<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ---------------
Commission file number: 001-13417
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 13-3950486
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
90 WEST STREET, SUITE 1508, NEW YORK, NY 10006 (Address of
principal executive offices) (Zip Code)
(212) 732-5086
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The registrant had 6,466,677 shares of common stock outstanding as of
November 7, 1997.
1
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
FORM 10-Q
For the Quarter Ended September 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
--------
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of
June 30, 1997 and September 30, 1997 3
Condensed Statements of Operations for the Three Months Ended
September 30, 1997 and for the Period from June 10 to
September 30, 1997 4
Condensed Statement of Cash Flows for the
Period from June 10 to September 30, 1997 5
Notes to Condensed Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
</TABLE>
2
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PART I-FINANCIAL INFORMATION
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1997 1997
-------------- --------
(Unaudited ) (1)
(in thousands)
<S> <C> <C>
Mortgage loans, at fair value $ 21,502 $ --
Equity investment 380 --
Receivables and other assets 705 --
Cash and cash equivalents 200,735 150
-------- --------
TOTAL ASSETS $223,322 $ 150
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Repurchase agreements $142,531 $ --
Accounts payable and accrued expenses 1,164 --
Due to affiliate 92
-------- --------
TOTAL LIABILITIES 143,787 --
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01-
authorized, 10 million shares, issued
and outstanding, -0- shares
Common stock, par value $.01-
authorized, 90 million shares, issued and
outstanding 6,466,677 and 10 shares,
respectively 65 2
Additional paid-in capital 79,411 148
Retained earnings 59 --
-------- --------
TOTAL STOCKHOLDERS' EQUITY 79,535 150
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $223,322 $ 150
======== ========
</TABLE>
See accompanying notes to financial statements.
(1) the June 30, 1997 balance sheet reflects actual dollar amounts, and is not
rounded to the nearest thousand
3
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Period from June 10
September 30, to September 30,
1997 1997
------------------ -------------------
REVENUE: (Unaudited) (Unaudited)
<S> <C> <C>
Interest income $ 254 $ 254
Interest expense 126 126
-------- --------
Net interest income 128 128
EXPENSE:
General and administrative expenses 95 95
-------- --------
Operating income 33 33
Equity in earnings of
unconsolidated subsidiary 26 26
-------- --------
NET INCOME $ 59 $ 59
======== ========
BASIC EARNINGS PER SHARE $ .07 $ .09
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 843,488 692,867
======== ========
</TABLE>
See accompanying notes to financial statements.
4
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period from June 10 to
September 30, 1997
----------------------
(Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59
Adjustments to reconcile net income to net cash
provided by operating activities:
Less equity in earnings of unconsolidated subsidiary (26)
Increase in receivables and other assets (705)
Increase in accounts payable and
accrued expenses 1,164
Increase in due to affiliate 92
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 584
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage loans (21,502)
---------
NET CASH USED IN INVESTING ACTIVITIES (21,502)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements 142,531
Net proceeds of offering 79,122
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 221,653
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 200,735
---------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 200,735
=========
</TABLE>
See accompanying notes to financial statements
5
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
GENERAL
Hanover Capital Mortgage Holdings, Inc. (the "Company") was incorporated in
Maryland on June 10, 1997. The Company is a self-managed real estate investment
trust ("REIT"), formed to operate as a specialty finance company. The principal
business strategy of the company is to (i) acquire primarily single-family
mortgage loans that are at least twelve months old or that were intended to be
of certain credit quality but that do not meet the originally intended market
parameters due to errors or credit deterioration, (ii) acquire multifamily
mortgage loans and (iii) securitize the mortgage loans and retain interests
therein. The Company's principal business objective is to generate increasing
earnings and dividends for distribution to its' stockholders. The Company
acquires single-family mortgage loans through a network of sales representatives
targeting financial institutions throughout the United States. The Company will
acquire multifamily mortgage loans from a taxable subsidiary of the Company.
CAPITALIZATION
In September 1997, the Company raised net proceeds of approximately $79.1
million in its initial public offering (the "IPO"). In the IPO, the Company sold
5,750,000 units (each unit consists of one share of common stock, par value $.01
and one stock purchase warrant; each warrant entitles the holder to purchase one
share of common stock at the IPO price) at $15.00 per unit including 750,000
units sold pursuant to the underwriters' overallotment option, which was
exercised in full. The Company will utilize substantially all of the net
proceeds of the IPO to fund leveraged purchases of mortgage loans.
In connection with the closing of the IPO the Company acquired a 97% ownership
interest (representing a 100% ownership of the non-voting preferred stock) in
Hanover Capital Partners Ltd. and its wholly-owned subsidiaries: Hanover Capital
Mortgage Corporation and Hanover Capital Securities, Inc., in exchange for
716,667 shares of the Company's common stock. Hanover Capital Partners Ltd. and
its wholly-owned subsidiaries offer due diligence services to buyers, sellers
and holders of mortgage loans and originate, sell and service multifamily
mortgage loans and commercial loans.
6
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared by
the management of the Company in accordance with generally accepted accounting
principles for interim financial information and in conformity with the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for the period from June 10, 1997 through September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year.
Because the Company was incorporated on June 10, 1997, no balance sheet was
available for presentation at December 31, 1996. The Company's balance sheet at
June 30, 1997 was audited and accordingly the June 30, 1997 balance sheet is
included in place of a December 31, 1996 balance sheet. At June 30, 1997 the
Company's balance sheet reflected cash of $150, and stockholders equity of $150,
resulting from the issuance of 10 shares of common stock. Similarly, no
statement of operations or statement of cash flows are shown for the prior year
(1996), since the Company was not incorporated until June 10, 1997.
METHOD OF ACCOUNTING
The condensed 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. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid investments
with original maturities of three months or less. The carrying amount of cash
equivalents approximates their value.
7
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
CONCENTRATION OF CREDIT RISK
The Company has cash and cash equivalents in a financial institution which is
insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per
institution. As of September 30, 1997, the Company had amounts on deposit with
the financial institution in excess of FDIC limits. The Company limits its risk
by placing its cash and cash equivalents in a high quality financial
institution.
EQUITY INVESTMENT
The Company's 97% ownership investment in Hanover Capital Partners Ltd. ("HCP")
is accounted for by the equity method of accounting. The Company generally has
no right to control the affairs of HCP because the Company's investment in HCP
is based solely on a 100% ownership of HCP's non-voting preferred stock. Even
though the Company will have no right to control the affairs of HCP (since the
Company's ownership represents non-voting preferred stock), management believes
that the Company has the ability to exert significant influence over HCP and
therefore the investment in HCP will be accounted for by the equity method of
accounting.
INCOME TAXES
The Company has elected to be taxed as a real estate investment trust ("REIT")
and intends to comply with the provisions of the Internal Revenue Code of 1986,
as amended (the "Code") with respect thereto. Accordingly, the Company will not
be subject to Federal income tax to the extent of its distributions to
stockholders as long as certain asset, income and stock ownership tests are met.
BASIC EARNINGS PER SHARE
The Company computes earnings per share in accordance with statement of
Financial Accounting Standards No. 128 "Earnings per Share". Basic earnings per
share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period. Shares
issued during the period and shares reacquired during the period shall be
weighted for the portion of the period they were outstanding.
8
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MORTGAGE LOANS
The Company's policy is to classify each of its mortgage loans as
available-for-sale as they are purchased and then to monitor each asset for a
period of time, generally four (4) to nine (9) months, prior to making a
determination as to whether the asset will be securitized or to be classified as
held-to-maturity. Management has made the determination that certain mortgage
loans are available-for-sale in order to be prepared to respond to potential
future opportunities in the market, to sell mortgage loans in order to optimize
the portfolio's total return and to retain its ability to respond to economic
conditions that require the Company to sell mortgage loans in order to maintain
an appropriate level of liquidity. Management re-evaluates the classification of
mortgage loans on a quarterly basis. All mortgage loans designated as
available-for-sale are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity. At September 30, 1997 the original purchase price of the Company's
mortgage loans represented the fair value of the mortgage loans.
Premiums and discounts associated with the purchase of mortgage loans are
amortized into interest income over the lives of the mortgage loans using the
effective yield method adjusted for the effects of estimated prepayments.
Mortgage loan transactions are recorded on the date the mortgage loans are
purchased or sold. Purchases of new mortgage loans are recorded when all
significant uncertainties regarding the characteristics of the mortgage loans
are removed, generally shortly before settlement date. Realized gains and losses
on mortgage loan transactions are determined on the specific identification
basis.
CREDIT RISK
The Company has limited its exposure to credit losses on its portfolio of
mortgage loans by performing an in-depth due diligence on every loan purchased.
The due diligence encompasses the borrowers credit, the enforceability of the
documents, and the value of the mortgage property. In addition many mortgage
loans are guaranteed by an agency of the federal government or private mortgage
insurance. The Company monitors the delinquencies and losses on the underlying
mortgages and makes a provision for possible credit losses at a level deemed
appropriate by management to provide for known losses as well as unidentified
potential losses in its mortgage loan portfolio if the impairment is deemed to
be other than temporary. The provision is based on management's assessment of
numerous factors affecting its portfolio of mortgage loans including, but not
limited to, current and projected economic conditions, delinquency status,
losses to date on mortgages and remaining credit protection. The provision is
made by reducing the cost basis of the individual mortgage loan and the amount
of such write down reduces earnings. No such provision was reflected at
September 30, 1997, because the mortgage loans were only acquired on September
30, 1997.
9
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
REPURCHASE AGREEMENTS
In September 1997, the Company entered into a master repurchase agreement with a
lender in an amount up to $200 million ($100 million committed and $100 million
uncommitted) for a period of one year. Any borrowings under this facility will
be secured by mortgage loans, or other securities, and will bear interest at the
six-month LIBOR, plus a spread ranging from 0.70% to 1.25%.
RELATED PARTY TRANSACTIONS
The Company has engaged HCP to source mortgage loan product and to provide due
diligence services on mortgage loan pools that the Company is considering for
purchase. At September 30, 1997 the Company reflected an amount due to HCP of
$92,000.
COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with four of its executive
officers ("Principals") each of whom is a stockholder of the Company. Such
agreements are for five (5) year terms which expire in 2002, and provide for
aggregate annual base salaries of $975,000. A portion of the aggregate base
salaries will be allocated to the Company's taxable subsidiary based on
management's actual and estimated time involved with the subsidiary's
activities.
The Company has agreed to lend (a maximum of) $1,750,000 collectively, to the
Principals to enable the Principals to pay tax on the gains they must recognize
upon contributing the HCP preferred stock to the Company for shares of the
Company's common stock. The loans will be secured solely by 116,667 shares of
the Company's common stock owned by the Principals, collectively.
As additional consideration to the Principals for their contribution of the HCP
preferred stock to the Company, the Company has agreed to (1) issue to the
Principals up to 216,667 additional shares of the Company's common stock and
(2) forgive a maximum of $1,750,000 in loans made to the Principals; if certain
financial returns to stockholders are met, at certain specified dates as
described in the Company's IPO Prospectus dated September 15, 1997.
The Company has established the 1997 Executive and Non-Employee Director Stock
Option Plan ("the 1997 Stock Option Plan"). The 1997 Stock Option Plan is
intended to provide a means of performance-based compensation in order to
attract and retain qualified personnel and to afford additional incentive to
others to increase their efforts in providing significant services to the
Company. The 1997 Stock Option Plan authorizes the grant of options to purchase
an aggregate of up to 325,333 shares of the Company's common stock. Options to
acquire 323,324 shares of the Company's common stock were granted under the 1997
Stock Option Plan at September 30, 1997.
The Company has guaranteed the line-of-credit of its majority owned subsidiary,
Hanover Capital Partners Ltd. The maximum line-of-credit obligation and the
actual line-of-credit obligation at September 30, 1997 was $1,850,000 and
$435,000, respectively.
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES
Investing activity - acquisition of a 97% ownership interest in HCP ($354,000).
Financing activity - issuance of 716,667 shares of the Company's common stock
used to acquire an equity investment in HCP ($354,000).
SUPPLEMENTAL CASH FLOW INFORMATION
The Company made no payments during the period from June 10, 1997 to September
30, 1997 for income taxes or interest expense.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Hanover Capital Mortgage Holdings, Inc. (the "Company") was incorporated in
Maryland on June 10, 1997. The Company is a self-managed real estate investment
trust ("REIT"), formed to operate as a specialty finance company. The principal
business strategy of the company is to (i) acquire primarily single-family
mortgage loans that are at least twelve months old or that were intended to be
of certain credit quality but that do not meet the originally intended market
parameters due to errors or credit deterioration, (ii) acquire multifamily
mortgage loans, and (iii) securitize the mortgage loans and retain interests
therein. The Company's principal business objective is to generate increasing
earnings and dividends for distribution to stockholders. The Company acquires
single-family mortgage loans through a network of sales representatives
targeting financial institutions throughout the United States. The Company will
acquire multifamily mortgage loans through a taxable subsidiary of the Company.
RESULTS OF OPERATIONS
The Company was organized to do business on June 10, 1997. However, operations
did not commence until September 19, 1997 (the date of the IPO closing). During
the period from September 19, 1997 through September 30, 1997, the Company
recorded interest income of $254,000. Interest income was generated primarily
from investments in government securities and U.S. Treasury bills. Total
interest expense during the period September 19, 1997 through September 30, 1997
was $126,000. Interest expense resulted primarily from the financing of U.S.
Treasury bill purchases.
General and administrative expenses totaled $95,000 during the period September
19, 1997 through September 30, 1997. The majority of these expenses were due
diligence costs relating to actual and potential mortgage loan purchases, and
initial start-up costs.
The Company's equity investment in HCP reflected earnings of $26,000 during the
period September 19, 1997 to September 30, 1997.
Net income for the period from June 10 through September 30, 1997, (which also
represents the net income for the period September 19 through September 30,
1997) was $59,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its short-term and long-term liquidity requirements
generally through its working capital and cash flow provided by operations. The
Company considers its ability to generate cash to be adequate and expects it to
continue to be adequate to meet operating requirements both in the short and
long term.
11
<PAGE> 12
Cash flows from operating activities for the period from June 10, 1997 through
September 30, 1997 was $584,000. The cash flows from operating activities was
generated from net income ($59,000), from working capital changes ($551,000) and
reduced by $26,000 for the equity in earnings of the unconsolidated subsidiary.
Net cash used in investing activities for the period from June 10 to September
30, 1997 was $21,502,000. All of the cash used in investing activities related
to the purchase of two mortgage loan pools on September 30, 1997.
Cash flows from financing activities generated $221,653,000 during the period
from June 10, 1997 to September 30, 1997. The cash flows from financing
activities represent net proceeds from repurchase agreements ($142,531,000) used
to finance the purchase of a U.S. Treasury bill and one pool of mortgage loans,
and the net proceeds of the IPO ($79,122,000).
The Company anticipates that management will continue to purchase single family
mortgage loan pools and to finance the purchase of the mortgage loans through
existing capital and reverse repurchase agreements. The Company may also realize
additional liquidity beginning in March 1998 when the stock purchase warrants
detach from the units and become exercisable.
EFFECTS OF INTEREST RATE CHANGE
Changes in interest rates may impact the Company's earnings in various ways.
While the Company anticipates that less than 25% of its mortgage loans will be
ARMs, rising short term interest rates may temporarily negatively affect the
Company's earnings. The rate of interest on an ARM loan is generally limited in
its ability to increase by either 1% or 2% per adjustment period. Mortgage loans
owned by the Company are subject to such limitations (known as periodic caps)
while the Company's borrowing rates are not subject to such limitations. In
periods of rising interest rates, the Company's net interest income could
temporarily decline as a result of the existence of these periodic caps on its
mortgage loans.
The rate of prepayment on the Company's mortgage loans may increase if interest
rates decline, or if the difference between long term and short term interest
rates diminishes. Increased prepayments would cause the Company to amortize the
premiums paid for its mortgage loans faster than currently anticipated,
resulting in a reduced yield on its mortgage loans. Additionally, to the extent
proceeds of prepayments cannot be reinvested at a rate of interest at least
equal to the rate previously earned on such mortgage loans, the Company's
earnings may be adversely affected.
12
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OTHER MATTERS
The Company calculated its Qualified REIT Assets at September 30, 1997, as
defined in the Internal Revenue Code ("Code"), to be 95.3% of the value of its
total assets, as compared to the federal tax requirement that at least 75% of
the value of its total assets must be Qualified REIT Assets. The Company also
estimates that 77.5% of its 1997 revenue will qualify for the 75% source of
income test and 99.0% of its revenue will qualify for the 95% source of income
test under the REIT rules. The Company had no income through September 30, 1997
that was subject to the 30% income limitation under the REIT rules.
Although the Company had no income through September 30, 1997 that qualified for
the 75% source of income test, the Company believes that it was in full
compliance with the REIT tax rules as of September 30, 1997 and intends to
remain in compliance with all REIT tax rules (including the 75% source of income
test, the stock ownership test, and the dividend distribution test) and to
continue to qualify as a REIT under the provisions of the Code.
The Company at all times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act. If the
Company were to become regulated as an investment company, then the Company's
use of leverage would be substantially reduced. The Investment Company Act
exempts entities that are "primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on interests in real estate"
("Qualifying Interests"). Under current interpretation of the staff of the SEC,
in order to qualify for this exemption, the Company must maintain at least 55%
of its assets directly in Qualifying Interests. As of September 30, 1997, the
Company calculates that it is in compliance with this requirement.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The preceding section, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other sections of this Quarterly
Report contain various "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and words
of similar import; and also including, without limitation, the following:
statements regarding the Company's continuing ability to target and acquire
mortgage loans; expected availability of the master repurchase agreement; the
sufficiency of the Company's working capital, cash flow and financing to support
the Company's future operating and capital requirements; results of operations
and overall financial performance; the expected dividend distribution rate; and
the expected tax treatment of the Company's operations. Such forward-looking
statements relate to future events and the future financial performance of the
Company and the industry and involve known and unknown risk, uncertainties and
other important factors which could cause actual results, performance or
achievements of the Company or industry to differ materially from the future
results, performance or achievements expressed or implied by such
forward-looking statements.
13
<PAGE> 14
Investors should carefully consider the various factors identified in the
preceding section, "Management's Discussion and Analysis of Financial Condition
and Results of Operation," and elsewhere in this Quarterly Report that could
cause actual results to differ materially from the results predicted in the
forward-looking statements. Further, the Company specifically cautions investors
to consider the following important factors in conjunction with the
forward-looking statements: the possible decline in the Company's ability to
locate and acquire mortgage loans; the possible adverse effect of changing
economic conditions, including interest rate movements and changes in the real
estate market both locally and nationally; the effect of severe weather or
natural disasters; the effect of competitive pressures from other financial
institutions, including mortgage REITS; and the possible changes, if any, in the
Code REIT rules. Because of the foregoing factors, the actual results achieved
by the Company in the future may differ materially from the expected results
described in the forward-looking statements.
14
<PAGE> 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings
During the third quarter of 1997, there have been no
material developments with respect to legal proceedings
to which the Company or any of its affiliates have been
a party.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of matters to a vote of Security Holders
Not applicable
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits filed with this form 10-Q
10.28 - Master Repurchase Agreement Governing Purchases
and Sales of Mortgage Loans, between Nomura Asset Capital
Corporation and Hanover Capital Mortgage Holdings, Inc.,
dated September 29, 1997
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
Dated: November 10, 1997 By: /s/ John A. Burchett
------------------- ----------------------------------
John A. Burchett
Chairman of the Board of Directors
Dated: November 10, 1997 By: /s/ Ralph F. Laughlin
------------------- ----------------------------------
Ralph F. Laughlin
Chief Financial Officer and
Principal Accounting Officer
16
<PAGE> 1
EXHIBIT 10.28
MASTER REPURCHASE AGREEMENT GOVERNING
PURCHASES AND SALES OF MORTGAGE LOANS
Dated as of September 29, 1997
Between:
NOMURA ASSET CAPITAL CORPORATION, AS BUYER
and
HANOVER CAPITAL MORTGAGE HOLDINGS, INC., AS SELLER
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in which
Hanover Capital Mortgage Holdings, Inc. ("SELLER"), agrees to transfer to
Nomura Asset Capital Corporation ("BUYER") Mortgage Loans against the
transfer of funds by Buyer, with a simultaneous agreement by Buyer to
transfer to Seller such Mortgage Loans at a date certain not later than one
hundred and eighty (180) days or on demand, as specified in the
Confirmation, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "TRANSACTION" and shall be
governed by this Agreement and the related Confirmation, unless otherwise
agreed in writing.
2. DEFINITIONS
"ACT OF INSOLVENCY" means, with respect to any party, and its Affiliates,
(i) the filing of a petition, commencing, or authorizing the commencement
of any case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law relating to the protection of
creditors, or suffering any such petition or proceeding to be commenced by
another; (ii) seeking the appointment of a receiver, trustee, custodian or
similar official for such party or an Affiliate or any substantial part of
the property of either, (iii) the appointment of a receiver, conservator,
or manager for such party or an Affiliate by any governmental agency or
authority having the jurisdiction to do so; (iv) the making or offering by
such party or an Affiliate of a composition with its creditors or a general
assignment for the benefit of creditors, (v) the admission by such party or
an Affiliate of such party's or such Affiliate's inability to pay its debts
or discharge its obligations as they become due or mature; or (vi) any
governmental authority or agency or any person, agency or entity acting or
purporting to act under governmental authority shall have taken any action
to condemn, seize or appropriate, or to assume custody or control of, all
or any substantial part of the property of such party or of any of its
Affiliates, or shall have taken any action to displace the management of
such party or of
<PAGE> 2
any of its Affiliates or to curtail its authority in the conduct of the
business of such party or of any of its Affiliates.
"ADDITIONAL LOANS" means Mortgage Loans or cash provided by Seller to Buyer
or its designee pursuant to Section 4(a).
"AFFILIATE" means an affiliate of a party as such term is defined in the
United States Bankruptcy Code in effect from time to time.
"AGENCY" means FNMA, FHLMC or GNMA.
"AGENCY PROGRAM" means the mortgage backed securities program(s) identified
in the Confirmation to which the Conforming Mortgage Loans (on an
individual and pooled basis) conform.
"AGREEMENT" means this Master Repurchase Agreement Governing Purchases and
Sales of Mortgage Loans, as amended from time to time.
"ASSIGNMENT OF LEASES AND RENTS" means an assignment of the rents and lease
payments related to a Mortgage, notice of transfer or equivalent instrument
in recordable form, sufficient under the laws of the jurisdiction wherein
the related Mortgaged Property is located to reflect the transfer of the
rents and lease payments to the party indicated therein.
"ASSIGNMENT OF MORTGAGE" means an assignment of the Mortgage, notice of
transfer or equivalent instrument in recordable form, sufficient under the
laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect the transfer of the Mortgage to the party indicated therein.
"ASSIGNMENT OF TAKEOUT" means a collateral assignment of a Takeout
Commitment executed by the Seller for the benefit of the Buyer in the form
of Exhibit VI.
"BUSINESS DAY" means a day other than (i) a Saturday or Sunday, or (ii) a
day in which the New York Stock Exchange or Federal Reserve is authorized
or obligated by law or executive order to be closed.
"BUYER" has the meaning specified in Section 1.
"COLLATERAL" has the meaning specified in Section 6.
"COLLATERAL AMOUNT" means, with respect to any Transaction, the amount
obtained by application of the Collateral Amount Percentage to the Market
Value of the Purchased Mortgage Loans for such Transaction.
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<PAGE> 3
"COLLATERAL AMOUNT PERCENTAGE" means, with respect to Non-Conforming
Residential Mortgage Loans, 97%, and (ii) with respect to Commercial
Mortgage Loans, 90%.
"COLLATERAL DEFICIT" has the meaning specified in Section 4(a).
"COMMERCIAL MORTGAGE LOANS" means mortgages secured by commercial
properties, which conform to the standards for such loans as set forth on
Exhibit V attached hereto.
"COMMITMENT FEE" has the meaning specified in Section 3(f).
"COMMITTED AMOUNT" has the meaning specified in Section 3(f).
"CONFIRMATION" has the meaning specified in Section 3(a).
"CONFORMING MORTGAGE LOAN" means a Mortgage Loan which meets the
requirements of the applicable Agency Program and otherwise conforms with
the representations and warranties set forth in Exhibit V.
"CUSTODIAL AGREEMENT" means that custodial agreement, dated as of the date
hereof by and among, Buyer, Seller and Custodian.
"CUSTODIAL DELIVERY" means the form executed by the Seller in order to
deliver the Mortgage File to Buyer or its designee (including the
Custodian) pursuant to Section 7(c), a form of which is attached hereto as
Exhibit II.
"CUSTODIAN" means The First National Bank of Chicago, as custodian under
the Custodial Agreement.
"EVENT OF DEFAULT" has the meaning specified in Section 13.
"FHA" means the Federal Housing Administration, an agency within HUD.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FHLMC GUIDE" means the FHLMC Sellers/Servicers Guide, as amended from time
to time.
"FNMA" means the Federal National Mortgage Association.
"FNMA GUIDE" means the FNMA Selling, Servicing and MBS Guides, as amended
from time to time.
"GNMA" means the Government National Mortgage Association.
"GNMA GUIDE" means the GNMA Mortgage-Backed Securities Guide, as amended
from
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<PAGE> 4
time to time.
"HUD" means the United States Department of Housing and Urban Development.
"INCOME" means, with respect to any Mortgage Loan at any time, any
principal thereof then payable and all interest, dividends or other
distributions payable thereon less any related servicing fee(s) charged by
the Servicer.
"MARKET VALUE" means as of any date with respect to any Mortgage Loans, the
price at which such Mortgage Loans could readily be sold as reasonably
determined in good faith by Nomura; provided, however, that in making such
determination, Nomura shall not take into account (i) any Mortgage Loan
that has been delinquent for at least ninety (90) days and for which all
delinquent payments shall not have been advanced by the related Servicer or
(ii) any Mortgage Loan with respect to which there is a breach of a
representation, warranty or covenant made by Seller in this Agreement or
the Custodial Agreement that materially adversely affects Buyer's interest
in such Mortgage Loan and which breach has not been cured.
"MORTGAGE" means a mortgage, deed of trust, deed to secure debt or other
instrument, creating a valid and enforceable first lien on or first
priority ownership interest in an estate in fee simple in real property and
the improvements thereon, securing a mortgage note or similar evidence of
indebtedness.
"MORTGAGE BACKED SECURITIES PROGRAM" means the mortgage loan securitization
programs of GNMA, FNMA, and FHLMC, collectively.
"MORTGAGE FILE" means the documents specified as the "Mortgage File" in
Section 7(c), together with any additional documents and information
required to be delivered to Buyer or its designee (including the Custodian)
pursuant to this Agreement.
"MORTGAGE LOAN" means non-securitized whole loans, namely: (i) Conforming
Mortgage Loans; (ii) Non-Conforming Residential Mortgage Loans; (iii)
Commercial Mortgage Loans; and (iv) such other types of non-securitized
whole loans or participations therein as may be agreed upon by the parties
hereto from time to time.
"MORTGAGE LOAN SCHEDULE" means a schedule of Mortgage Loans attached to
each Trust Receipt, Confirmation and Custodial Delivery which includes the
information set forth in Exhibit II.
"MORTGAGE NOTE" means a note or other evidence of indebtedness of a
Mortgagor secured by a Mortgage.
"MORTGAGED PROPERTY" means the real property securing repayment of the debt
evidenced by a Mortgage Note.
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<PAGE> 5
"MORTGAGEE" means the record holder of a Mortgage Note secured by a
Mortgage.
"MORTGAGOR" means the obligor on a Mortgage Note and the grantor of the
related Mortgage.
"NOMURA" means Nomura Asset Capital Corporation, a corporation organized
under the laws of the State of Delaware.
"NON-CONFORMING RESIDENTIAL MORTGAGE LOAN" means a residential Mortgage
Loan other than a Conforming Mortgage Loan and Non-Performing Mortgage Loan
and otherwise conforms to the representations and warranties set forth in
Exhibit V.
"NON-PERFORMING MORTGAGE LOAN" means a Mortgage Loan that has been
delinquent for at least ninety (90) days.
"PERIODIC PAYMENT" has the meaning specified in Section 5(b).
"PRICE DIFFERENTIAL" means, with respect to any Transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing
Rate for such Transaction to the Purchase Price for such Transaction on a
360 day per year basis for the actual number of days during the period
commencing on (and including) the Purchase Date for such Transaction and
ending on (but excluding) the Repurchase Date (reduced by any amount of
such Price Differential previously paid by Seller to Buyer with respect to
such Transaction).
"PRICING RATE" means, (i) with respect to Non-Conforming Residential
Mortgage Loans, Appropriate LIBOR plus 70 basis points, and (ii) with
respect to Commercial Mortgage Loans, Appropriate LIBOR plus 125 basis
points. 'Appropriate LIBOR' shall be the rate per annum for U.S. dollar
deposits for the period most closely approximating the term of the related
Transaction (not to exceed 180 days) which appears on page 12 of telerate
at 10:00 a.m. (New York time) two Business Days prior to the related
Purchase Date.
"PRIME RATE" means the rate of interest published by The Wall Street
Journal, northeast edition, as the "prime rate".
"PURCHASE DATE" means the date on which Purchased Mortgage Loans are
transferred by Seller to the Buyer or its designee (including the
Custodian) as specified in the Confirmation.
"PURCHASE PRICE" means on each Purchase Date, the price at which Purchased
Mortgage Loans are transferred by Seller to Buyer or its designee
(including the Custodian).
"PURCHASED MORTGAGE LOANS" means the Mortgage Loans sold by Seller to Buyer
in a Transaction, any Additional Loans and any Substituted Mortgage Loans.
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<PAGE> 6
"REPLACEMENT ASSETS" has the meaning specified in Section 14(b).
"REPURCHASE DATE" means the date on which Seller is to repurchase the
Purchased Mortgage Loans from Buyer, including any date determined by
application of the provisions of Sections 3 or 14, as specified in the
Confirmation.
"REPURCHASE PRICE" means the price at which Purchased Mortgage Loans are to
be transferred from Buyer or its designee (including the Custodian) to
Seller upon termination of a Transaction, which will be determined in each
case (including Transactions terminable upon demand) as the sum of the
Purchase Price and the Price Differential as of the date of such
determination decreased by all cash, Income and Periodic Payments actually
received by Buyer pursuant to Sections 4(a), 5(a) and 5(b), respectively.
"SELLER" means Hanover Capital Mortgage Holdings, Inc., a Maryland
corporation that elects REIT status.
"SELLER RELEASE" means, if there is no Warehouse Lender with respect to a
Mortgage Loan, a letter from the Seller to Buyer, substantially in the form
of an exhibit to the Custodial Agreement, confirming such fact and
releasing any and all right, title and interest of the Seller in such
Mortgage Loan.
"SERVICER" has the meaning specified in Section 25.
"SERVICING AGREEMENT" has the meaning specified in Section 25.
"SERVICING RECORDS" has the meaning specified in Section 25.
"SUBSTITUTED MORTGAGE LOANS" means any Mortgage Loans substituted for
Purchased Mortgage Loans in accordance with Section 9 hereof.
"TAKEOUT COMMITMENT" means an agreement by an investor or financial
institution to purchase Mortgage Loans on a forward delivery basis.
"TAKEOUT INVESTOR" means the investor or financial institution which agrees
to purchase Mortgage Loans pursuant to a Takeout Commitment.
"TRANSACTION" has the meaning specified in Section 1.
"TRUST RECEIPT" means a trust receipt issued by Custodian to Buyer
confirming the Custodian's possession of certain mortgage loan files which
are the property of and held by Custodian for the benefit of the Buyer or
the registered holder thereof.
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<PAGE> 7
"WAREHOUSE LENDER" means any lender providing financing to the Seller for
the purpose of originating Mortgage Loans and having a security interest in
or lien on the Mortgage Loans as collateral for the obligations of the
Seller to such lender with respect to the financing.
"WAREHOUSE LENDER RELEASE" means a letter from each Warehouse Lender, or
the collateral or credit agent on behalf of each Warehouse Lender, as
applicable, having a security interest in or lien on a Mortgage Loan,
substantially in the form of a exhibit to the Custodial Agreement,
addressed to Buyer, releasing any and all right, title and interest of the
Warehouse Lender in such Mortgage Loan.
3. INITIATION; CONFIRMATION; TERMINATION
(a) An agreement to enter into a Transaction may be entered into orally or
in writing at the initiation of either Buyer or Seller. In any event, Buyer
shall confirm the terms of each Transaction by issuing a written
confirmation to the Seller promptly after the parties enter into such
Transaction containing the terms set forth on Exhibit I attached hereto (a
"CONFIRMATION"). Such Confirmation shall describe the Purchased Mortgage
Loans, identify Buyer and Seller and set forth (i) the Purchase Date, (it)
the Purchase Price, (iii) the Repurchase Date, (iv) the Pricing Rate
applicable to the Transaction, and (v) may contain additional terms or
conditions not inconsistent with this Agreement. After receipt of the
Confirmation, the Seller shall, subject to the provisions of subsection (c)
below, sign the Confirmation and promptly return it to Buyer.
(b) Any Confirmation by Buyer shall be deemed to have been received by
Seller on the date actually received by Seller.
(c) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected
to in writing by the Seller no more than two (2) Business Days after the
date the Confirmation was received by the Seller or unless a corrected
Confirmation is sent by Buyer. An objection sent by the Seller must state
specifically that the writing is an objection, must specify the
provision(s) being objected to by the Seller, must set forth such
provision(s) in the manner that the Seller believes they should be stated,
and must be received by Buyer no more than two (2) Business Days after the
Confirmation was received by the Seller.
(d) Reserved.
(e) On the Repurchase Date, termination of the Transaction will be effected
by transfer to Seller or its designee of the Purchased Mortgage Loans (and
any Income in respect thereof received by Buyer not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to
Section 5) against the simultaneous transfer of the Repurchase Price to an
account of Buyer. Seller is obligated to obtain the Mortgage Files
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<PAGE> 8
from Buyer or its designee (including the Custodian) at Seller's expense on
the Repurchase Date.
(f) In consideration of a fee (the "COMMITMENT FEE") to be paid by Seller
to Buyer prior to the initial Transaction in an amount equal to the product
of 10 basis points multiplied by $100,000,000 (the "COMMITTED AMOUNT"),
Buyer shall, for the term of this Agreement, commit to purchase Mortgage
Loans from the Seller so long as (i) the aggregate Purchase Price for
Mortgage Loans purchased on a committed basis under to this Agreement does
not exceed the Committed Amount; (ii) the aggregate Purchase Price for
Mortgage Loans purchased by Buyer on a committed basis and for Mortgage
Loans purchased by Buyer pursuant to the exercise of Buyer's option
described in subparagraph (g), below, does not exceed $200,000,000; (iii)
the Mortgage Loans comply with the representations and warranties set forth
herein; (iv) no Event of Default has occurred or is continuing; and (v)
Seller gives Buyer two Business Days' notice prior to entering a
Transaction.
(g) Buyer shall have the option, but not the obligation, to purchase
additional Mortgage Loans which causes the aggregate Purchase Price for all
Mortgage Loans purchased under this Agreement to exceed the Committed
Amount; provided, however, that the Seller shall not request the Buyer to
purchase, and the Buyer shall not purchase, Mortgage Loans that would cause
the aggregate Purchase Price for all Mortgage Loans subject to this
Agreement to exceed $200,000,000.
(h) Seller shall pay to Buyer a non-utilization fee to be paid on such
dates and to be calculated as follows: (i) on the six-month anniversary of
the date of this Agreement, an amount equal to 10 basis points (on an
annualized basis) multiplied by the positive difference, if any, between
$50,000,000 minus the average daily Purchase Price for the three-month
period commencing on the date three months after the date of this
Agreement; (ii) on the nine-month anniversary of the date of this
Agreement, an amount equal to 10 basis points (on an annualized basis)
multiplied by the positive difference, if any, between $50,000,000 minus
the average daily Purchase Price for the three-month period commencing on
the date six months after the date of this Agreement; and (iii) on the one
year anniversary of the date of this Agreement, an amount equal to 10 basis
points (on an annualized basis) multiplied by the positive difference, if
any, between $100,000,000 minus the average daily Purchase Price for the
three-month period commencing on the date nine months after the date of
this Agreement.
(i) If Seller delivers to Buyer a Takeout Commitment with respect to any of
the Purchased Mortgage Loans and the purchase date set forth on such
Takeout Commitment is in a date prior to the Repurchase Date, Seller may
repurchase such Purchased Mortgage Loans without payment of any breakage
costs; provided, however that Seller may not avail itself of the
forbearance set forth in this section more than twice excluding the
Repurchase Date.
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<PAGE> 9
4. COLLATERAL AMOUNT MAINTENANCE
(a) If at any time the Repurchase Price of Purchased Mortgage Loans subject
to a Transaction is greater than the Collateral Amount for such Transaction
(a "COLLATERAL DEFICIT"), then Buyer may by notice to Seller require
Seller, to transfer to Buyer or its designee (including the Custodian)(at
the Buyer's option) Mortgage Loans or cash ("ADDITIONAL LOANS"), so that
the Repurchase Price shall be no greater than the Collateral Amount.
(b) Notice required pursuant to subsection (a) above may be given by any
means of telecopier or telegraphic transmission. A notice for the payment
or delivery in respect of a Collateral Deficit received before 10:00 a.m.
(New York time) on a Business Day must be met not later than 4:00 p.m. (New
York time) on the Business Day on which the notice was given. Any notice
given on a Business Day after 10:00 a.m. (New York time) shall be met not
later twenty-four hours following such notice, unless such time is not a
Business Day, in which case such notice shall be met no later than 10:00
a.m. (New York time) on the next Business Day. The failure of Buyer, on any
one or more occasions, to exercise its rights under subsection (a) of this
Section shall not change or alter the terms and conditions to which this
Agreement is subject or limit the right of the Buyer to do so at a later
date. Buyer agrees that a failure or delay to exercise its rights under
subsection (a) of this Section shall not limit its rights under this
Agreement or otherwise existing by law or in any way create additional
rights for the Seller.
5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income payment
date on the Purchased Mortgage Loans subject to that Transaction such
Income shall be the property of Buyer. Notwithstanding the foregoing, Buyer
agrees that (i) if a Servicer is in place for the Purchased Mortgage Loans,
Servicer shall continue to remit Income to Seller, or (ii) if Seller is the
servicer of the Purchased Mortgage Loans, Seller is permitted to retain the
Income, until and unless Buyer directs Servicer or Seller, as the case may
be, to hold such Income in a segregated account for and on behalf of Buyer
and/or to remit such Income directly to Buyer.
(b) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller shall
pay to Buyer the accreted value of the Price Differential (less any amount
of such Price Differential previously paid by Seller to Buyer)(each such
payment, a "PERIODIC PAYMENT") on the first Business Day of each month.
(c) Buyer shall offset against the Repurchase Price of each such
Transaction all Income and Periodic Payments actually received by Buyer
pursuant to Sections 5(a) and (b), respectively.
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6. SECURITY INTEREST
The Buyer and the Seller intend that the Transactions hereunder be sales to
the Buyer of the Purchased Mortgage Loans and not loans from the Buyer to
the Seller secured by the Purchased Mortgage Loans. However, in order to
preserve the Buyer's rights under this Agreement in the event that a court
or other forum recharacterizes the Transactions hereunder as loans and as
security for the performance by Seller of all of Seller's obligations to
Buyer under this Agreement and the Transactions entered into pursuant to
this Agreement, Seller grants Buyer a first priority security interest in
the Purchased Mortgage Loans, Servicing Agreements, Servicing Records,
insurance relating to the Mortgage Loans, Income, custodial accounts and
escrow accounts relating to the Mortgage Loans and any other contract
rights (including the right to receive principal and interest payments with
respect to the Mortgage Loans and the right to enforce such payments),
general intangibles and other assets relating to the Mortgage Loans or any
interest in the Mortgage Loans, the servicing of the Mortgage Loans
(including the right to contract for servicing), securities backed by or
representing an interest in such Mortgage Loans, Takeout Commitments and
any other property of Seller (including hedge or swap contracts) held from
time to time by Buyer or its Affiliates (collectively, the "Collateral").
7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
(b) On the Purchase Date for each Transaction, ownership of the Purchased
Mortgage Loans shall be transferred to the Buyer or its designee (including
the Custodian) against the simultaneous transfer of the Purchase Price to
an account of Seller specified in the Confirmation. Seller, simultaneously
with the delivery to the Buyer or its designee (including the Custodian) of
the Purchased Mortgage Loans relating to each Transaction hereby sells,
transfers, conveys and assigns to Buyer or its designee (including the
Custodian) without recourse, but subject to the terms of this Agreement,
all the right, title and interest of Seller in and to the Purchased
Mortgage Loans together with all right, title and interest in and to the
proceeds of any related insurance policies. Upon transfer of the Mortgage
Loans to Buyer as set forth in Paragraph 3(a) of this Agreement and until
termination of any Transactions as set forth in this Agreement, record
title in the name of Seller to each Mortgage Loan shall be retained by
Seller in trust, for the benefit of Buyer, for the sole purpose of
facilitating the servicing and the supervision of the servicing of the
Mortgage Loans by Seller in accordance with Section 25 hereof.
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(c) In connection with such sale, transfer, conveyance and assignment, on
or prior to each Purchase Date, the Seller shall deliver or cause to be
delivered and released to Buyer or its designee (including the Custodian),
prior to Buyer's purchase therefor, (i) with respect to each Commercial
Mortgage Loan, the original documents listed below pertaining to each of
the Purchased Mortgage Loans identified in the Custodial Delivery delivered
therewith; and (ii) with respect to each Non-Conforming Residential
Mortgage Loan, all documents constituting the Mortgage File in its
possession and pertaining to each of the Purchase Mortgage Loans identified
in the Custodial Delivery delivered therewith, but at the very least shall
consist of the items listed in subsections (i), (iii), (v), (vi) (xiv) and
(xv), below (each, a "MORTGAGE FILE").
(i) the original Mortgage Note bearing all intervening endorsements,
endorsed "Pay to the order of , without recourse" and
signed in the name of the Seller by an authorized officer (in the
event that the Mortgage Loan was acquired in a merger, the signature
must be in the following form: "[owner], successor by merger to [name
of predecessor]"; in the event that the Mortgage Loan was acquired or
originated while doing business under another name, the signature must
be in the following form: "[owner], formerly known as [previous
name]";
(ii) the original of any guarantee executed in connection with the
Mortgage Note (if any);
(iii) the original or a copy of the Mortgage with evidence of
recording thereon or copies certified by Seller to have been sent for
recording;
(iv) the originals of all assumption, modification, consolidation or
extension agreements, with evidence of recording thereon or copies
certified by Seller to have been sent for recording;
(v) the original Assignment of Mortgage in blank for each Mortgage
Loan, in form and substance acceptable for recording and signed in the
name of the Seller; in the event that the Mortgage Loan was acquired
in a merger, the signature must be in the following form: "[owner],
successor by merger to [name of predecessor]"; in the event that the
Mortgage Loan was acquired or originated while doing business under
another name, the signature must be in the following form: "[owner],
formerly known as [previous name]";
(vi) the originals of all intervening assignments of mortgage that
complete the chain of ownership from the original owner to the Seller,
with evidence of recording thereon or copies certified by Seller to
have been sent for recording;
(vii) the original fire and casualty insurance policy covering the
mortgaged property which is an amount at least equal to the
outstanding principal balance of
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the Mortgage Loan, as well as the original insurance against flood
hazards if the Mortgaged Property is an area identified by the Federal
Emergency Management Agency as having special flood hazards;
(viii) with respect to any Mortgage Loan that has been outstanding for
five (5) years or less, an appraisal of the related mortgaged property
signed prior to the approval of the Mortgage Loan application by a
qualified appraiser, duly appointed by the originator of the Mortgage
Loan;
(ix) the original Assignment of Leases and Rents, if any, with
evidence of recording thereon, in form and substance acceptable for
recording;
(x) the originals of all intervening assignments of Assignment of
Leases and Rents that complete the chain of ownership from the
original owner to the Seller, executed by the Seller with assignee in
blank, in form and substance acceptable for recording and signed in
the name of the Seller;
(xi) a copy of the UCC-1 Financing Statement, certified as true and
correct by the Seller or recording agent, stating Seller as Secured
Party, together with an assignment of UCC-1 executed by Seller with
the secured party in blank, but if the UCC-1 does not name "Seller" as
the secured party, the Mortgage File shall contain all intervening
assignments that complete the chain of assignment from the original
secured party to the Seller, and, if provided, a UCC-3 Continuation
Statement;
(xii) attorney's opinion of title and abstract of title or the
original mortgagee title insurance policy, or if the original
mortgagee title insurance policy has not been issued, the preliminary
title report, binder or commitment to insure;
(xiii) the original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage;
(xiv) with respect to each Non-Conforming Mortgage Loan, the original
of any lost note affidavit duly executed and containing a copy of the
original Mortgage Note;
(xv) with respect to each Non-Conforming Mortgage Loan, in the case of
participation interests, a participation certificate, together with an
assignment executed by the participant for the benefit of an assignee
in blank, and a schedule which contains the following information:
mortgagor name; unpaid principal balance; participation percentage;
gross coupon; net note rate; servicing fee; date to which interest has
been paid; accrued interest; maturity date (if available);
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(xvi) either a Seller Release or a Warehouse Lender Release from any
Warehouse Lender having a security interest in a Mortgage Loan, as
appropriate; and
(xvii) any other item which may constitute part of the Mortgage File.
(d) Prior to the first Transaction, Seller shall deliver to Buyer the
following which shall be held in escrow by the Buyer until the termination
of this Agreement or the occurrence of an Event of Default:
(i) a fully executed power of attorney substantially in the form of
Exhibit III attached hereto irrevocably appointing Buyer its
attorney-in-fact with full power to complete and record the Assignment
of Mortgage, complete the endorsement of the Mortgage Note and take
such other steps as may be necessary or desirable to enforce Buyer's
rights against such Mortgage Loans, the related Mortgage Files and the
Servicing Records;
(ii) a fully executed irrevocable letters of instructions to Servicers
or Master Servicers, substantially in the form of Exhibit IV attached
hereto, directing such Servicers or Master Servicer to make all
payments of Income directly to Buyer; and
(iii) a fully executed Assignment of Takeout, substantially in the
form of Exhibit VI attached hereto, directing such Takeout Investor
(i) to accept delivery of the Mortgage Loans subject thereto from
Buyer and (ii) to pay Buyer the purchase price for the Mortgage Loans
set forth in the Takeout Commitment.
(e) Buyer may deposit the Mortgage Files representing the Purchased
Mortgage Loans, or direct that the Mortgage Files be deposited directly,
with a designee acting in the capacity of bailee for the Buyer. If the
Mortgage Files are delivered to Buyer or its designee, Buyer or its
designee shall during the term of this Agreement exercise reasonable and
prudent care in the maintenance thereof. If the Mortgage Loan Documents are
delivered to Custodian, the Mortgage Files shall be maintained in
accordance with the Custodial Agreement. The Seller understands and agrees
that the Custodian shall have no responsibility to the Seller, including
without limitation any responsibility to keep the Seller informed of any
changes in the status of such Mortgage Files or in the Buyer's instructions
with respect thereto, except as explicitly set forth in the Custodial
Agreement.
(f) Any Mortgage Files not delivered to Buyer or its designee (including
the Custodian) are and shall be held in trust by the Seller or its designee
for the benefit of the Buyer as the owner thereof. The Seller or its
designee shall maintain a copy of the Mortgage File and the originals of
the Mortgage File not delivered to Buyer or its designee (including
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the Custodian). The possession of the Mortgage File by the Seller or its
designee is at the will of the Buyer for the sole purpose of servicing the
related Purchased Mortgage Loan, and such retention and possession by the
Seller or its designee is in a custodial capacity only. Each Mortgage File
retained or held by the Seller or its designee shall be segregated on the
Seller's books and records from the other assets of the Seller or its
designee and the books and records of the Seller or its designee shall be
marked appropriately to reflect clearly the sale of the related Purchased
Mortgage Loan to the Buyer. The Seller or its designee shall release its
custody of the Mortgage File only in accordance with written instructions
from the Buyer, unless such release is required as incidental to the
servicing of the Purchased Mortgage Loans or is in connection with a
repurchase of any Purchased Mortgage Loan by Seller.
8. HYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS
Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer shall
have free and unrestricted use of all Purchased Mortgage Loans. Nothing in
this Agreement shall preclude Buyer from engaging in repurchase
transactions with the Purchased Mortgage Loans or otherwise pledging,
repledging, hypothecating, or rehypothecating the Purchased Mortgage Loans,
but no such transaction shall relieve Buyer of its obligations to transfer
Purchased Mortgage Loans to Seller pursuant to Section 3. Nothing contained
in this Agreement shall obligate Buyer to segregate any Purchased Mortgage
Loans delivered to Buyer by Seller. Without limiting any of Buyer's rights
pursuant to this section and pursuant to the Custodial Agreement, Buyer
shall not pledge or rehypothecate the Mortgage Loans if such pledge or
rehypothecation shall require the removal of the Mortgage File from the
Custodian.
9. SUBSTITUTION
(a) Subject to Section 9(b), Seller may, upon one (1) Business Days written
notice to Buyer, with a copy to Custodian, substitute other Mortgage Loans
for any Purchased Mortgage Loans. Such substitution shall be made by
transfer to Buyer or its designee (including the Custodian) of the Mortgage
File of such other Mortgage Loans together with a Custodial Delivery and
transfer to Seller or its designee of the Purchased Mortgage Loans
requested for release. After substitution, the substituted Mortgage Loans,
shall be deemed to be Purchased Mortgage Loans.
(b) Notwithstanding anything to the contrary in this Agreement, Seller may
not substitute other Mortgage Loans for any Purchased Mortgage Loans if (i)
after taking into account such substitution, a Collateral Deficit were to
occur, or (ii) Buyer does not consent to such substitution.
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10. REPRESENTATIONS
(a) As of each Purchase Date, each of Buyer and Seller represents and
warrants to the other that (i) it is duly authorized to execute and deliver
this Agreement, to enter into the Transactions contemplated hereunder and
to perform its obligations hereunder and has taken all necessary action to
authorize such execution, delivery and performance; (ii) it will engage in
such Transactions as principal (or, if agreed in writing in advance of any
Transaction by the other party hereto, as agent for a disclosed principal);
(iii) the person signing this Agreement on its behalf is duly authorized to
do so on its behalf (or on behalf of any such disclosed principal); (iv) no
approval, consent or authorization of the Transactions contemplated by this
Agreement from any federal, state, or local regulatory authority having
jurisdiction over it is required or, if required, such approval, consent or
authorization has been or will, prior to the Purchase Date, be obtained;
(v) the execution, delivery, and performance of this Agreement and the
Transactions hereunder will not violate any law, regulation, order,
judgment, decree, ordinance, charter, by-law, or rule applicable to it or
its property or constitute a default (or an event which, with notice or
lapse of time, or both would constitute a default) under or result in a
breach of any agreement or other instrument by which it is bound or by
which any of its assets are affected; (vi) it has received approval and
authorization to enter into this Agreement and each and every Transaction
actually entered into hereunder pursuant to its internal policies and
procedures; (vii) neither this Agreement nor any Transaction pursuant
hereto are entered into in contemplation of insolvency or with intent to
hinder, delay or defraud any creditor; and (viii) the execution, delivery,
and performance of this Agreement and the Transactions hereunder will not
adversely affect the status of the Seller as a real estate investment
trust.
(b) The Seller represents and warrants to the Buyer that as of the Purchase
Date for the purchase of any Purchased Mortgage Loans by the Buyer from the
Seller and as of the date of this Agreement and any Transaction hereunder
and at all times while this Agreement and any Transaction thereunder is in
full force and effect:
(i) Organization. The Seller is a real estate investment trust duly
organized, validly existing and in good standing under the laws and
regulations of the state of Seller's organization and is duly
licensed, qualified, and in good standing in every state where Seller
transacts business and in any state where any Mortgaged Property is
located if the laws of such state require licensing or qualification
in order to conduct business of the type conducted by the Seller.
(ii) No Litigation. There is no action, suit, proceeding,
investigation, or arbitration pending or, to the best of Seller's
knowledge, threatened against the Seller which may result in any
material adverse change in the business, operations, financial
condition, properties, or assets of the Seller, or which may have an
adverse effect on the validity of this Agreement or the Purchased
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Mortgage Loans Assets or any action taken or to be taken in connection
with the obligations of the Seller contemplated herein.
(iii) No Broker. The Seller has not dealt with any broker, investment
banker, agent, or other person, except for the Buyer, who may be
entitled to any commission or compensation in connection with the sale
of Purchased Mortgage Loans pursuant to this Agreement; provided, that
if Seller has dealt with any broker, investment banker, agent, or
other person, except for the Buyer, who may be entitled to any
commission or compensation in connection with the sale of Purchased
Mortgage Loans pursuant to this Agreement, such commission or
compensation shall have been paid in full by Seller.
(iv) CORPORATE SEPARATENESS FROM CUSTODIAN. The Seller and Custodian
maintains wholly separate business, principal offices and have no
interlocking offices or directors.
(v) GOOD TITLE TO COLLATERAL. Purchased Mortgage Loans shall be free
and clear of any lien, encumbrance or impediment to transfer, and the
Seller represents and warrants the foregoing to the Buyer and
represents and warrants that it has good, valid and marketable title
or right to sell and transfer such Purchased Mortgage Loans to the
Buyer.
(vi) Delivery of Mortgage File. The Mortgage Note, the Mortgage, the
Assignment of Mortgage and any other documents required to be
delivered under this Agreement or the Custodial Agreement for the
Mortgage Loans have been delivered to the Custodian. The Seller or its
designee is in possession of a complete, true and accurate Mortgage
File, except for such documents the originals of which have been
delivered to the Custodian.
(vii) Reserved.
(viii) ADDITIONAL REPRESENTATIONS AND WARRANTIES BY INSURED DEPOSITORY
INSTITUTIONS. If Seller is an "insured depository institution" as that
term is defined in Section 1813(a) of Title 12 of the United States
Code, as amended, Seller makes the following additional
representations and warranties:
(A) This Agreement between Buyer and Seller conforms to all applicable
statutory requirements. This Agreement is (1) executed
contemporaneously with the agreement reached by Buyer and Seller, (2)
approved by a specific corporate or banking association resolution by
the Seller's board of directors, which approval shall be reflected in
the minutes of said board, and (3) continuously, from the time of its
execution, an official record of the Seller. A copy of such
resolution, certified by a vice president or higher officer of Seller
has been
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provided to Buyer.
(B) Seller will maintain a copy of this Agreement and each
Confirmation in its official books and records and shall make same
available for Buyer's inspection and copying on one Business Day's
notice.
(C) The aggregate amount of the Transactions outstanding as of any
date between Buyer and Seller shall not exceed any restrictions or
limitations imposed by the board of directors of Seller.
(c) The Seller represents and warrants to the Buyer that each Mortgage Loan
sold hereunder and each pool of Mortgage Loans sold in a Transaction
hereunder, as of the related Purchase Date conform to the representations
and warranties set forth in Exhibit V attached hereto and such additional
representations and warranties provided in the Confirmation, if any, and
that each Mortgage Loan delivered hereunder as Additional Loans or
Substituted Mortgage Loans, as of the date of such delivery, conforms to
the representations and warranties set forth in Exhibit V hereto and the
Confirmation, if any. Buyer may in its sole discretion waive any of the
representations and warranties set forth in Exhibit V attached hereto;
provided, that such waiver must be set forth in the related Confirmation.
It is understood and agreed that the representations and warranties set
forth in Exhibit V hereto and the Confirmation, if any, shall survive
delivery of the respective Mortgage File to Buyer or its designee
(including the Custodian).
(d) On the Purchase Date for any Transaction, Buyer and Seller shall each
be deemed to have made all the foregoing representations with respect to
itself as of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, the
Seller covenants that it will not:
(a) take any action which would directly or indirectly impair or adversely
affect the Buyer's title to or the value of the Purchased Mortgage Loans;
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or
otherwise transfer any interest in the Purchased Mortgage Loans to any
person not a party to this Agreement nor will the Seller create, incur or
permit to exist any lien, encumbrance or security interest in or on the
Purchased Mortgage Loans except as described in Section 6 of this
Agreement;
(c) without Buyer's prior consent, Seller and those acting on behalf of
Seller shall not amend or modify, or waive any term or condition of, or
settle or compromise any claim in respect of, any item of the Purchased
Mortgage Loans or any related rights.
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12. AFFIRMATIVE COVENANTS OF THE SELLER
(a) Seller covenants that it will promptly notify Buyer of any material
adverse change in its business operations and/or financial condition,
provided, however, that nothing in this Section 12 shall relieve Seller of
its obligations pursuant to subsections (i), (j) and (k) hereunder or
pursuant to any other Section of this Agreement.
(b) Seller shall provide Buyer with copies of such documentation as Buyer
may reasonably request evidencing the truthfulness of the representations
set forth in Section 10.
(c) Seller shall, at Buyer's request, take all action necessary to ensure
that Buyer will have a first priority security interest in the Purchased
Mortgage Loans, including, among other things, using its best efforts to
obtain the Servicer's signature (if the Servicer's signature is necessary)
and file such UCC financing statements as Buyer may reasonably request.
(d) Seller covenants that it will not create, incur or permit to exist any
lien, encumbrance or security interest in or on any of the Collateral
without the prior express written consent of Buyer.
(e) Seller shall notify Buyer immediately after obtaining actual knowledge
thereof, if any event has occurred that constitutes an Event of Default
with respect to Seller or any event that with the giving of notice or lapse
of time, or both, would become an Event of Default with respect to Seller.
(f) Seller warrants and will defend the right, title and interest of Buyer
in and to all Collateral against all adverse claims and demands.
(g) Seller shall take all necessary action to maintain its status as a real
estate investment trust.
(h) With respect to Purchased Mortgage Loans subject to Transactions
hereunder, Seller shall enter into hedge contracts with Nomura Securities
International, Inc. ("NSI") or such other party reasonably acceptable to
Buyer in an amount consistent with market practice to fully hedge, on a
duration weighted basis, the related Purchase Price against changes in
interest rates. If Seller has entered into hedge contracts with third
parties, Seller shall deliver to Buyer on or prior to the related Purchase
Date evidence satisfactory to Buyer that such hedge contracts have been
assigned to NSI. Seller shall enter into a Master Collateral Security and
Netting Agreement for the purpose of cross-collateralizing the hedge
contracts relating to such Purchased Mortgage Loans against the obligations
of Seller hereunder.
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(i) Seller shall maintain tangible net worth (defined as net worth plus
subordinated debt) in an amount not less than $40 million.
(j) Seller shall maintain a debt to equity ratio no greater than 10 to 1,
calculated by the market value of the Seller's assets as determined in good
faith by Buyer.
(k) Seller shall certify in writing to Buyer on a quarterly basis,
commencing ninety (90) days from the date hereof, that Seller is in
compliance with all of the financial covenants contained in this Agreement
and any other agreement or instrument evidencing indebtedness of the Seller
for borrowed money in excess of $1,000,000.
13. EVENTS OF DEFAULT
(a) If any of the following events (each an "EVENT of Default") occur, the
Seller and Buyer shall have the rights set forth in Section 14, as
applicable:
(i) Seller fails to pay the Repurchase Price in full when due or Buyer
fails to deliver the Mortgage Loans against full payment therefor;
(ii) Seller or Buyer fails to satisfy or perform any material
obligation or covenant under this Agreement (including any breach of
the obligations set forth in Section 4 and Section 12(g));
(iii) an Act of Insolvency occurs with respect to Seller or Buyer;
(iv) any representation made by Seller or Buyer shall have been
incorrect or untrue in any material respect when made or repeated or
deemed to have been made or repeated;
(v) Seller or Buyer shall admit its inability to, or its intention not
to, perform any of its obligations hereunder;
(vi) any governmental, regulatory, or self-regulatory authority takes
any action to remove, limit, restrict, suspend or terminate the
rights, privileges, or operations of the Seller or any of its
Affiliates, including suspension as an issuer, lender or
seller/servicer of mortgage loans, which suspension has a material
adverse effect on the ordinary business operations of Seller or
Seller's Affiliate, and which continues for more than 24 hours;
(vii) There exists a change in management of the Seller or Seller
dissolves, merges or consolidates with another entity unless it is the
surviving party, or sells, transfers, or otherwise disposes of a
material portion of its business or assets;
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(viii) Buyer, in its respective good faith judgment, has reasonable
cause to believe that there has been a material adverse change in the
business, operations, organizational structure or financial condition
of the Seller or that the Seller will not meet any of its obligations
under any Transaction pursuant to this Agreement, this Agreement or
any other agreement between the parties, and the Seller fails to
provide the Buyer with adequate assurances (including without
limitation performance guarantees), within 24 hours of a request
therefor, of its ability to perform its obligations;
(ix) Seller is in default under any other agreement to which it is a
party, provided, however, such a default shall not constitute an Event
of Default if the exercise of such remedies as are available to
Seller's counterparty with respect to such default would not result in
a material adverse change in the business operations or financial
condition of the Seller;
(x) An Affiliate of Seller is in a material monetary default under any
agreement with Buyer or its Affiliates;
(xi) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $1,000,000
is rendered against the Seller, and the same remains undischarged or
unpaid for a period of sixty (60) days during which execution of such
judgment is not effectively stayed;
(xii) This Agreement shall for any reason cease to create a valid,
first priority security interest in any of the Purchased Mortgage
Loans purported to be covered hereby; or
(xiii) Seller fails to provide quarterly unaudited and annual audited
financial statements within 50 and 95 days, respectively, after the
date on which such period ends, or fails to deliver in a timely manner
such financial or other information as Buyer may from time to time
reasonably request.
(b) In making a determination as to whether an Event of Default has
occurred, the Buyer shall be entitled to rely on reports published or
broadcast by media sources believed by the Buyer to be generally reliable
and on information provided to it by any other sources believed by it to be
generally reliable, provided that the Buyer reasonably and in good faith
believes such information to be accurate and has taken such steps as may be
reasonable in the circumstances to attempt to verify such information.
14. REMEDIES
(a) If an Event of Default occurs with respect to the Seller, the following
rights and remedies are available to the Buyer:
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(i) At the option of the Buyer, exercised by written notice to the Seller
(which option shall be deemed to have been exercised, even if no notice is
given, immediately upon the occurrence of an Act of Insolvency), the
Repurchase Date for each Transaction hereunder shall be deemed immediately
to occur. Notwithstanding that the Repurchase Date shall be deemed
immediately to have occurred upon the exercise or deemed exercise of such
option by the Buyer, for purposes of determining the Repurchase Price, the
Repurchase Date shall be the date specified in the Confirmation for such
Transaction.
(ii) If the Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(i) of this Section,
(A) the Seller's obligations hereunder to repurchase all Purchased
Mortgage Loans in such Transactions shall thereupon become immediately
due and payable,
(B) to the extent permitted by applicable law, thee Repurchase Price
with respect to each such Transaction shall be increased by the
aggregate amount obtained by daily application of, on a 360 day per
year basis for the actual number of days during the period from and
including the date of the exercise or deemed exercise of such option
to but excluding the date of payment of the Repurchase Price as so
increased, (x) the greater of the Prime Rate or the Pricing Rate for
each such Transaction to (y) the Repurchase Price for such Transaction
as of the Repurchase Date as determined pursuant to subsection (a)(i)
of this Section (decreased as of any day by (I) any amounts actually
in the possession of Buyer pursuant to clause (c) of this subsection,
(II) any proceeds from the sale of Purchased Mortgage Loans applied to
the Repurchase Price pursuant to subsection (a)(xi) of this Section,
and (III) any amounts applied to the Repurchase Price pursuant to
subsection (a)(iii) of this Section), and
(c) all Income actually received by the Buyer pursuant to Section 5
shall be applied to the aggregate unpaid Repurchase Price owed by the
Seller.
(iii) After one Business Day's notice to the Seller (which notice need not
be given if an Act of Insolvency shall have occurred, and which may be the
notice given under subsection (a)(i) of this Section), the Buyer may (A)
immediately sell in a commercially reasonable manner, without notice or
demand of any kind, at a public or private sale and at such price or prices
as the Buyer may reasonably deem satisfactory any or all Purchased Mortgage
Loans subject to a Transaction hereunder or (B) in its sole discretion
elect, in lieu of selling all or a portion of such Purchased Mortgage
Loans, to give the Seller credit for such Purchased
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Mortgage Loans in an amount equal to the Market Value of the Purchased
Mortgage Loans against the aggregate unpaid Repurchase Price and any
other amounts owing by the Seller hereunder. The proceeds of any
disposition of Purchased Mortgage Loans shall be applied first to the
costs and expenses incurred by the Buyer in connection with the
Seller's default; second to actual damages, including but not limited
to costs of cover and/or related hedging transactions; third to the
Repurchase Price; and fourth to any other outstanding obligation of
the Seller to the Buyer or its Affiliates.
(iv) Buyer or an Affiliate may deliver the Purchased Mortgage Loans
which are Conforming Mortgage Loans to FNMA, FHLMC or GNMA in exchange
for securities issued and/or guaranteed by FNMA, FHLMC or GNMA, which
securities shall then be treated as Purchased Mortgage Loans, and the
Seller hereby irrevocably appoints the Buyer to act as its
attorney-in-fact and agent to take such action upon the occurrence of
an Event of Default as may be necessary to obtain such FNMA, FHLMC or
GNMA securities.
(v) The parties recognize that it may not be possible to purchase or
sell all of the Purchased Mortgage Loans on a particular Business Day,
or in a transaction with the same purchaser, or in the same manner
because the market for such Purchased Mortgage Loans may not be
liquid. In view of the nature of the Purchased Mortgage Loans, the
parties agree that liquidation of a Transaction or the underlying
Purchased Mortgage Loans does not require a public purchase or sale
and that a good faith private purchase or sale shall be deemed to have
been made in a commercially reasonable manner. Accordingly, Buyer may
elect, in its sole discretion, the time and manner of liquidating any
Purchased Mortgage Loan and nothing contained herein shall (A)
obligate Buyer to liquidate any Purchased Mortgage Loan on the
occurrence of an Event of Default or to liquidate all Purchased
Mortgage Loans in the same manner or on the same Business Day or (B)
constitute a waiver of any right or remedy of Buyer. However, in
recognition of the parties' agreement that the Transactions hereunder
have been entered into in consideration of and in reliance upon the
fact that all Transactions hereunder constitute a single business and
contractual relationship and that each Transaction has been entered
into in consideration of the other Transactions, the parties further
agree that Buyer shall use its best efforts to liquidate all
Transactions hereunder upon the occurrence of an Event of Default as
quickly as is prudently possible in the reasonable judgment of Buyer.
(vi) Buyer shall, without regard to the adequacy of the security for
the Seller's obligations under this Agreement, be entitled to the
appointment of a receiver by any court having jurisdiction, without
notice, to take possession of and protect, collect, manage, liquidate,
and sell the Collateral or any portion thereof, and collect the
payments due with respect to the Collateral or any portion thereof.
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Seller shall pay all costs and expenses incurred by Buyer in
connection with the appointment and activities of such receiver.
(vii) Seller agrees that Buyer may obtain an injunction or an order of
specific performance to compel Seller to fulfill its obligations as
set forth in Section 25, if Seller fails or refuses to perform its
obligations as set forth therein.
(viii) Seller shall be liable to Buyer for (A) the amount of all
expenses, including reasonable legal or other expenses incurred by
Buyer in connection with or as a consequence of an Event of Default,
and (B) actual damages, including, without limitation, all costs
incurred in connection with hedging or covering transactions.
(ix) Buyer shall have all the rights and remedies provided herein,
provided by applicable federal, state, foreign, and local laws
(including, without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code of the State of New York, to
the extent that the Uniform Commercial Code is applicable, and the
right to offset any mutual debt and claim), in equity, and under any
other agreement between Buyer and Seller.
(x) Buyer may exercise one or more of the remedies available to Buyer
immediately upon the occurrence of an Event of Default and, except to
the extent provided in subsections (a)(i) and (iii) of this Section,
at any time thereafter without notice to Seller. All rights and
remedies arising under this Agreement as amended from time-to-time
hereunder are cumulative and not exclusive of any other rights or
remedies which Buyer may have.
(xi) In addition to its rights hereunder, Buyer shall have the right
to proceed against any assets of Seller which may be in the possession
of Buyer, its Affiliates or their designee (including the Custodian),
including the right to liquidate such assets and to set off the
proceeds against monies owed by Seller to Buyer pursuant to this
Agreement. Buyer may set off cash, the proceeds of the liquidation of
the Purchased Mortgage Loans, any Collateral or its proceeds, and all
other sums or obligations owed by Buyer or its Affiliates to Seller
against all of Seller's obligations to Buyer, whether under this
Agreement, under a Transaction, or under any other agreement between
the parties, or otherwise, whether or not such obligations are then
due, without prejudice to Buyer's right to recover any deficiency. Any
cash, proceeds, or property in excess of any amounts due, or which
Buyer reasonably believes may become due, to it from Seller shall be
returned to Seller after satisfaction of all obligations of Seller to
Buyer.
(xii) Buyer may enforce its rights and remedies hereunder without
prior judicial process or hearing, and Seller hereby expressly waives
any defenses Seller might
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otherwise have to require Buyer to enforce its rights by judicial
process. Seller also waives any defense Seller might otherwise have
arising from the use of nonjudicial process, enforcement and sale of
all or any portion of the Collateral, or from any other election of
remedies. Seller recognizes that nonjudicial remedies are consistent
with the usages of the trade, are responsive to commercial necessity
and are the result of a bargain at arm's length.
(b) If an Event of Default occurs with respect to Buyer, the following
rights and remedies are available to the Seller:
(i) Upon tender by the Seller of payment of the aggregate Repurchase
Price for all such Transactions, the Buyer's right, title and interest
in all Purchased Mortgage Loans subject to such Transactions shall be
deemed transferred to the Seller, and the Buyer shall deliver or cause
to be transferred all such Purchased Mortgage Loans to the Seller or
its designee at Buyer's expense.
(ii) If the Seller exercises the option referred to in subsection
(b)(i) of this Section and the Buyer fails to deliver or cause to be
delivered the Purchased Mortgage Loans to the Seller or its designee,
after one Business Day's notice to the Buyer, the Seller may (A)
purchase Mortgage Loans or securities ("REPLACEMENT ASSETS") that are
as similar as is reasonably practicable in characteristics,
outstanding principal amounts (as a pool) and interest rate to any
Purchased Mortgage Loans that are not delivered by the Buyer to the
Seller or its designee as required hereunder or (B) in its sole
discretion elect, in lieu of purchasing Replacement Assets, to be
deemed to have purchased Replacement Assets at a price therefor on
such date, equal to the Market Value of the Purchased Mortgage Loans.
(iii) The Buyer shall be liable to the Seller (A) with respect to
Purchased Mortgage Loans (other than Additional Loans), for any excess
of the price paid (or deemed paid) by the Seller for Replacement
Assets therefor over the Repurchase Price for such Purchased Mortgage
Loans, (B) with respect to Additional Loans, for the price paid (or
deemed paid) by the Seller for the Replacement Assets therefor. In
addition, the Buyer shall be liable to the Seller for interest on such
remaining liability with respect to each such purchase (or deemed
purchase) of Replacement Assets from the date of such purchase (or
deemed purchase) until paid in full by Buyer. Such interest shall be
at the greater of the Pricing Rate or the Prime Rate, and (C) for
actual damages, including, without limitation, all costs incurred in
connection with hedging or covering transactions.
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15. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereunto and will enter
into each Transaction hereunder in consideration of and in reliance upon
the fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in
consideration of the other Transactions. Accordingly, each of Buyer and
Seller agrees (i) to perform all of its obligations in respect of each
Transaction hereunder, and that a default in the performance of any such
obligations shall constitute a default by it in respect of all Transactions
hereunder, (ii) that each of them shall be entitled to set off claims and
apply property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions hereunder
and (iii) that payments, deliveries, and other transfers made by either of
them in respect of any Transaction shall be deemed to have been made in
consideration of payments, deliveries, and other transfers in respect of
any other Transactions hereunder, and the obligations to make any such
payments, deliveries, and other transfers may be applied against each other
and netted.
16. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective party to
whom any written notice or other communication is to be given hereunder,
all such notices or communications shall be in writing or confirmed in
writing and delivered at the respective addresses set forth in the
Confirmation. Any notices or other communications permitted or required
hereunder shall be in writing and shall be deemed conclusively to have been
given if (a) personally delivered, (b) mailed by registered or certified
mail, postage prepaid, and return receipt requested, (c) sent by express
courier delivery service and received by the party to whom it is sent or
(d) transmitted by telex or facsimile transmission (or any other type of
electronic transmission agreed upon by the parties) and confirmed by a
writing given by means of (a), (b) or (c).
17. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation constitutes the
entire understanding between Buyer and Seller with respect to the subject
matter it covers and shall supersede any existing agreements between the
parties containing general terms and conditions for repurchase transactions
involving Purchased Mortgage Loans. By acceptance of this Agreement, Buyer
and Seller acknowledge that they have not made, and are not relying upon,
any statements, representations, promises or undertakings not contained in
this Agreement. Each provision and agreement herein shall be treated as
separate and independent from any other provision or agreement herein and
shall be enforceable notwithstanding the unenforceability of any such other
provision or agreement.
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18. NON-ASSIGNABILITY
The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by either party without the prior
written consent of the other party; provided, however, that Nomura may
assign its rights and obligations under this Agreement and/or under any
Transaction to an Affiliate without the prior written consent of the other
party. Subject to the foregoing, this Agreement and any Transactions shall
be binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. Nothing in this Agreement express or
implied, shall give to any person, other than the parties to this Agreement
and their successors hereunder, any benefit or any legal or equitable
right, power, remedy or claim under this Agreement.
19. TERMINABILITY
This Agreement shall be terminated three hundred and sixty-four (364) days
following the date hereof, and any outstanding Transactions shall become
due on such date. Notwithstanding any such termination or the occurrence of
an Event of Default, all of the representations, warranties and covenants
hereunder shall continue and survive.
20. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT GIV1NG EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
21. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of the
United States District Court for the Southern District of New York, the
parties irrevocably waiving any objection thereto. If, for any reason,
federal jurisdiction is not available, and only if federal jurisdiction is
not available, the parties irrevocably agree to submit to the personal
jurisdiction of the Supreme Court of the State of New York, the parties
irrevocably waiving any objection thereto. Notwithstanding the foregoing
two sentences, at either party's sole option exercisable at any time not
later than thirty (30) days after an action or proceeding has been
commenced, the parties agree that the matter may be submitted to binding
arbitration in accordance with the commercial rules of the American
Arbitration Association then in effect in the State of New York and
judgment upon any award rendered by the arbitrator may be entered in any
court having jurisdiction thereof within the City, County and State of New
York; provided, however, that the arbitrator shall not amend, supplement,
or reform in any regard this Agreement or the terms of any Confirmation,
the rights or obligations of any party hereunder or thereunder, or the
enforceability of any of the terms hereof or thereof. Any arbitration shall
be conducted before a single arbitrator who shall be reasonably familiar
with repurchase transactions
26
<PAGE> 27
and the secondary mortgage market in the City, County, and State of New
York.
22. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to
exercise any other remedy hereunder. No modification or waiver of any
provision of this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in writing and
duly executed by both of the parties hereto. Any such waiver or
modification shall be effective only in the specific instance and for the
specific purpose for which it was given.
23. INTENT
The parties understand and intend that this Agreement and each Transaction
hereunder constitute a "securities contract" as that term is defined in
Section 741 of Title 11 of the United States Code, as amended; provided,
however, that if the Seller is an "insured depository institution" as that
term is defined in Section 1813(a) of Title 12 of the United States Code,
as amended, the parties understand and intend that this Agreement and each
Transaction hereunder constitute a "qualified financial contract" as that
term is defined in Section 1821 of Title 12 of the United States Code, as
amended.
24. SERVICING
(a) Seller covenants to maintain or cause the servicing of the Mortgage
Loans to be maintained in conformity with accepted servicing practices in
the industry and in a manner at least equal in quality to the servicing
Seller provides to mortgage loans which it owns. The Servicer (or Seller if
acting as Servicer) may retain legal title of the Purchased Mortgage Loans
solely for the purpose of servicing or supervising the servicing of such
Purchased Mortgage Loans. Any equitable interest in Purchased Mortgage
Loans shall remain in the Buyer. All servicing fees and compensation with
respect to the servicing of the Mortgage Loans shall be customary,
reasonable and consistent with industry practice.
(b) If the Mortgage Loans are serviced by the Seller, (i) Seller agrees
that Buyer is the owner of all servicing records, including but not limited
to any and all servicing agreements, files, documents, records, data bases,
computer tapes, copies of computer tapes, proof of insurance coverage,
insurance policies, appraisals, other closing documentation, payment
history records, and any other records relating to or evidencing the
servicing of Purchased Mortgage Loans (the "SERVICING RECORDS"), and (ii)
Seller grants the Buyer a security interest in all servicing fees and
rights relating to the Mortgage Loans and all Servicing Records to secure
the obligation of the Seller or its designee to service in conformity with
this Section and any other obligation of Seller to Buyer. Seller
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<PAGE> 28
covenants to safeguard such Servicing Records and to deliver them promptly
to Buyer or its designee (including the Custodian) at Buyer's request.
(c) If the Mortgage Loans are serviced by a third party servicer (such
third party servicer, the "SERVICER"), the Seller (i) at the request of
Buyer, shall provide a copy of the servicing agreement to Buyer (the
"SERVICING AGREEMENT"); and (ii) hereby irrevocably assigns to the Buyer
and Buyer's successors and assigns all right, title, interest and the
benefits of the Servicing Agreements with respect to the Mortgage Loans.
(d) The Servicer (or Seller if acting as Servicer) shall use of one or more
of the following types of accounts, in each case maintained at an
institution that is independent of and unaffiliated with Seller, into which
all sums collected in respect of Mortgage Loans shall be deposited and
maintained: (i) a trust account or accounts maintained for the benefit of
Buyer with the trust department of a federally chartered depository
institution or trust company acting in its fiduciary capacity or (ii) a
trust account or accounts maintained for the benefit of Buyer with the
trust department of a state chartered depository institution or trust
company acting in its fiduciary capacity and subject to regulations
regarding fiduciary funds on deposit therein substantially similar to 12
CFR Section 9.10(b), or (iii) an account or accounts (a) maintained with a
depository institution the debt obligations of which are rated by Standard
& Poor's Ratings Group in one of its two highest rating categories at the
time of any deposit therein or (b) the deposits of which are insured by the
FDIC, to the limits established by the FDIC, and the uninsured deposits in
which are otherwise secured such that Buyer has a claim with respect to the
funds in such account or a perfected first security interest against any
collateral securing such funds that is superior to claims of any other
depositor or creditors of the depository institution with which such
account is maintained.
(e) Seller shall provide, or shall cause the Servicer to provide, to Buyer
each month a monthly remittance report prepared and distributed by Seller
if acting as Servicer, or by the Servicer pursuant to the Servicing
Agreement, with respect to all Mortgage Loans subject to any Transaction
hereunder.
25. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case of
Transactions in which one of the parties is an "insured depository
institution" as that term is defined in Section 1831 (a) of Title 12 of the
United States Code, as amended, funds held by the financial institution
pursuant to a Transaction hereunder are not a deposit and therefore are not
insured by the Federal Deposit Insurance Corporation, the Savings
Association Insurance Fund or the Bank Insurance Fund, as applicable.
28
<PAGE> 29
26. NETTING
If Buyer and Seller are "financial institutions" as now or hereinafter
defined in Section 4402 of Title 12 of the United States Code ("SECTION
4402") and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or on behalf of the
other under this Agreement or any Transaction hereunder shall be deemed to
be "payment obligations" and all amounts to be received by or on behalf of
one party from the other under this Agreement or any Transaction hereunder
shall be deemed to be "payment entitlements" within the meaning of Section
4402, and this Agreement shall be deemed to be a "netting contract" as
defined in Section 4402.
(b) The payment obligations and the payment entitlements of the parties
hereto pursuant to this Agreement and any Transaction hereunder shall be
netted as follows. In the event that either party (the "DEFAULTING PARTY")
shall fail to honor any payment obligation under this Agreement or any
Transaction hereunder, the other party (the "NONDEFAULTING PARTY") shall
be entitled to reduce the amount of any payment to be made by the
Nondefaulting Party to the Defaulting Party by the amount of the payment
obligation that the Defaulting Party failed to honor.
27. CONDITIONS PRECEDENT TO INITIAL TRANSACTION
As conditions precedent to the initial Transaction hereunder, Buyer shall
have received on or before the day of such Transaction the following, in
form and substance satisfactory to the Buyer and duly executed by Seller:
(a) This Agreement and the Custodial Agreement.
(b) Evidence that all other actions necessary or, in the sole discretion of
Buyer, desirable to perfect and protect the security interests and liens
created by Section 6 hereof have been taken, including without limitation
duly executed Uniform Commercial Code financing statements on Form UCC-1
with respect to the Collateral.
(c) A certified copy of the Seller's internal resolutions approving this
Agreement and the Custodial Agreement and transactions contemplated
thereunder, and all documents evidencing other necessary organizational
action or governmental approvals as may be required in connection with this
Agreement and the Custodial Agreement.
(d) A certificate of the Seller's Corporate Secretary or Assistant
Secretary certifying the names, true signatures and titles of the Seller's
officers duly authorized to initiate Transactions and to sign this
Agreement and the Custodial Agreement and the other documents to be
delivered thereunder.
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<PAGE> 30
(e) A favorable opinion of the Seller's counsel as to such matters as the
Buyer may reasonably request.
(f) The documents set forth in Exhibit III, Exhibit IV and Exhibit VI
hereto.
(g) A Master Collateral Security and Netting Agreement in form and
substance satisfactory to Buyer.
28. CONFIDENTIALITY
This Agreement and its terms and contents are proprietary to Buyer and
shall be held by Seller in strict confidence and shall not be disclosed to
any third party without the consent of Buyer except for (i) disclosure to
your attorneys or accountants, provided that such attorneys and accountants
likewise agree to be bound by this covenant of confidentiality or (ii)
disclosure required by law, rule, regulation or order of a court or other
regulatory body.
29. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and
all references to a time shall mean New York time in effect on the date of
the action unless otherwise expressly stated in this Agreement.
(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing or orally by telephone or otherwise by any person with apparent
authority to act on behalf of the Seller, and the Seller shall indemnify
Buyer, defend, and hold Buyer harmless from and against any and all
liabilities, losses, damages, costs, and expenses of any nature arising out
of or in connection with any action taken by Buyer in response to such
instructions received or reasonably believed to have been received from the
Seller.
(c) If there is any conflict between the terms of this Agreement or any
Transaction entered into hereunder and the Custodial Agreement, this
Agreement shall prevail.
(d) If there is any conflict between the terms of a Confirmation or a
corrected Confirmation issued by the Buyer and this Agreement, the
Confirmation shall prevail.
(e) This Agreement may be executed in counterparts, each of which so
executed shall be deemed to be an original, but all of such counterparts
shall together constitute but one and the same instrument.
30
<PAGE> 31
(f) The headings in this Agreement are for convenience of reference
only and shall not affect the interpretation or construction of this
Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
31
<PAGE> 32
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date set forth above.
BUYER
NOMURA ASSET CAPITAL
CORPORATION
By: /s/ JAMES K. LIEBLICH
TITLE: DIRECTOR
DATE: 9/29/97
SELLER
HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.
By: /s/ JOYCE S. MIZERAK
TITLE: MANAGING DIRECTOR
DATE: 9/29/97
<PAGE> 33
EXHIBITS
--------
EXHIBIT I Confirmation
EXHIBIT II Form of Custodial Delivery including the
form of Mortgage Loan Schedule
EXHIBIT III Form of Power of Attorney
EXHIBIT IV Letter of Instruction to Master
Servicer and Servicers
EXHIBIT V Representations and Warranties for
Mortgage Loans
EXHIBIT VI Assignment of Takeout
1
<PAGE> 34
EXHIBIT I
Form of Confirmation Letter
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
100 Metroplex Drive
Suite 301
Edison, New Jersey 08817
Attention: Joyce Mizerak
Confirmation No.:
-------------------------
Purchase Date:
Description of the Mortgage Loans to be Purchased:
Aggregate Principal Amount of Purchased Mortgage Loans:
Purchase Price:
Pricing Rate:
Repurchase Date:
Repurchase Price:
Names and addresses for communications:
Buyer: Nomura Asset Capital Corporation
2 World Financial Center
Building B
21st Floor
New York, New York 10281
Attn: Murray Pozmanter
Seller: HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.
100 Metroplex Drive, Suite 301
Edison, New Jersey 08817
Attention: Joyce Mizerak
2
<PAGE> 35
EXHIBIT II
Form of Custodial Delivery
On this __ day of , 19 , Hanover Capital Mortgage Holdings, Inc.
(the "Seller"), as the Seller under that certain Master Repurchase Agreement
Governing Purchases and Sales of Mortgage Loans, dated as of September 29, 1997
(the "Repurchase Agreement") between the Seller and Nomura Asset Capital
Corporation (the "Buyer"), does hereby deliver to The First National Bank of
Chicago ("Custodian"), as custodian under that certain Custodial Agreement,
dated as of September 29, 1997, among Buyer, Seller and Custodian, the Mortgage
Files with respect to the Mortgage Loans to be purchased by the Buyer on
pursuant to the Repurchase Agreement, which Mortgage Loans are listed on the
Mortgage Loan Schedule attached hereto and which Mortgage Loans shall be subject
to the terms of the Custodial Agreement on the date hereof.
With respect to the Mortgage Files delivered hereby, for the purposes of issuing
the Trust Receipt, the Custodian shall review the Mortgage Files to ascertain
delivery of the documents listed in Annex A attached to the Custodial Agreement.
Please review the Mortgage Files in accordance with the standards set forth in
the Custodial Agreement and deliver to Buyer a Trust Receipt promptly upon
completion of your review.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Custodial Agreement.
IN WITNESS WHEREOF, the Seller has caused its name to be signed hereto by its
officer thereunto duly authorized as of the day and year first above written.
HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.
By:
Title:
Name:
3
<PAGE> 36
Mortgage Loan Schedule
----------------------
<TABLE>
<CAPTION>
Outstanding
Loan No. Mortgagor Note Rate Note Date Face Amount Principal Amount Maturity ARM/Fixed ARM Type Loan Type
- -------- --------- --------- --------- ----------- ---------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Takeout Price Takeout Investor
- ------------- ----------------
<S> <C>
</TABLE>
4
<PAGE> 37
EXHIBIT III
Form of Power of Attorney
"Notice: The powers granted by this document are broad and sweeping. They are
defined in New York General Obligations Law, Article 5, Title 15, sections
5-1502A through 51503, which expressly permits the use of any other different
form of power of attorney desired by the parties concerned.
"Know All Men by These Presents, which are intended to constitute a GENERAL
POWER OF ATTORNEY pursuant to Article 5, Title 15 of the New York General
Obligations Law: That Hanover Capital Mortgage Holdings, Inc. ("Seller"), does
hereby appoint Nomura Asset Capital Corporation ("Nomura"), its attorney-in-fact
to act in Seller's name, place and stead in any way which Seller could do with
respect to recording the Mortgages or Assignments of Mortgages purchased by
Nomura pursuant to a Master Repurchase Agreement Governing Purchases and Sales
of Mortgage Loans dated as of September 29, 1997 between Seller and Nomura and
to take such other steps as may be necessary or desirable to enforce Nomura's
rights against such Mortgage Loans, the related Mortgage Files and the Servicing
Records to the extent that Seller is permitted by law to act through an agent.
TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD
PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY ACT
HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO
SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OF SUCH REVOCATION
OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SELLER ON ITS
OWN BEHALF AND ON BEHALF OF SELLER'S LEGAL REPRESENTATIVES AND ASSIGNS, HEREBY
AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY
AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD
PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.
IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed and
the Seller's seal to be affixed this __ day of ____________ , 199_.
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
(Seal)
By:
Name:
Title:
5
<PAGE> 38
EXHIBIT IV
Letter of Instructions to Master Servicer and Servicers
[Servicer]
Ladies/Gentlemen:
On ______________________, Hanover Capital Mortgage Holdings, Inc. ("Seller"),
sold to Nomura Asset Capital Corporation ("Buyer") all of Seller's right, title
and interest in and to the mortgage loans identified on Appendix A attached to
this letter and made a part hereof (the "Mortgage Loans"). Accordingly, Seller
hereby unconditionally and irrevocably instructs you to pay to Buyer, pursuant
to the terms of our existing servicing arrangements, any and all monies received
by you on or after ________________ which would have been payable from time to
time by you to Seller on account of or otherwise in connection with the Mortgage
Loans, including without limitation any and all principal, interest, partial
prepayments, prepayments in full, penalties, advance payments, or expenses;
provided, however, that any such monies representing scheduled payments of
principal of or interest on such Mortgage Loans due prior to ________________
shall be paid to Seller.
All such monies should be paid by you to the order of Buyer in the manner and on
the date such monies would have been payable to Seller, as follows:
Mellon Bank, Pittsburgh
ABA #043000261 for the account of Nomura Asset Capital Corporation
Acct. # 1092525
Attn: Murray Pozmanter/re: Hanover Capital Mortgage Holdings, Inc.
Seller further instructs you that all rights and powers of Seller under the
existing servicing arrangements with respect to the Mortgage Loans have been
transferred to Buyer and that Buyer has the sole right as the owner of the
Mortgage Loans to direct your actions under such servicing arrangements with
respect to the Mortgage Loans and to exercise such rights and powers.
Very truly yours,
HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.
By:
Name:
Title:
6
<PAGE> 39
EXHIBIT V
Representations and Warranties
Regarding Non-Conforming Residential Mortgage Loans
The Seller represents and warrants to the Buyer that, with respect to each
Non-Conforming Residential Mortgage Loan sold hereunder and with respect to each
pool of Non-Conforming Residential Mortgage Loans sold in a Transaction
hereunder, as of the related Purchase Date:
(a) MORTGAGE LOAN SCHEDULE. The information set forth in the Mortgage Loan
Schedule is complete, true and correct;
(b) VALIDITY OF MORTGAGE DOCUMENTS. To the best of Seller's knowledge, but
without any investigation, the documents and instruments evidencing the Mortgage
Loans are legal, valid and binding obligations of the Mortgagors enforceable
against the Mortgagors in accordance with their respective terms, except as
enforcement thereof may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally, the
Soldiers and Sailors' Relief Act, laws relating to administering decedents'
estates and general principles of equity.
(c) PASS-THROUGH OF REPRESENTATIONS AND WARRANTIES. If the Mortgage Loan
was acquired by the Seller from a third party originator or seller, the Mortgage
Loan satisfies the requirements and representations and warranties required to
be made to Seller by such third party originator or seller, as the case may be;
and such requirements, representations and warranties have been disclosed to the
Buyer prior to the related Purchase Date.
7
<PAGE> 40
Representations and Warranties for Conforming Mortgage Loans
The Seller represents and warrants to the Buyer that with respect to each
Conforming Mortgage Loan sold hereunder and with respect to each pool of
Conforming Mortgage Loans sold in a Transaction hereunder, as of the Purchase
Date:
(a) ELIGIBILITY AND VALIDITY. Each Mortgage Loan is eligible, and in the
form required for and satisfies all of the requirements for inclusion in the
Mortgage Backed Securities Program of the Agency or Agencies indicated on the
Confirmation and the characteristics of each pool are such that the pool is
eligible for inclusion in such Mortgage Backed Securities Program. Each Mortgage
Loan is a bona fide Mortgage Loan of the type it purports to be, made to one or
more borrowers each having substantially the credit standing he or she is
represented to have.
(b) CONFORMITY WITH MORTGAGE BACKED SECURITIES PROGRAM. If the Confirmation
indicates that the Mortgage Loan(s) are eligible for inclusion in the Mortgage
Backed Securities Program of GNMA, the Seller represents and warrants that such
Mortgage Loans satisfy the requirements and representations and warranties
required to be made by the Seller in the GNMA Guide. If the Confirmation
indicates that the Mortgage Loan(s) are eligible for inclusion in the Mortgage
Backed Securities Program of FNMA, the Seller represents and warrants that such
Mortgage Loans satisfy the requirements and representations and warranties
required to be made by the Seller in the FNMA Guide. If the Confirmation
indicates that the Mortgage Loan(s) are eligible for inclusion in the Mortgage
Backed Securities Program of FHLMC, the Seller represents and warrants that such
Mortgage Loans satisfy the requirements and representations and warranties
required to be made by the Seller in the FHLMC Guide.
8
<PAGE> 41
Representations and Warranties for Commercial Mortgage Loans
The Seller represents and warrants to the Buyer that with respect to each
Commercial Mortgage Loan sold hereunder and with respect to each pool of
Commercial Mortgage Loans sold in a Transaction hereunder, as of the Purchase
Date:
(a) SOLE OWNER. The Seller is the sole owner and holder of such Mortgage
Loan;
(b) AUTHORITY TO SELL. The Seller has full right and authority to sell,
assign and transfer such Mortgage Loan;
(c) NO CROSS COLLATERALIZATION. Such Mortgage Loan is not
cross-collateralized with other mortgaged properties not subject to this
Agreement, contains no equity participation and is a whole loan and not a
participation certificate; none of the Mortgage Notes or Mortgages provide for
any contingent or additional interest in the form of participation in the cash
flow of the Mortgaged Property. The indebtedness evidenced by the Mortgage Note
is not convertible to an ownership interest in the Mortgaged Property or the
mortgagor; and the Seller has not financed nor does it own, directly or
indirectly, any equity of any form in the Mortgaged Property or the mortgagor,
except as otherwise disclosed in writing to Buyer;
(d) COMPLIANCE WITH APPLICABLE LAWS. Such Mortgage Loan, and all parties
involved in the origination and servicing of the Mortgage Loan, complied as of
the date of origination with, or are exempt from, applicable state or federal
laws, regulations and other requirements pertaining to usury. Any and all other
requirements of any federal, state or local laws applicable to such Mortgage
Loan have been complied with;
(e) ORIGINATION, SERVICING AND COLLECTION IS LEGAL. The origination
practices used by the originator with respect to each Mortgage Loan have been in
all respects legal, proper and prudent and have met customary standards utilized
by mortgage lenders in their commercial mortgage origination and servicing
business;
(f) ORIGINATION OF MORTGAGE LOAN. Such Mortgage Loan was originated by or
for Seller and complies with all the terms, conditions and requirements of the
underwriting policies of the Seller in effect at the time of origination;
(g) NO SECURITY INTEREST. The Seller is transferring such Mortgage Loan
free and clear of any and all liens, pledges, charges or security interests of
any nature encumbering such Mortgage Loan;
(h) PROCEEDS FULLY DISBURSED. The Mortgage Loan was closed in accordance
with the commitment letter between the Seller and the mortgagor as such
commitment letter may have been modified in writing by the Seller. The proceeds
of the Mortgage Loan have been fully disbursed in an amount not exceeding the
amount of the related Mortgage Note (which amount is
9
<PAGE> 42
fully enforceable against the maker thereof) and there is no requirement for
future advances thereunder except in accordance with funding schedules (if any),
as set forth in the related Mortgage Note or Mortgage, and any and all
requirements stated in such commitment letter as to the completion of any
on-site or off-site improvements and as to the release of any escrow funds have
been complied with;
(i) DOCUMENTS VALID. Each of the Mortgage Note, Mortgage and other
agreements executed in connection therewith is the legal, valid and binding
obligation of the maker thereof (subject to any non-recourse provisions
therein), enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and by general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law), and there is no offset, defense, counterclaim
or right to rescission with respect to such Mortgage Note, Mortgage or other
agreements. All parties to the Mortgage, the Mortgage Note and all other
documents evidencing, securing and guaranteeing the Mortgage Loan had legal
capacity to enter into such documents;
(j) ASSIGNMENT OF MORTGAGE. The Assignment of Mortgage and the Assignment
of Assignment of Leases and Rents are in recordable form and constitute the
legal, valid and binding assignments of such Mortgage and Assignment of Leases
and Rents from the Seller;
(k) FIRST LIEN. The Mortgage is a valid and enforceable first lien on the
Mortgaged Property, which Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first lien of the Mortgage,
except for (i) liens for real estate taxes and special assessments not yet due
and payable, (ii) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally or specifically reflected in the appraisal made
in connection with the origination of the Mortgage Loan, and (iii) other matters
to which like properties are commonly subject which do not, individually or in
the aggregate, materially interfere with the benefits of the security intended
to be provided by such Mortgage;
(i) NO MODIFICATION, RELEASE OR SATISFACTION. The Mortgage has not been
waived, modified, altered, satisfied, canceled or subordinated in any respect or
rescinded, and the Mortgaged Property has not been released from the lien or
other encumbrance of, nor has the mortgagor been released from its obligations
under, the Mortgage, in whole or in any part, in a manner which materially
interferes with the benefits of the security intended to be provided by the
Mortgage or the use, enjoyment, value or marketability of the Mortgaged
Property, nor has any instrument been executed that would effect any such
cancellation, subordination, rescission or release, with the exception of the
written instruments which are part of the Mortgage File;
(m) NO TAXES OR ASSESSMENTS. All taxes and governmental assessments that
prior to the Purchase Date became due and owing in respect of, and affect, the
Mortgaged Property have
10
<PAGE> 43
been paid, or an escrow of funds in an amount sufficient to cover such payments
has been established;
(n) ESCROW DEPOSITS. All escrow deposits and payments relating to the
Mortgage Loans are in the possession, or under the control, of the Seller or its
agent and there are no deficiencies in connection therewith;
(o) NO BUY-DOWNS OR THIRD PARTY ADVANCES. The Seller has not, directly or
indirectly, advanced funds, or received any advance of funds by a party other
than the mortgagor, for the payment of any amount required by the Mortgage Note
or the Mortgage, except for interest accruing from the date of the Mortgage Note
or date of disbursement of the Mortgage Loan proceeds, whichever is later, to
the date which precedes by thirty (30) days the first due date under the
Mortgage Note;
(p) NO CONDEMNATION OR DAMAGES. There is no proceeding pending for the
total or partial condemnation of the Mortgaged Property. The Mortgaged Property
is being used for the purpose set forth in the mortgagor's loan application, or
such other documents that the Seller required at origination, and it is in good
repair and free and clear of any damage that would affect materially and
adversely the value of the Mortgaged Property as security for the Mortgage Loan
or the use for which the premises were intended;
(q) NO MECHANICS LIENS. The Mortgaged Property is free and clear of any
mechanics' and materialmen's liens or liens in the nature thereof, and no rights
are outstanding that under law could give rise to any such liens, any of which
liens are or may be prior to, or equal with, the lien of the Mortgage, except
those which are insured against by the lender's title insurance policy referred
to in paragraph (w) below;
(r) TITLE SURVEY; IMPROVEMENTS. The mortgage file includes a title survey,
certified to the Seller, its successors and assigns, and the title insurance
company, in accordance with minimum standards for title surveys as determined by
ALTA/ASCM, with the signature and seal of a licensed engineer or surveyor
affixed thereto. None of the improvements which were included for the purpose of
determining the appraised value of the Mortgaged Property at the time of the
origination of the Mortgage Loan lies outside of the boundaries and building
restriction lines of such property, no improvements on adjoining properties
materially encroach upon such Mortgaged Property;
(s) MORTGAGOR PROPERLY LICENSED AND IN COMPLIANCE WITH TERMS OF REQUIRED
DOCUMENTS. The mortgagor was at the time of origination in possession of all
licenses, permits and other authorizations necessary and required by applicable
law for the conduct of its business. All such licenses, permits and
authorizations are valid and in full force and effect. All conditions on the
mortgagor's part to be fulfilled under the terms of any lease of the Mortgaged
Property have been satisfied;
11
<PAGE> 44
(t) COMPLIANCE WITH LAWS. The Mortgaged Property is in compliance with and
lawfully used and occupied under any applicable zoning, building or
environmental law or regulation and all inspections, licenses and certificates
required, whether by law, regulation or insurance standards to be made or issued
with respect to the Mortgaged Property and with respect to the use and occupancy
of the same, including but not limited to certificates of occupancy and fire
underwriter certificates, have been made by or issued by the appropriate
governmental or quasi-governmental authorities or other authorities having
jurisdiction over the Mortgaged Property. The Seller has not received
notification from any governmental authority that the Mortgaged Property is in
material non-compliance with such laws or regulations, is being used, operated
or occupied unlawfully or has failed to have or obtain such inspection, licenses
or certificates, as the case may be. The Seller has not received notice of any
violation or failure to comply with any such law, ordinance, regulation,
standard, license or certificate. If the Mortgaged Property is legal and
nonconforming under applicable zoning ordinances, (1) the nonconforming
improvements may be rebuilt to current density and used and occupied for such
nonconforming purposes if damaged or destroyed or (2) the Mortgagor has provided
a "law and ordinance" endorsement to the hazard insurance policy that fully
insures against loss due to (a) the operation of applicable zoning ordinance(s),
(b) increased cost of construction and (c) demolition costs. In the case of (2),
above, Seller has performed or caused to be performed, and the Mortgaged
Property has passed, a threshold evaluation test using standards and guidelines
consistent with normal commercial lending practices;
(u) MORTGAGOR IS LANDLORD UNDER LEASES. The mortgagor is the owner and
holder of the landlord's interest under any lease for use and occupancy of all
or any portion of the Mortgaged Property. Each Mortgage provides for the
appointment of a receiver for rents in the event of default or allows the
mortgagee to enter into possession to collect the rents. Neither the Seller nor
the mortgagor has made any assignments of the landlord's interest in any such
lease or any portion of the rents, additional rents, charges, issues or profits
due and payable or to become due and payable under any such lease, which
assignments are presently outstanding and have priority over the Mortgage or any
assignment of leases, rents and profits given in connection with the origination
of the Mortgage, other than as may be disclosed in the lender's title insurance
policy referred to in paragraph (w) below. An assignment of leases and/or rents
and any security agreement, chattel mortgage or equivalent document related to
and delivered in connection with the Mortgage Loan establishes and creates a
valid and enforceable first lien and first priority security interest on the
property described therein except as enforceability may be limited by bankruptcy
or other laws affecting creditor's rights generally or by the application of the
rules of equity. All furniture, fixtures, equipment and all other personal
property covered by a security agreement, assignment of leases and/or rents,
chattel mortgage or equivalent document related to or delivered in connection
with the Mortgage Loan in those jurisdictions in which the Mortgage cannot
include such property, in accordance with practices which are customary among
prudent mortgage lenders, are subject to a Uniform Commercial Code financing
statement filed and/or recorded in all places necessary to perfect a valid first
priority lien thereon;
12
<PAGE> 45
(v) EACH HOLDER IS AUTHORIZED TO TRANSACT BUSINESS. To the extent required
under applicable law, as of the Purchase Date, each holder of the Mortgage Loan
was authorized to transact and do business in the jurisdiction in which the
Mortgaged Property is located at all times when it held the Mortgage Loan;
(w) TITLE INSURANCE. The Mortgaged Property is covered by a lender's title
insurance policy insuring that the Mortgage is a valid first lien on such
Mortgaged Property, subject only to the exceptions stated therein. Such title
insurance policy is in full force and effect, is freely assignable and will
inure to the benefit of the owner of the Mortgage Loan. Such title insurance
policy insures the Mortgaged Property for the original principal amount of the
Mortgage Loan after all advances of principal. The title policy does not contain
any special exceptions (other than the standard exclusions) for zoning and uses
and has either deleted the standard survey exception or has been marked to
replace the standard survey exception with a specific survey reading. The title
policy has been marked to delete the intervening lien exception. The Seller, its
successors or assigns shall be the only named insured of such lender's title
insurance policy;
(x) HAZARD INSURANCE. The Mortgaged Property is insured by a fire and
extended perils insurance policy providing coverage against loss or damage
sustained by reason of fire, lightning, windstorm, hail, explosion, riot, riot
attending a strike, civil commotion, aircraft, vehicles and smoke, and, to the
extent required as of the date of origination consistent with normal commercial
mortgage lending practices, against other risks insured against by persons
operating like properties in the locality of the Mortgaged Property, in an
amount not less than the amount necessary to avoid the operation of any
co-insurance provisions with respect to the Mortgaged Property, and consistent
with the amount that would have been required as of the date of origination by
the Seller in its normal commercial mortgage lending activities with respect to
similar properties in the same locality. If any portion of the Mortgaged
Property is in an area identified in the Federal Register by the Flood Emergency
Management Agency as having special flood hazards, and flood insurance is
available, a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration is in effect with a generally
acceptable insurance carrier, in an amount representing coverage not less than
the least of (1) the outstanding principal balance of the Mortgage Loan, (2) the
full insurable value of the Mortgaged Property, and (3) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
All such insurance policies (collectively, the "hazard insurance policy")
contain a standard "New York" mortgagee clause naming the Seller, its successors
and assigns (including without limitation, subsequent owners of the Mortgage
Loan), as mortgagee, are not terminable and may not be reduced without thirty
(30) days' prior written notice to the mortgagee. All premiums on such insurance
policy have been paid. Such insurance policy requires prior notice to the
insured of termination or cancellation, and no such notice has been received.
The Mortgage obligates the mortgagor to maintain all such insurance and, at such
mortgagor's failure to do so, authorizes the mortgagee to maintain such
insurance at the mortgagor's cost and expense and to seek reimbursement
therefor from such mortgagor. There have been no acts or omissions that would
impair the coverage of any such policy or the benefits of the mortgage
endorsement;
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<PAGE> 46
(y) LOAN-TO-VALUE RATIO. The Loan-to-Value Ratio does not exceed 80%. The
ratio of either (i) net income available for debt service on the Mortgaged
Property or (ii), in the case of owner-occupied Mortgaged Property, the net
income that would be available for debt service if the Mortgaged Property were
leased to an independent party in an arms length transaction at a market rental,
to debt service on the Mortgaged Property for the Mortgage Loan is not less than
1.20 TO 1;
(z) ACCEPTABLE INVESTMENT. There are no circumstances or conditions with
respect to the Mortgage, the Mortgaged Property, the mortgagor, any tenant of
the Mortgaged Property, any space lease of the Mortgaged Property, or the
mortgagor's or any commercial tenant's credit standing or pending litigation or
other legal proceedings involving the mortgagor or otherwise at material
variance with any of the representations and warranties set forth herein that
can reasonably be expected to adversely affect the current value or
marketability of the Mortgaged Property or Mortgage Loan, or cause private
institutional investors to regard the Mortgage Loan as an unacceptable
investment, or cause the Mortgage Loan to become delinquent;
(aa) COMMERCIAL TENANTS' LEASES. With respect to Mortgaged Property
occupied by commercial tenants under leases, each such tenant is conducting
business only in that portion of the Mortgaged Property covered by its lease. No
leases contain any option to purchase, a right of first refusal or any other
similar provisions which adversely affect the Mortgage Loan or which might
adversely affect the rights of any holder of the Mortgage Loan;
(bb) TENANTS' LEASES. As to each Mortgage Loan secured by Mortgaged
Property which is leased to tenants:
(1) the Mortgaged Property is not subject to any leases other than the
leases delivered to Custodian as part of the Mortgage File (hereinafter
referred to as the "LEASES"), and no person has any possessory interest in
the Mortgaged Property or right to occupy the same except under and
pursuant to the provisions of the Leases. No Lease contains any option to
purchase, a right of first refusal or any other similar provisions which
adversely affect the Mortgage Loan or which might adversely affect the
rights of any holder of the Mortgage Loan, except as specifically disclosed
to and approved in writing by Buyer. Each Lease of all or any portion of
the Mortgaged Property is subordinate to the Mortgage, unless otherwise
approved by the Buyer; and
(2) with respect to any Lease having the benefit of a non-disturbance or
similar recognition agreement, there are no circumstances or conditions
with respect to the Mortgage, the Mortgaged Property, mortgagor, any tenant
(alone or considered with other tenants) of the Mortgaged Property, or the
mortgagor's or any tenant's credit standing that would cause prudent
mortgage lenders making loans similar to the Mortgage Loan in the area in
which the Mortgaged Property is located to refuse to grant such
non-disturbance or similar recognition agreement; and
14
<PAGE> 47
(3) (a) there are no prior recorded assignments of the Leases or of any
portion of the rents, additional rents, charges, issues or profits due and
payable or to become due and payable thereunder (hereinafter collectively
referred to as the "Rents") which are now outstanding and have priority
over the Assignment of Leases and Rents contained in the Mortgage File and
given in connection with the Mortgage Loan, and (b) the Leases are in full
force and effect;
(cc) PROCEEDS OF MORTGAGE LOAN. Except as expressly previously disclosed to
the Buyer, the proceeds of the Mortgage Loan have not been used to satisfy, in
whole or in part, any debt owed or owing by the mortgagor to the Seller other
than for the purchase of the Mortgaged Property; provided, however, that the
Mortgage Loan may provide permanent financing for a construction loan with
respect to the Mortgaged Property;
(dd) DEFAULT, BREACH AND ACCELERATION. Except as specified in paragraph
(ee) below, there is no default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event (other than
payments due but not yet delinquent) which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration. The Seller has not waived
any material default, breach, violation or event of acceleration of any of the
foregoing, and, pursuant to the terms of the Mortgage Loan, the Mortgage or the
Mortgage Note, no Person other than the holder of such Mortgage Note may declare
an event of default or accelerate the indebtedness under any such Mortgage Loan,
Mortgage or Mortgage Note. The mortgagor is not in default on any debt
obligation owed or owing to the Seller;
(ee) DELINQUENCY. As of the Purchase Date, no Mortgage Loan had more than
two (2) monthly payments delinquent (i.e., no single monthly payment was more
than 89 days past due), and no Mortgage Loan had more than two (2) consecutive
delinquent monthly payments during the 12-month period immediately preceding the
Purchase Date;
(ff) CUSTOMARY PROVISIONS. All loan documents are on the Seller's standard
forms. The Mortgage Note and the Mortgage contain customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits of
the security, including but not limited to (i) if the Mortgage is a deed of
trust, by trustee's sale, including the power of sale and/or (ii) by judicial
or, if applicable, nonjudicial foreclosure, and there is no exemption available
to the mortgagor which would interfere with such right to foreclose. The
Mortgage Note has a stated maturity and an amortized maturity or, in the case of
balloon loans, the term required to fully amortize the balance of the Mortgage
Loan. The Mortgage provides for the appointment of a receiver for rents in the
event of an institution of foreclosure proceedings, or allows the mortgage to
enter into possession to collect rents;
(gg) INSPECTION. The Seller has inspected or has caused to be inspected
each Mortgaged Property within the past 12 months;
15
<PAGE> 48
(hh) NO CONFLICTING INFORMATION. The Seller has no knowledge of or
information about any material circumstances or conditions with respect to any
Mortgage, mortgagor or Mortgaged Property or at material variance with any of
the representations and warranties set forth herein that can reasonably be
expected to materially and adversely affect the value or marketability of any
Mortgage Loan;
(ii) SELECTION. No selection procedures have been utilized in selecting the
Mortgage Loans from the Seller's portfolios which at the time of selection were
adverse to the interests of the Buyer;
(jj) NO NOTICE OF BANKRUPTCY. The Seller has no knowledge, nor has it
received any notice, that any mortgagor is a debtor in any state or federal
bankruptcy or insolvency proceeding;
(kk) ACCESS ROUTES. At or around the time of origination, (i) all
amenities, access routes or other items crucial to the appraised value of the
Mortgaged Property were under the direct control of the mortgagor, constitute
permanent easements that benefit and are part of the Mortgaged Property, or are
public property, and (ii) the Mortgaged Property, by virtue of such easements or
otherwise, was contiguous to a physically open, dedicated all-weather public
street, had all necessary permits and approvals for ingress and egress, was
adequately serviced by public water, sewer systems and utilities and was on a
separate tax parcel, separate and apart from any other property owned by the
mortgagor or any other Person. Each Mortgaged Property has all necessary access
by public roads or by easements or ground leases which in each case are not
terminable and are not subordinated to any mortgage other the Mortgage;
(ll) GROUND LEASES. Each Mortgaged Property consists of a fee simple estate
in real property and improvements thereon, or if the Mortgage Loan is secured by
a ground lease, (1) the Seller has disclosed to Buyer on or prior to the related
Purchase Date that the Mortgage Loan is secured by such ground lease, (2) the
Mortgage constitutes a valid first lien on an unencumbered interest of the
related Mortgagor as lessee under a ground lease of the related Mortgaged
Property, (3) the lessee's interest in such ground lease is not subject to any
adverse claim superior to or of equal priority with the related Mortgage other
than the related lessor's fee interest and reversionary interest and any liens
on such interest, (4) such ground lease is in full force and effect, (5) such
ground lease is not in material default, and (6) the related ground lease has a
term which extends to beyond the maturity date of the related Mortgage Loan.
(mm) DEED OF TRUST. With respect to each Mortgage that is a deed of trust,
a trustee, duly qualified under applicable law to serve as such, has either been
properly designated and currently so serves or may be substituted in accordance
with applicable law. Except in connection with a trustee's sale after default by
the mortgagor, no fees or expenses are payable by the Buyer to such trustee; and
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<PAGE> 49
(nn) ENVIRONMENTAL MATTERS. The related Mortgage File contains a report
(the "Assessment Report") of an environmental site assessment made with respect
to the related Mortgaged Property by an environmental consultant who had no
interest, direct or indirect, in such Mortgaged Property or in any loan secured
thereby, and whose compensation was not affected by the approval or disapproval
of the Mortgage Loan. Such assessment was made and such Assessment Report was
prepared (1) using standards and guidelines consistent with normal commercial
lending practices; and (2) not earlier than ninety (90) days prior to the date
the Mortgage Loan was closed. The Assessment Report indicates, and the Seller
has no knowledge to the contrary, that the Mortgaged Property is in compliance
with all environmental laws, ordinances, rules, regulations and orders of
federal, state or governmental authorities relating thereto. Except for any
lead-based paint, asbestos or asbestos-containing material that the Assessment
Report recommends be removed or otherwise treated or maintained and as to which
recommended action there exists an operations and maintenance plan or a funding
schedule (as set forth in the related Mortgage Note or Mortgage) in amounts
sufficient to pay for the cost of such removal, treatment or maintenance, the
Assessment Report indicates, and the Seller has no knowledge to the contrary,
that no hazardous material has been or is incorporated in, stored on or under,
released from, treated on, transported to or from, or disposed of on or from,
the Mortgaged Property such that, under applicable law (a) any such hazardous
material would be required to be eliminated before the Mortgaged Property could
be altered, renovated, demolished or transferred, or (b) the owner of the
Mortgaged Property, or the holder of a security interest therein, could be
subjected to liability for the removal of such hazardous material or the
elimination of the hazard created thereby. Neither the Seller nor the related
Mortgagor has received notification from any federal, state or other
governmental authority relating to any hazardous materials on or affecting the
Mortgaged Property or to any potential or known liability under any
environmental law arising from the ownership or operation of the Mortgaged
Property. For the purposes of this subsection, the term "hazardous materials"
shall include, without limitation, gasoline, petroleum products, explosives,
radioactive materials, polychlorinated biphenyls or related or similar
materials, asbestos or any material containing asbestos, lead, lead-based paint
and any other substance or material as may be defined as a hazardous or toxic
substance by any federal, state or local environmental law, ordinance, rule,
regulation or order, including, without limitation, CERCLA, the Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act and any regulations promulgated pursuant thereto.
17
<PAGE> 50
EXHIBIT VI
Form of Assignment of Takeout
Whereas, Hanover Capital Mortgage Holdings, Inc. ("Seller") has entered
into that Master Repurchase Agreement Governing the Purchases and Sales of
Mortgage Loans (the "Agreement") dated as of September 29, 1997 by and between
Seller and Nomura Asset Capital Corporation ("Buyer"); and
Whereas, Seller has granted Buyer a security interest in, among other
things, all of Seller's rights, proceeds and income with respect to Takeout
Commitments; and
Whereas, Seller, in order to induce Buyer to purchase Mortgage Loans from
Seller pursuant to the Agreement, has agreed to assign all of its rights,
proceeds and income as security for its obligations to Buyer under the
Agreement;
Now, Therefore, the parties hereto agree as follows:
1. All terms not otherwise defined herein shall have the meanings set forth in
the Agreement.
2. As security for Seller's obligations to Buyer pursuant to the Agreement,
Seller assigns all of its right, title and interest in and to all Takeout
Commitments set forth on Annex I attached hereto. Seller grants Buyer the
right to deliver the Mortgage Loans subject to the Takeout Commitment to
the purchaser thereof in exchange for the purchase price set forth in the
Takeout Commitment.
3. In order for Buyer to fulfill the delivery requirements pursuant to the
Takeout Commitment, any equitable interest which Seller may have in the
Mortgage Loans shall transfer to Buyer.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
executed by their duly authorized representatives.
NOMURA ASSET CAPITAL CORPORATION HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.
- ------------------------------------- ---------------------------------------
By: By:
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HANOVER
CAPITAL MORTGAGE HOLDINGS, INC'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD
FROM JUNE 10, 1997 TO SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-10-1997
<PERIOD-END> SEP-30-1997
<CASH> 200,000
<SECURITIES> 21,502
<RECEIVABLES> 705
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 223,322
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 79,470
<TOTAL-LIABILITY-AND-EQUITY> 223,322
<SALES> 0
<TOTAL-REVENUES> 254
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 95
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 59
<INCOME-TAX> 0
<INCOME-CONTINUING> 59
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>As a Real Estate Investment Trust out balance sheet is not classified.
<F2>Includes retained Earnings and Paid in Capital.
</FN>
</TABLE>
