maintains a $10 million credit line for working capital
purposes and to fund acquisitions of servicing rights (the "Working Capital
Line"), which is secured by related servicing rights acquired. The Working
Capital Line bears interest at LIBOR plus three and one-half percent (or three
and one-half percent to the extent compensating balances are maintained). The
Working Capital Line renews annually until June 2001, when it converts to a term
loan due in quarterly installments through June 2006. The Company has another
credit line available for working capital purposes providing for $0.5 million of
revolving credit. The interest rate on this line is equal to the prime rate, and
all borrowings must be paid off annually with interest payments due monthly.
The Company is also obligated on a $6.2 million term loan that was
converted from a credit line in October 1996. This loan bears interest at LIBOR
plus three to three and one-half percent (or three to three and one-half percent
to the extent compensating balances are maintained) and is secured by servicing
rights relating to loans with an approximate unpaid principal balance of $4.6
billion as of March 31, 1997. The loan is repayable in quarterly installments on
a 10-year amortization schedule with the remaining balance due in June 2001.
At March 31, 1997, the Company had approximately $9.7 million available for
working capital purposes, which consisted of approximately $4.2 million in cash
and $5.5 million of borrowings available under the Company's various credit
facilities, excluding its warehouse lines of credit. At December 31, 1996 and
March 31, 1997, the Company had negative working capital of $1.4 million and
$1.3 million respectively, primarily due to payables to NHP.
The Company has received a commitment for a secured term loan for 1997 for
up to $35 million, subject to certain conditions, including completion of
satisfactory documentation, the absence of material adverse changes and the sale
of participations in the loan. The purpose of this line of credit is to finance
the acquisition of commercial mortgage banking companies. The availability of
this line will depend on the value of the assets being purchased and servicing
rights available as security for this line. The interest rates on this line of
credit are expected to be 3.0 percent for balance-funded borrowings and LIBOR
plus 3.0 percent for non balance-funded borrowings. There can be no assurance
that the conditions will be satisfied and the loan completed.
The Company's various debt obligations contain restrictions including the
following: restrictions on the maximum ratio of debt to adjusted tangible net
worth; maximum delinquency rates for loans serviced by the Company; minimum
standards for adjusted tangible net worth; minimum debt service coverage ratios;
minimum ratios of liquid assets to tangible net worth; and minimum servicing
portfolio size. In addition, these debt obligations restrict loans, capital
contributions, management fees and asset transfers to affiliates. The Company is
also required to remain in compliance with applicable FHA, GNMA and investor net
worth requirements and to remain in good standing with FHA, GNMA and investors.
The Company has also established a letter of credit of $4.4 million as of
March 31, 1997 on behalf of Fannie Mae to fund any loan losses incurred under
the DUS Program. This letter of credit is secured by cash and mortgage-backed
securities with a market value of $5.1 million.
Concurrent with the Share Distribution, Capricorn is expected to purchase
546,448 newly issued shares of Company Common Stock at a price of $9.15 per
share pursuant to a commitment entered into by Capricorn which is subject to
certain conditions. This transaction would provide the Company with additional
equity of $5 million. See "The Distribution of Company Common
Stock -- Description of the Distribution."
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During the three months ended March 31, 1996, the nine months ended
December 31, 1996 and the three months ended March 31, 1997, the Company used
$0.4 million, $6.6 million and $0.3 million respectively for the acquisition of
ACR and various mortgage servicing acquisitions. Additionally, the origination
of mortgage servicing rights resulted in investments by the Company of $0.2
million, $2.7 million and $0.3 million for the three months ended March 31, 1996
and the nine months ended December 31, 1996, respectively.
The Company believes its funds on hand at March 31, 1997, its cash flow
from operations, its unused borrowing capacity under its credit lines, and its
continuing ability to obtain financing will be sufficient to meet its
anticipated operating needs and non-discretionary capital expenditures for at
least the next twelve months. The Company has no long-term material capital
commitments, and its long-term need for capital is primarily derived from the
need to maintain warehousing lines of credit to continue its loan origination
activity and the need for capital for potential future acquisitions. The Company
does not foresee any restriction on its ability to obtain warehousing lines of
credit of at least the amount currently available. The magnitude of the
Company's acquisition and investment program will be governed to some extent by
the availability of capital. There can be no assurance that the Company will not
be required to seek additional capital through new credit lines, debt offerings
or equity offerings. As of December 31, 1996, the Company's tangible net worth
was less than that required for continued servicing of loans held by Freddie
Mac. Freddie Mac has advised the Company that the Company has financial
strengths not recognized in its adjusted net worth calculation, and that Freddie
Mac does not consider the Company to be out of compliance as of December 31,
1996. Separately, the Company is resigning as a Program Plus Originator and
Servicer effective October 15, 1997 due to the Company's low volume under this
program. The Company is in the process of selling its servicing portfolio of
$246 million.
At March 31, 1997 and December 31, 1996, the Company had a liability of
$3.4 million due to NHP as a result of a loan from NHP to fund the acquisition
of Proctor. On April 16, 1997, the Company completed the Askew Acquisition for
approximately $4.6 million, which was funded by a borrowing from NHP. The
Company will repay the indebtedness in connection with the Share Distribution.
Pursuant to the Merger Agreement, the Company will receive a portion of the
cumulative free cash flow produced by NHP during the period from February 1,
1997 to the effective time of the Merger. See "Arrangements Between NHP and the
Company after the Share Distribution." The Company intends to fund the repayment
of the borrowings from NHP through a combination of working capital, NHP Free
Cash Flow (as defined in the Merger Agreement), draws on available credit lines
and/or proceeds from the Capricorn Transaction.
INFLATION
The Company has generally been able to offset cost increases due to
inflation with increases in revenues. Accordingly, management does not believe
that inflation has had a material effect on its results of operations to date.
However, a significant portion of the Company's revenue is somewhat sensitive to
economic factors including real estate market conditions and the general level
of interest rates. To the extent future inflation increases the general level of
interest rates, it could negatively impact the Company's results of operations.
In addition, there can be no assurance that the Company's other operations will
not be adversely affected by inflation in the future.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Assets to be Disposed of," which
requires the adjustment of the carrying value of long-lived assets and certain
identifiable intangibles if their value is determined to be impaired as defined
by the standard. The Company's adoption of SFAS No. 121 on January 1, 1996 did
not have a material effect on the Company's financial position or results of
operations.
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In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which is effective for fiscal years beginning after December
15, 1995. This statement amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities," to require that a mortgage banking enterprise recognize as
separate assets the rights to service mortgage loans, however those rights are
acquired. The Company adopted SFAS No. 122 in 1996. The primary change resulting
from SFAS No. 122 is that servicing rights retained by the Company after the
origination and sale of the related loan are required to be capitalized by
allocating the total cost incurred between the loan and the servicing rights
based on their relative fair value if it is practicable to determine the fair
value of the mortgage servicing rights. If it is not practicable to determine
the servicing right's fair value, then no value is allocated to the servicing
rights. The Company has determined that it is only practicable to estimate the
fair value of servicing rights related to permanent FHA originated loans as
other loan types have a limited secondary market. The Company capitalized
approximately $2.8 million in originated servicing rights during 1996. SFAS No.
122 also requires the Company to evaluate all mortgage servicing rights for
impairment by comparing the carrying value to fair value and recording a
valuation allowance if fair value is less.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for fiscal years beginning after December 15,
1995. SFAS No. 123 encourages, but does not require, a fair value-based method
of accounting for employee stock options or similar equity instruments. It also
allows an entity to elect to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), but requires pro forma disclosures of net income and
earnings per share as if the fair value-based method of accounting had been
applied. Adoption of this statement did not impact the financial statements of
the Company, since it did not have a stock option plan at December 31, 1996. In
connection with the Share Distribution, the Company plans to institute a new
employee stock option plan. Management believes that the new stock option plan
will not have a material effect on the Company's financial position or results
of operations in 1997.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets and the Extinguishment of Liabilities," which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on consistent application of a
"financial-components" approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. The new standard is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. Management does not expect the new standard to have a material effect on
the Company's financial position or results of operations.
In February 1997, FASB issued SFAS No. 128, "Earnings per Share." This
statement changes the requirements for calculation and disclosure of earnings
per share. This statement eliminates the calculation of primary earnings per
share and requires the disclosure of basic earnings per share and diluted
earnings per share. There will be no impact to the Company's earnings per share
as a result of adoption of SFAS No. 128.
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INDUSTRY OVERVIEW
The Company believes that the financing of commercial and multifamily real
estate offers significant growth opportunities. Commercial and multifamily real
estate encompasses a wide spectrum of assets including multifamily, office,
industrial, retail and hospitality. These assets are financed by an estimated
$1.0 trillion of outstanding commercial real estate debt. During the past ten
years, total commercial mortgage originations have averaged approximately $210
billion annually, of which approximately 80 percent to 85 percent consist of
non-multifamily assets. The Company anticipates that on a stabilized basis, the
commercial real estate market will require debt financing for existing
properties of approximately $120 to $140 billion annually, plus additional
amounts for new construction.
Commercial mortgage banks have arranged a significant portion of the debt
financing for commercial real estate. Historically, commercial mortgage banks
originated and serviced loans for life insurance companies in specified
geographic regions. In addition to providing loans to life insurance companies,
some commercial mortgage banks acted as originators for GSEs such as Fannie Mae
and Freddie Mac, and also acted as brokers for other lenders. As a result, a
fragmented industry has developed which is comprised of small local and regional
firms.
However, since the early 1990s the commercial mortgage banking industry has
experienced significant change, in part due to the growth in commercial mortgage
securitization, the expanded involvement of GSEs, increased borrower
sophistication and advances in information technology. Many of the existing
firms lack the capital and financial sophistication to compete effectively in
today's rapidly changing market. Accordingly, the Company believes the
commercial mortgage industry is going through a period of consolidation similar
to that experienced in the residential mortgage industry. Although consolidation
provides significant growth opportunities for the Company, certain risks are
also involved. See "Risk Factors -- Risks of Inability to Complete or
Successfully Integrate Acquisitions or Enter into New Business Lines."
The industry is already showing signs of consolidation. For example, the
MBA reported that as of June 1996, ten commercial mortgage banks (including the
Company) had servicing portfolios greater than $5 billion, compared to three
companies in June 1992. Moreover, as measured by unpaid principal balance of
loans serviced, the top ten companies serviced 52 percent of the outstanding
commercial loans administered by the 100 largest companies involved in
commercial loan servicing. In 1992, the ten largest servicers accounted for 21
percent of the loans serviced by the 100 largest companies.
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BUSINESS
COMPANY OVERVIEW
The Company is one of the largest independent commercial mortgage bankers
in the United States as measured by servicing portfolio size based on the 1996
MBA Survey and is the largest originator of FHA-insured multifamily and
healthcare loans based on statistics provided by HUD. The Company originates,
underwrites, structures, places, sells and services multifamily and commercial
real estate loans. Through its relationships with GSEs, investment banks, life
insurance companies, commercial banks and other investors, the Company provides
and arranges financing to owners of multifamily and commercial real estate on a
nationwide basis using both a retail and wholesale network. The Company
generates revenues through origination fees, servicing fees, net interest income
on loans held for sale and placement fees. As of June 1996, the Company was the
tenth largest servicer of multifamily and commercial real estate loans in the
country based on the MBA Survey. In the year ended December 31, 1996 and the
first quarter of 1997, the Company originated $1.1 billion and $259.8 million,
respectively, of multifamily and commercial real estate mortgages.
The Company believes that it is well positioned to compete effectively in
the commercial real estate financing industry based on its capitalization,
geographic scope and services provided. The commercial and multifamily mortgage
banking industry is increasingly characterized by expensive technological
demands, large and sophisticated infrastructure for real estate underwriting and
risk evaluation and the rapid emergence of the securitized market. These
developments will, in the Company's judgment, lead to the creation of
sophisticated and well-capitalized mortgage finance enterprises. The Company
seeks to use its existing infrastructure and leverage its market position to
increase market share of its established businesses and grow its commercial
business.
The Company is a Delaware corporation formed in October 1992 to hold the
operations of WMF Huntoon Paige and Washington Mortgage, which are now
wholly-owned subsidiaries of the Company. WMF Huntoon Paige has carried on the
business of originating and servicing multifamily mortgages insured by the FHA
under various owners and under various names since 1979 and was acquired by the
predecessor of the Company in 1991. Washington Mortgage, and entities it has
acquired, has carried on the business of originating and servicing multifamily
and commercial mortgages under various owners and under various names since
1984. The Company was acquired by NHP on April 1, 1996. The principal executive
offices of the Company are located at 1593 Spring Hill Road, Suite 400, Vienna,
Virginia 22182, phone (703) 610-1400.
STRATEGIC OBJECTIVES
The Company seeks to increase reported earnings and cash flow through (i)
acquisitions and internal growth, (ii) design and delivery of new mortgage
products, and (iii) expansion into related businesses.
Acquisitions. The Company has pursued a strategy of acquiring both
multifamily and commercial mortgage businesses which either serve key real
estate markets in the United States or provide niche or specialized services
that enhance its product line, and of acquiring additional servicing portfolios.
As a result of acquisitions and internal growth, the Company has increased loan
originations from approximately $240 million in 1992 to approximately $1.1
billion in 1996, or a compound annual growth rate of 46.9 percent and its
servicing portfolio from approximately $3.0 billion to $6.2 billion for a
compound annual growth rate of 20.0 percent. The characteristics of firms the
Company seeks to acquire include active and productive loan origination staffs,
significant market share and servicing portfolios of $250 million or more.
In furtherance of its acquisition strategy, the Company routinely reviews,
and conducts investigations of, potential acquisitions of multifamily and
commercial mortgage businesses. When the Company believes a favorable
opportunity exists, the Company seeks to enter into discussions with the owners
of such businesses regarding the possibility of an acquisition by the Company.
At any given time, the Company may be in discussions with one or more such
businesses. There can be no assurance that any such discussions will result in
acquisitions or that any acquisitions, if completed, will be successful.
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During 1996, the Company increased its portfolio of serviced mortgages by
40.9 percent from $4.4 billion to $6.2 billion, primarily as a result of the
Proctor and ACR Acquisitions, as well as new originations.
- On December 31, 1996, the Company acquired all of the common stock
of Detroit-based Proctor, the 37th largest commercial mortgage
banking firm in the United States based on the MBA Survey. The
Company paid approximately $3.7 million in cash to acquire Proctor.
The acquisition brought to the Company a $1.1 billion loan servicing
portfolio of multifamily, retail and office building mortgages, as
well as 17 active correspondent relationships with life insurance
companies. Proctor originated approximately $221 million in
commercial mortgage loans in 1996.
- On May 13, 1996, the Company completed the purchase of a portion of
the loan production pipeline and servicing, as well as certain other
assets, of ACR for approximately $4.2 million plus potential future
payments based on realization of loans closed from the pipeline
through August 1997. The acquired pipeline and loan production
offices originated approximately $138 million in multifamily and
healthcare loans for the Company in 1996.
- On April 16, 1997, the Company purchased substantially all of the
mortgage banking assets of Askew in Dallas, Texas for $4.6 million,
excluding transaction costs. Askew is a multifamily and commercial
mortgage bank with correspondent relationships with 14 insurance
companies, which originated $375 million of mortgages in 1996. The
Askew Acquisition increased the Company's mortgage servicing
portfolio by $425 million and gives the Company access to the
traditional insurance company whole-loan buyers in the markets
served by Askew as well as a new source of loans for securitization
through the Company's capital market relationships.
The Company also grows its servicing portfolio through the acquisition of
servicing rights. Since 1992, the Company has acquired servicing rights on
approximately $1.3 billion of mortgages in over 44 transactions.
Design and delivery of new mortgage products. Since 1992, the Company has
been involved in developing more than eight new products including one of the
first whole-loan conduits (Common Sense(SM)), a revolving credit facility for
REITs and a forward commitment program for tax-credit new construction. Using
these products, the Company has originated loans totaling over $600 million from
1992 to 1996. In the past six months, the Company has enhanced its bridge loan
product for multifamily lending as well as added a number of life company
products and a securitized loan product with a major Wall Street conduit for
commercial lending. Within the multifamily and commercial mortgage business, the
Company intends to develop new financing products in response to changing market
conditions, including continued development of bridge loan products and
development of participating loan products. There can be no assurance that the
Company will be successful in developing any particular new product or, if a
product is developed, that it will be profitable for the Company.
Expand into related businesses. The Company seeks to build upon its
competency in evaluating real estate to expand its services and develop related
products. The Company has used its expertise to provide due diligence services
for institutional clients and is investigating opportunities to expand its
presence in the commercial mortgage-backed securities market. Other possible
businesses may include real estate advisory services, master servicing of
securitized loans, asset management, commercial leasing and management and the
purchase and retention of commercial mortgage-backed securities. Expansion may
occur through a combination of acquisitions, strategic alliances and internal
business development. There can be no assurance that the Company will seek to
undertake any specific line of business, or that, if it undertakes a particular
line of business, that the business will be successful.
MORTGAGE ORIGINATION
The Company's staff of 33 loan originators targets a wide variety of
borrowers including developers, local entrepreneurial owners, large portfolio
owners and public companies such as REITs. Currently, the Company originates
mortgages through two channels -- retail and wholesale. The Company directly
solicits owners of real estate, as well as local multifamily and commercial
mortgage brokers, through its loan originators based in 13 offices located
throughout the country. The Company believes that having a local presence within
a market
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significantly adds to its understanding of the local economic, demographic and
real estate trends, thus allowing it to serve borrowers and investors better. A
local presence also facilitates the development of borrower relationships as
well as the identification of new customers. In those markets where the Company
does not have a retail presence, it acts through a correspondent relationship
with local mortgage brokers. In this relationship, a local commercial mortgage
broker serves as a source of loans for the Company. Currently, the Company
originates loans through 65 correspondents throughout the United States. The
Company believes that multiple sourcing systems and a diverse menu of loan
products attract borrowers and helps retain their business.
In 1996, the Company obtained 64 percent of its $1.1 billion of loan
originations through correspondents. The Company's relationship with
correspondents differs between multifamily and commercial lending and FHA
lending. For multifamily and commercial lending, the Company enters into an
agreement with each correspondent which generally provides among other things
that the correspondent will (i) be paid by the borrower typically based on a
percentage of the loan, (ii) provide the Company with a right of first refusal
in certain instances to finance properties meeting the criteria of its loan
programs and investors and (iii) be eligible for incentive fees based on
servicing fees received by the Company from the originated loans. Multifamily
and commercial correspondent agreements are generally terminable by either party
without cause upon prior written notice and provide no geographic restrictions
on the part of the Company or the correspondent. With respect to FHA lending,
correspondents generally enter into agreements with the Company for each
individual transaction and the terms of the agreements vary from transaction to
transaction. These agreements define the compensation, roles, representations
and warranties for the correspondent and the Company.
Once potential borrowers have been identified, the Company determines which
of its mortgage products best meets the borrowers' needs. After identifying a
suitable product, the Company works with the borrower and a mortgage investor to
prepare a loan application. Upon acceptance by the borrower, the application is
forwarded to the Company's underwriters for due diligence or, in the case of FHA
insured loans, to the FHA, which conducts the due diligence and makes decisions
on commitments. See "-- Mortgage Underwriting." The loan is evaluated, and if
appropriate, submitted to a loan committee consisting of senior officers of the
Company. If a loan is approved, the Company issues a commitment to the borrower
and normally commits the loan for sale to an appropriate investor at the same
time. This essentially simultaneous commitment from both a borrower and a
mortgage investor enables the Company to eliminate its exposure to interest rate
changes for each transaction. Typical investors include insurance companies,
banks, credit corporations, GSEs and other institutional investors. Closing on a
loan typically occurs 15 to 30 days after the Company commits to make the loan.
At the time of the closing, the Company funds the loan using its warehouse lines
of credit and the Company is paid an origination fee, typically one percent of
the principal amount of the loan, by the borrower.
Within 10 to 45 days after the closing on a loan, the Company typically
completes the sale of the loan to an investor. In connection with such sales,
the Company makes certain representations and warranties to investors covering
matters such as title to mortgaged property, lien priority, environmental
reviews and certain other matters. See "Risk Factors -- Retained Risks of
Mortgage Loans Sold." The Company bases these representations and warranties on
representations and warranties from borrowers and on independent studies from
third-party consultants. The Company may also retain certain other liabilities
with respect to loans it sells to investors, as it does under the Fannie Mae DUS
Program. See "Risk Factors -- Risk of Loss on Mortgage Loans Sold Under DUS
Program" and "Conventional Multifamily," below. After selling a mortgage loan,
the Company typically retains the right to service the loan. See "-- Mortgage
Servicing."
The Company provides a diverse range of products to borrowers through three
business units: Conventional Multifamily, FHA Multifamily and Healthcare and
Commercial. The following table sets forth information regarding loan
origination volume by business unit for each of the last three years.
35
<PAGE> 40
LOAN ORIGINATION VOLUME BY BUSINESS UNIT
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
3 MONTHS
ENDED
MARCH 31,
1997 1996 1995 1994
--------- -------- ------ ------
<S> <C> <C> <C> <C>
Conventional Multifamily................................... $ 39.2 $ 505.4 $448.0 $223.3
FHA and Healthcare......................................... 171.5 505.6 325.5 252.0
Commercial................................................. 49.1 117.5 29.0 42.6
-------- ------ ------ ------
Total................................................. $ 259.8 $1,128.5 $802.5 $517.9
======== ====== ====== ======
</TABLE>
Conventional Multifamily. This business unit originates financing for
multifamily properties that are not supported by governmental insurance or
guarantees. The Company sells such loans to a variety of mortgage investors. One
of the Company's most active conventional products is Fannie Mae's DUS Program.
Currently, there are only 26 companies approved to participate in this program.
In 1996, total DUS Program production was $4.4 billion, of which the Company
produced $281.3 million. Under the DUS Program, Fannie Mae delegates its
authority to these 26 companies to approve, close and service loans on
multifamily mortgages that meet predetermined criteria. Fannie Mae is committed
to subsequently purchase these loans from participating companies. As part of
the program, Fannie Mae requires that each company maintain a specified capital
base and share in the risk of loss on the loan. See "Risk Factors -- Risk of
Loss on Mortgage Loans Sold Under DUS Program." In return for sharing the risk
of loss, the participants receive a servicing fee that is significantly higher
than what is typically found in the industry. The Company underwrites each loan
(as described on the following pages) to manage its loss exposure and enhance
its return on servicing. See "-- Mortgage Underwriting," below.
In addition to its participation in Fannie Mae's DUS Program, the Company
is a Fannie Mae Prior Approval Lender and is one of the designated post closing
review lenders for the Fannie Mae Aggregation Facility (the "Aggregation
Facility"). These programs allow the Company to sell certain loans to Fannie Mae
that it would not otherwise fund through the DUS Program. Unlike DUS, however,
neither the Prior Approval nor the Aggregation Facility requires that the
Company share in the risk of loss.
The Company is one of six multifamily mortgage companies which sell
mortgage loans to NationsBanc Capital Markets, Inc. specifically for subsequent
securitization This program was created in conjunction with the Company by
NationsBank, N.A. in 1994 when NationsBank launched its securitization efforts.
In 1996, the Company originated loans totaling $87.7 million through this
program.
FHA Multifamily and Healthcare. The Company, through WMF Huntoon Paige, is
the largest provider of FHA-insured multifamily and healthcare financing in the
country. The Company originates and services both construction and permanent
loans. In 1996, the Company acquired certain assets of ACR, the third largest
originator of FHA financing. Together, these companies originated 13.8 percent
of all FHA multifamily and healthcare insured debt financing in 1996.
The Company operates FHA lending as a separate business unit because
typical property characteristics, borrower requirements, licensing, and approval
processes differ significantly between FHA and conventional multifamily
financing. The Company, through its subsidiaries, is an FHA-approved mortgage
and, as such, must comply with the applicable requirements of the National
Housing Act and the regulations and policies of the FHA that are promulgated
pursuant to the National Housing Act. See "-- Regulations," below and "Risk
Factors -- Uncertainties Resulting from Government Regulation and Changes in
Government Programs."
Commercial. With the acquisition of Proctor in 1996 and the acquisition of
the assets of Askew in 1997, the Company has substantially increased its
presence in the market for commercial, non-multifamily financing. The Company
has originated loans for three programs that target mortgages secured by a
variety of asset classes including office buildings, retail centers, hotels,
warehouses and nursing homes. Both Proctor and Askew bring a variety of
established insurance company relationships to the Company, including: UNUM,
Canada Life, CIGNA, American General, Nationwide, Berkshire Life, Government
Personnel Mutual and
36
<PAGE> 41
Century Life. Historically, banks, insurance companies and, more recently,
conduits, have been the primary sources of capital for this segment. Insurance
companies are particularly active investors in the segment through the regional
commercial mortgage banks.
Originating and servicing commercial mortgages may be more difficult than
originating and servicing multifamily mortgages in a number of respects
including the following: (i) the Company must develop new borrower,
correspondent, and investor relationships; (ii) the commercial mortgage segment
consists of many different asset types, such as office buildings, retail
facilities, and hotels, with varying operating characteristics, whereas the
multifamily mortgage segment is more uniform with respect to asset types; and
(iii) unlike the multifamily segment, liquidity in the commercial segment does
not benefit from the involvement of GSEs and the FHA.
MORTGAGE UNDERWRITING
The Company's originators work in conjunction with underwriters whose
responsibility is to perform due diligence on all loans prior to commitment and
approval. The Company's underwriters complete a comprehensive assessment of the
proposed loan including a review of (1) borrower financial position and credit
history, (2) past operating performance of the underlying collateral, (3)
potential changes in project economics and (4) appraisal, environmental, and
engineering studies completed by a pre-approved list of third-party consultants.
Additionally, underwriters complete an independent market assessment which
includes a property inspection, review of tenant and lease files, survey of
market comparables and an analysis of area economic and demographic trends. Each
proposed loan is reviewed and approved by a loan committee consisting of the
senior officers of the Company. These executives average 18 years experience in
lending.
The Company uses underwriting guidelines provided by investors and
developed internally in its loan approval process. Key factors considered in
credit decisions include, but are not limited to, debt service coverage, loan to
value ratios, property financial and operating performance, quality of property
management, borrower credit history and tenant profile. The standards vary from
investor to investor and may include a subjective element based on the totality
of circumstances relating to the credit risk and generally do not involve
mechanical application of a set formula. The Company refines its underwriting
criteria based on actual loan portfolio experience and as market conditions and
investor requirements evolve.
In 1996, these underwriting procedures contributed to the Company achieving
a loan delinquency rate (i.e., loans delinquent over 60 days) equal to only 0.75
percent of its entire conventional multifamily and commercial portfolios. For
the DUS portfolio, where the Company is exposed to potential loss sharing with
Fannie Mae, the Company has not experienced any losses or delinquencies on its
new originations since its approval as a DUS lender in 1990. During this period,
the Company originated over 175 DUS loans with original principal balances in
excess of $928 million. The Company has experienced one loss of $0.3 million on
a DUS loan. The loan was originated by another lender and the Company acquired
the risk-sharing obligation as part of its DUS approval in 1990.
The Company utilizes the underwriting criteria established by the FHA to
recommend loans for FHA insurance. The Company provides the FHA with the
requisite information necessary for its credit review. These loans are then
examined by the FHA, which makes the decision as to whether to provide
insurance.
MORTGAGE SERVICING
As a mortgage servicer, the Company performs both primary and master
servicing functions. Primary servicing involves the collection of mortgage
payments, the maintenance of escrow accounts for the payment of ad valorem taxes
and insurance premiums, the remittance of payments of principal and interest,
the reporting to investors on financial and property issues and general loan
administration. The primary servicer must inspect properties, determine the
adequacy of insurance coverage, monitor delinquent accounts and, in cases of
extreme delinquency, institute and complete either forbearance arrangements or
foreclosure proceedings on behalf of investors.
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<PAGE> 42
Master servicers administer and report on securitized pools of
mortgage-backed securities. Normally, the actual mortgages underlying
mortgage-backed securities are serviced by individual primary servicers. Master
servicing agreements typically provide for the primary servicer to retain
responsibility for administering the mortgage loans and the master servicer
functions as an intermediary, supervising the work of primary servicers by
monitoring their compliance with the servicing contract and consolidating all
accounting and reporting to the securities issuer.
The Company provides servicing pursuant to contracts with owners of
mortgages and originators of mortgage-backed securities. The contracts are
generally for a term equal to the term of the serviced mortgage or the
mortgage-backed security, as appropriate, except that all contracts are
terminable for cause and contracts with insurance company owners of mortgages
(amounting to approximately 18 percent of mortgages held as of December 31,
1996) are customarily terminable on 30 days notice by the owner, in many
instances without cause, subject to payments of termination fees in certain
circumstances. Pursuant to these agreements, the Company receives a fee for
primary servicing typically ranging from ten basis points to forty basis points
of the unpaid principal amount annually. Fees for master servicing typically
range from one to ten basis points of the unpaid principal balance of the loans
underlying the securities.
As of March 31, 1997, the Company acted as the primary servicer for
approximately $6.5 billion of loans and the master servicer for an additional
$213 million of loans. These loans were obtained through the Company's
origination network and through the purchase of servicing rights. A breakdown of
the servicing portfolio is shown below.
SERVICING PORTFOLIO BY PRODUCT TYPE
$ IN MILLIONS
<TABLE>
<CAPTION>
3 MONTHS
ENDED
MARCH 31,
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Conventional Multifamily................................ $ 1,798 $ 1,644 $ 1,409 $ 1,004
FHA -- Ginnie Mae....................................... 3,350 3,076 2,657 2,206
Commercial.............................................. 1,178 1,267 201 --
Master Servicing........................................ 213 214 145 368
------- -------- -------- --------
Total.............................................. $ 6,539 $ 6,201 $ 4,412 $ 3,578
======= ======== ======== ========
</TABLE>
The Company processes servicing transactions primarily through facilities
in Vienna, Virginia and Edison, New Jersey, and it employs approximately 52
persons in servicing capacities. As of March 31, 1997, the Company serviced
2,199 loans, each of which normally involves monthly payments for 186 investors.
As part of its servicing functions on these loans, the Company managed escrow
accounts totaling $248 million as of March 31, 1997 and processed approximately
$47 million in principal and interest payments each month. The Company
continuously reviews its servicing operations and seeks to implement
improvements in its systems and business processes.
INTEREST RATE SENSITIVITY
The Company believes that interest rate changes can affect its operating
results in a variety of ways, including impacts on origination fees, servicing
fees, placement fee income, gains on loan sales as well as its own cost of
financing. Generally, interest rate increases reduce the level of economic and
real estate activity, thereby decreasing the demand for mortgage financing,
which in turn may negatively affect the Company's ability to earn origination
fees and gains on loan sales. In addition to possibly depressing loan
origination levels, gains on loan sales may be further restricted because the
value of fixed income securities, such as many real estate mortgages, tend to
decline as interest rates increase. Finally, interest rate increases raise the
cost of debt financing, particularly if the Company finances its operations with
variable rate debt.
38
<PAGE> 43
Interest rate increases, however, positively affect Company earnings from
loan servicing activities. A reduction in real estate activity may reduce the
risk of borrower prepayments, potentially increasing the level of servicing fees
and the value of the Company's servicing portfolio. Additionally, placement fee
income earned by the Company may benefit from increased interest rate levels.
Declines in interest rates should generally have a corresponding favorable
impact on Company earnings from originating, loan sales and financing activities
and a negative impact on servicing and placement fee income. Changes in the
relationship between short-term and long-term interest rates may also affect the
Company's results of operations. The Company earns net interest income,
typically based upon long-term rates earned on loans held between loan closing
and mortgage investor funding. Net interest income increases when long-term
rates increase relative to short-term rates and decreases when short-term rates
increase relative to long-term rates.
Although the Company believes that the interest rate environment generally
has the foregoing effects, there is no consistent correlation between interest
rate levels and either the Company's revenues or its overall profitability. In
part, this lack of correlation reflects the refinancing of existing permanent
and construction mortgages at their maturities which may occur regardless of the
interest rate environment. Additionally, approximately 50 percent of the
Company's revenues are derived from originating and approximately 50 percent of
the Company's revenues are derived from servicing activities and interest levels
have different impacts on each, as described above.
REGULATION
The Company, through its subsidiaries, is an FHA-approved mortgagee and, as
such, must comply with the applicable requirements of the National Housing Act
(the "Housing Act"), and the regulations and policies of the FHA which are
promulgated pursuant to the Housing Act. The Housing Act's regulations and
policies require, among other things, the maintenance of a minimum net worth and
minimum warehouse lines of credit by each approved mortgagee, the employment of
trained personnel competent to perform their assigned responsibilities, the
submission to FHA of an annual audit report and financial statements in a form
acceptable to FHA, the maintenance and use of escrow funds in a prescribed
manner and the maintenance of a quality control plan for the underwriting,
origination and servicing of mortgage loans.
In addition to being an FHA-approved mortgagee, one of the Company's
subsidiaries is approved by Ginnie Mae as an issuer of Ginnie Mae-guaranteed
mortgage-backed securities ("Ginnie Mae MBSs"). As an approved issuer of Ginnie
Mae MBSs, the Company must comply with the eligibility requirements of Ginnie
Mae which, among other things, mandate that the subsidiary be an FHA-approved
mortgagee in good standing, that it be a Fannie Mae- or Ginnie Mae-approved
mortgage servicer in good standing, and that it maintain a minimum net worth in
assets acceptable to Ginnie Mae in an indexed amount which is related by Ginnie
Mae policy to the amount of Ginnie Mae MBSs which the Company has issued.
As a mortgage banker engaged on a national level, the Company must comply
with the laws of the various states which may be applicable to the activities of
mortgage bankers within each respective state. These laws may require
authorizations or licenses to conduct business in a state.
Although the Company believes that it is in compliance in all material
respects with applicable laws relating to FHA and Ginnie Mae requirements, and
with applicable laws of the various jurisdictions in the United States, there
can be no assurance that laws will not be adopted in the future that could make
compliance more difficult or expensive, restrict the Company's ability to
originate, sell, purchase, broker or service mortgage loans or Ginnie Mae MBSs,
limit or restrict the amount of interest and other charges earned on mortgage
loans or Ginnie Mae MBSs originated, sold, purchased or serviced by the Company,
or otherwise adversely affect the business or prospects of the Company. If the
Company were unable to comply with the laws, or were found to be in violation of
law, the Company could lose the opportunity to originate, sell, purchase, broker
or service mortgage loans or Ginnie Mae MBSs generally, or in the applicable
jurisdiction, and could be compelled to forfeit or forgo revenues earned on
transactions which were determined by FHA, Ginnie Mae or the authorities in a
particular jurisdiction, as applicable, to be in violation of law or engaged in
by the Company in violation of law, and it and certain of its officers could be
subject to fines and other
39
<PAGE> 44
penalties, including restrictions on or prohibition from doing future business
with FHA or Ginnie Mae, or in the jurisdiction. The inability of, or
restrictions on the ability of, the Company to originate, sell, purchase or
service mortgage loans or Ginnie Mae MBSs could have a material adverse effect
on the Company.
In addition to legal requirements with which they must comply, the
Company's arrangements with investors (including Fannie Mae and Freddie Mac)
require the Company to comply with certain standards including among other
things, minimum net worth requirements, minimum liquid reserves, underwriting
guidelines, servicing systems and controls, experienced personnel and minimum
requirements with respect to errors and omissions and fidelity insurance.
There can be no assurance that requirements will not be adopted in the
future that could make compliance more difficult or expensive, restrict the
Company's ability to originate, sell, purchase or service mortgage loans, limit
or restrict the amount of interest and other charges earned on mortgage loans
originated, purchased or serviced by the Company, or otherwise adversely affect
the business or prospects of the Company. If the Company were unable to comply
with the requirements, or were found to be in violation of any of the
requirements, the Company could lose the opportunity to originate and sell, or
broker, and service mortgage loans for Fannie Mae, Freddie Mac or any other
investor, and could be compelled to forfeit or forgo revenues earned on
transactions with respect to which the actions of the respective corporation
were determined to be not in compliance with the applicable contract with Fannie
Mae, Freddie Mac or other investor. The inability of the Company to originate
and sell, or broker, and service mortgage loans with respect to Fannie Mae,
Freddie Mac or any particular investor could have a material adverse effect on
the Company.
COMPETITION
The Company's competition varies by geographic market. Generally,
competition is fragmented with very few national competitors, and many local and
regional competitors. In addition, the Company's business is characterized by
low barriers to entry, and new competitors have recently been successful in
raising the capital necessary to enter the business. Moreover, certain of the
Company's competitors are larger and have greater financial resources than the
Company, including the commercial mortgage banking arms of General Motors,
General Electric, Mellon Bank, Banc One and CB Commercial. The Company competes
largely on the basis of its experience in purchasing and servicing mortgages
supported by various government guarantees, and on its ability to respond
promptly to changing market conditions. Although management believes that the
Company is well positioned to continue to compete effectively in the multifamily
and commercial mortgage banking businesses, there can be no assurance that it
will do so or that the Company will not encounter further increased competition
in the future which could limit its ability to maintain or increase its market
share.
LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings arising in
the ordinary course of business. In connection with the Company's loan servicing
activities, the Company is indemnified to varying degrees by the party on whose
behalf the Company is acting. The Company also maintains insurance that
management believes is adequate for the Company's operations. None of the legal
proceedings in which the Company is currently involved, either individually or
in the aggregate (and after consideration of available indemnities and
insurance), is expected to have a material adverse effect on the Company's
business or financial condition; however, any claims asserted in the future may
result in legal expenses or liabilities which could have a material adverse
effect on the Company's business or financial condition.
EMPLOYEES
At June 30, 1997, the Company employed 223 persons. Most of these people
work in professional, administrative and technical positions and no employee is
represented by a labor union or subject to a collective bargaining agreement.
The Company believes that its employee relations are generally good.
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<PAGE> 45
PROPERTIES
The Company's headquarters are currently located in Vienna, Virginia where
the Company leases approximately 28,559 square feet of office space under a
lease expiring on December 31, 2000. Additional corporate offices are located in
Edison, New Jersey, where the Company leases approximately 15,206 square feet of
office space under a lease expiring on May 1, 2005. In addition to its offices
in Vienna and Edison, the Company has nine offices located throughout the United
States.
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<PAGE> 46
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
As of the Maturity Time, it is anticipated that the directors and executive
officers of the Company will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - --------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
J. Roderick Heller, III................ 59 Chairman of the Board
Shekar Narasimhan...................... 44 Director, President and Chief Executive Officer
Mohammed A. Al-Tuwaijri................ 41 Director
Michael R. Eisenson.................... 41 Director
Tim R. Palmer.......................... 39 Director
John D. Reilly......................... 54 Director
Herbert S. Winokur, Jr................. 53 Director
James L. Clouser....................... 55 Executive Vice President
Michael D. Ketcham..................... 38 Executive Vice President, Chief Financial Officer and
Treasurer
Douglas J. Moritz...................... 47 Executive Vice President
Howard S. Perkins...................... 48 Executive Vice President
Clarke B. Welburn...................... 48 Executive Vice President
Joan C. May............................ 39 Senior Vice President
Elizabeth Whitbred-Snyder.............. 43 Senior Vice President and Controller
</TABLE>
J. Roderick Heller, III has served as Chairman of the Board since 1996. He
has served as a Director, President and Chief Executive Officer of NHP since its
organization in 1986 and has served as Chairman of NHP's Board since 1988. From
1982 until 1985, Mr. Heller served as President and Chief Executive Officer of
Bristol Compressors, Inc., a Bristol, Virginia-based company involved in the
manufacturing of air conditioning compressors. From 1971 until 1982, he was a
partner in the Washington, D.C. law firm of Wilmer, Cutler & Pickering. Mr.
Heller is a director of Auto-Trol Technology Corporation and Community First
Bank, N.A. Mr. Heller is also Chairman of public television station WETA and is
trustee of numerous housing related and other non-profit institutions.
Shekar Narasimhan has served as a director, President and Chief Executive
Officer of the Company since 1992 and as Director, President and Chief Executive
Officer of Washington Mortgage since its incorporation. He has also served as an
Executive Vice President of NHP since 1996. Mr. Narasimhan has 18 years of
experience in property management and real estate mortgage finance, primarily
for multi-family properties. He has been a member of the Board of Governors of
the MBA since 1995 and was the 1996 recipient of the MBA's Burton C. Wood
Legislative Service Award.
Mohammed A. Al-Tuwaijri has served as a director of the Company since 1992.
He also served as a director of the Company's subsidiaries, Washington Mortgage
and WMF Huntoon Paige from 1991 to 1996. Mr. Al-Tuwaijri has been President of
Dar Al-Majd Consulting Engineers since 1981.
Michael R. Eisenson will serve as a director of the Company as of the
Maturity Time. He also served as a director of NHP from 1990 until May 1997. Mr.
Eisenson is the President and Chief Executive Officer of Harvard Private Capital
Group, Inc. ("Harvard Capital"), which manages the private equities and real
estate portfolios of the Harvard University endowment fund, and which Mr.
Eisenson joined in 1986. Harvard Capital is the investment advisor for Demeter.
Mr. Eisenson is a director of Harken Energy Corporation, ImmunoGen, Inc.,
Somatix Therapy Corporation, and United Auto Group, Inc.
Tim R. Palmer has served as a director of the Company since 1996. He also
served as a director of NHP from 1990 until May 1997. Mr. Palmer is a Managing
Director of Harvard Capital, which he joined in 1990. From 1987 to 1990, Mr.
Palmer was Manager, Business Development, at The Field Corporation, a private
investment firm.
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<PAGE> 47
John D. Reilly has served as a director of the Company since 1996. He is
President of Reilly Investment Corporation, a real estate investment company,
and from 1991 through 1994 he was Executive Director of Reilly Mortgage Group,
Inc., a mortgage banking and servicing company. Mr. Reilly serves as a director
of Allied Capital Commercial Corporation and Allied Capital Corporation II.
Herbert S. Winokur, Jr. is expected to serve as a director of the Company
as of the Maturity Time. He also served as a director of NHP from 1991 until May
1997. Since 1987, he has served as the President of Winokur & Associates, Inc.,
an investment and management services firm, and Winokur Holdings, Inc., which is
the managing general partner of Capricorn, a private investment partnership. Mr.
Winokur is also the manager of Capricorn Holdings LLC, which is the general
partner of Capricorn II, a separate investment partnership. Mr. Winokur serves
as a director of DynCorp, Enron Corporation and NacRe Corporation.
James L. Clouser will serve as Executive Vice President of the Company as
of the Maturity Time. He joined WMF Huntoon Paige in 1979 and has been President
since 1989. Mr. Clouser has 22 years of real estate finance experience. He is
active in the MBA and sits on the Insured Project and Income Producing Loan
Subcommittee. Mr. Clouser is a regular speaker at MBA seminars and conventions
and was contributing editor to the MBA Servicing Handbook.
Michael D. Ketcham will serve as Executive Vice President, Chief Financial
Officer and Treasurer of the Company as of the Maturity Time. He has served as
Senior Vice President and Treasurer of the Company since 1996. Mr. Ketcham has
also served as Executive Vice President Operations, Chief Financial Officer and
Treasurer of Washington Mortgage since 1996. Prior to joining the Company, Mr.
Ketcham served as Vice President of Corporate Financial Planning at Marriott
Corporation and one of its successor companies, Marriott International, from
1992 to 1994 and Vice President Treasury at Marriott International from 1994 to
1996. Mr. Ketcham joined Marriott Corporation in 1986. He has 15 years of
corporate finance experience.
Douglas J. Moritz will serve as Executive Vice President of the Company as
of the Maturity Time. He currently serves as Executive Vice President,
Multifamily/Conventional of Washington Mortgage. Mr. Moritz joined Washington
Mortgage in 1988, serving as Executive Vice President, Lending from 1990 to
1996. Mr. Moritz has 25 years of experience in the multifamily industry, with 14
years of experience in multifamily finance. He has served on the Board of
Governors of the Mortgage Bankers Association of Metropolitan Washington, Inc.
since 1993, was the Chairman of the Income Property Committee in 1995 and 1996
and currently serves as the Association's President. Mr. Moritz has been a
member of the Fannie Mae DUS Lenders' Advisory Council since 1996.
Howard S. Perkins will serve as Executive Vice President of the Company as
of the Maturity Time. He currently serves as Executive Vice President,
Commercial Mortgage Finance for Washington Mortgage. From 1990 to 1996, he
served as Executive Vice President, Chief Financial Officer and Treasurer of
Washington Mortgage. Mr. Perkins joined Washington Mortgage in 1987. He has 19
years of lending experience.
Clarke B. Welburn will serve as Executive Vice President of the Company as
of the Maturity Time. He currently serves as Executive Vice President, Risk
Management for Washington Mortgage. From 1990 to 1996, he served as Executive
Vice President, Credit Policy for Washington Mortgage. Mr. Welburn joined
Washington Mortgage in 1988. Mr. Welburn has 25 years of lending experience.
Joan C. May will serve as Senior Vice President of the Company as of the
Maturity Time. Since 1992, she has served as Senior Vice President, Chief
Underwriter of Washington Mortgage. Ms. May joined Washington Mortgage in 1989,
serving as Vice President, Underwriting from 1990 to 1992. She has 13 years of
real estate lending experience.
Elizabeth Whitbred-Snyder, CPA, will serve as Senior Vice President and
Controller of the Company as of the Maturity Time. She has served as Senior Vice
President of Washington Mortgage since 1992 and Controller since 1990. From 1990
to 1992, Ms. Whitbred-Snyder served as Vice President of Washington Mortgage.
She has 12 years of financial services experience.
Directors are elected for one year terms and hold office until their
successors have been elected and qualified or until such director's earlier
resignation or removal. Executive officers are elected annually and hold
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<PAGE> 48
office until the next annual meeting of stockholders or until such executive
officer's earlier resignation or removal.
The Board of Directors has created an Audit Committee which, after the
Share Distribution, is expected to consist of Messrs. Reilly, Al-Tuwaijri and
Palmer. The Audit Committee is charged with reviewing the Company's annual audit
and meeting with the Company's independent accountants to review the Company's
internal controls and financial management practices.
The Board of Directors has created a Compensation Committee which, after
the Share Distribution, is expected to consist of Messrs. Eisenson, Winokur and
Heller. The Compensation Committee is charged with making recommendations to the
Board of Directors regarding the compensation of executive officers of the
Company and administering any stock option plan the Company may adopt.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by the Company for services rendered during the year ended December 31,
1996 to the Chief Executive Officer and to each of the four other most highly
compensated executive officers of the Company (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
---------------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#)(2) COMPENSATION(3)
- - -------------------------------------- ---- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Shekar Narasimhan..................... 1996 $240,000 $110,000 26,666 $ 6,533
President and Chief Executive
Officer
Howard S. Perkins..................... 1996 195,000 70,000 6,666 2,730
Executive Vice President
Douglas J. Moritz..................... 1996 165,000 70,000 6,666 5,675
Executive Vice President
James L. Clouser...................... 1996 145,000 70,000 5,000 15,431
Executive Vice President
Clarke B. Welburn..................... 1996 155,000 50,000 6,666 5,626
Executive Vice President
</TABLE>
- - ---------------
(1) The amounts reported were paid in 1997 with respect to the year ended
December 31, 1996.
(2) All options were granted as options to acquire NHP Common Stock and are
being converted into options to acquire shares of NHP Common Stock and
options to acquire shares of Company Common Stock in connection with the
Share Distribution.
(3) These amounts represent the Company's payment of life insurance premiums and
matching contributions to the Company's 401(k) Retirement Plan.
The following table sets forth certain information regarding options
granted to the Named Officers during the year ended December 31, 1996. All
options were granted by NHP as options to acquire NHP Common Stock and will be
converted into options to acquire shares of NHP Common Stock and shares of
Company Common Stock in connection with the Share Distribution. See "The
Distribution of Company Common Stock -- Effect on Outstanding NHP Options."
44
<PAGE> 49
OPTIONS GRANTED IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS OPTION TERM
OPTIONS GRANTED IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH)(1) DATE 5%($) 10%($)
- - --------------------------- ---------- ------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shekar Narasimhan.......... 26,666 16.20% $ 5.19 3/31/06 $ 87,037 $ 220,568
Howard S. Perkins.......... 6,666 4.05 5.19 3/31/06 21,758 55,138
Douglas J. Moritz.......... 6,666 4.05 5.19 3/31/06 21,758 55,138
James L. Clouser........... 5,000 3.04 5.19 3/31/06 16,320 41,358
Clarke B. Welburn.......... 6,666 4.05 5.19 3/31/06 21,758 55,138
</TABLE>
- - ---------------
(1) The Exercise Price of Options for shares of Company Common Stock will depend
on the allocation of the exercise price on existing options for NHP Common
Stock between Company options and NHP options, which determination will be
made at the time of the Share Distribution based on the fair value of shares
of the Company Common Stock and NHP Common Stock at such time. See "The
Distribution -- Effect on Outstanding NHP Options." For purposes of this
table, the fair value of NHP Common Stock is assumed to be equal to the
market value of shares of AIMCO Common Stock on May 9, 1997 times .74766,
the exchange ratio in the Merger, and the fair value of Company Common Stock
is assumed to be equal to three times the difference between the market
value of NHP Common Stock on May 9, 1997 and the assumed value of NHP Common
Stock as determined above.
The following table sets forth certain information regarding unexercised
options held by the Named Officers at December 31, 1996. All options were
granted by NHP as options to acquire NHP Common Stock and are being converted
into options to acquire shares of NHP Common Stock and shares of Company Common
Stock in connection with the Share Distribution. See "The Distribution of
Company Common Stock -- Effect on Outstanding NHP Options." No options were
exercised by the Named Officers during the year ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN THE MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shekar Narasimhan....................... 0 26,666 $ 0 $ 105,597
Howard S. Perkins....................... 0 6,666 0 26,397
Douglas J. Moritz....................... 0 6,666 0 26,397
James L. Clouser........................ 0 5,000 0 19,800
Clarke B. Welburn....................... 0 6,666 0 26,397
</TABLE>
DIRECTORS COMPENSATION
Non-management directors will be granted options to purchase 5,000 shares
per year of Company Common Stock for their services as directors. The options
will vest six months after grant and will be exercisable for ten years at a
price equal to the market price on the date of issuance. Options for 1997 will
be issued concurrent with the Share Distribution at an exercise price of $9.15.
Non-management directors will also be reimbursed for all out-of-pocket expenses
related to their service as directors. The Chairman of the Board will receive
compensation in the amount of $50,000 per year for his service as Chairman.
45
<PAGE> 50
EMPLOYMENT CONTRACTS AND RELATED MATTERS
Although none of the Named Officers will have employment contracts with the
Company after the Share Distribution, the Company expects to provide certain
severance arrangements for its Chief Executive Officer ("CEO"), Executive Vice
Presidents ("EVP"), Senior Vice Presidents ("SVP") and Group Vice Presidents
("GVP"). If such an employee is terminated without "cause" (as defined below),
he will be paid his then current salary for two years if he is the CEO, for one
year if he is an EVP, for six months if he is a SVP or for three months if he is
a GVP. If there is a "transfer of control" of the Company (as defined below) and
such an employee is terminated within 180 days of such change, he will be paid
his then current salary for three years if he is the CEO, for two years if he is
an EVP, for one year if he is a SVP or for six months if he is a GVP. The
Company expects to require each of the CEO, EVPs, SVPs and GVPs to agree to
refrain from competing in the business of mortgage origination and servicing
during his employment with the Company and for the greater of one year or the
period during which such employee is receiving severance benefits. In addition,
the Company expects to require such officers to agree to refrain from disclosing
confidential information about the Company during their employment and
indefinitely thereafter. For purposes of the severance arrangements, "cause"
will be defined as (i) the engaging by the employee in any act of dishonesty in
connection with the performance of his employment duties and responsibilities,
(ii) the conviction of the employee of a felony, (iii) the failure of the
employee to perform his duties or responsibilities, or (iv) the inability of the
employee to perform his duties or responsibilities for a period of more than 120
consecutive days due to physical or mental illness or incapacity. For purposes
of the severance arrangements, "transfer of control" will be defined as (i) a
transfer of a majority of the Company's voting stock outstanding on the day of
the transfer, (ii) a sale of substantially all of the Company's assets to any
entity or person unaffiliated with the Company, (iii) the consolidation of the
Company with or its merger into any unaffiliated corporation or (iv) the
dissolution of the Company.
Each of the CEO, EVPs, SVPs and GVPs will be entitled to participate in a
Key Employee Incentive Plan the Company expects to adopt ("KEIP"). Options
awarded pursuant to the KEIP will be exercisable for ten years at a price equal
to the market price on the date of issuance. Options for 1997 will be issued
concurrently with the Share Distribution at an exercise price of $9.15. Such
options will vest ratably over five years, but will be immediately vested upon a
change of control of the Company (as defined in the KEIP). If an employee is
terminated by the Company without cause (as defined in the KEIP), his options
will vest immediately and will expire 90 days after such termination. Effective
as of the Maturity Time, options will be granted to Mr. Narasimhan for 84,000
shares and for each of Messrs. Perkins, Moritz, Clouser and Welburn for 21,000
shares. The Company also is considering a Deferred Compensation Plan (the "DCP")
that would provide certain eligible employees an opportunity to defer receipt of
a portion of their compensation, which then may be converted into an equity
interest in the Company under the DCP.
Pursuant to a letter agreement with the Company, Mr. Ketcham receives a
current annual base salary of $175,000, which will increase by a minimum of
$10,000. In 1996, under the letter agreement, Mr. Ketcham received a bonus of
$70,000, and is eligible for a cash incentive bonus in 1997 of zero percent to
100 percent of his salary. Pursuant to this letter agreement, NHP granted Mr.
Ketcham options to acquire 25,000 shares of NHP Common Stock (which will be
converted into options to acquire 25,000 shares of NHP Common Stock and 8,333
shares of Company Common Stock in connection with the Share Distribution). Mr.
Ketcham also is eligible for options under the KEIP described above and
severence pay under the letter agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has created a Compensation Committee which, after
the Share Distribution, is expected to consist of Messrs. Eisenson, Winokur and
Heller. The Compensation Committee is charged with determining the compensation
of all executive officers. No member of the Compensation Committee has ever been
an officer of the Company or any of its subsidiaries.
46
<PAGE> 51
RELATED PARTY TRANSACTIONS
Since December 31, 1993, the Company has engaged in the following
transactions with persons who are, or are members of the immediate family of,
directors, persons expected to become a director, officers or beneficial owners
of 5 percent or more of the Company Common Stock issued and outstanding, or with
entities in which such persons or certain of their relatives have interests.
Prior to the Share Distribution, the Company will be a wholly-owned
subsidiary of NHP. Mr. Heller is, and prior to May 6, 1997, Messrs. Palmer and
Winokur were directors of both the Company and NHP and Mr. Heller is President
and Chief Executive Officer of NHP and Chairman of the Company. Following the
Share Distribution, Messrs. Heller, Palmer and Winokur -- as well as Mr.
Eisenson (who was a director of NHP until May 6, 1997) -- will serve as
directors of the Company. As of July 1, 1997, the Company owed NHP approximately
$8 million as a result of loans made by NHP to the Company to fund the
acquisition of Proctor and Askew. As of December 31, 1996, the Company also owed
NHP approximately $900,000 in respect of taxes paid by NHP on the Company's
behalf. These amounts, net of any cumulative free cash flow produced by NHP
between February 1, 1997 and the Effective Time of the Merger, are being repaid
in connection with the Share Distribution. See "Arrangements Between NHP and the
Company After the Share Distribution."
In addition, following the Share Distribution the Company will have certain
other arrangements with NHP as described above in "Arrangements Between NHP and
the Company After the Share Distribution."
47
<PAGE> 52
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following table sets forth the number and percentage of outstanding
shares of the Company's Common Stock which are expected to be beneficially owned
by (i) all persons known by the Company to own beneficially more than 5 percent
of the Company's Common Stock, (ii) each director and each Named Officer who is
a stockholder, and (iii) all directors and executive officers as a group. The
table reflects shares of NHP Common Stock owned as of July 1, 1997, plus the
546,448 shares of newly issued Company Common Stock proposed to be purchased by
Capricorn II at the time of the Share Distribution, except for shares of NHP
Common Stock beneficially owned by AIMCO that were acquired pursuant to the
Stock Purchase Agreement. AIMCO has agreed to hold all Rights distributed with
respect to such shares in trust for Demeter and Capricorn and certain assignees
of Capricorn and deliver to them the shares of Company Common Stock AIMCO would
be entitled to receive in the Share Distribution. Accordingly, the table
reflects the shares Demeter and Capricorn will receive in respect of Rights held
by AIMCO. Except as otherwise indicated, the business address of each of the
following is 1593 Spring Hill Road, Suite 400, Vienna, VA 22182.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- - ----------------------------------------------------------------------- --------- -------
<S> <C> <C>
Demeter Holdings Corporation........................................... 1,873,231 39.3%
600 Atlantic Ave.
Boston, MA 02210
Capricorn Investors, L.P. ............................................. 435,796 9.1%
30 East Elm Street
Greenwich, CT 06830
Capricorn Investors II, L.P............................................ 546,448 11.5%
30 East Elm Street
Greenwich, CT 06830
Warburg, Pincus Counsellors, Inc....................................... 508,166 10.7%
466 Lexington Ave.
New York, NY 10017
Wallace R. Weitz & Company............................................. 246,666 5.2%
1125 South 103rd Street
Omaha, NE 68124
J. Roderick Heller, III (1)............................................ 204,166 4.2%
8065 Leesburg Pike
Vienna, VA 22182
Shekar Narasimhan (2).................................................. 96,666 2.0%
Mohammed A. Al-Tuwaijri (3)............................................ 70,000 1.5%
P.O. Box 60212
Tamaneen Street
Riyadh 11545
Saudi Arabia
Michael R. Eisenson (4)................................................ 1,873,231 39.3%
600 Atlantic Ave.
Boston, MA 02210
Tim R. Palmer (4)...................................................... 1,873,231 39.3%
600 Atlantic Ave.
Boston, MA 02210
Herbert S. Winokur, Jr. (5)............................................ 982,244 20.6%
30 East Elm Street
Greenwich, CT 06830
</TABLE>
48
<PAGE> 53
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- - ----------------------------------------------------------------------- --------- -------
<S> <C> <C>
John D. Reilly......................................................... 33 *
5335 Wisconsin Avenue, N.W. #440
Washington, D.C. 20015
James L. Clouser (6)................................................... 5,000 *
379 Thornall Street, 10th Floor
Edison, NJ 08837
Douglas J. Moritz (7).................................................. 6,666 *
Howard S. Perkins (8).................................................. 6,666 *
Clarke B. Welburn (9).................................................. 6,666 *
Michael D. Ketcham (10)................................................ 8,333 *
All directors and executive officers as a group (12 persons)........... 3,189,671 64.4%
</TABLE>
- - ------------------
* Less than 1%
(1) Includes 125,416 shares subject to options that are exercisable currently
or within 60 days of the date of this Information Statement and 33,750
shares held in trusts for the benefit of Mr. Heller's children. Mr. Heller
disclaims beneficial ownership of the shares held in these trusts. The
total excludes shares Mr. Heller has the right to acquire pursuant to a
performance vesting option.
(2) Includes 26,666 shares subject to options that are exercisable currently or
within 60 days of the date of this Information Statement. On September 30,
1996, Mr. Narasimhan acquired 8% of the common stock of Commonwealth
Overseas Trading Company Limited ("Commonwealth"), which owns 210,000
shares of NHP Common Stock. Pursuant to an agreement with Mr. Al-Tuwaijri,
the other owner of Commonwealth, Mr. Narasimhan shares power to vote all
shares of NHP Common Stock held by Commonwealth. Therefore, Mr. Narasimhan
has indirect interest in all 210,000 shares of NHP Common Stock which is
included in the total. Of these shares, 105,000 are in escrow and are
currently held subject to reduction under certain circumstances.
(3) Mr. Al-Tuwaijri owns 92% of the common stock of Commonwealth, which owns
210,000 shares of NHP Common Stock. Pursuant to an agreement with Mr.
Narasimhan, the other owner of Commonwealth, Mr. Al-Tuwaijri shares power
to vote all of the shares of the NHP Common Stock held by Commonwealth.
Therefore, Mr. Al-Tuwaijri has indirect interest in all 210,000 shares of
NHP Common Stock which is included in this total. Of these shares, 105,000
are held in escrow and are currently held subject to reductions under
certain circumstances.
(4) Includes all shares held by Demeter Holdings Corporation. Messrs. Eisenson
and Palmer disclaim beneficial ownership of all the shares held by Demeter.
(5) Includes all shares held by Capricorn and Capricorn II. Mr. Winokur
disclaims beneficial ownership of all shares held by Capricorn and
Capricorn II, and Capricorn and Capricorn II each disclaims beneficial
ownership of the shares held by the other. The Company understands that
Capricorn intends to distribute all of its shares of the Company to its
partners at or about the time of the Share Distribution.
(6) Includes 5,000 shares subject to options that are exercisable currently or
within 60 days of the date of the Information Statement.
(7) Includes 6,666 shares subject to options that are exercisable currently or
within 60 days of the date of the Information Statement.
(8) Includes 6,666 shares subject to options that are exercisable currently or
within 60 days of the date of the Information Statement.
(9) Includes 6,666 shares subject to options that are exercisable currently or
within 60 days of the date of the Information Statement.
(10) Includes 8,333 shares subject to options that are exercisable currently or
within 60 days of the date of the Information Statement.
49
<PAGE> 54
DESCRIPTION OF THE COMPANY CAPITAL STOCK
GENERAL
At the Maturity Time, the authorized capital stock of the Company will
consist of 25,000,000 shares of Company Common Stock, $.01 par value, of which
approximately 4,218,479 shares are expected to be issued and outstanding
immediately prior to the Share Distribution and the Capricorn Transaction, and
12,500,000 shares of Preferred Stock, $.01 par value, none of which are expected
to be outstanding.
COMMON STOCK
Holders of shares of Company Common Stock are entitled to one vote at all
meetings of shareholders for each share held and are not entitled to cumulative
voting. Holders of Company Common Stock have no preemptive rights and have no
other rights to subscribe for additional shares of the Company, nor does the
Company Common Stock have any conversion rights or rights of redemption. Holders
of Company Common Stock are entitled to share ratably in such dividends as may
be declared by the Board of Directors out of assets legally available therefor.
Upon liquidation, all holders of Company Common Stock are entitled to
participate ratably and equally in the assets and funds of the Company available
for distribution. All of the outstanding shares of Company Common Stock are, and
the shares to be issued pursuant to this offering will be, when issued, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, from time to time to issue up to an aggregate of 12,500,000 shares of
Preferred Stock with such powers, designations, preferences and relative,
participating, option or other special rights and such qualifications,
limitations or restrictions thereof, as shall be determined by the Board of
Directors in a resolution or resolutions providing for the issue of such
Preferred Stock. Thus, any series may, if so determined by the Board of
Directors, have full voting rights with the Company Common Stock or superior or
limited voting rights, be convertible into Company Common Stock or another
security of the Company, and have such other preferences, relative rights, and
limitations as the Company's Board of Directors shall determine. As a result,
any series of Preferred Stock could have rights which would adversely affect the
voting power of the Company Common Stock. The shares of any class or series of
Preferred Stock need not be identical. The issuance of the Preferred Stock could
have the effect of delaying or preventing a change of control of the Company
without any further action by shareholders. The Company has no present intention
to issue any Preferred Stock.
DIRECTOR AND OFFICER LIABILITY
The Certificate of Incorporation includes a provision which eliminates the
personal liability of the Company's directors and officers for monetary damages
resulting from breaches of their fiduciary duty, provided that such provision
does not eliminate liability for breaches of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, violations of Section 174 of the General Corporation Law of
the State of Delaware (the "GCL"), or for any transaction from which the
director derived an improper personal benefit. If the GCL is amended to further
permit limitations on the liability of directors, then the Certificate of
Incorporation shall be read to eliminate personal liability of the director to
the fullest extent permitted by law. This provision does not limit or eliminate
the right of the Company or any stockholder to seek non-monetary relief such as
rescission in the event of a breach of a director's duty of care. The By-Laws of
the Company also provide that the Company shall indemnify its directors and
officers for all expenses actually incurred in the defense of actions against
them in their capacity as directors or officers unless the action results in a
finding that indemnification is not proper in the circumstances because such
person has not met the standard of conduct for such indemnification established
by applicable law. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers.
50
<PAGE> 55
CERTAIN PROVISIONS AFFECTING STOCKHOLDERS
Under the business combination provision contained in Section 203 of the
GCL ("Section 203"), a Delaware corporation may not engage in any business
combination with any interested stockholder for a period of three years
following the date such stockholder became an interested stockholder, unless (i)
prior to such date the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
determining the number of shares outstanding (a) shares owned by persons who are
directors and officers and (b) employee stock plans, in certain instances), or
(iii) on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of the
stockholders by at least 66 percent of the affirmative voting stock that is not
owned by the interested stockholder. An interested stockholder is defined in
Section 203 as any person who (i) owns, directly or indirectly, 15 percent or
more of the outstanding voting stock of a corporation or (ii) is an affiliate or
associate of a corporation and was the owner of 15 percent or more of the
outstanding voting stock at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder; and the affiliates and the associates of such person.
The restrictions imposed by Section 203 will not apply to a corporation if (i)
the corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by this section; and (ii) the corporation
by the action of its stockholders holding a majority of the outstanding voting
stock adopts an amendment to its certificate of incorporation or by-laws
expressly electing not to be governed by Section 203 (such amendment will not be
effective until 12 months after adoption and shall not apply to any business
combination between such corporation and any person who became an interested
stockholder of such corporation on or prior to such adoption).
The Company has not elected out of the statute, and therefore the
restrictions imposed by Section 203 apply to the Company.
TRANSFER AGENT AND REGISTRAR
The Bank of Boston, N.A. is expected to serve as transfer agent and
registrar of the Company Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
Prior to the acquisition of the Company by NHP, the Company's accountants
were KPMG Peat Marwick LLP. In July 1996 Arthur Andersen LLP, NHP's accountants,
were retained as accountants for the Company. During the Company's two most
recent fiscal years and during the subsequent interim period preceding the date
of retention of Arthur Andersen LLP, there were no disagreements on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of KPMG Peat Marwick LLP, would have caused it to make reference to
the subject matter of the disagreement in connection with their report. The
report of KPMG Peat Marwick LLP on the Company's financial statements for the
years ended December 31, 1995 and 1994 were unqualified. Prior to the retention
of Arthur Andersen LLP, neither the Company nor anyone on the Company's behalf
consulted Arthur Andersen LLP regarding either the application of accounting
principles related to a specified transaction, completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements.
51
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE WMF GROUP, LTD. AND SUBSIDIARY (FORMERLY NHP FINANCIAL SERVICES, LTD., AND
SUBSIDIARY, AND FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
Report of Independent Public Accountants
As of and for the Year Ended December 31, 1996, and
As of and for the Three Months Ended March 31, 1996.............................. F-1
Report of Independent Public Accountants
As of December 31, 1995, and
For the Years Ended December 31, 1995 and 1994................................... F-2
Consolidated Balance Sheets
As of March 31, 1997 (unaudited), December 31, 1996, March 31, 1996,
and December 31, 1995............................................................ F-3
Consolidated Statements of Operations
The Period January 1, 1997 to March 31, 1997 (unaudited)
Pro Forma for the Year Ended December 31, 1996 (unaudited),
The Period April 1, 1996, to December 31, 1996,
The Period January 1, 1996, to March 31, 1996, and
The Years Ended December 31, 1995 and 1994....................................... F-4
Consolidated Statements of Stockholder's Equity
For the Period January 1, 1997 to March 31, 1997 (unaudited),
The Period April 1, 1996, to December 31, 1996,
The Period January 1, 1996, to March 31, 1996, and
The Years Ended December 31, 1995 and 1994....................................... F-5
Consolidated Statements of Cash Flows
For the Period January 1, 1997 to March 31, 1997 (unaudited),
The Period April 1, 1996, to December 31, 1996,
The Period January 1, 1996, to March 31, 1996, and
The Years Ended December 31, 1995 and 1994....................................... F-6
Notes to Consolidated Financial Statements....................................... F-8
</TABLE>
<PAGE> 57
After the contemplated stock split discussed in Note 15 to The WMF Group,
Ltd., and Subsidiary's (formerly NHP Financial Services, Ltd., and Subsidiary)
consolidated financial statements is determined and effected, we expect to be in
a position to render the following audit report.
ARTHUR ANDERSEN LLP
May 14, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
The WMF Group, Ltd. and Subsidiary:
We have audited the accompanying consolidated balance sheets of The WMF
Group, Ltd., and Subsidiary (the "Company") (formerly NHP Financial Services,
Ltd. and Subsidiary and formerly WMF Holdings Ltd., and Subsidiaries -- see Note
1) as of December 31, 1996, and March 31, 1996, and the related consolidated
statements of operations, changes in shareholder's equity and cash flows for the
periods April 1, 1996, to December 31, 1996, and January 1, 1996, to March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996, and March 31, 1996, and the results of its operations
and its cash flows for the periods April 1, 1996, to December 31, 1996, and
January 1, 1996, to March 31, 1996, in conformity with generally accepted
accounting principles.
As explained in Note 2 to the consolidated financial statements, effective
January 1, 1996, the Company changed its method of accounting for originated
mortgage servicing rights to comply with Statement of Financial Accounting
Standard No. 122, "Accounting for Mortgage Servicing Rights."
Washington, D.C.
February 28, 1997 (except with
respect to the matters discussed in
Note 15, as to which the date is
April 15, 1997, April 21, 1997,
May 5, 1997, and May 9, 1997 and , 1997)
F-1
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
WMF Holdings Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of WMF Holdings
Ltd. (a wholly owned subsidiary of Commonwealth Overseas Trading Company
Limited), and subsidiaries (collectively "the Company") as of December 31, 1995,
and the related consolidated statements of operations, changes in stockholder's
equity and cash flows for the years ended December 31, 1995 and 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of WMF Holdings Ltd. and subsidiaries as of December 31, 1995, and the
results of its operations and its cash flows for the years ended December 31,
1995 and 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Washington, D.C.
March 27, 1996
F-2
<PAGE> 59
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1996 1996 1995
----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS.................... $ 4,216,597 $ 6,601,044 $ 5,435,954 $ 5,197,153
RESTRICTED CASH EQUIVALENTS.................. 1,290,367 1,193,549 922,509 863,000
MORTGAGE-BACKED SECURITIES, at amortized
cost, pledged.............................. 3,894,525 3,909,863 3,888,488 3,892,805
MORTGAGE LOANS HELD FOR SALE, pledged........ 28,683,215 40,262,782 23,116,296 32,461,676
PRINCIPAL, INTEREST AND OTHER SERVICING
ADVANCES................................... 2,266,749 2,012,440 3,720,228 2,795,796
FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net of accumulated
depreciation of $434,706, $312,756,
$928,593, and $938,035, respectively....... 1,454,447 1,484,613 887,336 893,463
SERVICING RIGHTS, net of accumulated
amortization of $4,144,303, $3,062,096,
$5,549,284 and $5,078,367, respectively.... 22,750,807 22,460,014 8,477,403 8,465,663
DUE FROM AFFILIATES.......................... -- -- 228,366 1,108,573
GOODWILL, net of accumulated amortization of
$771,759, $578,356, $32,099 and $28,391,
respectively............................... 7,560,216 7,704,847 438,582 441,515
OTHER ASSETS................................. 1,780,809 2,467,489 1,860,711 1,056,589
----------- ------------ ----------- ------------
Total assets........................ $73,897,732 $ 88,096,641 $48,975,873 $ 57,176,233
============ ============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses.... $ 2,036,655 $ 2,609,350 $ 4,440,372 $ 2,728,540
Warehouse lines of credit................ 28,285,106 39,924,736 22,660,974 31,830,868
Servicing acquisition line of credit..... 6,211,745 6,211,745 6,412,764 6,439,114
Notes payable to stockholder............. -- -- 5,034,000 5,034,000
Deferred fees............................ 2,475,943 2,786,071 1,876,900 3,034,216
Allowance for loan servicing portfolio
losses................................ 4,569,846 4,395,749 3,426,921 3,141,578
Due to affiliates........................ 4,489,514 872,000 -- --
Other liabilities........................ 237,934 5,585,075 800,391 949,575
Deferred tax liability, net.............. 2,995,474 3,183,885 -- --
----------- ------------ ----------- ------------
Total liabilities................... 51,302,217 65,568,611 44,652,322 53,157,891
----------- ------------ ----------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, $.01 par value, 7,899,380
shares authorized, 4,217,478 issued
and outstanding....................... 42,175 42,175 42,175 42,175
Additional paid-in capital............... 21,330,690 21,330,690 2,639,679 2,639,679
Retained earnings........................ 1,222,650 1,155,165 1,641,697 1,336,488
----------- ------------ ----------- ------------
Total shareholder's equity.......... 22,595,515 22,528,030 4,323,551 4,018,342
----------- ------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY... $73,897,732 $ 88,096,641 $48,975,873 $ 57,176,233
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 60
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD
FOR THE PERIOD ENDED APRIL 1, 1996 TO JANUARY 1, 1996 YEARS ENDED
JANUARY 1, 1997 DECEMBER 31, DECEMBER 31, TO MARCH 31, --------------------------
TO MARCH 31, 1997 1996 1996 1996 1995 1994
----------------- --------------- ------------------ ---------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Servicing fees.... $ 2,725,901 $ 9,329,248 $ 7,274,217 $2,055,031 $7,859,856 $6,182,197
Gain on sale of
mortgage loans,
net............. 2,407,284 10,220,455 8,112,735 2,107,720 6,244,208 4,532,240
Gain on sale of
servicing....... -- -- -- -- 89,998 --
Interest income... 932,871 4,249,980 3,388,219 861,761 3,290,774 2,088,728
Placement fee
income.......... 1,125,471 4,959,067 3,823,335 1,135,732 3,999,268 2,244,119
Other income...... 249,140 1,542,361 874,663 667,698 515,240 2,013,203
----------------- --------------- ------------------ ---------------- ------------ ------------
7,440,667 30,301,111 23,473,169 6,827,942 21,999,344 17,060,487
----------------- --------------- ------------------ ---------------- ------------ ------------
EXPENSES:
Salaries and
employee
benefits........ 3,557,199 12,744,963 9,974,957 2,770,006 9,208,024 7,324,035
General and
administrative.. 1,271,343 4,811,034 3,884,199 926,835 4,181,202 3,427,829
Occupancy......... 528,240 1,593,193 1,352,015 241,178 972,306 885,931
Provision for loan
servicing
losses.......... 174,097 1,254,172 968,828 285,343 856,462 654,186
Interest.......... 253,234 1,319,498 1,012,179 307,320 2,143,773 2,249,913
Amortization of
servicing
rights.......... 1,082,207 3,913,642 3,062,096 470,917 2,096,540 1,528,531
Depreciation and
amortization.... 332,936 1,195,204 919,608 80,578 272,610 397,382
Losses from
Beverly Hills
Securities
investment/advances... -- 600,125 -- 600,125 691,549 720,000
----------------- --------------- ------------------ ---------------- ------------ ------------
7,199,256 27,431,831 21,173,882 5,682,302 20,422,466 17,187,807
----------------- --------------- ------------------ ---------------- ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAX
EXPENSE............. 241,411 2,869,280 2,299,287 1,145,640 1,576,878 (127,320)
INCOME TAX EXPENSE.... 173,926 1,984,553 1,144,122 840,431 799,871 34,520
----------------- --------------- ------------------ ---------------- ------------ ------------
NET INCOME (LOSS)..... $ 67,485 $ 884,727 $ 1,155,165 $ 305,209 $777,007 $(161,840)
=============== ============= =============== ============== ============ ============
NET INCOME (LOSS) PER
SHARE............... $ .02 $ .21 $ .27 $ .07 $.16 $(.03)
=============== ============= =============== ============== ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING......... 4,217,478 4,217,478 4,217,478 4,217,478 4,717,312 6,216,812
=============== ============= =============== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 61
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993................. $ 62,168 $ 5,619,686 $ 721,321 $ 6,403,175
Net loss................................ -- -- (161,840) (161,840)
-------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994................. 62,168 5,619,686 559,481 6,241,335
Stock repurchase........................ (19,993) (2,980,007) -- (3,000,000)
Net income.............................. -- -- 777,007 777,007
-------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995................. 42,175 2,639,679 1,336,488 4,018,342
Net income.............................. -- -- 305,209 305,209
-------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1996.................... 42,175 2,639,679 1,641,697 4,323,551
======== ========== ========== ==========
- - -----------------------------------------------------------------------------------------------------
Elimination of equity upon sale......... (42,175) (2,639,679) (1,641,697) (4,323,551)
Initial investment...................... 42,175 21,330,690 -- 21,372,865
Net income.............................. -- -- 1,155,165 1,155,165
-------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996................. 42,175 21,330,690 1,155,165 22,528,030
Net income.............................. -- -- 67,485 67,485
-------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1997 (UNAUDITED)........ $ 42,175 $21,330,690 $ 1,222,650 $22,595,515
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 62
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1997 APRIL 1, 1996 TO JANUARY 1, 1996 YEARS ENDED
TO MARCH 31, DECEMBER 31, TO MARCH 31, ----------------------------------
1997 1996 1996 1995 1994
--------------- ---------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $ 67,485 $ 1,155,165 $ 305,209 $ 777,007 $ (161,840)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization of
furniture, equipment and
leasehold
improvements............ 121,950 312,756 77,192 245,242 385,650
Amortization of servicing
rights.................. 1,082,207 3,062,096 470,917 2,096,540 1,528,531
Provision for loan
servicing losses........ 174,097 968,828 285,343 856,462 640,412
DUS loss settlement....... -- -- -- (336,148) --
Amortization of
goodwill................ 193,403 578,356 2,933 11,732 11,732
Amortization of bond
issuance costs.......... -- -- -- -- 333,646
Losses from
investments/advances.... -- -- 600,125 691,549 857,733
Additions to excess
servicing fees.......... -- -- -- -- (93,702)
Gain on sale of mortgage
servicing rights........ -- -- -- (89,998) --
Deferred tax benefit...... (188,411) -- -- -- --
Change in assets and
liabilities:
(Increase) decrease in
restricted cash
equivalents......... (96,818) (271,040) (59,509) 3,937,000 (4,800,000)
Decrease (increase) in
principal, interest
and other servicing
advances............ (254,309) 1,707,788 (924,432) (1,575,591) (240,668)
Decrease (increase) in
other assets........ 654,484 1,210,079 (805,023) 467,570 (133,765)
Decrease (increase) in
due from
affiliates.......... -- 228,366 280,082 (633,609) 22,867
Increase in due to
affiliates.......... 255,420 872,000 -- -- --
Increase (decrease) in
accounts payable and
accrued expenses.... (572,695) (1,831,022) 1,711,832 967,413 (793,337)
Increase (decrease) in
deferred fees....... (310,128) 909,171 (1,157,316) 2,147,116 (1,184,415)
Increase (decrease) in
warehouse lines of
credit, net......... (11,639,630) 17,263,762 (9,169,894) 26,862,106 (38,644,467)
Increase (decrease) in
other liabilities... (1,985,047) 1,681,526 (143,907) (4,091,591) 3,888,771
Mortgage loans
originated.............. (154,149,302) (657,217,058) (176,724,231) (804,891,535) (526,651,388)
Mortgage loans sold....... 165,728,869 640,070,572 186,069,611 777,540,096 566,278,732
--------------- ---------------- --------------- --------------- ---------------
Net cash (used for)
provided by
operating
activities.......... $ (918,425) $ 10,701,345 $ 818,932 $ 4,981,361 $ 1,244,492
--------------- ---------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 63
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY
AND FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1997 APRIL 1, 1996 TO JANUARY 1, 1996 YEARS ENDED
TO MARCH 31, DECEMBER 31, TO MARCH 31, ----------------------------------
1997 1996 1996 1995 1994
--------------- ---------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of servicing
rights..................... $(1,089,196) $ (3,727,581) $ (332,569) $ (2,470,149) $ (2,411,982)
Origination of servicing
rights..................... (283,804) (2,659,529) (150,088) -- --
Purchase of ACR production
system and pipeline........ -- (2,000,000) -- -- --
Sale of mortgage servicing
rights..................... -- -- -- 97,481 --
Investment property
dispositions (additions)... -- -- -- 2,146,581 (173,954)
Sheffield mortgage pay-off... -- -- -- (1,800,000) --
Purchase of furniture,
equipment and leasehold
improvements............... (91,784) (910,033) (71,065) (389,605) (252,872)
Purchase of mortgage-backed
securities................. -- -- -- -- (1,981,789)
Principal from
mortgage-backed
securities................. 7,547 20,873 5,218 22,978 --
Sale of short-term
investments................ -- -- -- -- 1,997,604
Decrease (increase) of
investment in affiliates... -- -- -- 50,000 (239,645)
--------------- ---------------- --------------- --------------- ---------------
Net cash used for
investing
activities............ (1,457,237) (9,276,270) (548,504) (2,342,714) (3,062,638)
--------------- ---------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additions to servicing
acquisition line of
credit..................... -- 3,747,987 -- 944,510 6,400,000
Repayment of servicing
acquisition line of
credit..................... -- (3,949,006) (26,350) (905,396) --
Repayment of servicing
compensation rights
payable.................... -- -- -- -- (4,136,301)
Payment on notes payable..... -- (34,000) -- (68,000) --
Payments on capital lease.... (8,785) (24,966) (5,277) (16,625) --
--------------- ---------------- --------------- --------------- ---------------
Net cash (used for) provided
by financing activities.... (8,785) (259,985) (31,627) (45,511) 2,263,699
--------------- ---------------- --------------- --------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS........... (2,384,447) 1,165,090 238,801 2,593,136 445,553
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............ 6,601,044 5,435,954 5,197,153 2,604,017 2,158,464
--------------- ---------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD...................... $ 4,216,597 $ 6,601,044 $ 5,435,954 $ 5,197,153 $ 2,604,017
============== ============== ============== ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period
for interest............... $ 158,024 $ 990,212 $ 473,539 $ 1,579,655 $ 1,933,000
Cash paid during the period
for income taxes........... 0 1,008,000 935,070 9,275 622,819
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 64
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
1. ORGANIZATION:
On April 1, 1996, NHP Incorporated ("NHP"), a Delaware Corporation,
acquired all the outstanding capital stock of WMF Holdings Ltd. ("Holdings"), a
Delaware corporation, for consideration of approximately $21 million in the form
of $16.8 million in cash and 210,000 shares of NHP's common stock. Holdings was
subsequently renamed NHP Financial Services, Ltd. and NHP Financial Services,
Ltd. has subsequently been renamed The WMF Group, Ltd. (the "Company"). The
Company's principal business activities are mortgage loan origination, secondary
marketing, and servicing.
The Company has one wholly owned subsidiary, Washington Mortgage Financial
Group, Ltd. ("Washington Mortgage Financial"), which is incorporated under the
laws of Delaware. Washington Mortgage Financial's subsidiaries are WMF/Huntoon,
Paige Associates Limited ("WMF/Huntoon"), Sheffield Acquisition Corp. ("SAC"),
and Proctor & Associates of Michigan, Inc. ("Proctor") which are incorporated
under the laws of the states of Delaware, Tennessee and Michigan, respectively.
SAC discontinued operations in 1995 and was dissolved in 1996. The Company has
offices in eight states.
As a result of the acquisition on April 1, 1996, the parent's acquisition cost
was pushed down to the Company and all assets acquired were recorded at their
estimated fair value which resulted in recording an asset of approximately $19.1
million related to acquired servicing rights. In addition, the Company also
recorded approximately $5.1 million of goodwill related to the transaction and a
deferred tax liability of approximately $3.2 million. The goodwill is being
amortized over seven years. The acquired servicing rights are being amortized
over periods up to seven years. Both are amortized based upon the estimated life
of the servicing rights acquired. As a result of the acquisition, shareholder's
equity as of March 31, 1996, was eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED QUARTERLY DATA AS OF MARCH 31, 1997
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Company as of March 31, 1997, and
the results of its operations for the three months ended March 31, 1997 and its
cash flows for the three months ended March 31, 1997. These unaudited financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
METHOD OF ACCOUNTING
The consolidated financial statements of the Company are prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, particularly with respect to the provision
for loan servicing losses (see Note 8). Actual results could differ from those
estimates.
F-8
<PAGE> 65
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary or subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform with the current year
presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with initial maturities
of 90 days or less to be cash equivalents. These include cash, demand deposits
and overnight repurchase agreements.
RESTRICTED CASH EQUIVALENTS
Restricted cash equivalents are money market funds that are collateral on a
Federal National Mortgage Association ("Fannie Mae") Delegated Underwriting and
Servicing ("DUS") letter of credit.
MORTGAGE-BACKED SECURITIES
The Company classifies its mortgage-backed securities as held-to-maturity
as it has the ability and the intent to hold the securities until maturity.
Held-to-maturity securities are recorded at amortized cost. Premiums and
discounts are amortized using the effective interest rate method over the term
of the security.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market as determined by outstanding commitments from investors or current
investor yield requirements. Typically, loans are held for a period of no more
than three months. At both March 31, 1997 and December 31, 1996, the principal
amount of loans held for a period greater than three months was $300,000. At
both March 31, 1996 and December 31, 1995, the Company held no such loans.
FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost, net of
accumulated amortization and depreciation. Depreciation of furniture and
equipment is recognized using the straight-line method over the estimated useful
life of the asset, approximately five years. Leasehold improvements are
amortized over the estimated useful life of the asset or the lease term,
whichever is less. Cost of maintenance and repairs are charged to expense as
incurred.
SERVICING RIGHTS
The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
122, "Accounting for Mortgage Servicing Rights," on January 1, 1996. The primary
change resulting from SFAS No. 122 is that servicing rights retained by the
Company after the origination and sale of the related loan are required to be
capitalized by allocating the total cost incurred between the loan and the
servicing rights based on their relative fair value if it is practicable to
determine the mortgage servicing rights' fair value. If it is not practicable to
determine the servicing rights' fair value then no value is allocated to the
servicing rights. The Company has determined that it is only practicable to
estimate the fair value of servicing rights related to
F-9
<PAGE> 66
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
permanent Federal Housing Administration ("FHA") originated loans as other loan
types have a limited secondary market. The capitalization of these originated
mortgage servicing rights increases net income for the period by the amount
capitalized less related amortization and impairment if any. Prior to 1996, no
allocation was made to originated mortgage servicing rights. Purchased servicing
rights continue to be accounted for at their purchase price. Servicing rights
are amortized in proportion to and over the seven-year period of anticipated
estimated net servicing income.
Under SFAS No. 122, all capitalized mortgage servicing rights are evaluated
for impairment based on the excess of the carrying amount of the mortgage
servicing rights over their fair value. In measuring impairment, the servicing
rights are stratified based on the interest rate and loan type of the underlying
loan. The assumptions used in estimating the net cash flows are based on market
conditions and actual experience. Impairment is recognized through a valuation
allowance for each individual stratum. Prior to 1996, the impairment valuation
required no level of disaggregation and any impairment was recorded directly
against the asset.
GOODWILL
The Company evaluates the impairment of goodwill whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Goodwill
is amortized on a straight-line basis primarily over seven to twenty years.
ALLOWANCE FOR LOAN SERVICING PORTFOLIO LOSSES
The Company bears a portion of the credit loss risk associated with the
loans it services as a result of its participation in the Fannie Mae DUS
multifamily loan program. The allowance for loan servicing portfolio losses
represents management's estimate of the losses which may be incurred on recourse
loans underwritten to date. Management believes the current reserve is adequate
to provide for such future losses. Management regularly reviews the adequacy of
this allowance, considering such items as economic conditions and collateral
value, and makes adjustments to the allowance as considered necessary.
SERVICING FEES
Servicing fee income represents fees earned for servicing multi-family and
commercial real estate mortgage loans owned by institutional investors,
including subservicing fees, net of guarantee fees, pool insurance fees and
trustee fees. The fees are generally calculated on the outstanding principal
balances of the loans serviced and are recorded as income when collected. Late
charge income is recognized as income when collected and is included in
servicing fee income.
GAINS ON SALE OF MORTGAGE LOANS
Gains on sale of mortgage loans are recognized based upon the difference
between the selling price and the carrying value of the related mortgage loans
sold, net of the allocation to servicing rights for permanent FHA originated
loans. Deferred origination fees and expenses, net of commitment fees paid in
connection with the sale of the loans, are recognized at the time of sale in the
gain or loss determination.
F-10
<PAGE> 67
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PLACEMENT FEE INCOME
Placement fee income represents revenue earned relating to the placement
and utilization of escrow funds. Income is recognized during the period in which
it is earned.
INCOME TAXES
Since acquisition, the Company files a consolidated tax return with NHP,
its parent. However, the Company records income taxes as if it filed a return on
a stand-alone basis. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Prior to the acquisition,
the Company filed a consolidated tax return together with its subsidiaries.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common shares outstanding during each period.
NEW ACCOUNTING STATEMENTS
SFAS No. 123, "Accounting for Stock-Based Compensation," effective for
fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair-value based method of accounting for employee stock options or
similar equity instruments. It also allows an entity to elect to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25"), but requires pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. Adoption of this statement does not
impact the Company since there are currently no stock options outstanding.
During 1996 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities using a financial components approach that
focuses on control. This statement provides consistent standards for
distinguishing transfers of financial assets that are sold from transfers that
are secured borrowings. Adoption of this statement is required on a prospective
basis in fiscal years beginning after December 31, 1996. Management adopted the
statement for the fiscal year ending December 31, 1997, and does not believe
that the impact of such adoption will be material to the financial statements.
In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS
128"). FAS 128 changes the requirements for calculation and disclosure of
earnings per share. This statement eliminates the calculation of primary
earnings per share and requires the disclosure of basic earnings per share and
diluted earnings per share. There will be no impact to the Company's earnings
per share as a result of adoption.
F-11
<PAGE> 68
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
3. ACQUISITIONS AND DISPOSITIONS:
Washington Mortgage Financial was incorporated on October 3, 1990, and was
capitalized on December 31, 1990. During 1993, all outstanding shares of
preferred stock of Washington Mortgage Financial were exchanged for shares of
common stock of Washington Mortgage Financial. In addition, the majority
shareholder purchased the minority shareholder's interest in Washington Mortgage
Financial and exchanged all outstanding shares of Washington Mortgage Financial
for common stock in Holdings, thus making Washington Mortgage Financial a wholly
owned subsidiary of Holdings.
On October 1, 1991, Washington Mortgage Financial acquired 100 percent of
the outstanding stock of WMF/Huntoon for $1,175,276 in cash and a note payable
for $170,000 to the seller. The $170,000 acquisition note matured in 1996 and
had an interest rate of 2 percent. Principal payments were made in equal
installments of $34,000 a year. The principal balance of the note at December
31, 1996, March 31, 1996, and December 31, 1995, is $0, $34,000, and $34,000,
respectively.
Holdings was incorporated on October 20, 1992, and was capitalized on
December 3, 1992. Holdings was a wholly owned subsidiary of Commonwealth
Overseas Trading Company Limited before it was acquired by NHP.
SAC was incorporated in 1992 and its principal business activity was owning
and managing a multifamily property located in Memphis, Tennessee. Washington
Mortgage Financial entered into an agreement to sell the property in December
1994. The property was sold in February 1995 for $2,464,000. After adjusting the
sales proceeds for selling expenses and a participation interest in the
property, Washington Mortgage Financial realized a loss of $54,233. This loss
was accrued at December 31, 1994. SAC discontinued operations in 1995 and was
dissolved in 1996.
In July 1994, Washington Mortgage Financial exchanged its stock in a wholly
owned subsidiary, WMF Residential Mortgage Corporation ("Residential") for an
ownership interest in Beverly Hills Securities Company, Ltd. ("Beverly").
Residential and Beverly specialize in the origination, purchase, sale, and
servicing of single family residential loans. No gain or loss was recognized on
the exchange. The Company owns approximately a 40 percent limited partnership
interest in Beverly and is accounting for its investment under the equity
method. As of March 31, 1996, the carrying value of the Company's investment in
and advances to Beverly had been reduced to $0 as a result of operating losses
and concerns about the recoverability of the investment and advances. The
Company has no additional exposure related to Beverly.
In May 1996, WMF/Huntoon purchased the loan production system and pipeline,
as well as certain fixed assets of American Capital Resource ("ACR") for
approximately $2.2 million cash. In connection with the purchase, WMF/Huntoon
also acquired approximately $2.0 million of servicing rights. As a result,
WMF/Huntoon recorded assets of approximately $4.2 million representing the fair
value of the assets acquired. The servicing rights acquired are being amortized
over seven years, which is the estimated life of the servicing rights acquired.
The loan production system and pipeline acquired are being amortized in
proportion to the loans originated from the acquired pipeline. These costs are
expected to be fully amortized by August 1997. ACR specializes in the
origination and servicing of multifamily mortgage loans guaranteed by the FHA.
On December 31, 1996, the Company purchased 100 percent of Proctor for
approximately $3.7 million. NHP paid cash for the purchase on January 2, 1997,
on behalf of the Company. As such, the Company has accrued approximately $3.7
million as of December 31, 1996. The acquisition was accounted for as a purchase
and accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date
F-12
<PAGE> 69
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
3. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
of acquisition. As a result, tangible assets of approximately $600,000, current
liabilities of $200,000, and goodwill of $3.1 million were recorded. The
goodwill will be amortized on a straight-line basis over twenty years. The
twenty year amortization period is the estimated life of the mortgage loan
production operations acquired. Proctor specializes in the origination and
servicing of commercial loans.
4. MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities consist of Government National Mortgage
Association ("Ginnie Mae") securities. The market value of the securities is
$3,859,094, $3,898,019, $3,950,804, and $3,988,943 at March 31, 1997, December
31, 1996, March 31, 1996, and December 31, 1995, respectively. The securities
held at March 31, 1997, mature in periods from 2028 to 2029 and are collateral
for a letter of credit established on behalf of Fannie Mae for loans originated
under the DUS program. These securities carry a AAA credit rating.
5. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements consist of the following as
of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1996 1996 1995
---------- ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment.............. $1,617,042 $1,533,773 $1,543,643 $1,559,212
Capital lease........................ 125,091 125,091 150,109 150,109
Leasehold improvements............... 147,020 138,505 122,177 122,177
---------- ------------ ---------- ------------
1,889,153 1,797,369 1,815,929 1,831,498
Less -- Accumulated depreciation and
amortization....................... 434,706 312,756 928,593 938,035
---------- ------------ ---------- ------------
$1,454,447 $1,484,613 $ 887,336 $ 893,463
========= ========== ========= ==========
</TABLE>
6. DEBT FACILITIES:
The Company has a warehouse line of credit which can be drawn for purposes
of originating loans that had an $80 million credit limit in 1995 that was
subsequently increased to $150 million in the third quarter of 1996. This credit
limit has been temporarily increased at times to allow increased borrowings
beyond the credit limit. The warehouse line of credit is secured by mortgage
loans held for sale and is required to be repaid with interest upon sale of the
mortgage loans. The interest rate on the warehouse line of credit was 3/4
percent for the period January 1, 1997, to March 31, 1997, 1 to 1 1/2 percent in
1996 and 1 1/2 to 2 percent in 1995 to the extent compensating balances are
maintained or was equal to the London InterBank Offered Rate ("LIBOR") plus 3/4
percent for the period January 1, 1997 to March 31, 1997, 1 to 1 1/2 percent in
1996, and 1 1/2 to 2 percent in 1995 for amounts borrowed in excess of
compensating balances.
The Company has an additional warehouse agreement providing $15 million of
revolving credit at 1 1/2 percent for the period January 1, 1997 to March 31,
1997 and in 1996 and at 1 5/8 percent in 1995 to the extent compensating
balances are maintained and at prime for amounts borrowed in excess of
compensating balances. This warehouse line of credit is secured by mortgage
loans held for sale and is required to be repaid
F-13
<PAGE> 70
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
6. DEBT FACILITIES -- (CONTINUED)
with interest upon the sale of the mortgage loans. This warehouse line of credit
expired and was not renewed on April 1, 1997.
As of March 31, 1996, the Company had two mortgage loans held for sale with
an unpaid principal balance of $8,679,611 warehoused under a repurchase
agreement. These two loans were subsequently sold in October and December of
1996 resulting in a net gain of $46,147.
The Company has a separate $10 million line of credit which was used
exclusively for servicing acquisitions. In October 1996, this facility was
converted to a term loan. The debt is to be repaid in twenty equal quarterly
installments based on a 10-year amortization schedule beginning on October 31,
1996, with the remaining balance due in June 2001. The interest rate on the
servicing acquisition line of credit was 3 percent for the period January 1,
1997, to March 31, 1997, and 3 to 3 1/2 percent in 1996 and 3 1/2 percent in
1995 to the extent compensating balances are maintained or was equal to LIBOR
plus 3 percent for the period January 1, 1997, to March 31, 1997, and 3 to 3 1/2
percent in 1996 and 3 1/2 percent in 1995 for amounts borrowed in excess of
compensating balances. Interest is payable monthly. The servicing acquisition
line is collateralized by servicing rights relating to loans with an approximate
unpaid principal balance of $4.6 billion as of March 31, 1997. Because this
facility was converted to a term loan, the Company cannot borrow any additional
amounts under this line. This facility will mature as follows as of March 31,
1997: $750,000 for the period April 1, 1997 to December 31, 1997, $1 million in
each year from 1998 through 2000 and $2,461,745 in 2001.
The Company has a $10 million revolving credit agreement to be used for
servicing acquisitions or working capital purposes. There have been no
borrowings under this facility. The revolving credit agreement is renewable
annually through June 2001 and requires monthly interest payments. Any principal
balance outstanding in June 2001 would be converted to a term loan due in
quarterly installments through June 2006. The interest rate on the term loan is
3 1/2 percent for amounts borrowed to the extent compensating balances are
maintained or is equal to LIBOR plus 3 1/2 percent for amounts borrowed in
excess of compensating balances. The term loan is collateralized by all
nonrecourse servicing rights.
The Company has a $500,000 additional line of credit agreement available
for working capital purposes. The interest rate on the loan is the prime rate
and all borrowings must be paid off annually with interest payments due monthly.
Included in notes payable at March 31, 1996, and December 31, 1995, is a $2
million, 10 percent interest bearing note dated December 9, 1993, payable to a
stockholder of Holding's parent. Also, included in notes payable at March 31,
1996, and December 31, 1995, is a $3 million, 12 percent interest bearing note
dated April 1, 1995, which is payable to Holding's parent. This note was issued
to repurchase 1,999,334 shares of common stock. As part of NHP's acquisition of
the Company on April 1, 1996, these notes were paid-off by NHP and both the
Company's obligation and interest payable for the period January 1, 1996, to
March 31, 1996, were forgiven.
The Company has also established a letter of credit of $4,400,000,
$4,200,000 and $3,800,000 on behalf of Fannie Mae for the DUS program as of
March 31, 1997, December 31, 1996 and 1995, respectively. This letter of credit
is secured by cash equivalents and mortgage-backed securities with a market
value of $5,149,461, $5,091,568 and $4,911,452 as of March 31, 1997, December
31, 1996, and 1995, respectively.
The Company's debt agreements require the maintenance of certain financial
ratios relating to liquidity, leverage, working capital, and net worth among
other restrictions, all of which were met at March 31, 1997.
F-14
<PAGE> 71
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
6. DEBT FACILITIES -- (CONTINUED)
Following is certain information relating to the Company's various credit
agreements for the period January 1, 1997 to March 31, 1997, April 1, 1996, to
December 31, 1996, January 1, 1996, to March 31, 1996, and for the year ended
December 31, 1995.
<TABLE>
<CAPTION>
AVERAGE MAXIMUM INTEREST AVERAGE
BALANCE AT BALANCE BALANCE RATE AT INTEREST
MARCH 31, OUTSTANDING OUTSTANDING MARCH 31, RATE DURING
1997 FOR PERIOD FOR PERIOD 1997 PERIOD
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
$150 million warehouse line...... $ 28,285,106 $36,825,850 $40,030,784 .75% .75%
$15 million warehouse line....... -- -- -- 1.5% 1.5%
$10 million servicing loan....... 6,211,745 6,211,745 6,211,745 3.0% 3.0%
<CAPTION>
INTEREST
AVERAGE MAXIMUM RATE AT AVERAGE
BALANCE AT BALANCE BALANCE DECEMBER INTEREST
DECEMBER 31, OUTSTANDING OUTSTANDING 31, RATE DURING
1996 FOR PERIOD FOR PERIOD 1996 PERIOD
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$150 million warehouse line...... $ 39,924,736 $43,326,846 $52,885,171 1.0% 1.2%
$15 million warehouse line....... -- 3,764,825 7,100,000 1.5% 1.5%
$10 million servicing loan....... 6,211,745 8,884,286 9,959,731 3.0% 3.2%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE MAXIMUM INTEREST AVERAGE
BALANCE AT BALANCE BALANCE RATE AT INTEREST
MARCH 31, OUTSTANDING OUTSTANDING MARCH 31, RATE DURING
1996 FOR PERIOD FOR PERIOD 1996 PERIOD
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$80 million warehouse line....... $ 12,054,363 $33,669,834 $50,944,777 1.5% 1.5%
$15 million warehouse line....... 1,927,000 2,929,086 10,965,000 1.5% 1.5%
$10 million servicing acquisition
line........................... 6,412,764 6,440,414 6,439,114 3.5% 3.5%
</TABLE>
<TABLE>
<CAPTION>
INTEREST
AVERAGE MAXIMUM RATE AT AVERAGE
BALANCE AT BALANCE BALANCE DECEMBER INTEREST
DECEMBER 31, OUTSTANDING OUTSTANDING 31, RATE DURING
1995 FOR PERIOD FOR PERIOD 1995 PERIOD
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$80 million warehouse line....... $ 31,830,868 $26,194,661 $96,766,452 2.0% 2.0%
$15 million warehouse line....... -- 2,393,356 9,105,000 1.6% 1.6%
$10 million servicing acquisition
line........................... 6,439,114 6,663,245 7,061,301 3.5% 3.5%
</TABLE>
F-15
<PAGE> 72
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
7. SERVICING RIGHTS:
The activity for servicing rights consists of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1997 TO APRIL 1, 1996 TO JANUARY 1, 1996 TO YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996 DECEMBER 31, 1995
------------------ ----------------- ------------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance, net........ $ 22,460,014 $ 8,477,403 $8,465,663 $ 8,099,539
Increase due to
acquisition............ -- 10,657,597 -- --
Purchases................ 1,089,196 3,727,581 332,569 2,470,149
Originations............. 283,804 2,659,529 150,088 --
Sale..................... -- -- -- (7,485)
Amortization............. (1,082,207) (3,062,096) (470,917) (2,096,540)
Impairment loss.......... -- -- -- --
------------------ ----------------- ------------------ -----------------
Ending balance, net........... $ 22,750,807 $22,460,014 $8,477,403 $ 8,465,663
============= ============= ============= =============
</TABLE>
The fair value of the mortgage servicing rights was approximately $34.4
million at March 31, 1997. This estimated fair value presented herein is not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions, valuation
methodologies or both may have a material effect on the estimates of fair value.
The fair value estimate presented herein is based on pertinent information
available as of March 31, 1997. During 1995, Washington Mortgage Financial
received capitalized servicing from WMF/Huntoon with a book value of $137,545.
Washington Mortgage Financial reduced the investment in WMF/Huntoon by this
amount and recognized no gain or loss on the transfer.
8. LOAN ADMINISTRATION:
The Company's portfolio of mortgage loans serviced for institutional
investors aggregated approximately $6.5 billion, $6.2 billion, $4.5 billion, and
$4.4 billion at March 31, 1997, December 31, 1996, March 31, 1996, and December
31, 1995, respectively. Included in the Company's portfolio are approximately
$6.0 billion, $5.8 billion, $4.1 billion, and $3.9 billion of multifamily and
commercial loans, and $491 million, $396 million, $413 million, and $515 million
in construction loans at March 31, 1997, December 31, 1996, March 31, 1996, and
December 31, 1995, respectively.
The principal balances of mortgage loans serviced for others are summarized
by investor as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996 DECEMBER 31, 1995
------------------------- ------------------------- ------------------------- -------------------------
UNPAID UNPAID UNPAID UNPAID
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
-------- -------------- -------- -------------- -------- -------------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investor:
Federal National
Mortgage
Association.... 302 $1,321,711,450 299 $1,305,976,298 283 $1,146,884,992 240 $ 956,431,808
Government
National
Mortgage
Association.... 345 1,393,386,732 318 1,275,179,590 250 837,769,000 246 816,996,796
Federal Home Loan
Mortgage
Corporation.... 235 235,749,011 248 245,697,852 306 277,964,249 323 287,110,622
Other
investors...... 1,317 3,588,585,939 1,271 3,374,584,096 977 2,257,563,518 1,008 2,352,289,428
--- -------------- --- -------------- --- -------------- --- --------------
Total loans
serviced for
others........... 2,199 $6,539,433,132 2,136 $6,201,437,836 1,816 $4,520,181,759 1,817 $4,412,828,654
========== =============== ========== =============== ========== =============== ========== ===============
</TABLE>
F-16
<PAGE> 73
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
8. LOAN ADMINISTRATION -- (CONTINUED)
The Company's mortgage servicing portfolio has the following geographic and
interest rate concentrations based on the book value of the servicing rights as
of March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
STATE:
New York................................................... 11.2%
Texas...................................................... 11.9%
Other...................................................... 76.9%
------------
100%
==========
INTEREST RATE:
Less than 7.5%............................................. 23.2%
7.5% to 9.49%.............................................. 71.4%
greater than 9.49%......................................... 5.4%
------------
100%
==========
</TABLE>
In connection with the construction loan portfolio, the Company makes
certain advances. On FHA insured construction loans, the Company advances
construction funds pending security holder purchases. Such advances amounted to
$7,610,868, $4,240,193, $2,629,879, and $2,456,826 at March 31, 1997, December
31, 1996, March 31, 1996, and December 31, 1995, respectively. The Company is
obligated to advance approximately another $261 million, $258 million and $212
million on construction loans administered at March 31, 1997, December 31, 1996,
and December 31, 1995, respectively. These construction advances are
subsequently funded by the respective investors.
In addition, the Company makes voluntary advances under certain of its
servicing agreements pending receipt from the mortgagors. Such advances amounted
to $2,266,749, $2,012,440, $3,720,228 and $2,795,796 at March 31, 1997, December
31, 1996, March 31, 1996, and December 31, 1995, respectively.
Related escrow funds of approximately $248 million, $228 million, $203
million and $207 million at March 31, 1997, December 31, 1996, March 31, 1996,
and December 31, 1995, respectively, are on deposit in escrow bank accounts and
are not included in the accompanying consolidated balance sheet. The Company
carries blanket bond insurance coverage of $5 million and errors and omissions
insurance coverage in the amount of $10 million.
The Company bears the Level I risk of loss associated with the loans it
services under the Fannie Mae DUS program. The Level I risk of loss imposes a
lender deductible of 5 percent of the unpaid principal balance and limits the
maximum loss to 20 percent of the original mortgage. The unpaid principal
balance of the Fannie Mae DUS loan servicing portfolio was approximately $795
million, $776 million, $647 million, and $648 million at March 31, 1997,
December 31, 1996, March 31, 1996, and December 31, 1995, respectively. The DUS
loans are secured by first liens on the underlying multifamily properties. The
Company's portfolio includes one state (Texas) comprising over 10 percent of the
total portfolio. No other state comprises over 10 percent of the portfolio. One
Fannie Mae DUS loan with an unpaid principal balance of approximately $2.5
million was foreclosed upon in 1995. The Company satisfied its servicing
responsibilities and the loan was assigned to Fannie Mae. No Fannie Mae DUS
loans were delinquent as of March 31, 1997, December 31,
F-17
<PAGE> 74
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
8. LOAN ADMINISTRATION -- (CONTINUED)
1996, March 31, 1996 and December 31, 1995. The Company has provided a reserve
for losses of $4,569,846, $4,395,749, $3,426,921, and $3,141,578 as of March 31,
1997, December 31, 1996, March 31, 1996, and December 31, 1995, respectively.
This reserve represents management's estimate of losses which may be incurred on
loans underwritten to date that are currently being serviced. This reserve is
assessed monthly and is based on current market conditions.
Activity in the allowance for losses is summarized as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1997 TO APRIL 1, 1996, TO JANUARY 1, 1996 TO YEAR ENDED
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1996 1996 1995
------------------- ----------------- ------------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of period....... $ 4,395,749 $ 3,426,921 $ 3,141,578 $2,621,264
Provisions for possible loan
servicing losses............ 174,097 968,828 285,343 856,462
Charge-off on Level I Risk for
foreclosed loans............ -- -- -- (336,148)
----------- ----------- ----------- ----------
Balance, end of period............. $ 4,569,846 $ 4,395,749 $ 3,426,921 $3,141,578
=========== =========== =========== ==========
</TABLE>
F-18
<PAGE> 75
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
9. INCOME TAXES:
Income tax expense for the period January 1, 1997 to March 31, 1997, April
1, 1996, to December 31, 1996, January 1, 1996 to March 31, 1996, and the year
ended December 31, 1995, was $173,926, $1,144,122, $840,431, and $799,871,
respectively, which consisted of $28,785, $143,015, $226,748, and $259,871 in
state taxes and $145,141, $1,001,107, $613,683, and $540,000 in Federal taxes,
respectively. The following is a summary of the tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
and deferred tax liabilities.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1996 1996 1995
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Book reserve for loan servicing
portfolio losses.................... $ 1,827,938 $ 1,758,300 $ 1,370,768 $1,068,000
Losses on investment in Beverly....... -- -- 351,000 111,000
----------- ------------ ------------ ------------
Total gross deferred tax
assets......................... 1,827,938 1,758,300 1,721,768 1,179,000
Less -- Valuation allowance................ -- -- (1,037,751) (581,000)
----------- ------------ ------------ ------------
Net deferred tax assets.......... 1,827,938 1,758,300 684,017 598,000
Deferred tax liabilities:
Furniture and equipment, principally
due to differences in
depreciation........................ (21,043) (16,465) (13,452) (12,000)
Originated mortgage servicing
rights.............................. (1,124,382) (1,053,125) (41,684) --
Purchased servicing rights,
principally due to purchase price
adjustments......................... (3,677,987) (3,830,239) (628,881) (586,000)
Other................................. -- (42,356) -- --
----------- ------------ ------------ ------------
Total gross deferred tax
liabilities.................... (4,823,412) (4,942,185) (684,017) (598,000)
----------- ------------ ------------ ------------
Net deferred tax liabilities..... $(2,995,474) $ (3,183,885) $ -- $ --
========== ========== ========== ==========
</TABLE>
The differences between the effective income tax rates and the Federal
statutory income tax rates are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD YEAR ENDED
JANUARY 1, 1997 TO APRIL 1, 1996 TO JANUARY 1, 1996 TO DECEMBER 31,
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996 1995
------------------- ----------------- ------------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal income tax rate.......... 35% 35% 35% 34%
State income tax rate............ 5 5 5 5
Valuation allowance.............. -- -- 25 12
Goodwill amortization............ 32 10 8 --
-- -- -- --
Effective income tax rate........ 72% 50% 73% 51%
============== ============= ============== ==========
</TABLE>
Prior to April 1, 1996, a valuation allowance equal to the deferred tax
asset was established due to the uncertainty surrounding the Company's ability
to generate sufficient taxable income in future years to realize such assets. As
a result of the acquisition of the Company by NHP, management believes that the
valuation
F-19
<PAGE> 76
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
9. INCOME TAXES -- (CONTINUED)
allowance is no longer necessary because of the deferred tax liabilities
generated and the projected economies of scale from the Company's acquisitions.
The Company had no net operating loss carryforwards available to offset
future income as of March 31, 1997, December 31, 1996, March 31, 1996, and
December 31, 1995.
10. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company is obligated under noncancelable leases for office space,
furniture and equipment. Minimum future lease payments are as follows as of
March 31, 1997.
<TABLE>
<CAPTION>
YEAR
----------------------------------------------------------------
<S> <C>
1997 (remaining nine months).................................... $ 861,961
1998............................................................ 1,139,104
1999............................................................ 1,135,468
2000............................................................ 1,055,866
2001............................................................ 351,146
Thereafter...................................................... 1,091,283
----------
Total...................................................... $5,634,828
=========
</TABLE>
Rent expense was approximately $364,000, $975,000, $230,000, and $922,000
in the period January 1, 1997 to March 31, 1997, April 1, 1996, to December 31,
1996, January 1, 1996, to March 31, 1996, and the year ended December 31, 1995.
LOAN COMMITMENTS
At March 31, 1997, December 31, 1996, and December 31, 1995, the Company
had floating rate commitments outstanding to originate approximately
$138,290,000, $8,048,000 and $53,190,000, respectively, in multifamily and
commercial mortgage loans and mandatory delivery commitments in the amount of
approximately $27,279,000, $48,210,000 and $32,462,000, respectively, to cover
the Company's origination commitments and loans held for sale.
LITIGATION
The Company is involved in litigation related to the normal course of
business. Management is of the opinion that the litigation will not have a
material adverse impact on the Company's financial position or operating
results. No amounts have been accrued because the loss, if any, cannot be
reasonably estimated.
One of the Company's previous subsidiaries, Vienna Mortgage Corporation
("VMC"), was involved in a dispute with the FDIC over a terminated servicing
agreement in 1991. The Company settled a judgment for the FDIC by paying
$550,000 on behalf of VMC in 1995. The Company has no further liability in this
matter.
F-20
<PAGE> 77
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
EMPLOYEE BENEFIT PLANS
The Company has initiated a defined contribution plan under Section 401(k)
of the Internal Revenue Code covering substantially all employees. Employees may
contribute to the plan up to 15 percent of their salary up to the maximum
allowable by the Internal Revenue Code. The Company will match employee
contributions at 50 percent for an amount up to 5 percent of each employee's
salary. Company contributions vest 20 percent after the first year of employment
and an additional 20 percent in each subsequent year until fully vested in the
fifth year. Contributions by the Company were approximately $46,803, $75,360,
$18,840, and $97,000 for the period January 1, 1997 to March 31, 1997, April 1,
1996, to December 31, 1996, January 1, 1996, to March 31, 1996, and the year
ended December 31, 1995, respectively.
11. DUE FROM (TO) AFFILIATES:
As of December 31, 1995, the Company had advanced funds of $1,085,795 to
Beverly. The Company collected $485,670 in 1996, and wrote the remainder of the
receivable off resulting in a $600,125 loss in 1996.
As of December 31, 1996, the Company has accrued in other liabilities,
approximately $3.4 million payable to NHP as NHP funded the purchase of Proctor
on January 2, 1997. The $872,000 of due to affiliate as of December 31, 1996,
represents a payable to NHP for taxes paid on behalf of the Company. As of March
31, 1996 the $3.4 million payable to NHP has been reclassified into due to
affiliate as NHP funded the purchase of Proctor on January 2, 1997. The
remaining $1,127,420 in due to affiliate as of March 31, 1997 represents a
payable to NHP for taxes paid on behalf of the Company in addition to interest
incurred and payable to NHP related to these fundings by NHP.
12. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107 requires that the Company disclose estimated fair values for
its financial instruments. The basic assumptions used and the estimates
disclosed in the fair value balance sheets represent management's best judgment
of appropriate valuation methods. These estimates are based on pertinent
information available to management. In certain cases, fair values are not
subject to precise quantification or verification and may change as economic and
market factors, and management's evaluation of those factors change.
F-21
<PAGE> 78
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
12. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Although management uses its best judgment in estimating the fair value of
these financial instruments, there are inherent limitations in any estimation
technique. Therefore, these fair value estimates are not necessarily indicative
of the amounts that the Company would realize in a market transaction. The
following fair value balance sheet does not represent an estimate of the overall
market value of the Company as a going concern, which would take into account
future business opportunities.
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996 DECEMBER 31, 1995
------------------------- ------------------------- ------------------------- -------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash, cash
equivalents,
and restricted
cash
equivalents... $ 5,506,964 $ 5,506,964 $ 7,794,593 $ 7,794,593 $ 6,358,463 $ 6,358,463 $ 6,060,153 $ 6,060,153
Mortgage-backed
securities.... 3,894,525 3,859,094 3,909,863 3,898,019 3,888,488 3,950,804 3,892,805 3,988,943
Mortgage loans
held for
sale.......... 28,683,215 28,683,215 40,262,782 40,262,782 23,116,296 23,116,296 32,461,676 32,461,676
Servicing
rights........ 22,750,807 34,365,049 22,460,014 28,549,292 8,477,403 19,135,431 8,465,663 15,400,381
Liabilities:
Warehouse line
of credit..... 28,285,106 28,285,106 39,924,736 39,924,736 22,660,974 22,660,974 31,830,868 31,830,868
Servicing
acquisition
line of
credit........ 6,211,745 6,211,745 6,211,745 6,211,745 6,412,764 6,412,764 6,439,114 6,439,114
Notes payable... -- -- -- -- 5,034,000 5,034,000 5,034,000 5,034,000
Off-balance sheet
instruments:
Commitments to
extend
credit........ -- -- -- -- -- -- -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
the value.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH EQUIVALENTS
For cash, cash equivalents, and restricted cash equivalents, the carrying
amount is a reasonable estimate of fair value due to the relatively short time
between the origination of the instruments and their expected realization.
MORTGAGE-BACKED SECURITIES
The fair value of the mortgage-backed securities is estimated based on bid
quotations received from securities dealers.
MORTGAGE LOANS HELD FOR SALE
For mortgage loans held for sale, fair value was estimated based on
outstanding commitments from investors or current inventory yield requirements
calculated on an aggregate basis.
SERVICING RIGHTS
The estimated fair value was determined using a discounted cash flow
valuation model incorporating prepayment, default, cost to service, and interest
rate assumptions of the underlying loans.
WAREHOUSE LINE OF CREDIT AND SERVICING ACQUISITION LINE OF CREDIT
The estimated fair value of the warehouse line of credit and servicing
acquisition line of credit, both of which are short-term liabilities,
approximates their carrying values.
F-22
<PAGE> 79
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
12. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
NOTES PAYABLE
The estimated fair value of the notes payable approximates their carrying
values as the notes were paid off on April 1, 1996, at carrying value.
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counter parties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates.
13. BALANCE SHEET CLASSIFICATION:
The Company prepares its consolidated balance sheet using an unclassified
balance sheet presentation as is customary in the mortgage banking industry. A
classified presentation would have aggregated current assets, current
liabilities, and net working capital as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1996 1996 1995
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets.................... $36,947,370 $ 51,343,755 $ 34,361,555 $ 41,740,490
Current liabilities............... 38,242,287 52,762,432 30,214,856 38,907,624
----------- ------------ ------------ ------------
Net working capital............... $(1,294,917) $ (1,418,677) $ 4,146,699 $ 2,832,866
========== ========== ========== ==========
</TABLE>
14. PRO FORMA PRESENTATION (UNAUDITED):
The unaudited pro forma income statement has been presented to reflect
results of operations for the twelve months ended December 31, 1996 as if the
acquisition of Holdings by NHP had occurred on January 1, 1996. The adjustments
to the period April 1, 1996, to December 31, 1996, include (1) income from
January 1, 1996, through March 31, 1996, of the acquired entity, and (2) an
additional three months of amortization of the purchase accounting adjustments
for the period January 1, 1996, through March 31, 1996. The following table
summarizes these pro forma adjustments:
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
FOR THE FOR THE PRO FORMA
PERIOD PERIOD FOR
APRIL 1, JANUARY 1, THE YEAR
1996 TO 1996 TO THREE MONTHS ENDED
DECEMBER 31, MARCH 31, ADDITIONAL DECEMBER 31,
1996 1996 AMORTIZATION 1996
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue.................................... $ 23,473,169 $6,827,942 $ -- $ 30,301,111
------------ ---------- ------------ ------------
Amortization/Depreciation.................. 3,981,704 551,495 575,647 5,108,846
Other expenses............................. 18,336,300 5,971,238 -- 24,307,538
------------ ---------- ------------ ------------
Total expenses........................ 22,318,004 6,522,733 575,647 29,416,384
------------ ---------- ------------ ------------
Net income............................ $ 1,155,165 $ 305,209 $ (575,647) $ 884,727
========== ========= ========== ==========
</TABLE>
F-23
<PAGE> 80
THE WMF GROUP, LTD. AND SUBSIDIARY
(FORMERLY NHP FINANCIAL SERVICES, LTD., AND SUBSIDIARY AND
FORMERLY WMF HOLDINGS LTD. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF MARCH 31, 1997 (UNAUDITED), DECEMBER 31, 1996,
MARCH 31, 1996, AND DECEMBER 31, 1995
15. SUBSEQUENT EVENTS ON APRIL 15, 1997, APRIL 21, 1997, MAY 5, 1997, MAY 9,
1997 AND RETROACTIVE APPLICATION OF STOCK SPLIT ( , 1997):
Apartment Investment and Management Company ("AIMCO"), a wholly-owned
subsidiary of AIMCO and NHP have entered into an Agreement and Plan of Merger,
dated as of April 21, 1997 (the "Merger Agreement") pursuant to which the AIMCO
subsidiary will, subject to the terms and conditions provided in the Merger
Agreement, merge with and into NHP (the "Merger"), thereby making NHP, as the
surviving corporation, a wholly-owned subsidiary of AIMCO (the "Surviving
Corporation"). In addition, AIMCO purchased 51 percent of the shares of NHP
Common Stock on May 5, 1997 pursuant to a stock purchase agreement among AIMCO,
Demeter Holdings Corporation and Capricorn Investors, L.P. ("Capricorn"). AIMCO
required that a rights distribution occur as a condition to the Merger. On May
9, 1997, NHP distributed to each holder of record of NHP Common Stock at the
close of business on May 2, 1997, one right (a "Right") for each outstanding
share of NHP Common Stock (the "Rights Distribution"). Each Right entitles the
holder to receive from the Company, or any successor thereof, a distribution
(the "Share Distribution" and, with the Rights Distribution, the "Distribution")
of one-third of a share of Company Common Stock, subject to the terms of a
Rights Agreement, dated as of April 21, 1997 (the "Rights Agreement") between
NHP, the Company and The First National Bank of Boston, as Rights Agent. The
Rights distributed on May 9, 1997 are evidenced by the certificates of NHP
Common Stock then outstanding. NHP Common Stock issued after May 9, 1997 and
prior to the Maturity Time (as defined below) will have a legend and reference
to the Rights Agreement. Subject to certain conditions, the Rights will mature
at the earlier of (I) the effective time of the Merger (as defined below) and
(ii) December 1, 1997 (such time being referred to as the "Maturity Time").
Capricorn Investors II, L.P., whose general partner is managed by the person who
controls the general partner of Capricorn, has entered into a commitment
pursuant to which it would, following the negotiation and execution of
definitive documentation and subject to the satisfaction of the conditions that
will be specified therein, purchase 546,448 shares of Company common stock at
the time of the Share Distribution for a price of $9.15 per sharer.
Pursuant to the Rights Agreement, NHP will distribute all of the issued and
outstanding shares of the Company's Common Stock held by NHP to holders of
Rights as governed by the Rights Agreement ("Share Distribution"). NHP
Stockholders will receive cash in respect of fractional shares of Company Common
Stock that would otherwise be distributed at the rate of $9.15 per sharer of
Company Common Stock. The NHP stockholders will not be required to pay any
consideration for the shares of Company Common Stock they receive in the Share
Distribution. Simultaneous with the merger, the Company's Board of Directors
anticipates approving a 789.94 per share stock split. Such split represents the
stock split that would have taken place if the Share Distribution had occurred
on March 7, 1997. The actual stock split amount will depend on the number of
shares outstanding at the time of the Share Distribution. The split has been
applied retroactively to all periods presented.
On April 15, 1997, the Company purchased ASKEW Investment in Dallas, Texas
for $5.6 million. In accordance with the purchase agreement, $4.6 million of the
purchase price was paid upon closing with the remaining $1.0 million due in the
future based upon the origination of specific amounts of mortgage loans. The
acquisition will be accounted for as a purchase. ASKEW Investment is a
multifamily and commercial mortgage bank with correspondent relationships with
fourteen insurance companies, which originated $374 million of mortgages in
1996.
F-24
