<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 29, 1998
Date of report (Date of
earliest event reported)
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
(Exact name of registrant as specified in its charter)
MARYLAND 0-23911 52-2081138
-------- ------- ----------
(State or other Commission File Number (I.R.S. Employer
jurisdiction of Identification Number)
incorporation)
1776 SW MADISON STREET, PORTLAND, OR97205
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(Address of principal executive offices)(Zip Code)
(503) 223-5600
Registrant's telephone number, including area code
NOT APPLICABLE
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(Former name or former address, if changed since
last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
This Current Report on Form 8-K/A amends the Current Report on Form 8-K
filed by Wilshire Real Estate Investment Trust Inc. (the "Company") on October
14, 1998. It provides the pro forma financial information for loan pool
purchased from Salomon Smith Barney Inc. and the financing thereto ("Salomon
Loan Pool").
As previously reported, on October 14, 1998, the Company acquired a pool of
approximately 3,766 one-to-four family fully amortizing mortgage loans secured
by first liens for $421.8 million in cash plus closing costs from Salomon Smith
Barney Inc., an unaffiliated third party (the "Seller"). The acquisition was
financed by securitizing loans for $374.2 million, less closing costs and other
borrowings including an existing repurchase agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information related to the loans and related financing
listed under Item 2 is attached hereto, and incorporated herein by reference, as
Exhibit 99.
(c) Exhibits
The following exhibits are filed as part of this report:
2.1 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Ameriquest Mortgage Co.
2.2 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Ameriquest Mortgage Co.
2.3 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Long Beach Mortgage Co.
2.4 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and National Mortgage Sales Corp.
2.5 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Ameriquest Mortgage Co.
99 Pro forma financial information
- 2 -
<PAGE>
SIGNATURES
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 hereunto duly authorized.
WILSHIRE REAL ESTATE
INVESTMENT TRUST INC.
Date: November 4, 1998 By: /s/ Chris Tassos
---------------------------
Chris Tassos
Executive Vice President and
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT DESCRIPTION
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2.1 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Ameriquest Mortgage Co.
2.2 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Ameriquest Mortgage Co.
2.3 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Long Beach Mortgage Co.
2.4 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and National Mortgage Sales Corp.
2.5 Assignment, assumption and recognition agreement dated September 30,
1998 among Salomon Brothers Realty Corp., Wilshire Real Estate
Investment Trust Inc. and Ameriquest Mortgage Co.
99 Pro Forma Financial Information - Narrative Format
- 4 -
<PAGE>
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This is an Assignment, Assumption and Recognition Agreement made this 30th
day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"),
Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Ameriquest
Mortgage Company (the "Company").
In consideration of the mutual promises contained herein the parties hereto
agree that the mortgage loans listed on EXHIBIT ONE annexed hereto (the
"Mortgage Loans") now serviced by the Company for the Seller pursuant to the
Master Mortgage Loan Purchase and Servicing Agreement (the "Purchase
Agreement"), dated as of June 1, 1997, between the Seller and the Company shall
be subject to the terms of this Agreement.
WARRANTIES
----------
1. (a) The Company and the Seller warrant and represent that attached
hereto as EXHIBIT TWO is a true, accurate and complete copy of the Purchase
Agreement, which Purchase Agreement is in full force and effect as of the date
hereof and which has not been amended or modified in any respect nor has any
notice of termination been given thereunder.
(b) The Seller warrants and represents that it is the lawful owner of
the Mortgage Loans with the full right to transfer the Mortgage Loans free from
any claim or encumbrance whatsoever.
(c) The Seller hereby warrants and represents to the Purchaser that
no event has occurred from the related Closing Date (as defined in the Purchase
Agreement) with respect to a Mortgage Loan to the date hereof that would result
in any representation and warranty made pursuant to Section 3.01 of the Purchase
Agreement being untrue if made as of the date hereof with respect to the
Mortgage Loans (other than any statistical information with respect to the
Mortgage Loans and any changes due to the receipt of payments on the Mortgage
Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and
similar changes, which information reflected on EXHIBIT ONE hereto is accurate
in all material respects as of September 1, 1998). In the event of a breach of
the foregoing representation and warranty which materially and adversely affects
the value of any Mortgage Loan or the Purchaser's interest therein, the Seller
shall repurchase such affected Mortgage Loan at a repurchase price equal to the
unpaid principal balance of such Mortgage Loan plus accrued interest at the net
Mortgage Interest Rate from the paid through date of the Mortgage Loan to the
first day of the month following the month in which such repurchase is effected;
provided, that to the extent that the Company would otherwise be required to
repurchase a Mortgage Loan due to the breach of any of the representations and
warranties that are made or deemed to have been made by the Company as of the
related Closing Date, then the Seller shall repurchase the affected Mortgage
Loan from the Purchaser upon the reassignment of the Liquidation Agreement from
the Purchaser to the Seller with respect to such Mortgage Loan. It is understood
and agreed that the obligations of the Seller set forth in this Section 1(c) to
repurchase an affected Mortgage Loan constitutes the sole remedy of the
Purchaser respecting a breach of the representation and warranty made in this
Section 1(c).
<PAGE>
ASSIGNMENT AND ASSUMPTION
-------------------------
2. The Seller hereby assigns to the Purchaser (i) all of its right, title
and interest in and to the Mortgage Loans and (ii) all of its right, title, and
interest in, to, and under the Purchase Agreement to the extent of the Mortgage
Loans, and the Purchaser hereby assumes all of the Seller's obligations under
the Purchase Agreement with respect to the Mortgage Loans from and after the
date hereof, and the parties hereto agree that the Seller shall be relieved and
released of all of its obligations under the Purchase Agreement to the extent of
the Mortgage Loans from and after the date hereof.
RECOGNITION OF THE PURCHASER
----------------------------
3. From and after the date hereof, the Company shall recognize the
Purchaser as the owner of the Mortgage Loans and will service the Mortgage Loans
for the Purchaser as if the Purchaser and the Company had entered into a
separate servicing agreement for the servicing of the Mortgage Loans in the form
of the Purchase Agreement, the terms of which are incorporated herein by
reference. It is the intention of the Seller, the Company and the Purchaser that
this Agreement will be a separate and distinct agreement, and the entire
agreement, between the Company and the Purchaser to the extent of the Mortgage
Loans and shall be binding upon and for the benefit of the respective successors
and assigns of the parties hereto.
ACKNOWLEDGEMENT
---------------
4. It is hereby acknowledged and agreed by the Purchaser, the Seller and
the Company that the assignment of the Seller's rights under this Agreement to
the extent of the Mortgage Loans and the Purchaser's assumption of such rights
shall not entitle the Purchaser to purchase mortgage loans pursuant to the
Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SALOMON BROTHERS REALTY CORP.,
Seller
By:___________________________
Name:_________________________
Title:________________________
WILSHIRE REAL ESTATE INVESTMENT
TRUST INC.
Purchaser
By:___________________________
Name:_________________________
Title:________________________
AMERIQUEST MORTGAGE COMPANY
Company
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT
Dated and effective as of June 1, 1997
SALOMON BROTHERS REALTY CORP.
(Purchaser)
and
AMERIQUEST MORTGAGE COMPANY
(Company)
Fixed Rate and Adjustable Rate Mortgage Loans
Flow Delivery Program
<PAGE>
TABLE OF CONTENTS
_____________________
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IDEFINITIONS....................................................... 1
-----------
Adjustable Rate Mortgage Loan......................................... 1
Adjustment Date....................................................... 1
Agreement............................................................. 2
Appraised Value....................................................... 2
Assignment and Conveyance............................................. 2
Assignment of Mortgage................................................ 2
Available Remittance Amount........................................... 2
Balloon Loan.......................................................... 2
Business Day.......................................................... 2
Closing Date.......................................................... 2
Commitment Letters.................................................... 2
Company............................................................... 2
Confirmation.......................................................... 3
Custodial Account..................................................... 3
Custodial Agreement................................................... 3
Custodian............................................................. 3
Customary Servicing Procedures........................................ 3
Cut-off Date.......................................................... 3
Cut-off Date Principal Balance........................................ 3
Deleted Mortgage Loan................................................. 3
Determination Date.................................................... 3
Due Date.............................................................. 3
Due Period............................................................ 4
Eligible Account...................................................... 4
Escrow Account........................................................ 4
Escrow Payments....................................................... 4
Event of Default...................................................... 4
FDIC.................................................................. 4
FHLMC................................................................. 4
Fidelity Bond......................................................... 4
Final Closing Date.................................................... 4
Final Due Diligence Date.............................................. 4
Final Closing Date Principal Balance.................................. 4
FNMA.................................................................. 4
HUD................................................................... 5
Index................................................................. 5
Initial Closing Date.................................................. 5
Initial Custodial Account Deposit..................................... 5
Liquidated Mortgage Loan.............................................. 5
</TABLE>
i
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<TABLE>
<S> <C>
Liquidation Proceeds.................................................. 5
Loan-to-Value Ratio................................................... 5
LTV................................................................... 5
Margin................................................................ 5
Maximum Rate.......................................................... 5
Minimum Rate.......................................................... 5
Monthly Payment....................................................... 6
Mortgage.............................................................. 6
Mortgage File......................................................... 6
Mortgage Interest Rate................................................ 6
Mortgage Loan......................................................... 6
Mortgage Loan Documents............................................... 6
Mortgage Loan Package................................................. 6
Mortgage Loan Remittance Rate......................................... 6
Mortgage Loan Schedule................................................ 6
Mortgage Note......................................................... 8
Mortgaged Property.................................................... 8
Mortgagor............................................................. 8
Net Liquidation Proceeds.............................................. 8
Net REO Disposition Proceeds.......................................... 8
Nonrecoverable Advance................................................ 8
Officers' Certificate................................................. 8
Opinion of Counsel.................................................... 9
OTS................................................................... 9
P&I Advance........................................................... 9
Pass-Through Transfer................................................. 9
Periodic Rate Cap..................................................... 9
Person................................................................ 9
Prepayment Interest Excess............................................ 9
Prepayment Interest Shortfall......................................... 9
Principal Prepayment.................................................. 10
Purchaser............................................................. 10
Purchase Price........................................................ 10
Qualified Substitute Mortgage Loan.................................... 10
Realized Loss......................................................... 10
Reconstitution Agreements............................................. 11
Reconstitution Date................................................... 11
Remittance Date....................................................... 11
REO Account........................................................... 11
REO Disposition....................................................... 11
REO Disposition Proceeds.............................................. 11
REO Property.......................................................... 11
Servicer.............................................................. 11
Servicing Advances.................................................... 11
</TABLE>
ii
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<TABLE>
<S> <C>
Servicing Compensation............................................................................................. 12
Servicing Fee...................................................................................................... 12
Servicing Fee Rate................................................................................................. 12
Servicing Officer.................................................................................................. 12
Stated Principal Balance........................................................................................... 12
Sub-Servicer....................................................................................................... 12
ARTICLE IIAGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE;PURCHASE PRICE;
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CONVEYANCE OF MORTGAGE LOANS;POSSESSION OF MORTGAGE FILES; BOOK AND
-------------------------------------------------------------------
RECORDS;DELIVERY OF MORTGAGE LOAN DOCUMENTS........................................................................ 14
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Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase Price..................................... 14
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Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage Files......................................... 15
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Section 2.03 Books and Records.................................................................................. 15
-----------------
Section 2.04 Delivery of Mortgage Loan Documents................................................................ 16
-----------------------------------
Section 2.05 Underwriting: Review of the Mortgage Files......................................................... 17
------------------------------------------
ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE COMPANY;REPURCHASE OF MORTGAGE
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LOANS; CLOSING;CLOSING DOCUMENTS; COSTS............................................................................ 19
---------------------------------------
Section 3.01 Individual Mortgage Loans.......................................................................... 19
-------------------------
Section 3.02 Company Representations............................................................................ 25
-----------------------
Section 3.03 Repurchase and Substitution........................................................................ 26
---------------------------
Section 3.04 Closing............................................................................................ 28
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Section 3.05 Closing Documents.................................................................................. 29
-----------------
Section 3.06 Costs.............................................................................................. 30
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ARTICLE IVADMINISTRATION AND SERVICING OF MORTGAGE LOANS................................................................ 32
----------------------------------------------
Section 4.01 Company to Act as Servicer......................................................................... 32
--------------------------
Section 4.02 Liquidation of Mortgage Loans...................................................................... 33
-----------------------------
Section 4.03 Collection of Mortgage Loan Payments............................................................... 33
------------------------------------
Section 4.04 Establishment of Custodial Account; Deposits in Custodial Account.................................. 33
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Section 4.05 Withdrawals From the Custodial Account............................................................. 35
--------------------------------------
Section 4.06 Establishment of Escrow Account; Deposits in Escrow Account........................................ 36
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Section 4.07 Withdrawals From Escrow Account.................................................................... 36
-------------------------------
Section 4.08 Payment of Taxes, Insurance and Other Charges...................................................... 37
---------------------------------------------
Section 4.09 Transfer of Accounts............................................................................... 37
--------------------
Section 4.10 Maintenance of Hazard Insurance.................................................................... 38
-------------------------------
Section 4.11 Fidelity Bond; Errors and Omissions Insurance...................................................... 39
---------------------------------------------
Section 4.12 Title, Management and Disposition of REO Property.................................................. 39
-------------------------------------------------
Section 4.13 Liquidation Reports................................................................................ 41
-------------------
Section 4.14 Delivery of Documents in Possession of Custodian................................................... 41
------------------------------------------------
Section 4.15 Notification of Adjustments........................................................................ 41
---------------------------
ARTICLE VPAYMENTS TO THE PURCHASER...................................................................................... 43
-------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 5.01 Distributions....................................................................................... 43
-------------
Section 5.02 Statements to the Purchaser......................................................................... 43
---------------------------
Section 5.03 Advances by the Company............................................................................. 45
-----------------------
Section 5.04 Prepayment Interest Shortfalls...................................................................... 45
------------------------------
ARTICLE VIGENERAL SERVICING PROCEDURE.................................................................................... 46
---------------------------
Section 6.01 Assumption Agreements............................................................................... 46
---------------------
Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files............................................. 46
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Section 6.03 Servicing Compensation.............................................................................. 47
----------------------
Section 6.04 Annual Statement as to Compliance................................................................... 47
---------------------------------
Section 6.05 Annual Independent Public Accountants' Servicing Report............................................. 47
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Section 6.06 Option to Acquire Servicing; Continuation of Company as Servicer.................................... 48
----------------------------------------------------------------
Section 6.07 Purchaser's Right to Examine Company Records........................................................ 48
--------------------------------------------
ARTICLE VII.............................................................................................................. 49
REPORTS TO BE PREPARED BY COMPANY........................................................................................ 49
- ---------------------------------
Section 7.01 Company Shall Provide Access and Information as Reasonably Required................................. 49
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Section 7.02 Financial Statements................................................................................ 49
--------------------
ARTICLE VIII............................................................................................................. 50
REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENTUPON A WHOLE LOAN
- -----------------------------------------------------------------------------
TRANSFER OR A PASS-THROUGH TRANSFER ON ONE ORMORE RECONSTITUTION
----------------------------------------------------------------
DATES............................................................................................................... 50
-----
Section 8.01 Removal of Mortgage Loans from Inclusion Under this Agreement Upon a Whole Loan Transfer or a
Pass-Through Transfer on One or More Reconstitution Dates........................................... 50
-------------------------
ARTICLE IXTHE COMPANY.................................................................................................... 53
-----------
Section 9.01 Indemnification; Third Party Claims................................................................. 53
-----------------------------------
Section 9.02 Merger or Consolidation of the Company.............................................................. 53
--------------------------------------
Section 9.03 Limitation on Liability of the Company and Others................................................... 54
-------------------------------------------------
Section 9.04 Company Not to Resign............................................................................... 54
---------------------
Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement................................................... 54
-------------------------------------------------
ARTICLE XDEFAULT......................................................................................................... 56
-------
Section 10.01 Events of Default................................................................................... 56
-----------------
Section 10.02 Waiver of Defaults.................................................................................. 57
------------------
Section 10.03 Servicer to Retain Previous Entitlement............................................................. 57
---------------------------------------
ARTICLE XITERMINATION.................................................................................................... 58
-----------
Section 11.01 Termination......................................................................................... 58
-----------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII............................................................................................................. 59
MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST........................................................................ 59
- ------------------------------------------------
Section 12.01 Mandatory Delivery; Grant of Security Interest....................................................... 59
----------------------------------------------
ARTICLE XIII............................................................................................................ 60
MISCELLANEOUS PROVISIONS................................................................................................ 60
- ---------------------------
Section 13.01 Successor to the Company............................................................................. 60
------------------------
Section 13.02 Amendment............................................................................................ 61
---------
Section 13.03 Recordation of Agreement............................................................................. 61
------------------------
Section 13.04 Recordation of Assignment of Mortgages............................................................... 61
--------------------------------------
Section 13.05 Duration of Agreement................................................................................ 61
---------------------
Section 13.06 Governing Law........................................................................................ 61
-------------
Section 13.07 General Interpretive Principles...................................................................... 62
-------------------------------
Section 13.08 Reproduction of Documents............................................................................ 62
-------------------------
Section 13.09 Notices.............................................................................................. 63
-------
Section 13.10 Severability of Provisions........................................................................... 63
--------------------------
Section 13.11 No Partnership....................................................................................... 63
--------------
Section 13.12 Execution; Successors and Assigns.................................................................... 63
---------------------------------
</TABLE>
v
<PAGE>
Exhibits
- --------
EXHIBIT A Contents of Mortgage Files
EXHIBIT B Custodial Account Letter Agreement
EXHIBIT C Escrow Account Letter Agreement
EXHIBIT D REO Account Letter Agreement
EXHIBIT E Assignment and Conveyance
EXHIBIT F Mortgage Loan Schedule
EXHIBIT G Form of Mortgage Note and Mortgage/Deed of Trust
EXHIBIT H Company's Underwriting Guidelines
EXHIBIT I [Intentionally Deleted]
EXHIBIT J Officer's Certificate
EXHIBIT K Resolutions
EXHIBIT L Security Release Certification
EXHIBIT M Representations and Warranties with Respect to the Pool
Characteristics of each Mortgage Loan Package
EXHIBIT N Commitment Letters
vi
<PAGE>
This is a Master Mortgage Loan Purchase and Servicing Agreement, dated
and effective as of June 1, 1997, and is executed between Salomon Brothers
Realty Corp., as purchaser (hereinafter, the "Purchaser"), and Ameriquest
Mortgage Company, as seller and servicer (hereinafter, the "Company").
The Purchaser has agreed to purchase from the Company and the Company
has agreed to sell to the Purchaser Mortgage Loans, as described herein and in
the related Confirmations, on a servicing retained basis that shall be delivered
in groups of whole loans on various Closing Dates as provided herein.
All of the Mortgage Loans are secured by first mortgages or deeds of
trust on residential dwellings situated within the State(s) indicated on the
Mortgage Loan Schedule for the related Mortgage Loan Package, which is to be
annexed hereto on the related Closing Date as part of Exhibit F.
The Purchaser and the Company wish to prescribe the manner of purchase
by the Purchaser of the Mortgage Loans and the management, servicing and control
of the Mortgage Loans.
The Purchaser has purchased certain Mortgage Loans from the Company
pursuant to the Commitment Letters and such Mortgage Loans will be governed by
the terms of this Agreement.
Following its purchase of the Mortgage Loans from the Company, the
Purchaser desires to sell some or all of the Mortgage Loans to one or more
purchasers as a whole loan transfer in a whole loan or participation format or a
public or private mortgage-backed securities transaction.
In consideration of the premises and the mutual agreements hereinafter
set forth, the Purchaser and the Company agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
"Adjustable Rate Mortgage Loan": A Mortgage Loan which bears interest
at a rate which adjusts from time to time in accordance with the terms of the
Mortgage Note.
<PAGE>
"Adjustment Date": As to each Adjustable Rate Mortgage Loan, the date
on which the Mortgage Interest Rate adjusts as provided in the related Mortgage
Note.
"Agreement": This Master Mortgage Loan Purchase and Servicing
Agreement, including all exhibits hereto, and all amendments hereof and
supplements hereto.
"Appraised Value": With respect to a Mortgage Loan, the value of the
related Mortgaged Property based upon the appraisal made at the origination of
the Mortgage Loan or the sale price of the Mortgaged Property at the origination
of the Mortgage Loan, whichever is less.
"Assignment and Conveyance": An assignment and conveyance of the
Mortgage Loans purchased on a Closing Date in the form attached hereto as
Exhibit E.
"Assignment of Mortgage": 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
of record the sale of the Mortgage Loan to the Purchaser.
"Available Remittance Amount": With respect to each Remittance Date,
(a) all amounts deposited in the Custodial Account as of the close of business
on the preceding Determination Date (net of charges against or withdrawals from
the Custodial Account pursuant to Section 4.05 except 4.05(i)), plus (b) all
amounts, if any, which the Company is obligated to deposit pursuant to Section
5.03, Section 5.04 or Section 4.12 and minus (c) any amounts attributable to
Monthly Payments collected but due on a Due Date or Dates subsequent to the Due
Period ending on the first day of the month of the Remittance Date, which
amounts shall be remitted on the Remittance Date next succeeding the Due Period
for such amounts.
"Balloon Loan": Any Mortgage Loan that by its original terms or by
virtue of any modification entered into as of the Closing Date provides for an
amortization schedule extending beyond its stated maturity date.
"Business Day": Any day other than (i) a Saturday or Sunday, or (ii)
a day on which banking or savings and loan institutions in the State of
California or the State of New York are authorized or obligated by law or
executive order to be closed.
"Closing Date": With respect to any Mortgage Loan Package, the date
on which the Purchaser shall purchase from the Company and the Company shall
sell to the Purchaser the Mortgage Loans listed on the related Mortgage Loan
Schedule.
"Commitment Letters": The letter agreements between the Purchaser and
the Company, including all exhibits thereto, a copy of each of which is attached
hereto as Exhibit N.
<PAGE>
-3-
"Company": Ameriquest Mortgage Company, or its successor in interest
or any successor to the Company under this Agreement appointed as herein
provided.
"Confirmation": With respect to the purchase and sale of any Mortgage
Loan Package, the agreement between the Purchaser and the Company setting forth
the variances, if any, of the terms and conditions of such purchase and sale
from the terms and conditions set forth in the related Commitment Letter.
"Custodial Account": The separate Eligible Account or Accounts
created and maintained pursuant to Section 4.04.
"Custodial Agreement": The agreement among the Purchaser, the Company
and the Custodian for the retention of each Mortgage Note, Mortgage, Assignment
of Mortgage and other documents.
"Custodian": The custodian under the Custodial Agreement, initially
Texas Commerce Bank, N.A., or its successor.
"Customary Servicing Procedures": Procedures (including collection
procedures) that the Company customarily employs and exercises in servicing and
administering mortgage loans similar to the Mortgage Loans for its own account
and which are in accordance with accepted mortgage servicing practices of
prudent lending institutions servicing mortgage loans similar to the Mortgage
Loans, giving due consideration to the Purchaser's reliance on the Company.
"Cut-off Date": With respect to any Mortgage Loan, the first day of
the month in which the related Closing Date occurs.
"Cut-off Date Principal Balance": As to any Mortgage Loan, the
scheduled unpaid principal balance thereof as of the close of business on the
related Cut-off Date after application of all payments of principal due on or
prior thereto, whether or not received, and all Principal Prepayments received
on or prior to the related Cut-off Date, but without giving effect to any
installments of principal received in respect of Due Dates after the related
Cut-off Date; provided that with respect to any Mortgage Loan originated after
the related Cut-off Date, the "Cut-off Date Principal Balance" shall mean the
original principal balance thereof.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced
with a Qualified Substitute Mortgage Loan.
"Determination Date": The 20th day (or if such 20th day is not a
Business Day, the Business Day immediately preceding such 20th day) of the month
of the related Remittance Date.
<PAGE>
-4-
"Due Date": The first day of the month of the related Remittance
Date.
"Due Period": With respect to each Remittance Date, the applicable
Due Period shall be the period beginning on the second day of the month
preceding the month of the Remittance Date, and ending on the first day of the
month of the Remittance Date.
"Eligible Account": (i) an account or accounts maintained with a
depository institution the short-term debt obligations of which are rated A-1 or
better by Standard & Poor's Corporation, or (ii) an account or accounts the
deposits in which are fully insured by the FDIC, or (iii) a trust account or
accounts maintained with a federal or state chartered depository institution or
trust company acting in its fiduciary capacity.
"Escrow Account": The separate Eligible Account or Accounts created
and maintained pursuant to Section 4.06.
"Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, mortgage insurance premiums, fire and hazard insurance
premiums and other payments required to be escrowed by the Mortgagor with the
mortgagee pursuant to any Mortgage Loan.
"Event of Default": Any one of the conditions or circumstances
enumerated in Section 10.01.
"FDIC": The Federal Deposit Insurance Corporation or any successor.
"FHLMC": The Federal Home Loan Mortgage Corporation or any successor.
"Fidelity Bond": A fidelity bond required to be obtained by the
Company pursuant to Section 4.11.
"Final Closing Date": With respect to each Mortgage Loan, the Final
Closing Date set forth in the related Commitment Letter.
"Final Due Diligence Date": With respect to each Mortgage Loan, the
date which is 30 days after the Final Closing Date.
"Final Closing Date Principal Balance": The aggregate unpaid
principal balance of the related Mortgage Loans as of the Final Closing Date.
"Final Settlement Date": With respect to each Mortgage Loan, the Final
Settlement Date set forth in the related Commitment Letter.
<PAGE>
-5-
"FNMA": The Federal National Mortgage Association or any successor.
"HUD": The United States Department of Housing and Urban Development
or any successor organization.
"Index": As to each Adjustable Rate Mortgage Loan, the index for the
adjustment of the Mortgage Interest Rate set forth as such in the related
Mortgage Note. Should the Index become unavailable, the Purchaser, with the
consent of the Servicer, will select a new index that is based upon comparable
information.
"Initial Closing Date": ____________, 1997.
"Initial Custodial Account Deposit": An amount equal to, with respect
to each Mortgage Loan, the amount of all payments in respect of such Mortgage
Loan received by the Servicer before the applicable Closing Date in respect of
Due Dates after the applicable Cut-off Date.
"Liquidated Mortgage Loan": Any defaulted Mortgage Loan as to which
the Company has determined that all amounts which it reasonably and in good
faith expects to recover have been recovered from or on account of such Mortgage
Loan.
"Liquidation Proceeds": Cash (other than REO Disposition Proceeds),
including but not limited to insurance proceeds, and any other amounts
(including the sales price) received in connection with the liquidation of a
defaulted Mortgage Loan, whether through the sale or assignment of the Mortgage
Loan, trustee's sale, foreclosure sale or otherwise.
"Loan-to-Value Ratio" or "LTV": With respect to any Mortgage Loan,
the original principal balance of such Mortgage Loan divided by the Appraised
Value.
"Margin": With respect to each Adjustable Rate Mortgage Loan, the
fixed amount set forth in the related Mortgage Note to be added to the Index on
each Adjustment Date in accordance with the terms of the related Mortgage Note
to determine the Mortgage Interest Rate for such Adjustable Rate Mortgage Loan.
The Margin as to each Adjustable Rate Mortgage Loan is set forth on the related
Mortgage Loan Schedule.
"Maximum Rate": With respect to each Adjustable Rate Mortgage Loan,
the rate per annum set forth in the related Mortgage Note as the maximum
Mortgage Interest Rate thereunder. The Maximum Rate as to each Mortgage Loan is
set forth on the related Mortgage Loan Schedule.
"Minimum Rate": With respect to each Adjustable Rate Mortgage Loan,
the rate per annum set forth in the related Mortgage Note as the minimum
Mortgage Interest Rate
<PAGE>
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thereunder. The Minimum Rate as to each Mortgage Loan is set forth on the
related Mortgage Loan Schedule.
"Monthly Payment": The scheduled monthly payment of principal and
interest on a Mortgage Loan which is payable by a Mortgagor from time to time
under the related Mortgage Note.
"Mortgage": The mortgage, deed of trust or other instrument creating
a first lien on or first priority ownership interest in an estate in fee simple
in real property securing a Mortgage Note.
"Mortgage File": The items referred to in Exhibit A annexed hereto
pertaining to a particular Mortgage Loan (and any additional documents required
to be added to the Mortgage File pursuant to this Agreement).
"Mortgage Interest Rate": The annual rate at which interest accrues
on any Mortgage Loan in accordance with the provisions of the related Mortgage
Note. The Mortgage Interest Rate as of the Cut-off Date as to each Mortgage
Loan is set forth on the related Mortgage Loan Schedule.
"Mortgage Loan": An individual mortgage loan which is the subject of
this Agreement, each mortgage loan originally sold and subject to this Agreement
being identified on the related Mortgage Loan Schedule, including without
limitation the contents of the Mortgage File, the Monthly Payments, Principal
Prepayments, Liquidation Proceeds, insurance proceeds, condemnation proceeds,
REO Disposition Proceeds and all other rights, benefits, proceeds and
obligations arising from or in connection with such mortgage loan after the
related Cut-off Date.
"Mortgage Loan Documents": The documents set forth in Section 2.04.
"Mortgage Loan Package": The Mortgage Loans listed on a Mortgage Loan
Schedule.
"Mortgage Loan Remittance Rate": As to each Mortgage Loan, the annual
rate of interest remitted to the Purchaser, which shall be equal to the related
Mortgage Interest Rate minus the related Servicing Fee Rate.
"Mortgage Loan Schedule": With respect to each Mortgage Loan Package,
the schedule of Mortgage Loans subject to this Agreement and identified as being
part of such Mortgage Loan Package to be attached hereto as part of Exhibit F on
the related Closing Date, which schedule (as amended from time to time to
reflect the addition of any Qualified Substitute Mortgage Loans) shall set forth
the following information with respect to each Mortgage Loan in such Mortgage
Loan Package:
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(i) the loan number and name of the Mortgagor;
(ii) the address, including zip codes, of the Mortgaged
Property;
(iii) the initial Mortgage Interest Rate and the current
Mortgage Interest Rate;
(iv) the maturity date;
(v) the principal balance at origination;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the related Cut-off
Date;
(ix) the principal balance as of the related Cut-off Date as
used in determining the Cut-off Date Principal Balance;
(x) the Loan-to-Value Ratio at origination;
(xi) with respect to each Adjustable Rate Mortgage Loan, the
Margin;
(xii) with respect to each Adjustable Rate Mortgage Loan, the
next Adjustment Date after the related Cut-off Date;
(xiii) with respect to each Adjustable Rate Mortgage Loan, the
Minimum Rate and Maximum Rate;
(xiv) the occupancy status;
(xv) the Appraised Value of the Mortgaged Property at
origination;
(xvi) a code indicating the Company's credit grade category of
the Mortgage Loan at origination;
(xv) a code indicating whether such Mortgage Loan is a step-
down mortgage loan;
(xvi) a documentation code;
(xvii) a code indicating the existence of a prepayment penalty;
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(xviii) a code indicating the term of the prepayment penalty, if
applicable;
(xix) a code indicating the expiration date of the prepayment
penalty, if applicable;
(xx) a code indicating the charge description for the
prepayment penalty, if applicable;
(xxi) the Borrower's FICO score;
(xxii) a code indicating the purpose of the Mortgage Loan; and
(xxiii) the interest paid to date as of the related Cut-off
Date.
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property": The real property securing repayment of the debt
evidenced by a Mortgage Note, consisting of a single parcel of property
considered to be real estate under the law of the state in which it is located.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": Liquidation Proceeds net of the sum of any
reimbursements to the Servicer for such Liquidated Mortgage Loan made therefrom
pursuant to Section 4.05(ii).
"Net REO Disposition Proceeds": REO Disposition Proceeds net of the sum
of any unreimbursed Servicing Advances, accrued and unpaid servicing fees and
P&I Advances with respect to the related Mortgage Loan and reimbursements to the
Servicer for such REO Disposition and the related Mortgage Loan made therefrom
pursuant to Section 4.05(ii).
"Nonrecoverable Advance": As of any date of determination, any P&I
Advance previously made or any P&I Advance or Servicing Advance proposed to be
made in respect of a Mortgage Loan which, in the good faith judgment of the
Company, will not or, in the case of a proposed advance, would not be ultimately
recoverable pursuant to Section 4.05(ii). The determination by the Company that
it has made a Nonrecoverable Advance or that any proposed advance would
constitute a Nonrecoverable Advance shall be evidenced by an Officer's
Certificate delivered to the Purchaser on or before the Determination Date in
any month.
<PAGE>
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"Officers' Certificate": A certificate signed by the Chairman of the
Board, or the Vice Chairman of the Board, the President, a Vice President, an
Assistant Vice President, the Treasurer, the Secretary, one of the Assistant
Treasurers or Assistant Secretaries or other officer whose position is of
equivalent responsibility of the Company, and delivered to the Purchaser as
required by this Agreement.
"Opinion of Counsel": A written opinion of counsel, who may be in-house
counsel of the Company, reasonably acceptable to the Purchaser.
"OTS": The Office of Thrift Supervision or any successor.
"P&I Advance": Any advance made pursuant to Section 5.03.
"Pass-Through Transfer": The sale or transfer of some or all of the
Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly
issued or privately placed mortgage-backed securities transaction.
"Periodic Rate Cap": With respect to each Adjustable Rate Mortgage
Loan, the provision in each Mortgage Note that limits permissible increases and
decreases in the Mortgage Interest Rate on any Adjustment Date to not more than
one percentage point.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Charge": The prepayment charge, if any, payable under the
terms of the related Mortgage Note by the Mortgagor in connection with a full
and voluntary Principal Prepayment on the related Mortgage Loan on or after July
1, 1997 transferred and assigned to the Purchaser, and so identified in the
Mortgage Loan Schedule.
"Prepayment Interest Excess": With respect to any Remittance Date after
the first Remittance Date for the related Mortgage Loan, for each Mortgage Loan
that was the subject of a Principal Prepayment in full from the first day
through the twentieth day of the month of such Remittance Date, any payment of
interest received in connection therewith (net of the Servicing Fee)
representing interest accrued for any portion of such month of receipt after the
Due Date.
"Prepayment Interest Shortfall": With respect to each Principal
Prepayment received after the previous Determination Date during the calendar
month preceding the month of a Remittance Date (or in the case of such first
Remittance Date, from the related Cut-off Date), an amount to be deposited in
the Custodial Account prior to the related Remittance Date, to the extent of and
limited to the amount of the Servicing Fee received in respect of the related
Due Period equal to the difference between (a) 30 days' interest on the
<PAGE>
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Stated Principal Balance as of the beginning of the Due Period at the Mortgage
Loan Remittance Rate and (b) the amount of interest actually received on each
such Mortgage Loan for such Due Period net of the Servicing Fee.
"Principal Prepayment": Any payment or other recovery of principal on a
Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon, if any, and is not accompanied by an
amount of interest representing scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment.
"Purchaser": Salomon Brothers Realty Corp.
"Purchase Price": With respect to any Mortgage Loan, the price paid by
the Purchaser to the Company in connection with the purchase and sale of such
Mortgage Loan on the related Closing Date, calculated in accordance with Section
2.01.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted by
the Company for a Deleted Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding principal balance, after deduction of all
scheduled payments due and received in the month of substitution (or in the case
of a substitution of more than one mortgage loan for a Deleted Mortgage Loan, an
aggregate principal balance), not in excess of the Stated Principal Balance of
the Deleted Mortgage Loan and not less than ninety percent (90%) of the Stated
Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to
be distributed by the Company to the Purchaser in the month of substitution),
(ii) have a remaining term to maturity not greater than (and not more than one
year less than) that of the Deleted Mortgage Loan, (iii) have a Mortgage
Interest Rate not less than (and not more than one percentage point greater
than) the Mortgage Interest Rate of the Deleted Mortgage Loan, (iv) have a
Servicing Fee Rate as provided herein for all Mortgage Loans subject to this
Agreement, (v) with respect to each Adjustable Rate Mortgage Loan, have a
Minimum Rate not less than that of the Deleted Mortgage Loan, (vi) with respect
to each Adjustable Rate Mortgage Loan, have a Maximum Rate not less than that of
the Deleted Mortgage Loan and not more than two (2) percentage points above that
of the Deleted Mortgage Loan, (vii) with respect to each Adjustable Rate
Mortgage Loan, have a Margin not less than that of the Deleted Mortgage Loan,
(viii) with respect to each Adjustable Rate Mortgage Loan, have a Periodic Rate
Cap equal to that of the Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio
at the time of substitution equal to or less than the Loan-to-Value Ratio of the
Deleted Mortgage Loan at the time of substitution, (x) with respect to each
Adjustable Rate Mortgage Loan, have the same Adjustment Date as that of the
Deleted Mortgage Loan, (xi) with respect to each Adjustable Rate Mortgage Loan,
have an Index as provided herein for all Adjustable Rate Mortgage Loans subject
to this Agreement, (xii) comply as of the date of substitution with each
representation and warranty set forth in Sections 3.01 and 3.02 and (xiii) be in
the same credit grade category as the Deleted Mortgage Loan.
<PAGE>
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"Realized Loss": As to any Liquidated Mortgage Loan, the amount, if
any, by which (i) the Stated Principal Balance (including any accrued and unpaid
interest) thereof as of the date of liquidation exceeds (ii) Net Liquidation
Proceeds realized thereon.
"Reconstitution Agreements": The agreement or agreements entered into by
the Company and the Purchaser and/or certain third parties on the Reconstitution
Date or Dates with respect to any or all of the Mortgage Loans serviced
hereunder, in connection with a Whole Loan Transfer or a Pass-Through Transfer
as set forth in Article XII, including, but not limited to, a pooling and
servicing agreement substantially in the form previously entered into by the
Company in connection with public offerings of pass-through securities backed by
mortgage loans similar to the Mortgage Loans and sold by the Company or such
other form that has been entered into between the Purchaser (or an affiliate of
the Purchaser) and the Company since the Initial Closing Date. Such agreement or
agreements shall prescribe the rights and obligations of the Company in
servicing the related Mortgage Loans.
"Reconstitution Date": With respect to any Mortgage Loan, the date on
which such Mortgage Loan serviced under this Agreement shall be removed from
this Agreement and reconstituted as part of a Whole Loan Transfer or Pass-
Through Transfer pursuant to Article 12 hereof. On such date, the Mortgage Loans
transferred shall cease to be covered by this Agreement and the Company shall
cease to service those Mortgage Loans under this Agreement in accordance with
the termination provisions set forth in Article XII hereof.
"Remittance Date": The 24th day of any month, beginning in the month
next following the month in which the related Cut-off Date occurs, or if such
24th day is not a Business Day, the first Business Day immediately following.
"REO Account": The Eligible Account or Accounts maintained pursuant to
Section 4.12.
"REO Disposition": The final sale by the Company on behalf of the
Purchaser of a Mortgaged Property acquired by the Company in foreclosure or by
deed in lieu of foreclosure.
"REO Disposition Proceeds": All amounts received with respect to an REO
Disposition pursuant to Section 4.12.
"REO Property": A Mortgaged Property acquired by the Company on behalf
of the Purchaser through foreclosure or by deed in lieu of foreclosure, as
described in Section 4.12.
"Servicer": Ameriquest Mortgage Company, or any successor appointed as
herein provided.
<PAGE>
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"Servicing Advances": All customary, reasonable and necessary "out-of-
pocket" costs and expenses incurred in the performance by the Company of its
servicing obligations, including, but not limited to, the cost of (a) payments
made by the Company pursuant to Section 4.08, (b) the preservation, restoration
and protection of the Mortgaged Property, (c) any enforcement or judicial
proceedings, including foreclosures and (d) the management and liquidation of
the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of
the Mortgage.
"Servicing Compensation": The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Section 6.03.
"Servicing Fee": With respect to each Mortgage Loan, the amount of the
annual fee to be paid to the Servicer, which shall be equal to one-twelfth of
the product of (a) the Servicing Fee Rate and (b) the principal balance of such
Mortgage Loan. Such fee shall be payable monthly, computed on the basis of the
same principal amount and period respecting which any related interest payment
on a Mortgage Loan is computed. The Servicing Fee is limited to, and payable
solely from, full payments of the interest portion (including recoveries with
respect to interest from Liquidation Proceeds, condemnation proceeds, REO
Disposition Proceeds and all other proceeds) of such Monthly Payments collected
by the Company, or as otherwise provided under Section 4.05. In the event of a
transfer of servicing to an unrelated third party or a termination of servicing
as to any Mortgage Loan, the Servicing Fee shall not be prorated for a partial
month of servicing.
"Servicing Fee Rate": 0.50% per annum.
"Servicing Officer": Any officer of the Company involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name appears on a list of servicing officers furnished to the Purchaser by the
Company, as such list may from time to time be amended.
"Stated Principal Balance": As to each Mortgage Loan, (i) the Cut-off
Date Principal Balance of the Mortgage Loan, minus (ii) all amounts previously
distributed to the Purchaser with respect to the Mortgage Loan representing
payments or recoveries of principal, or advances in lieu thereof.
"Sub-Servicer": Any Person with which the Company has entered into a
sub-servicing agreement and which shall be (A) either (i) an institution the
accounts of which are insured by the FDIC or (ii) another entity that engages in
the business of originating mortgage loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the sub-servicer to perform its obligations
hereunder and under the sub-servicing agreement, and in either case shall be a
FHLMC or FNMA approved mortgage servicer and (B) approved by the Purchaser.
<PAGE>
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"Subservicing Agreement": Any Sub-Servicing Agreement between the
Company, as Master Servicer, and a Sub-Servicer, as Sub-Servicer.
"Whole Loan Transfer": The sale or transfer by Purchaser of some or all
of the Mortgage Loans in a whole loan format or a certificated participation
format pursuant to a Reconstitution Agreement.
<PAGE>
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ARTICLE II
AGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE;
----------------------------------------------
PURCHASE PRICE; CONVEYANCE OF MORTGAGE LOANS;
---------------------------------------------
POSSESSION OF MORTGAGE FILES; BOOK AND RECORDS;
-----------------------------------------------
DELIVERY OF MORTGAGE LOAN DOCUMENTS
-----------------------------------
Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase
--------------------------------------------------------
Price.
-----
The Company agrees to sell, and the Purchaser agrees to purchase,
Mortgage Loans having an aggregate principal balance on the related Cut-off Date
in an amount as set forth in the related Commitment Letter, subject to the
permitted variances set forth therein. The Company agrees to use its best
efforts to deliver the principal amount of loans in accordance with the delivery
schedule set forth as an Exhibit to the related Commitment Letter. In any
event, the Company shall deliver the Mortgage Loans no later than the related
Final Settlement Date.
The Company shall deliver the Mortgage Loan Schedule for a Mortgage Loan
Package to be purchased on a particular Closing Date to the Purchaser on or
prior to the related Closing Date.
The Purchase Price for each Mortgage Loan listed on the related Mortgage
Loan Schedule shall be calculated as provided in the related Commitment Letter.
In addition to the Purchase Price as described above, the Purchaser
shall pay to the Company, on a particular Closing Date, accrued interest as set
forth in the related Commitment Letter.
The Purchaser shall be entitled to all scheduled payments of principal
due after the Cut-off Date, all other recoveries of principal collected and due
after the Cut-off Date, and all payments of interest on the Mortgage Loans
(minus that portion of any such payment which is allocable to the period prior
to the Cut-off Date). The principal balance of each Mortgage Loan as of the
Cut-off Date is determined after application of payments of principal due on or
before the Cut-off Date, whether or not collected. Therefore, payments of
scheduled principal and interest prepaid for a due date beyond the Cut-off Date
shall not be applied to the principal balance as of the Cut-off Date. Such
prepaid amounts shall be the property of the Purchaser. The Company shall
deposit any such prepaid amounts into the Custodial Account, which account is
established for the benefit of the Purchaser for subsequent remittance by the
Company to the
<PAGE>
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Purchaser. All scheduled payments of principal due on or before the Cut-off Date
and collected by the Company after the Cut-off Date shall belong to the Company.
Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage
----------------------------------------------------
Files.
-----
The Company, simultaneously with the payment of the Purchase Price,
shall execute and deliver to the Purchaser an Assignment and Conveyance with
respect to the related Mortgage Loan Package in the form attached hereto as
Exhibit E. The contents of each Mortgage File not delivered to the Custodian
shall be held in trust by the Company for the benefit of the Purchaser as the
owner thereof and the Company's possession of the portion of each Mortgage File
so retained shall be at the will of the Purchaser for the sole purpose of
servicing the related Mortgage Loan, and such retention and possession by the
Company is in a custodial capacity only. Upon the purchase of the Mortgage
Loans, the ownership of each Mortgage Note, Mortgage and each related Mortgage
File shall be vested in the Purchaser and the ownership of all records and
documents with respect to each related Mortgage Loan prepared by or which come
into the possession of the Company shall immediately vest in the Purchaser and
shall be retained and maintained, in trust, by the Company at the will of the
Purchaser in such custodial capacity only. The Company shall release from its
custody the contents of any Mortgage File only in accordance with written
instructions from the Purchaser, unless such release is required as incidental
to the Company's servicing of the Mortgage Loans or is in connection with a
repurchase of any Mortgage Loan pursuant to Section 3.03.
Section 2.03 Books and Records.
-----------------
Notwithstanding the sale of the Mortgage Loans to the Purchaser, record
title to each Mortgage and the related Mortgage Note for which the Mortgaged
Property is located in California shall continue in the name of the Company and
be retained by the Company in trust for the Purchaser for the sole purpose of
facilitating the servicing and the supervision of the servicing of the Mortgage
Loans. The foregoing procedures shall be applicable only so long as the related
Mortgage Files are maintained in the State of California. In the event that (i)
the Company or the Servicer gives written notice to the Custodian that recording
is required to protect the right, title and interest of the Purchaser in and to
any Mortgage Loan for which the Mortgaged Property is located in California, or
(ii) in case a court should recharacterize the sale of the Mortgage Loans as a
financing or, (iii) as a result of any change in or amendment to the laws of
California or any applicable political subdivision thereof, or any change in
official position regarding application or interpretation of such laws,
including a holding by a court of competent jurisdiction that such recording is
so required, or (iv) if the Company or the Servicer admits in writing its
inability to pay its debts as they become due, files a petition to take
advantage of any applicable insolvency or reorganization statute, makes an
assignment for the benefit of its creditors, or if the Company or the Servicer
voluntarily suspends payment of its obligations, or (v) if the Servicer receives
a notice of termination pursuant to Section 10.01 or the Purchaser receives the
resignation of the Servicer evidenced by an Opinion of Counsel pursuant
<PAGE>
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to Section 7.04, or the Servicer is removed as servicer, then the Servicer shall
cause each such previously unrecorded Assignment of Mortgage to be submitted for
recording in the applicable jurisdiction as specified in the definition of
Assignment of Mortgage. However, in the event the Servicer fails to cause each
such previously unrecorded Assignment of Mortgage to be submitted for recording
as set forth in clauses (i) through (v) above, the successor Servicer shall
cause such previously unrecorded Assignment of Mortgage to be submitted for
recording in the manner specified above and at the expense of the Company. All
rights arising out of the Mortgage Loans including, but not limited to, all
funds received on or in connection with a Mortgage Loan as provided in Section
2.01 shall be held by the Company in trust for the benefit of the Purchaser as
the owner of the Mortgage Loans.
The sale of each Mortgage Loan shall be reflected on the Company's
balance sheet and other financial statements as a sale of assets by the Company.
The Company shall be responsible for maintaining, and shall maintain, a complete
set of books and records for each Mortgage Loan which shall be clearly marked
to reflect the ownership of each Mortgage Loan by the Purchaser.
Section 2.04 Delivery of Mortgage Loan Documents.
-----------------------------------
The Company shall in connection with each Closing Date deliver to the
Custodian, as agent of and custodian for the Purchaser, each of the following
documents for each Mortgage Loan to be purchased and sold on such Closing Date:
(a) The original Mortgage Note including any addendums thereto, endorsed
by the Company without recourse in the following form: "Pay to the
order of ________________, without recourse" and signed, by facsimile
or manual signature, in the name of the Company by an officer,
together with all intervening endorsements showing a complete chain of
endorsement from the originator to the Company;
(b) The original recorded Mortgage or, if the original Mortgage has not
yet been returned from the applicable recording office, a copy of the
Mortgage certified by an appropriate officer of the Company to be a
true and complete copy of the original Mortgage submitted for
recording;
(c) A duly executed Assignment of Mortgage, in blank, from the Company,
which assignment shall be in form and substance acceptable for
recording or, if as a result of the related Mortgage not having been
returned from the applicable recording office, a copy of the
Assignment of Mortgage excluding information to be provided by the
recording office;
(d) the original recorded Assignment or Assignments of the Mortgage, if
any, showing a complete chain of assignment from the originator to the
Company or, if any such
<PAGE>
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Assignment of Mortgage has not been returned from the applicable
public recording office, a copy of such Assignment of Mortgage
certified by an appropriate officer of the Company to be a true and
complete copy of the original Assignment of Mortgage submitted or to
be submitted for recording;
(e) the original or duplicate original title insurance policy (or a
commitment (binder) to issue same) relating to the Mortgage Loan;
(f) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any;
(g) the original power of attorney, if any, or if the original power of
attorney has not been returned from the applicable public recording
office, a copy thereof certified by an appropriate officer of the
Company to be a true and complete copy of the original submitted for
recording, if any; and
(h) if identified on the Mortgage Loan Schedule as a step-down Mortgage
Loan, the related Addendum to Promissory Note.
In the event that the original Mortgage was not delivered pursuant to (b) above,
the original title insurance policy was not delivered pursuant to (e) above, the
duly executed Assignment of Mortgage was not delivered pursuant to (c) above or
the original recorded Assignment or Assignments of the Mortgage, if any, showing
a complete chain of assignment from the originator to the Company was not
delivered pursuant to (d) above, the Company shall use best reasonable efforts
to promptly secure the delivery of such originals and shall cause such originals
to be delivered to the Custodian promptly upon receipt thereof. In the event
that the Company cannot deliver the original Mortgage, the Company shall deliver
a copy of such Mortgage certified as true and complete by the appropriate
recording office in those instances where a copy thereof certified by the
Company was delivered pursuant to clause (b) above. In the event that the
original Mortgage or a certified copy thereof or the original policy of title
insurance is not so delivered to the Custodian within 365 days following the
related Closing Date, the related Mortgage Loan shall, upon the written request
of the Purchaser, be repurchased by the Company at the price and in the manner
specified in Section 3.03. The Custodian has certified its receipt of each
document set forth in clauses (a) through (e) above as evidenced by its Initial
Certification in the form annexed to the Custodial Agreement.
Section 2.05 Underwriting: Review of the Mortgage Files.
------------------------------------------
With respect to each Mortgage Loan, the Company shall make all
documents and instruments relating to such Mortgage Loan (including copies of
any original documents previously delivered to the Custodian and the mortgagor
payment histories specifying the number of times each Mortgage Loan was
delinquent within the immediately preceding twelve month period) available at
its offices for review during normal business hours, or such other location as
<PAGE>
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the Purchaser and the Company shall mutually agree. Until the Final Due
Diligence Date, the Purchaser and any certificate guaranty insurance company
designated by the Purchaser and their designees shall have the right to review
the files and documents relating to each Mortgage Loan, to inspect, evaluate and
appraise the real property securing each such Mortgage Loan and to obtain
appraisal recertifications and otherwise to underwrite each such Mortgage Loan,
which shall not be an expense of the Company. Prior to the Final Due Diligence
Date, the Purchaser may reject any such Mortgage Loan which, either individually
or as part of a pool of all or some of the Mortgage Loans, does not, in its sole
discretion, conform to the underwriting standards of the Company, regardless of
whether a Closing Date has already occurred with respect to such Mortgage Loans.
With respect to any Mortgage Loan rejected by the Purchaser pursuant to the
preceding sentence as to which a Closing Date has already occurred, the Company
shall repurchase such Mortgage Loan at a price equal to the Purchase Price paid
for such Mortgage Loan by the Purchaser hereunder. The underwriting described in
this paragraph shall not impair or diminish the rights of the Purchaser, or any
assignee of the Purchaser, under this Agreement with respect to a breach of
representations and warranties contained in this Agreement.
<PAGE>
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY;
----------------------------------------------
REPURCHASE OF MORTGAGE LOANS; CLOSING;
--------------------------------------
CLOSING DOCUMENTS; COSTS
------------------------
Section 3.01 Individual Mortgage Loans.
-------------------------
The Company hereby represents and warrants to the Purchaser that, as
to each Mortgage Loan, as of the related Closing Date (or such other date as may
be specified herein or in the applicable Assignment and Conveyance):
(a) The information set forth on the related Mortgage Loan Schedule with
respect to each Mortgage Loan is true and correct in all material
respects;
(b) Except as set forth on Exhibit M, all payments due prior to the
related Cut-off Date have been made and none of the Mortgage Loans
will have been contractually delinquent for more than one calendar
month more than once since the origination thereof;
(c) Each Mortgage is a valid and enforceable first lien on the Mortgaged
Property, including all improvements thereon, subject only to (a) the
lien of nondelinquent current real property taxes and assessments, (b)
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 related
Mortgage Loan, and (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits
of the security intended to be provided by such Mortgage;
(d) Immediately prior to the assignment of the Mortgage Loans to the
Purchaser, the Company had good title to, and was the sole legal and
beneficial owner of, each Mortgage Loan free and clear of any pledge,
lien, encumbrance or security interest and has full right and
authority, subject to no interest or participation of, or agreement
with, any other party to sell and assign the same;
(e) To the best of the Company's knowledge, there is no delinquent tax or
assessment lien against any Mortgaged Property;
<PAGE>
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(f) There is no valid offset, defense or counterclaim to any Mortgage Note
or Mortgage, including the obligation of the Mortgagor to pay the
unpaid principal of or interest on such Mortgage Note, nor will the
operation of any of the terms of the Mortgage Note and the Mortgage,
or the exercise of any right thereunder, render the Mortgage
unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(g) To the best of the Company's knowledge, there are no mechanics' liens
or claims for work, labor or material affecting any Mortgaged Property
which are or may be a lien prior to, or equal with, the lien of the
related Mortgage, except those which are insured against by the title
insurance policy referred to in (k) below;
(h) To the best of the Company's knowledge, each Mortgaged Property is
free of material damage and is in good repair;
(i) Each Mortgage Loan at origination complied in all material respects
with applicable local, state and federal laws, including, without
limitation, usury, equal credit opportunity, real estate settlement
procedures, truth-in-lending and disclosure laws, and consummation of
the transactions contemplated hereby will not involve the violation of
any such laws;
(j) Neither the Company nor any prior holder of any Mortgage has modified
the Mortgage in any material respect (except that a Mortgage Loan may
have been modified by a written instrument which has been recorded, if
necessary, to protect the interests of the Purchaser and which has
been delivered to the Custodian); satisfied, cancelled or subordinated
such Mortgage in whole or in part; released the related Mortgaged
Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto;
(k) A lender's policy of title insurance together with a condominium
endorsement and extended coverage endorsement, if applicable, and,
with respect to each Adjustable Rate Mortgage Loan, an adjustable rate
mortgage endorsement in an amount at least equal to the related Cut-
off Date Principal Balance of each such Mortgage Loan or a commitment
(binder) to issue the same was effective on the date of the
origination of each Mortgage Loan, each such policy is valid and
remains in full force and effect, the transfer of the related Mortgage
Loan to the Purchaser will not affect the validity or enforceability
of such policy and each such policy was issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged
Property is located and acceptable to FNMA or FHLMC and in a form
acceptable to FNMA or FHLMC, which policy insures the Company and
successor owners of indebtedness secured by the insured Mortgage, as
to the first priority lien of the Mortgage; to the best of the
<PAGE>
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Company's knowledge, no claims have been made under such mortgage
title insurance policy and no prior holder of the related Mortgage,
including the Company, has done, by act or omission, anything which
would impair the coverage of such mortgage title insurance policy;
(l) Each Mortgage Loan was originated by the Company (or, if generated on
behalf of the Company by a Person other than the Company, is subject
to the same standards and procedures used by the Company in
originating mortgage loans directly) or by a savings and loan
association, savings bank, commercial bank, credit union, insurance
company or similar institution which is supervised and examined by a
federal or state authority, or by a mortgagee approved by the
Secretary of Housing and Urban Development pursuant to sections 203
and 211 of the National Housing Act;
(m) With respect to each Adjustable Rate Mortgage Loan on each Adjustment
Date, the Mortgage Interest Rate will be adjusted to equal the Index
plus the Margin, rounded to the nearest 0.125%, subject to the
Periodic Rate Cap, the Maximum Rate and the Minimum Rate. Except for
Balloon Loans, the related Mortgage Note is payable on the first day
of each month in self-amortizing monthly installments of principal and
interest, with interest payable in arrears, and requires a Monthly
Payment which is sufficient to fully amortize the outstanding
principal balance of the Mortgage Loan over its remaining term and to
pay interest at the applicable Mortgage Interest Rate. No Mortgage
Loan is subject to negative amortization;
(n) To the best of the Company's knowledge, all of the improvements which
were included for the purpose of determining the Appraised Value of
the Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon the Mortgaged Property, except those, if any,
which are insured against by the title insurance policy referred to in
(k) above.
(o) All inspections, licenses and certificates required to be made or
issued with respect to all occupied portions of the Mortgaged Property
and, with respect to the use and occupancy of the same, including but
not limited to certificates of occupancy, have been made or obtained
from the appropriate authorities and the Mortgaged Property is
lawfully occupied under applicable law;
(p) All parties which have had any interest in the Mortgage, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) in compliance
with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located;
(q) The Mortgage Note and the related Mortgage are genuine, and each is
the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms
<PAGE>
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and with applicable laws. All parties to the Mortgage Note and the
Mortgage had legal capacity to execute the Mortgage Note and the
Mortgage and each Mortgage Note and Mortgage have been duly and
properly executed by such parties;
(r) The proceeds of each Mortgage Loan have been fully disbursed, there is
no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site improvements
and as to disbursements of any escrow funds therefor have been
complied with, excepting therefrom any Mortgaged Property or Mortgage
Loan subject to an Escrow Withhold as defined in the Company's
Underwriting Guidelines and administrated in accordance with FNMA
guidelines. All costs, fees and expenses incurred in making, closing
or recording the Mortgage Loans were paid.
(s) The related Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of
the security, including, (i) in the case of a Mortgage designated as a
deed of trust, by trustee's sale, and (ii) otherwise by judicial
foreclosure. There is no homestead or other exemption available to the
Mortgagor which would materially interfere with the right to sell the
Mortgaged Property at a trustee's sale or the right to foreclose the
Mortgage.
(t) With respect to each Mortgage constituting a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such
Mortgage, and no fees or expenses are or will become payable by the
Purchaser to the trustee under the deed of trust, except in connection
with a trustee's sale after default by the Mortgagor;
(u) Each Mortgage Note and each Mortgage is in substantially the forms
attached hereto as Exhibit G;
(v) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or
payments of other charges or payments due the Company have been
capitalized under the Mortgage or the related Mortgage Note;
(w) The origination, collection and servicing practices used by the
Company with respect to each Mortgage Loan have been in all material
respects legal, proper, prudent and customary in the mortgage
origination and servicing business;
(x) There is no pledged account or other security other than real estate
securing the Mortgagor's obligations;
<PAGE>
-23-
(y) No Mortgage Loan has a shared appreciation feature, or other
contingent interest feature;
(z) No Mortgage Loan provides for primary mortgage insurance;
(aa) The improvements upon each Mortgaged Property are covered by a valid
and existing hazard insurance policy with a generally acceptable
carrier that provides for fire extended coverage and such other
hazards as are customary in the area where the Mortgaged Property is
located representing coverage not less than the lesser of the
outstanding principal balance of the related Mortgage Loan or the
minimum amount required to compensate for damage or loss on a
replacement cost basis. All individual insurance policies and flood
policies referred to in clause (bb) below contain a standard
mortgagee clause naming the Company or the original mortgagee, and
its successors in interest, as mortgagee, and the Company has
received no notice that any premiums due and payable thereon have not
been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance, including flood insurance, at the
Mortgagor's cost and expense, and upon the Mortgagor's failure to do
so, authorizes the holder of the Mortgage to obtain and maintain such
insurance at the Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor, except as may be limited
or restricted by applicable law.
(bb) If the Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special
flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property
with a generally acceptable carrier in an amount representing
coverage not less than the least of (A) the original outstanding
principal balance of the Mortgage Loan, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis
or (C) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973;
(cc) To the best of the Company's knowledge, there is no default, breach,
violation or event of acceleration existing under the Mortgage or the
related Mortgage Note; and the Company has not waived any default,
breach, violation or event of acceleration;
(dd) Each Mortgaged Property is improved by a one- to four-family
residential dwelling, including condominium units and dwelling units
in planned unit developments, which, to the best of the Company's
knowledge, does not include cooperatives or mobile homes which are
treated as other than real property under the applicable state law;
<PAGE>
-24-
(ee) There is no obligation on the part of the Company or any other party
under the terms of the Mortgage or related Mortgage Note to make
payments in addition to those made by the Mortgagor;
(ff) Any future advances made prior to the related Cut-off Date have been
consolidated with the outstanding principal amount secured by the
Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term reflected on the
related Mortgage Loan Schedule. The consolidated principal amount
does not exceed the original principal amount of the Mortgage Loan;
(gg) Each Mortgage Loan was underwritten in accordance with the Company's
underwriting guidelines set forth as an exhibit hereto;
(hh) The Mortgage File contains an appraisal which was performed by an
appraiser who satisfied, and which was conducted in accordance with,
all of the applicable requirements of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended;
(ii) None of the Mortgage Loans is a graduated payment mortgage loan, nor
is any Mortgage Loan subject to a temporary buydown or similar
arrangement;
(jj) With respect to each Mortgage Loan, no loan junior in lien priority
to such Mortgage Loan and secured by the related Mortgaged Property
was originated by the Company at the time of origination of such
Mortgage Loan;
(kk) The characteristics of the related Mortgage Loan Package are as set
forth in the form of Exhibit M delivered in respect of the related
Closing Date;
(ll) Except as set forth in the related Confirmation, on the Final Closing
Date, the Mortgage Loans comply with the conditions set forth in
Section 2 of the related Commitment Letter; and
(mm) The Mortgage contains an enforceable provision for the acceleration
of the payment of the unpaid principal balance of the Mortgage Loan
in the event that the Mortgaged Property is sold or transferred
without the prior written consent of the mortgagee thereunder, except
as may be limited by applicable law; and
(nn) The information set forth in the applicable part of the Mortgage Loan
Schedule relating to the existence of a prepayment penalty is
complete, true and correct in all material respects at the date or
dates respecting which such information is furnished and each
Prepayment Charge is permissible and enforceable in accordance with
its terms (except to the extent that: (1) the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium, receivership
and other similar laws relating to
<PAGE>
-25-
creditors' rights generally; (2) the collectability thereof may be
limited due to acceleration in connection with a foreclosure; or (3)
subsequent charges in applicable law may limit or prohibit
enforceability thereof) under applicable law.
Section 3.02 Company Representations.
-----------------------
The Company hereby represents and warrants to the Purchaser as of the
Initial Closing Date and each subsequent Closing Date (or such other date as may
be specified herein or in the applicable Assignment and Conveyance):
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly
authorized and qualified to transact any and all business
contemplated by this Agreement to be conducted by the Company in any
state in which a Mortgaged Property is located or is otherwise not
required under applicable law to effect such qualification and, in
any event, is in compliance with the doing business laws of any such
State, to the extent necessary to ensure its ability to enforce each
Mortgage Loan and to service the Mortgage Loans in accordance with
the terms of this Agreement;
(b) The Company has the full corporate power and authority to originate,
hold, sell and service each Mortgage Loan, and to execute, deliver
and perform, and to enter into and consummate the transactions
contemplated by this Agreement and has duly authorized by all
necessary corporate action on the part of the Company the execution,
delivery and performance of this Agreement; and this Agreement,
assuming the due authorization, execution and delivery thereof by the
Purchaser, constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except to the extent that (a) the enforceability thereof may
be limited by bankruptcy, insolvency, moratorium, receivership and
other similar laws relating to creditors' rights generally and (b)
the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought;
(c) The execution and delivery of this Agreement by the Company, the
servicing of the Mortgage Loans by the Company hereunder, the
consummation of any other of the transactions herein contemplated,
and the fulfillment of or compliance with the terms hereof are in the
ordinary course of business of the Company and will not (A) result in
a breach of any term or provision of the charter or by-laws of the
Company or (B) conflict with, result in a breach, violation or
acceleration of, or result in a default under, the terms of any other
material agreement or instrument to which the Company is a party or
by which it may be bound, or any statute, order or regulation
applicable to the Company of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Company; and the Company is not a
<PAGE>
-26-
party to, bound by, or in breach or violation of any indenture or
other agreement or instrument, or subject to or in violation of any
statute, order or regulation of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
it, which materially and adversely affects or, to the Company's
knowledge, would in the future materially and adversely affect, (x)
the ability of the Company to perform its obligations under this
Agreement or (y) the business, operations, financial condition,
properties or assets of the Company taken as a whole;
(d) The Company is an approved seller/servicer for FNMA or FHLMC in good
standing and is a HUD approved mortgagee pursuant to Section 203 of
the National Housing Act;
(e) No litigation is pending against the Company that would materially
and adversely affect the execution, delivery or enforceability of
this Agreement or the ability of the Company to service the Mortgage
Loans or to perform any of its other obligations hereunder in
accordance with the terms hereof;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance by the Company of, or compliance by the Company with,
this Agreement or the consummation of the transactions contemplated
hereby, or if any such consent, approval, authorization or order is
required, the Company has obtained the same;
Section 3.03 Repurchase and Substitution.
---------------------------
It is understood and agreed that the representations and warranties
set forth in Sections 3.01 and 3.02 shall survive delivery of the Mortgage Loans
to the Purchaser and shall inure to the benefit of the Purchaser,
notwithstanding any restrictive or qualified endorsement on any Mortgage Note or
Assignment of Mortgage or the examination of any Mortgage File. Upon discovery
(including receipt of notice to such effect from the Purchaser) by either the
Company or the Purchaser of a breach of any of the foregoing representations and
warranties, without regard to any limitation set forth in such representation or
warranty concerning the knowledge of the Company as to the facts stated therein,
which materially and adversely affects the interest of the Purchaser in any
Mortgage Loan, the party discovering such breach shall give prompt notice to the
other parties. Within 90 days of the earlier of either discovery by or notice to
the Company of any breach of a representation or warranty, the Company shall use
its best efforts to promptly cure such breach in all material respects and, if
such breach cannot be cured, the Company shall repurchase such Mortgage
<PAGE>
-27-
Loan at a price equal to (i) the Stated Principal Balance of the Mortgage Loan,
plus (ii) interest on such Stated Principal Balance at the Mortgage Loan
Remittance Rate from the date to which interest has last been paid by the
Mortgagor to the first day of the month in which such purchase price is to be
distributed which purchase price shall be deposited in the Custodial Account on
the next succeeding Determination Date (after deducting therefrom any principal
and interest amounts received in respect of such repurchased Mortgage Loan and
being held in the Custodial Account for future distribution). However, the
Company may, at its option and assuming that the Company has a Qualified
Substitute Mortgage Loan or Loans, rather than repurchase the Mortgage Loan as
provided above, remove such Mortgage Loan ("Deleted Mortgage Loan") and
substitute in its place a Qualified Substitute Mortgage Loan or Loans, provided,
however, that (i) if the Purchaser exercises its rights under Section 2.05, the
Company may not effect a substitution without the prior written consent of the
Purchaser and (ii) any such substitution shall be effected not later than 120
days after the related Closing Date. If the Company has no Qualified Substitute
Mortgage Loan, it shall repurchase the deficient Mortgage Loan. Any repurchase
of a Mortgage Loan or Loans pursuant to the foregoing provisions of this Section
3.03 shall be accomplished by deposit in the Custodial Account of the amount of
the repurchase price set forth above (after deducting therefrom any principal
and interest amounts received in respect of such repurchased Mortgage Loan or
Loans and being held in the Custodial Account for future distribution).
As to any Deleted Mortgage Loan for which the Company substitutes a
Qualified Substitute Mortgage Loan or Loans, the Company shall effect such
substitution by delivering to the Custodian for such Qualified Substitute
Mortgage Loan or Loans the Mortgage Note, the Mortgage, the Assignment of
Mortgage and such other documents and agreements as are required by Section
2.04, with the Mortgage Note endorsed as required by Section 2.04. No
substitution will be made in any calendar month after the Determination Date for
such month. The Company shall deposit in the Custodial Account the Monthly
Payment less the Servicing Fee due on such Qualified Substitute Mortgage Loan or
Loans in the month following the date of such substitution. Monthly Payments
due with respect to Qualified Substitute Mortgage Loans in the month of
substitution will be retained by the Company. For the month of substitution,
distributions to the Purchaser will include the Monthly Payment less the
Servicing Fee due on such Deleted Mortgage Loan or Loans in the month of
substitution, and the Company shall thereafter be entitled to retain all amounts
subsequently received by the Company in respect of such Deleted Mortgage Loan.
The Company shall give written notice to the Purchaser that such substitution
has taken place and shall amend the related Mortgage Loan Schedule to reflect
the removal of such Deleted Mortgage Loan from the terms of this Agreement and
the substitution of the Qualified Substitute Mortgage Loan or Loans. Upon such
substitution, such Qualified Substitute Mortgage Loan or Loans shall be subject
to the terms of this Agreement in all respects, and the Company shall be deemed
to have made with respect to such Qualified Substitute Mortgage Loan or Loans,
as of the date of substitution, the covenants, representations and warranties
set forth in Sections 3.01 and 3.02.
For any month in which the Company substitutes one or more Qualified
Substitute Mortgage Loan or Loans for one or more Deleted Mortgage Loans, the
Company will determine the amount (if any) by which the aggregate principal
balance of all such Qualified Substitute Mortgage Loans as of the date of
substitution (after application of scheduled principal payments due in the month
of substitution which have been received or as to which an advance has been
made) is less than the aggregate Stated Principal Balance of all such Deleted
Mortgage Loans. The amount of such shortfall shall be distributed by the
Company in the month of substitution
<PAGE>
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pursuant to Section 5.01. Accordingly, on the date of such substitution, the
Company will deposit from its own funds into the Custodial Account an amount
equal to the amount of such shortfall.
In addition to such cure, repurchase and substitution obligation, the
Company shall indemnify the Purchaser and hold it harmless against any losses,
damages, penalties, fines, forfeitures, reasonable and necessary legal fees and
related costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, a
breach of the Company's representations and warranties contained in this Article
III. It is understood and agreed that the obligations of the Company set forth
in this Section 3.03 to cure or repurchase a defective Mortgage Loan and to
indemnify the Purchaser as provided in this Section 3.03 constitute the sole
remedies of the Purchaser except as provided in the last paragraph of Section
3.03 respecting a breach of the foregoing representations and warranties.
Any cause of action against the Company relating to or arising out of
the breach of any representations and warranties made in Sections 3.01 or 3.02
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the
Purchaser or notice thereof by the Company to the Purchaser, (ii) failure by the
Company to cure such breach or repurchase such Mortgage Loan as specified above,
and (iii) demand upon the Company by the Purchaser for all amounts payable in
respect of such Mortgage Loan.
In the event of a breach of the representation in Section 3.01(nn),
the Company shall not have the right or obligation to cure, substitute or
repurchase the affected Mortgage Loan but shall deposit in the Custodial
Account, prior to the next succeeding Remittance Date, the amount of the
Prepayment Charge indicated on the applicable part of the Mortgage Loan Schedule
to be due from the Mortgagor in the circumstances; provided, however, that if a
representation in addition to that set forth in Section 3.01(nn) is breached
with respect to a Mortgage Loan or Mortgage Loans, the Company shall both
deposit the applicable Prepayment Charge as provided in this paragraph and cure,
substitute or repurchase the affected Mortgage Loan or Mortgage Loans as
provided in this Section 3.03. In the instance of a substitution, any prepayment
charge available under the substitute Mortgage Loan shall belong to the Company.
Section 3.04 Closing.
-------
The closing for the purchase and sale of each Mortgage Loan Package
shall take place on the related Closing Date. The closing shall, at the
Purchaser's option, be either: by telephone, confirmed by letter or wire as the
parties shall agree; or conducted in person, at such place as the parties shall
agree.
The closing for the Mortgage Loans to be purchased on each Closing
Date shall be subject to each of the following conditions:
(a) All of the representations and warranties of the Company under
this Agreement shall be true and correct as of the related Closing Date and no
event shall have
<PAGE>
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occurred which, with notice or the passage of time, would constitute a default
or Event of Default under this Agreement;
(b) The Purchaser and the Company shall have received, or the
Company's attorneys shall have received in escrow, all closing documents as
specified in Section 3.05 of this Agreement, in such forms as are agreed upon
and acceptable to the Purchaser and the Company, duly executed by all
signatories as required pursuant to the respective terms thereof;
(c) The Company shall have delivered and released to the Purchaser
under this Agreement all documents required pursuant thereto; and
(d) All other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Purchaser shall pay to the
Company on the related Closing Date the Purchase Price, plus accrued interest
pursuant to Section 2.01 of this Agreement, by wire transfer of immediately
available funds to the account designated by the Company.
Section 3.05 Closing Documents.
-----------------
(a) On or before the Initial Closing Date, the Company shall submit
to the Purchaser fully executed originals of the following closing documents:
1. This Agreement, in two counterparts;
2. Custodial Account Letter Agreement, in the form of Exhibit B
of this Agreement;
3. Escrow Account Letter Agreement, in the form of Exhibit C of
this Agreement; and
4. Officer's Certificate, in substantially the form of Exhibit
J, and attached thereto the Resolutions of the Company, in
the form of Exhibit K hereto, together with copies of the
charter, by-laws and a Certificate of Good Standing of the
Company.
(b) The closing documents for the Mortgage Loans to be purchased on
each Closing Date shall consist of fully executed originals of the following
documents:
1. The related Mortgage Loan Documents required pursuant to
Section 2.04 of this Agreement;
<PAGE>
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2. The related Mortgage Loan Schedule, one copy to be attached
to each counterpart of this Agreement;
3. If requested by the Purchaser, an Officer's Certificate, in
the form of Exhibit J, and attached thereto the Resolutions
of the Company, in the form of Exhibit K hereto, together
with copies of the charter and by-laws of the Company, or a
statement from the Company that the Company's charter and by-
laws have not changed since the last Closing Date;
4. Security Release Certification, in substantially the form of
Exhibit L executed by any other person as requested by
Purchaser if any of the Mortgage Loans have at any time been
subject to any security interest, pledge or hypothecation for
the benefit of such person;
5. The related Commitment Letter, to be attached hereto as
Exhibit N, and the related Confirmation;
6. Assignment and Conveyance, in the form of Exhibit E;
7. Certificate or other evidence of merger or change of name,
signed or stamped by the applicable regulatory authority, if
any of the Mortgage Loans were acquired by the Company by
merger or acquired or originated by the Company while
conducting business under a name other than its present name;
and
8. The Initial Certification of the Custodian in the form
annexed to the Custodial Agreement.
Section 3.06 Costs.
-----
The Purchaser will pay any commissions due its salesmen and the legal
fees and expenses of its attorneys. All other costs and expenses incurred in
connection with the transfer and delivery of the Mortgage Loans, including fees
for title policy endorsements and continuations and the Company's attorney's
fees (but not assignment of mortgage recording fees) shall be paid by the
Company.
<PAGE>
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ARTICLE IV
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
----------------------------------------------
Section 4.01 Company to Act as Servicer.
--------------------------
The Company, as independent contract servicer, shall service and
administer the Mortgage Loans and shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Company may deem necessary or desirable and consistent
with the terms of this Agreement.
Consistent with the terms of this Agreement, the Company may waive,
modify or vary any term of any Mortgage Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Mortgagor, provided, however, that (unless the Mortgagor is in default with
respect to the Mortgage Loan, or such default is, in the judgment of the
Company, imminent, and the Company has the consent of the Purchaser) the Company
may not permit any modification with respect to any Mortgage Loan that would
change the Mortgage Interest Rate (except for any change made pursuant to the
adjustment provisions, if any, of the related Mortgage Note), defer or forgive
the payment of any principal or interest, change the outstanding principal
amount, make any future advances or extend the final maturity date on such
Mortgage Loan. Without limiting the generality of the foregoing, the Company
shall continue, and is hereby authorized and empowered to execute and deliver on
behalf of itself, and the Purchaser, all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Mortgage Loans and the Mortgaged Properties.
If reasonably required by the Company, the Purchaser shall furnish the Company
with any powers of attorney and other documents necessary or appropriate to
enable the Company to carry out its servicing and administrative duties under
this Agreement.
The Company will not waive any Prepayment Charge permitted under the
terms of the related Mortgage Note (including any waiver of a Prepayment Charge
in connection with a refinancing of a Mortgage Loan that is related to a default
or a reasonably foreseeable default) unless such waiver would maximize recovery
of total proceeds taking into account the value of the Prepayment Charge and
related Mortgage Loan and doing so is standard and customary in servicing
similar Mortgage Loans, and in no event will it waive a Prepayment Charge in
connection with a refinancing of a Mortgage Loan that is not related to a
default or a reasonably foreseeable default. If the Company waives a Prepayment
Charge, in whole or in part, in violation of this Paragraph, the Company shall
deposit into the Custodial Account, from its own funds the amount of the
Prepayment Charge so waived for the benefit of the Purchaser.
In servicing and administering the Mortgage Loans, the Company shall
employ Customary Servicing Procedures.
<PAGE>
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Section 4.02 Liquidation of Mortgage Loans.
-----------------------------
In the event that any payment due under any Mortgage Loan is not paid
when the same becomes due and payable, or in the event the Mortgagor fails to
perform any other covenant or obligation under the Mortgage Loan and such
failure continues beyond any applicable grace period, the Company shall take
such action as it shall deem to be in the best interest of the Purchaser. In
the event that any payment due under any Mortgage Loan remains delinquent for a
period of 60 days or more, the Company shall exercise reasonable efforts to
foreclose upon or otherwise comparably convert (which may include an REO
Disposition) the ownership of properties securing such of the Mortgage Loans as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. The Company shall use
reasonable efforts to realize upon such defaulted Mortgage Loans in such manner
as will maximize the receipt of principal and interest by the Purchaser, taking
into account, among other things, the timing of foreclosure proceedings.
In such connection, the Company shall from its own funds make all
necessary and proper Servicing Advances if it is deemed to increase the proceeds
to the Purchaser or is necessary to preserve the lien of the related Mortgage.
Section 4.03 Collection of Mortgage Loan Payments.
------------------------------------
Continuously from the date hereof until the principal and interest on
all Mortgage Loans are paid in full, the Company will proceed diligently to
collect all payments due under each of the Mortgage Loans when the same shall
become due and payable and will take special care in ascertaining and estimating
annual ground rents, taxes, assessments, water rates, fire and hazard insurance
premiums, mortgage insurance premiums, and all other charges that, as provided
in any Mortgage, will become due and payable to the end that the installments
payable by the Mortgagors will be sufficient to pay such charges as and when
they become due and payable.
Section 4.04 Establishment of Custodial Account; Deposits in
-----------------------------------------------
Custodial Account.
-----------------
The Company shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan separate and apart from any of its own funds and
general assets and shall establish and maintain one or more Custodial Accounts
(collectively, the "Custodial Account"), in the form of time deposit or demand
accounts, which may be interest bearing, titled "Ameriquest Mortgage Company, in
trust for the Purchaser - Fixed Rate and Adjustable Rate Mortgage Loans, Flow
Delivery Program". Such Custodial Account shall be established with a
commercial bank, a national bank, a national banking association, a mutual
savings bank or a savings and loan association. Funds in the Custodial Account
shall be fully insured by the FDIC,
<PAGE>
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or such account shall be a trust account, and in either case may be drawn on by
the Company. The creation of any Custodial Account shall be evidenced by a
letter agreement substantially in the form of Exhibit B hereto. A copy of such
letter agreement shall be furnished to the Purchaser upon request.
The Company shall deposit, without duplication, in the Custodial
Account on a daily basis within one day of receipt of good funds or as otherwise
required by this Agreement, and retain therein the following payments and
collections due and received or made by it subsequent to the related Cut-off
Date:
(i) all payments on account of principal, including Principal
Prepayments on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans
adjusted to the Mortgage Loan Remittance Rate;
(iii) all Liquidation Proceeds and other amounts required to be
deposited pursuant to Section 4.02;
(iv) all proceeds received by the Company under any title,
hazard, primary mortgage guaranty or other insurance policy, including
amounts required to be deposited pursuant to Section 4.10, other than
proceeds to be held in the Escrow Account and applied to the restoration or
repair of the Mortgaged Property or released to the Mortgagor in accordance
with Customary Servicing Procedures;
(v) all awards or settlements in respect of condemnation
proceedings or eminent domain affecting any Mortgaged Property which are
not released to the Mortgagor in accordance with Customary Servicing
Procedures;
(vi) any amount required to be deposited in the Custodial
Account pursuant to Sections 5.03 and 6.02;
(vii) any amounts payable in connection with the repurchase of
any Mortgage Loan pursuant to Section 3.03, and all amounts required to be
deposited by the Company in connection with shortfalls in principal amount
of Qualified Substitute Mortgage Loans pursuant to Section 3.03;
(viii) any amounts payable in connection with Prepayment Interest
Shortfalls pursuant to Section 5.04; and
(ix) any amount required to be deposited in the Custodial
Account pursuant to Section 4.12.
<PAGE>
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The foregoing requirements for deposit in the Custodial Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of late payment charges and assumption
fees, to the extent permitted by Section 6.01, in addition to Prepayment
Interest Excess and prepayment penalties other than Prepayment Charges, need not
be deposited by the Company in the Custodial Account. Any interest earned on the
funds deposited in the Custodial Account shall belong to the Company.
Section 4.05 Withdrawals From the Custodial Account.
--------------------------------------
The Company shall, from time to time, withdraw funds from the Custodial
Account for the following purposes:
(i) to make payments to the Purchaser in the amounts and
in the manner provided for in Section 5.01;
(ii) to reimburse itself for unreimbursed Servicing
Advances, any unpaid Servicing Fees and for unreimbursed P&I Advances, the
Company's right to reimburse itself pursuant to this subclause (ii) being
limited to related Liquidation Proceeds, condemnation proceeds, amounts
representing proceeds of insurance policies covering the related Mortgaged
Property, late payments of principal and/or interest and such other amounts
as may be collected by the Company from the Mortgagor or otherwise relating
to the Mortgage Loan, it being understood that, in the case of any such
reimbursement, the Company's right thereto shall be prior to the rights of
the Purchaser unless the Company is required to repurchase a Mortgage Loan
pursuant to Section 3.03, in which case the Company's right to such
reimbursement shall be subsequent to the payment to the Purchaser of the
repurchase price pursuant to Section 3.03 and all other amounts required to
be paid to the Purchaser with respect to such Mortgage Loan;
(iii) to reimburse itself for expenses incurred by and
reimbursable to it pursuant to Section 9.01;
(iv) to pay to itself any interest earned on funds
deposited in the Custodial Account and to pay itself any unpaid Servicing
Compensation, such withdrawal to be made monthly not later than the
Remittance Date;
(v) to reimburse itself for any P&I Advance previously
made which the Company has determined to be a Nonrecoverable Advance;
(vi) to utilize any excess funds on deposit to make any
advance pursuant to the last sentence of Section 5.03, provided that such
withdrawal does not reduce the amount that would otherwise be available
pursuant to clauses (i) through (v), inclusive, of this Section 4.05 in
respect of the current or future Determination Dates;
<PAGE>
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(vii) to clear and terminate the Custodial Account upon the
termination of this Agreement and to distribute funds therein at such time to
the Purchaser, exclusive of funds therein payable to the Company pursuant to
this Agreement; and
(viii) to withdraw any amounts deposited in the Custodial
Account in error.
On each Remittance Date, the Company shall withdraw all funds from the
Custodial Account except for those amounts which the Company is not obligated to
remit on such Remittance Date. The Company may use such withdrawn funds only
for the purposes described in this Section 4.05.
Section 4.06 Establishment of Escrow Account; Deposits in Escrow
---------------------------------------------------
Account.
-------
The Company shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan which constitute Escrow Payments separate and
apart from any of its own funds and general assets and shall establish and
maintain one or more Escrow Accounts (collectively, the "Escrow Account"), in
the form of time deposit or demand accounts, which may be interest bearing,
titled "Ameriquest Mortgage Company, in trust for the Purchaser of Fixed Rate
and Adjustable Rate Mortgage Loans, Flow Delivery Program". The Escrow Account
shall be established with a commercial bank, a national bank, a national banking
association, a mutual savings bank or a savings and loan association. Funds in
the Escrow Account shall be fully insured by the FDIC, or such account shall be
a trust account, and in either case may be drawn on by the Company. The
creation of any Escrow Account shall be evidenced by a letter agreement
substantially in the form of Exhibit C hereto. A copy of such letter agreement
shall be furnished to the Purchaser upon request.
The Company shall deposit in the Escrow Account on a daily basis, and
retain therein: (i) all Escrow Payments collected on account of the Mortgage
Loans, for the purpose of effecting timely payment of any such items as required
under the terms of this Agreement, and (ii) all amounts representing proceeds of
any hazard insurance policy which are to be applied to the restoration or repair
of any Mortgaged Property. The Company shall make withdrawals therefrom only in
accordance with Section 4.07 hereof. To the extent required by law, the Company
shall pay, without right of reimbursement, interest on escrowed funds to the
Mortgagor notwithstanding that the Escrow Account may not bear interest.
Section 4.07 Withdrawals From Escrow Account.
-------------------------------
<PAGE>
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Withdrawals from the Escrow Account shall be made by the Company only
(a) to effect timely payments of taxes, assessments, water rates, fire and
hazard insurance premiums or other items constituting Escrow Payments for the
related Mortgage, (b) to refund to any Mortgagor any funds found to be in excess
of the amounts required under the terms of the related Mortgage Loan, (c) for
application to restoration or repair of the Mortgaged Property, (d) to pay to
the Mortgagor, to the extent required by law, any interest due on the funds
deposited in the Escrow Account, (e) to pay to itself any interest earned on
funds deposited in the Escrow Account (and not required to be paid to the
Mortgagor), such withdrawal to be made monthly not later than the Remittance
Date, (f) to withdraw any amounts deposited in the Escrow Account in error, (g)
to reimburse the Company for any Servicing Advance made by the Company with
respect to a related Mortgage Loan but only from amounts received on the related
Mortgage Loan which represent late payments or collections of Escrow Payments
thereunder or (h) to clear and terminate the Escrow Account upon the termination
of this Agreement.
<PAGE>
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Section 4.08 Payment of Taxes, Insurance and Other Charges.
---------------------------------------------
With respect to each Mortgage Loan that provides for Escrow Payments,
the Company shall maintain accurate records reflecting the status of ground
rents, taxes, assessments, water rates and other charges which are or may become
a lien upon the Mortgaged Property and the status of primary insurance policy
premiums (if any) and fire and hazard insurance coverage and shall obtain, from
time to time, all bills for the payment of such charges, including insurance
renewal premiums and shall effect payment thereof prior to the applicable
penalty or termination date and at a time appropriate for securing maximum
discounts allowable, employing for such purpose deposits of the Mortgagor in the
Escrow Account which shall have been estimated and accumulated by the Company in
amounts sufficient for such purposes, as allowed under the terms of the Mortgage
and applicable law. To the extent that the Mortgage does not provide for Escrow
Payments, the Company shall determine whether any such payments are made by the
Mortgagor. The Company assumes full responsibility for the payment of all such
bills and shall effect payments of all such bills in a manner and at a time that
assures that the lien priority of the Mortgage is not jeopardized (or, with
respect to the payment of taxes, in a manner and at a time that avoids the loss
of the Mortgaged Property due to a tax sale or the foreclosure of a tax lien),
irrespective of the Mortgagor's faithful performance in the payment of same or
the making of the Escrow Payments, and shall make advances from its own funds to
effect such payments. The Company will be responsible for the administration of
the Escrow Account and will be obligated to make advances to such account when
and as necessary to avoid the lapse of insurance coverage on the Mortgaged
Property, or which the Company knows, or in the exercise of the required
standard of care of the Company hereunder should know, is necessary to avoid the
loss of the Mortgaged Property due to a tax sale or the foreclosure of a tax
lien. If any such payment has not been made and the Company receives notice of
a tax lien with respect to the Mortgage being imposed, the Company will, within
thirty (30) days of such notice, advance or cause to be advanced funds necessary
to discharge such lien on the Mortgaged Property unless the payment of such tax
lien would in the good faith judgment of the Company constitute a Nonrecoverable
Advance.
Section 4.09 Transfer of Accounts.
--------------------
With prior written notice to the Purchaser, the Company may transfer the
Custodial Account or the Escrow Account to a different depository institution
satisfying the requirements of Section 4.04 or 4.06, respectively.
<PAGE>
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Section 4.10 Maintenance of Hazard Insurance.
-------------------------------
The Servicer shall maintain or cause to be maintained for each Mortgage
Loan and REO Property with insurance companies satisfactory to FNMA or FHLMC
primary hazard insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the replacement value of the
improvements, as determined by the insurance company, on such Mortgaged
Property. Pursuant to Section 4.04, any amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the property subject to the related Mortgage or amounts released to the
Mortgagor in accordance with Customary Servicing Procedures) shall be deposited
in the Custodial Account, subject to withdrawal pursuant to Section 4.05. Any
cost incurred by the Servicer in maintaining any such insurance shall not, for
the purpose of calculating monthly distributions to the Purchaser, be added to
the unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit. It is understood and agreed that no
earthquake or other additional insurance is to be required of any Mortgagor or
maintained on property acquired in respect of a Mortgage Loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. If the Mortgaged Property
or REO Property is located at the time of origination of the Mortgage Loan in a
federally designated special flood hazard area, the Servicer will cause to be
maintained flood insurance in respect thereof. Such flood insurance shall be in
an amount equal to the lesser of (i) the replacement value of the improvements
which are part of such Mortgaged Property, (ii) the maximum amount of such
insurance available for the related Mortgaged Property under the national flood
insurance program (regardless of whether the area in which such Mortgaged
Property is located is participating in such program) and (iii) the original
face value of the Mortgage Loan securing such Mortgaged Property. All such
policies shall be endorsed with standard mortgagee clauses with loss payable to
the Company, or upon request to the Purchaser, and shall provide for at least
thirty days prior written notice of any cancellation, reduction in the amount
of, or material change in, coverage to the Company. The Company shall not
interfere with the Mortgagor's freedom of choice in selecting either his
insurance carrier or agent, provided, however, that the Company shall not accept
any such insurance policies from insurance companies unless such companies
currently reflect a General Policy Rating of A:VI or better in Best's Key Rating
Guide and are licensed to do business in the state wherein the property subject
to the policy is located.
In the event that the Servicer shall obtain and maintain a blanket
policy insuring against hazard losses on all of the Mortgage Loans in an amount
consistent with Customary Servicing Procedures, it shall conclusively be deemed
to have satisfied its obligations as set forth in the first sentence of this
Section 4.10, it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property or REO Property
a policy complying with the first sentence of this Section 4.10, and there shall
have been one or more losses which would
<PAGE>
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have been covered by such policy, deposit from its own funds in the Custodial
Account the amount not otherwise payable under the blanket policy because of
such deductible clause. In connection with its activities as administrator and
servicer of the Mortgage Loans, the Servicer agrees to prepare and present, on
behalf of itself and the Purchaser, claims under any such blanket policy in a
timely fashion in accordance with the terms of such policy. Upon request of the
Purchaser, the Company shall cause to be delivered to the Purchaser a certified
true copy of such policy and a statement from the insurer thereunder that such
policy shall in no event be terminated or materially modified without thirty
days prior written notice to the Purchaser.
Section 4.11 Fidelity Bond; Errors and Omissions Insurance.
---------------------------------------------
The Company shall maintain with responsible companies, at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy,
with broad coverage on all officers, employees or other persons acting in any
capacity requiring such persons to handle funds, money, documents or papers
relating to the Mortgage Loans ("Company Employees"). Any such fidelity bond
and errors and omissions insurance shall be in the form of the Mortgage Banker's
Blanket Bond and shall protect and insure the Company against losses, including
forgery, theft, embezzlement, fraud, errors and omissions, failure to maintain
any insurance policies required pursuant to this Agreement, and negligent acts
of such Company Employees. Such fidelity bond shall also protect and insure the
Company against losses in connection with the release or satisfaction of a
Mortgage Loan without having obtained payment in full of the indebtedness
secured thereby. No provision of this Section 4.11 requiring such fidelity bond
and errors and omissions insurance shall diminish or relieve the Company from
its duties and obligations as set forth in this Agreement. The minimum coverage
under any such bond and insurance policy shall be at least equal to the
corresponding amounts required by FNMA in the FNMA MBS Selling and Servicing
Guide or by FHLMC in the FHLMC Sellers' & Servicer's Guide, as amended or
restated from time to time. Upon the request of the Purchaser, the Company
shall cause to be delivered to the Purchaser a certified true copy of such
fidelity bond and insurance policy and a statement from the surety and the
insurer that such fidelity bond and insurance policy shall in no event be
terminated or materially modified without 30 days prior written notice to the
Purchaser.
Section 4.12 Title, Management and Disposition of REO Property.
-------------------------------------------------
In the event that title to the Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the Purchaser or its designee of record on the
date of acquisition of title. Purchaser or its designee shall provide the
Company with one or more powers of attorney, if requested, to enable the Company
to fulfill its duties under this Agreement.
<PAGE>
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The Company shall manage, conserve, protect and operate each REO
Property in trust for the Purchaser solely for the purpose of its prompt
disposition and sale. The Company shall either itself or through an agent
selected by the Company, manage, conserve, protect and operate the REO Property
in the same manner that it manages, conserves, protects and operates other
foreclosed property for its own account, and in the same manner that similar
property in the same locality as the REO Property is managed. The Company shall
attempt to sell the same (and may temporarily rent the same) on such terms and
conditions as the Company deems to be in the best interest of the Purchaser.
Notwithstanding anything to the contrary in this Section 4.12, the Company shall
not be required to advance any of its own funds pursuant to this Section 4.12 if
such advance would be a Nonrecoverable Advance.
With respect to each REO Property, the Company shall hold all funds
collected and received in connection with the operation of the REO Property
separate and apart from its own funds or general assets and shall establish and
maintain with respect to all REO Property a REO Account or Accounts, in the form
of a demand account, titled "Ameriquest Mortgage Company, in trust for the
Purchaser as of [date of acquisition of title] of Fixed Rate and Adjustable Rate
Mortgage Loans, Flow Delivery Program" unless an Opinion of Counsel is obtained
by the Company to the effect that the classification for federal income tax
purposes of the arrangement under which the Mortgage Loans and the REO Property
are held will not be adversely affected by holding such funds in another manner
specified in such Opinion of Counsel. Such REO Accounts shall be established
with a commercial bank, a national bank, a national banking association, a
mutual savings bank or a savings and loan association. Funds in the REO Account
shall be fully insured by the FDIC, or such account shall be a trust account,
and in either case may be drawn on by the Company. The creation of any REO
Account shall be evidenced by a letter agreement substantially in the form of
Exhibit D hereto. A copy of such letter agreement shall be furnished to the
Purchaser upon request.
The Company shall cause to be deposited on a daily basis in each REO
Account all revenues received with respect to the conservation and disposition
of the related REO Property and shall withdraw therefrom funds necessary for the
proper operation, management and maintenance of the REO Property, including the
cost of maintaining any hazard insurance pursuant to Section 4.10 hereof and the
fees of any managing agent acting on behalf of the Company. The Company shall
not be entitled to retain interest paid or other earnings, if any, on funds
deposited in such REO Account.
The Company shall use its best efforts to dispose of the REO Property as
soon as possible and shall sell such REO Property in any event within two years
after title has been taken to such REO Property, unless (i) a REMIC election has
not been made with respect to the arrangement under which the REO Property is
held, and (ii) the Company determines, and gives an appropriate notice to the
Purchaser, that a longer period is necessary for the orderly liquidation of such
REO Property. If a period longer than two years is permitted under this
Agreement and is necessary to sell any REO Property, (i) the Company shall
report monthly to the Owners as to the progress being made in selling such REO
Property and (ii) if, a purchase money mortgage is
<PAGE>
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taken in connection with such sale by the Company the proceeds of such purchase
money mortgage shall be deposited in the Custodial Account and distributed in
accordance with Section 4.05.
The disposition of REO Property shall be carried out by the Company only
with the prior written consent of the Purchaser (which consent shall not be
unreasonably withheld or delayed) and shall be made at such price, and upon such
terms and conditions, as the Company deems to be in the best interests of the
Purchaser. The proceeds of sale of the REO Property shall be promptly deposited
in the REO Account and, as soon as practical thereafter, the expenses of such
sale shall be paid. Prior to each Remittance Date, the Company shall deposit in
the Custodial Account all funds in the REO Accounts, net of unreimbursed
Servicing Advances, accrued and unpaid Servicing Fees and unreimbursed advances
made pursuant to Section 5.03 which shall be retained by the Company with
respect to the related Mortgage Loan.
Upon request, with respect to any REO Property, the Company shall
furnish to the Purchaser a statement covering the Company's efforts in
connection with the sale of that REO Property and any rental of the REO Property
incidental to the sale thereof for the previous month (together with an
operating statement). That statement shall be accompanied by such other
information as the Purchaser shall reasonably request.
Section 4.13 Liquidation Reports.
-------------------
The Company shall submit to the Purchaser monthly, at the time of the
remittance report required pursuant to Section 5.02, a liquidation report with
respect to each Mortgaged Property sold in a foreclosure sale as of the related
Record Date and not previously reported.
Section 4.14 Delivery of Documents in Possession of Custodian.
------------------------------------------------
The Purchaser shall cause the Custodian to deliver to the Company, on a
timely basis, those Mortgage Files that the Company may request from the
Custodian from time to time. Should the Custodian fail to deliver requested
Mortgage Files on a timely basis, the Company shall not be liable for any
related loss and any Event of Default which is attributable to the failure to
deliver, or the untimely delivery of, the requested Mortgage Files shall be
deemed to have not occurred.
Section 4.15 Notification of Adjustments.
---------------------------
On each Adjustment Date, the Company shall make interest rate
adjustments for each Mortgage Loan in compliance with the requirements of the
related Mortgage and Mortgage Note. The Company shall execute and deliver the
notices required by each Mortgage and Mortgage Note regarding interest rate
adjustments. The Company shall also provide timely notification to the
Purchaser of all applicable data and information regarding such interest rate
adjustments and the Company's methods of implementing such interest rate
adjustments. Upon the discovery by
<PAGE>
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the Company or the Purchaser that the Company has failed to adjust a Mortgage
Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage
Note and Mortgage, the Company shall immediately deposit in the Custodial
Account from its own funds the amount of any interest loss caused thereby
without reimbursement therefor.
<PAGE>
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ARTICLE V
PAYMENTS TO THE PURCHASER
-------------------------
Section 5.01 Distributions.
-------------
On each Remittance Date the Company shall remit by wire transfer of
immediately available funds to the account designated in writing by the
Purchaser the Available Remittance Amount.
Section 5.02 Statements to the Purchaser.
---------------------------
Not later than each Remittance Date, the Company will furnish to the
Purchaser a statement in a computer readable format setting forth the following
information with respect to the related remittance:
(i) the amount of such remittance allocable to principal
(including a separate breakdown of any Principal Prepayments, including the
date of such prepayment);
(ii) the amount of such distribution allocable to interest;
(iii) the amount of Servicing Compensation received by the
Company during the prior Due Period;
(iv) the aggregate Stated Principal Balance of the Mortgage
Loans as of the close of business on the related Determination Date;
(v) the aggregate of any expenses reimbursed to the
Company during the prior distribution period pursuant to Section 9.01;
(vi) the weighted average maturity of the Mortgage Loans as
of the close of business on the applicable Determination Date;
(vii) in the event the Mortgage Loans bear different
Mortgage Interest Rates, the weighted average Mortgage Interest Rate and
Mortgage Loan Remittance Rate of the Mortgage Loans as of the close of
business on the applicable Determination Date;
(viii) the number and aggregate principal balances of
Mortgage Loans (a) delinquent (1) 31 days, (2) 61 days, (3) 91 days or more,
(b) as to which foreclosure has commenced, and (c) as to which REO Property
has been acquired;
<PAGE>
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(ix) the aggregate amount of advances made pursuant to
Section 5.03 included in such distribution, and the aggregate amount of such
advances outstanding as of the close of business on such Remittance Date;
(x) the amount of all Liquidation Proceeds;
(xi) the amount of all proceeds received by the Company
under any title, hazard, primary mortgage guaranty or other insurance policy,
including amounts required to be deposited pursuant to Section 4.10, other
than proceeds to be held in the Escrow Account and applied to the restoration
or repair of the Mortgaged Property or released to the Mortgagor in
accordance with Customary Servicing Procedures;
(xii) the amount of all awards or settlements in respect of
condemnation proceedings or eminent domain affecting any Mortgaged Property
which are not released to the Mortgagor in accordance with Customary
Servicing Procedures;
(xiii) the amounts, if any, required to be deposited in the
Custodial Account pursuant to Sections 4.12, 5.03, 5.04 and 6.02; and
(xiv) the amounts, if any, payable in connection with the
repurchase of any Mortgage Loan pursuant to Section 3.03, and all amounts
required to be deposited by the Company in connection with shortfalls in
principal amount of Qualified Substitute Mortgage Loans pursuant to Section
3.03.
Within 60 days after the end of each calendar year, the Company will
furnish a report to the Purchaser. Such report shall state the aggregate of
amounts reported pursuant to (i) through (iii) and (v) above for such calendar
year. Such obligation of the Company shall be deemed to have been satisfied to
the extent that substantially comparable information shall be provided by the
Company pursuant to any requirements of the Internal Revenue Code of 1986 as
from time to time in force.
The Company shall prepare and file any and all tax returns, information
statements or other filings required to be delivered to any governmental taxing
authority or to the Purchaser pursuant to any applicable law with respect to the
Mortgage Loans and the transactions contemplated hereby. In addition, the
Company shall provide the Purchaser with such information concerning the
Mortgage Loans as is necessary for the Purchaser to prepare its federal income
tax return as the Purchaser may reasonably request from time to time.
Section 5.03 Advances by the Company.
-----------------------
On the second Business Day preceding each Remittance Date, the Company
shall deposit in the Custodial Account an amount equal to all Monthly Payments
(with interest adjusted to the Mortgage Loan Remittance Rate) which were due on
the Mortgage Loans on the
<PAGE>
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Due Date in the month of the Remittance Date and not received by the close of
business on the immediately preceding Determination Date. The Company's
obligation to make such advances as to any Mortgage Loan will continue until the
liquidation thereof, an REO Disposition in connection therewith or the purchase
or repurchase thereof. Notwithstanding anything to the contrary, the obligation
of the Company to make such advances pursuant to this Section 5.03 is mandatory,
except that no advance shall be required to be made hereunder that would, if
made, constitute a Nonrecoverable Advance. The Company may pay all or a portion
of any advance out of excess amounts on deposit in the Custodial Account and
held for future distribution on the date such advance is made; any such excess
amounts so used shall be replaced by the Company by deposit to the Custodial
Account on or before the next succeeding Determination Date.
Section 5.04 Prepayment Interest Shortfalls.
------------------------------
Prior to each Remittance Date, the Servicer shall either deposit in the
Custodial Account from its own funds and without any right of reimbursement
therefor, or leave on deposit in the Custodial Account to the extent not
previously retained or withdrawn, a total amount equal to the aggregate of the
Prepayment Interest Shortfalls for such Remittance Date; provided that the
Servicer's obligations under this Section on any Remittance Date shall not be
more than the total amount of Servicing Fee paid to or retained by the Servicer
since the preceding Remittance Date.
<PAGE>
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ARTICLE VI
GENERAL SERVICING PROCEDURE
---------------------------
Section 6.01 Assumption Agreements.
---------------------
The Company will use its best efforts to enforce any "due-on-sale"
provision contained in any Mortgage or Mortgage Note and to deny assumption by
the person to whom the Mortgaged Property has been or is about to be sold
whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains liable on the Mortgage and the Mortgage Note. When the
Mortgaged Property has been or will be conveyed by the Mortgagor, the Company
will, to the extent it has knowledge of such conveyance, exercise its rights to
accelerate the maturity of such Mortgage Loan under the "due-on-sale" clause
applicable thereto, provided, however, the Company will not exercise such rights
if prohibited by law from doing so. If the Company reasonably believes it is
unable under applicable law to enforce such "due-on-sale" clause, the Company
will obtain the written permission of the Purchaser (which consent shall not be
unreasonably withheld or delayed) prior to entering into an assumption and
modification agreement with the person to whom such property has been conveyed,
pursuant to which such person becomes liable under the Mortgage Note and, to the
extent permitted by applicable law, the Mortgagor remains liable thereon. If an
assumption fee is collected by the Company for entering into an assumption
agreement the entire such fee will be retained by the Company as additional
Servicing Compensation. In connection with any such assumption, the outstanding
principal amount, the Monthly Payment and (except pursuant to the adjustable
rate provisions, if any, of the Mortgage Loan) the Mortgage Interest Rate of the
related Mortgage Note shall not be changed, and the term of the Mortgage Loan
will not be increased or decreased. If an assumption is allowed pursuant to
this Section 6.01, the Company with the prior consent of the primary mortgage
guaranty insurer, if any, is authorized to enter into a substitution of
liability agreement with the purchaser of the Mortgaged Property pursuant to
which the original Mortgagor is released from liability and the purchaser of the
Mortgaged Property is substituted as Mortgagor and becomes liable under the
Mortgage Note.
Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files.
-------------------------------------------------------
Upon the payment in full of any Mortgage Loan, or the receipt by the
Company of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Company will obtain the portion of the Mortgage
File that is in the possession of the Custodian, prepare and process any
required satisfaction or release of the Mortgage and notify the Purchaser. No
expense incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Custodial Account or the Purchaser. Any
reconveyance and/or demand fee actually collected by the Company shall belong to
the Company.
<PAGE>
-47-
Immediately after the payment in full of such Mortgage Loan, the Company
shall give prompt written notice to the Purchaser of such payment in full.
In the event the Company grants a satisfaction or release of a Mortgage
without having obtained payment in full of the indebtedness secured by the
Mortgage or should the Company otherwise prejudice any right the Purchaser may
have under the mortgage instruments, the Company shall remit to the Purchaser
the Stated Principal Balance of the related Mortgage Loan by deposit thereof in
the Custodial Account including Prepayment Interest Shortfall, if any. The
Company shall maintain the Fidelity Bond as provided for in Section 4.11
insuring the Company against any loss it may sustain with respect to any
Mortgage Loan not satisfied in accordance with the procedures set forth herein.
Section 6.03 Servicing Compensation.
----------------------
As compensation for its services hereunder, the Company shall be
entitled to retain from interest payments on the Mortgage Loans the Company's
Servicing Fee. Additional servicing compensation in the form of assumption fees
and other administrative fees and late payment charges shall be retained by the
Company. The Company also shall be entitled to receive from the Custodial
Account as additional servicing compensation interest or other income earned on
deposits therein, as well as any Prepayment Interest Excess and prepayment
penalties other than Prepayment Charges. The Company shall be required to pay
all expenses incurred by it in connection with its servicing activities
hereunder and shall not be entitled to reimbursement therefor except as
specifically provided for herein.
Section 6.04 Annual Statement as to Compliance.
---------------------------------
The Company will deliver to the Purchaser, on or before April 15 of each
year beginning April 15, 1998, an Officer's Certificate stating that (i) the
Company has fully complied with the provisions of Article IV, (ii) a review of
the activities of the Company during the preceding calendar year and of
performance under this Agreement has been made under such officer's supervision,
and (iii) to the best of such officer's knowledge, based on such review, the
Company has fulfilled all its obligations under this Agreement throughout such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and the action being taken by the Company to cure such default.
Section 6.05 Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
On or before the later of (i) April 15 of each year beginning April 15,
1998, or (ii) within 30 days of the issuance of the annual audited Financial
Statements beginning with the audit for the period ending December 31, 1997, the
Company at its expense shall cause a firm of
<PAGE>
-48-
independent public accountants which is a member of the American Institute of
Certified Public Accountants to furnish a statement to the Purchaser to the
effect that based on an examination of certain specified documents and records
relating to the servicing of the Company's mortgage loan portfolio conducted
substantially in compliance with the audit program for mortgages serviced for
FNMA and FHLMC, the United States Department of Housing and Urban Development
Mortgage Audit Standards, or the Uniform Single Attestation Program for Mortgage
Bankers (the "Applicable Accounting Standards"), such firm is of the opinion
that such servicing has been conducted in compliance with the Applicable
Accounting Standards except for (a) such exceptions as such firm shall believe
to be immaterial and (b) such other exceptions as shall be set forth in such
statement.
Section 6.06 Option to Acquire Servicing; Continuation of Company as
-------------------------------------------------------
Servicer.
--------
If so provided in the related Commitment Letter, the Purchaser shall
have the right to purchase the servicing rights for the related Mortgage Loans,
in accordance with the terms set forth in such Commitment Letter.
Subject to exercise of the option, if any, to acquire servicing as
described above, the Purchaser hereby agrees that any agreement entered into by
the Purchaser in connection with any Pass-Through Transfer shall provide for the
continuation of the Company as the servicer of the Mortgage Loans pursuant to
the related Reconstitution Agreement without diminution of the Company's rights
hereunder.
Section 6.07 Purchaser's Right to Examine Company Records.
--------------------------------------------
The Purchaser shall have the right, at all reasonable times and as often
as reasonably required, to examine and audit any and all of the books, records
or other information of the Company, whether held by the Company or by another
on behalf of the Company, which may be relevant to the performance or observance
by the Company of the terms, covenants or conditions of this Agreement.
<PAGE>
-49-
ARTICLE VII
REPORTS TO BE PREPARED BY COMPANY
---------------------------------
Section 7.01 Company Shall Provide Access and Information as Reasonably
----------------------------------------------------------
Required.
--------
The Company shall provide to the Purchaser access to any documentation
regarding the Mortgage Loans which is required by applicable regulations. Such
access shall be afforded without charge, but only upon reasonable request,
during normal business hours and at the offices of the Company.
In addition, the Company shall furnish to the Purchaser upon request,
during the term of this Agreement, such periodic, special or other reports or
information, whether or not provided for herein, as shall be necessary,
reasonable or appropriate with respect to the purposes of this Agreement and the
applicable regulations. All such reports or information shall be provided by
and in accordance with all reasonable instructions and directions the Purchaser
may require. The Company agrees to execute and deliver all such instruments and
take all such action as the Purchaser, from time to time, may reasonably request
in order to effectuate the purposes and to carry out the terms of this
Agreement.
Section 7.02 Financial Statements.
--------------------
Upon written request of the Purchaser, the Company shall provide a
Consolidated Statement of Income of the Company for the most recently completed
three fiscal years respecting which such statements are available, as well as a
Consolidated Balance Sheet at the end of the last two fiscal years covered by
such Consolidated Statement of Income, and any comparable interim statements, to
the extent any such statements have been prepared by the Company (and are
available upon request to members or stockholders of the Company, or to the
public at large).
Upon reasonable request, during normal business hours and at the offices
of the Company, the Company also agrees to make available to the Purchaser or
prospective purchaser of the Mortgage Loans a knowledgeable financial or
accounting officer for the purpose of answering questions respecting recent
developments affecting the Company or the financial statements of the Company
and to permit the Purchaser or prospective purchaser of the Mortgage Loans to
inspect the Company's servicing facilities for the purpose of satisfying the
Purchaser or prospective purchaser of the Mortgage Loans that the Company has
the ability to service the Mortgage Loans in accordance with this Agreement.
Notwithstanding the preceding sentence, the Company shall not be required to
provide any information that it deems confidential.
<PAGE>
-50-
ARTICLE VIII
REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENT
------------------------------------------------------------
UPON A WHOLE LOAN TRANSFER OR A PASS-THROUGH TRANSFER
------------------------------------------------------
ON ONE OR MORE RECONSTITUTION DATES
-----------------------------------
Section 8.01 Removal of Mortgage Loans from Inclusion Under this
---------------------------------------------------
Agreement Upon a Whole Loan Transfer or a Pass-Through
------------------------------------------------------
Transfer on One or More Reconstitution Dates.
--------------------------------------------
Company and Purchaser agree that with respect to some or all of the
Mortgage Loans, within 12 months from the respective Closing Date, the Purchaser
shall effect either:
(1) one or more Whole Loan Transfers; and/or
(2) one or more Pass-Through Transfers;
provided, however, that no Mortgage Loan shall be the subject of more than one
Whole Loan Transfer or one Pass-Through Transfer hereunder. The Company and
Purchaser agree that in no event will the Company be required to remit funds or
send remittance reports to more than four (4) persons at any given time with
respect to any Whole Loan Transfer or Pass-Through Transfer.
With respect to each Whole Loan Transfer or Pass-Through Transfer, as
the case may be, entered into by Purchaser, Company agrees:
(1) to cooperate fully with Purchaser and any prospective purchaser
with respect to all reasonable requests and due diligence
procedures;
(2) to execute all Reconstitution Agreements and such ancillary
documents (including a Custodial Agreement) that are standard in
the industry provided that each of the Company and the Purchaser
is given an opportunity to review and reasonably negotiate in
good faith the content of such documents not specifically
referenced or provided for herein; and provided, further, that
any such agreement entered into in connection with a Whole Loan
Transfer or Pass-Through Transfer, servicing retained, shall
permit the related Mortgage Loans to be sub-serviced by a Sub-
Servicer and master serviced by the Company;
<PAGE>
-51-
(3) with respect to any Whole Loan Transfer or Pass-Through Transfer
occurring within 6 months (unless otherwise specified in the
related Confirmation) of the Final Closing Date, the Company
shall make the representations and warranties regarding the
Company and the Mortgage Loans as of the date of the Whole Loan
Transfer or Pass-Through Transfer, modified to the extent
necessary to accurately reflect the pool statistics of the
Mortgage Loans as of the date of such Whole Loan Transfer or
Pass-Through Transfer;
(4) to deliver to the Purchaser for inclusion in any prospectus or
other offering material such publicly available information
regarding the Company, its financial condition and its mortgage
loan delinquency, foreclosure and loss experience, underwriting
standards, lending activities and loan sales, production, and
servicing and collection practices, generally as is set forth in
prospectus supplements previously delivered in connection with
public offerings of pass-through securities backed by mortgage
loans similar to the Mortgage Loans and sold by the Company, and
to deliver to the Purchaser any similar nonpublic, unaudited
financial information, in which case the Purchaser shall bear the
cost of having such information audited by certified public
accountants if the Purchaser desires such an audit, or as is
otherwise reasonably requested by the Purchaser and which the
Company is capable of providing without unreasonable effort or
expense, and to indemnify the Purchaser and its affiliates for
material misstatements contained in such information;
(5) to deliver to the Purchaser and to any Person designated by the
Purchaser, at the Purchaser's expense, such statements and audit
letters of reputable, certified public accounts pertaining to
information provided by the Company pursuant to clause 4 above as
shall be reasonably requested by the Purchaser;
(6) to deliver to the Purchaser, and to any Person designated by the
Purchaser, such in-house opinions of counsel as are customarily
delivered by originators or servicers, as the case may be, in
connection with Whole Loan Transfers or Pass-Through Transfers,
as the case may be, it being understood that the cost of any
opinions of outside special counsel that may be required for a
Whole Loan Transfer or Pass-Through Transfer, as the case may be,
shall be the responsibility of the Purchaser; and
(7) to cooperate fully with the Purchaser and any prospective
purchaser with respect to the preparation of Mortgage Loan
Documents and other
<PAGE>
-52-
documents with respect to servicing requirements reasonably
requested by the rating agencies and credit enhancers.
All Mortgage Loans not sold or transferred pursuant to a Whole Loan
Transfer or Pass-Through Transfer shall be subject to this Agreement and shall
continue to be serviced in accordance with the terms of this Agreement and with
respect thereto this Agreement shall remain in full force and effect.
<PAGE>
-53-
ARTICLE IX
THE COMPANY
-----------
Section 9.01 Indemnification; Third Party Claims.
-----------------------------------
The Company agrees to indemnify and hold harmless the Purchaser against
any and all claims, losses, penalties, fines, forfeitures, legal fees and
related costs, judgments, and any other costs, fees and expenses that the
Purchaser may sustain in any way related to the failure of the Company to
perform its duties and service the Mortgage Loans in strict compliance with the
terms of this Agreement. The Company shall immediately notify the Purchaser if
a claim is made by a third party with respect to this Agreement or the Mortgage
Loans, and the Company shall assume the defense of any such claim and advance
all expenses in connection therewith, including counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Company or the Purchaser in respect of such claim. The Purchaser shall promptly
reimburse the Company for all amounts advanced by it pursuant to the preceding
sentence except when the claim in any way relates to the Company's failure to
service and administer the Mortgage Loans in strict compliance with the terms of
this Agreement.
Section 9.02 Merger or Consolidation of the Company.
--------------------------------------
The Company will keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans and to perform its
duties under this Agreement.
Any Person into which the Company may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Company shall be a party, or any Person succeeding to substantially all of the
business of the Company (whether or not related to loan servicing), shall be the
successor of the Company hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding; provided, however, that the successor or surviving
Person shall be an institution (i) having a GAAP net worth of not less than
$15,000,000, (ii) the deposits of which are insured by the FDIC or which is a
HUD-approved mortgagee whose primary business is in origination and servicing of
mortgage loans comparable to the Mortgage Loans and (iii) who is a FNMA approved
seller/servicer in good standing.
<PAGE>
-54-
Section 9.03 Limitation on Liability of the Company and Others.
-------------------------------------------------
The Company and any director, officer, employee or agent of the Company
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 9.01,
the Company shall have no obligation to appear with respect to, prosecute or
defend any legal action which is not incidental to the Company's duty to service
the Mortgage Loans in accordance with this Agreement.
Section 9.04 Company Not to Resign.
---------------------
The Company shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Company and the Purchaser or upon the determination that the Company's duties
hereunder are no longer permissible under applicable law and such incapacity
cannot be readily cured by the Company without additional expenses. Any such
determination permitting the resignation of the Company shall be evidenced by an
Opinion of Counsel to such effect delivered to the Purchaser. No such
resignation shall become effective until a successor which satisfies the
requirements of Section 9.02 has assumed the Company's responsibilities and
obligations hereunder in accordance with Section 13.01.
Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement.
-------------------------------------------------
With respect to the retention of the Company to service the Mortgage
Loans hereunder, the Company acknowledges that the Purchaser has acted in
reliance upon the Company's independent status, the adequacy of its servicing
facilities, plant, personnel, records and procedures, its integrity, reputation
and financial standing and the continuance thereof. Without in any way limiting
the generality of this Section, and subject to Section 6.06 and this 9.05, the
Company shall not either assign this Agreement or the servicing hereunder or
delegate its rights or duties hereunder or any portion thereof.
Notwithstanding the foregoing, the Company may enter into the Sub-
Servicing Agreement with the Sub-Servicer for the servicing and administration
of the Mortgage Loans.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Company and a
Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise,
the Company shall remain obligated and primarily liable to the Purchaser for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of Section 4.01 without diminution of such obligation or liability by
virtue of such Sub-Servicing Agreements or arrangements or by virtue of
indemnification from the Sub-Servicer and to the same extent and under the same
terms and conditions as if the Company alone were servicing and administering
the Mortgage Loans. The
<PAGE>
-55-
Company shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Company by such Sub-Servicer and nothing contained in
this Agreement shall be deemed to limit or modify such indemnification.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Company alone, and the Purchaser shall not be deemed parties thereto and shall
have no claims, rights, obligations, duties or liabilities with respect to the
Sub-Servicer except as set forth in the Sub-Servicing Agreement. The Company
shall be solely liable for all fees owed by it to any Sub-Servicer, irrespective
of whether the Company's compensation pursuant to this Agreement is sufficient
to pay such fees.
<PAGE>
-56-
ARTICLE X
DEFAULT
-------
Section 10.01 Events of Default.
-----------------
In case one or more of the following Events of Default by the Company
shall occur and be continuing, that is to say:
(i) any failure by the Company to remit to the Purchaser any
payment required to be made under the terms of this Agreement which continues
unremedied for a period of 5 days after the date upon which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Company by the Purchaser; or
(ii) failure by the Company to duly observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Company as set forth in this Agreement which failure continues unremedied for
a period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Company by the
Purchaser; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a receiver or liquidator
in any insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Company and such decree or order shall
have remained in force, undischarged or unstayed for a period of 60 days; or
(iv) the Company shall consent to the appointment of a receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Company or relating
to all or substantially all of the Company's property; or
(v) the Company shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations; or
(vi) any failure of the Company to make any advance when required
to be made pursuant to Section 5.03 that continues unremedied for a period of
one Business Day after the date on which telecopied notice of such failure,
requiring the same to be remedied, shall have been given to the Company by the
Purchaser (followed by written notice delivered within one Business Day
thereafter);
<PAGE>
-57-
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Purchaser, by notice in writing to the Company, may, in
addition to whatever rights the Purchaser may have at law or equity to damages,
including injunctive relief and specific performance, commence termination of
all the rights and obligations of the Company under this Agreement and in and to
the Mortgage Loans and the proceeds thereof. Upon receipt by the Company of a
second written notice from the Purchaser stating that they intend to terminate
the Company as a result of such Event of Default, all authority and power of the
Company under this Agreement, whether with respect to the Mortgage Loans or
otherwise, shall pass to and be vested in the successor appointed pursuant to
Section 13.01. Upon receipt of such second written notice, the Company shall
prepare, execute and deliver to a successor any and all documents and other
instruments, place in such successor's possession all Mortgage Files and do or
cause to be done all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, including, but not limited to, the
transfer and endorsement or assignment of the Mortgage Loans and related
documents to the successor, all at the Company's sole expense. The Company
agrees to cooperate with the Purchaser and such successor in effecting the
termination of the Company's responsibilities and rights hereunder, including,
without limitation, the transfer to such successor for administration by it of
all amounts which shall at the time be credited or should have been credited by
the Company to the Custodial Account or Escrow Account or REO Account or
thereafter received with respect to the Mortgage Loans.
Section 10.02 Waiver of Defaults.
------------------
The Purchaser may waive any default by the Company in the performance of
its obligations hereunder and its consequences. Upon any waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Section 10.03 Servicer to Retain Previous Entitlement.
---------------------------------------
Notwithstanding any termination of the activities of the Servicer
hereunder pursuant to Section 10.01, the Servicer shall be entitled to receive,
out of any late collection of a Monthly Payment on a Mortgage Loan which was due
prior to the notice terminating the Servicer's rights and obligations as
Servicer hereunder and received after such notice, that portion thereof to which
the Servicer would have been entitled pursuant to Section 4.05, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
<PAGE>
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ARTICLE XI
TERMINATION
-----------
Section 11.01 Termination.
-----------
This Agreement shall terminate upon either: (i) the later of the
distribution to the Purchaser of final payment or liquidation with respect to
the last Mortgage Loan (or advances of same by the Company), or the disposition
of all property acquired upon foreclosure or deed in lieu of foreclosure with
respect to the last Mortgage Loan and the remittance of all funds due hereunder;
(ii) the mutual consent of the Company and the Purchaser in writing; or (iii)
the acquisition of all servicing pursuant to Section 6.06 hereof.
<PAGE>
-59-
ARTICLE XII
MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST
------------------------------------------------
Section 12.01 Mandatory Delivery; Grant of Security Interest.
----------------------------------------------
The sale and delivery on the related Closing Date of the Mortgage Loans
described on the related Mortgage Loan Schedule is mandatory from and after the
date of the execution of the related Confirmation unless otherwise noted on the
Confirmation, it being specifically understood and agreed that each Mortgage
Loan is unique and identifiable on the date thereof and that an award of money
damages would be insufficient to compensate the Purchaser for the losses and
damages incurred by the Purchaser (including damages to prospective purchasers
of the Mortgage Loans) in the event of the Company's failure to deliver (i) each
of the related Mortgage Loans or (ii) one or more Qualified Substitute Mortgage
Loans or (iii) one or more Mortgage Loans otherwise acceptable to the Purchaser
on or before the related Closing Date. As of the date of each mandatory delivery
Confirmation, the Company hereby grants to the Purchaser a lien on and a
continuing security interest in each related Mortgage Loan and each document and
instrument evidencing each such Mortgage Loan to secure the performance by the
Company of its obligation to deliver the Mortgage Loans on the Closing Date
therefor, and the Company agrees that it holds such Mortgage Loans in custody
for the Purchaser subject to the Purchaser's (i) right to reject any Mortgage
Loan (or Qualified Substitute Mortgage Loan) under the terms of this Agreement
and to require another Mortgage Loan (or Qualified Substitute Mortgage Loan) to
be substituted therefor, and (ii) obligation to pay the Purchase Price for the
Mortgage Loans.
The Company intends that the conveyance of the Company's right, title
and interest in and to the Mortgage Loans to the Purchaser shall constitute a
sale and not a pledge of security for a loan. If such conveyance is deemed to be
a pledge of security for a loan, however, the Company intends that the rights
and obligations of the parties to such loan shall be established pursuant to the
terms of the Agreement. The Company also intends and agrees that, in such event,
(i) the Company shall be deemed to have granted to the Purchaser and its assigns
a first priority security interest in the Company's entire right, title and
interest in and to the Mortgage Loans, all principal and interest received or
receivable with respect to the Mortgage Loans, all amounts held from time to
time in the accounts mentioned pursuant to this Agreement and all reinvestment
earnings on such amounts, together with all of the Company's right, title and
interest in and to the proceeds of any title, hazard or other insurance policies
related to such Mortgage Loans and (ii) the Agreement shall constitute a
security agreement under applicable law. All rights and remedies of the
Purchaser under this Agreement are distinct from, and cumulative with, any other
rights or remedies under this Agreement or afforded by law or equity and all
such rights and remedies may be exercised concurrently, independently or
successively.
<PAGE>
-60-
ARTICLE XIII
MISCELLANEOUS PROVISIONS
------------------------
Section 13.01 Successor to the Company.
------------------------
Prior to termination of the Company's responsibilities and duties under
this Agreement pursuant to Sections 9.04, 10.01 or 11.01, the Purchaser shall
(i) succeed to and assume all of the Company's responsibilities, rights, duties
and obligations under this Agreement, or (ii) appoint a successor having the
characteristics set forth in Section 9.02 hereof and which shall succeed to all
rights and assume all of the responsibilities, duties and liabilities of the
Company under this Agreement prior to the termination of the Company's
responsibilities, duties and liabilities under this Agreement. In connection
with such appointment and assumption, the Purchaser may make such arrangements
for the compensation of such successor out of payments on Mortgage Loans as it
and such successor shall agree. In the event that the Company's duties,
responsibilities and liabilities under this Agreement should be terminated
pursuant to the aforementioned Sections, the Company shall discharge such duties
and responsibilities during the period from the date it acquires knowledge of
such termination until the effective date thereof with the same degree of
diligence and prudence which it is obligated to exercise under this Agreement,
and shall take no action whatsoever that might impair or prejudice the rights or
financial condition of its successor. The resignation or removal of the Company
pursuant to the aforementioned Sections shall not become effective until a
successor shall be appointed pursuant to this Section and shall in no event
relieve the Company of the representations and warranties made pursuant to
Sections 3.01 and 3.02 or its obligations under Section 9.01 and the remedies
available to the Purchaser under Section 3.03, it being understood and agreed
that the provisions of such Sections 3.01, 3.02, 3.03 and 9.01 shall be
applicable to the Company notwithstanding any such resignation or termination of
the Company, or the termination of this Agreement. In addition, notwithstanding
any such resignation or termination, the Company shall cooperate with all
reasonable requests for information by the Purchaser in connection with a Whole
Loan Transfer or a Pass-Through Transfer occurring within 180 days of such
termination; provided such information is in the possession of the Company and
the Purchaser pays for all out-of-pocket expenses of the Company incurred in
providing the same.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Company and to the Purchaser an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Company, with like effect as if originally named as a party to this Agreement.
Any termination or resignation of the Company or this Agreement pursuant to
Section 9.04, 10.01 or 11.01 shall not affect any claims that the Purchaser may
have against the Company arising prior to any such termination or resignation.
<PAGE>
-61-
The Company shall promptly deliver to the successor the funds in the
Custodial Account, Escrow Account and REO Account and all Mortgage Files and
related documents and statements held by it hereunder and the Company shall
account for all funds and shall execute and deliver such instruments and do such
other things as may reasonably be required to more fully and definitively vest
in the successor all such rights, powers, duties, responsibilities, obligations
and liabilities of the Company, all at the Company's sole expense.
Section 13.02 Amendment.
---------
This Agreement may be amended from time to time by the Company and the
Purchaser by written agreement signed by the Company and the Purchaser.
Section 13.03 Recordation of Agreement.
------------------------
To the extent permitted by applicable law, this Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Company at the Company's expense upon direction of the Purchaser, but only when
such direction is accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the Purchaser
or is necessary for the administration or servicing of the Mortgage Loans.
Section 13.04 Recordation of Assignment of Mortgages.
--------------------------------------
As provided in the Custodial Agreement, each Assignment of Mortgage
shall be in a form acceptable for recording in all appropriate public offices
for real property records in the jurisdiction in which the Mortgaged Property
recited in each such Assignment of Mortgage is situated.
Section 13.05 Duration of Agreement.
---------------------
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 13.06 Governing Law.
-------------
This Agreement shall be construed in accordance with the laws of the
State of New York, except to the extent preempted by Federal law, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Section 13.07 General Interpretive Principles.
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For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(c) references herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Agreement;
(d) a reference to a Subsection without further reference to a Section
is a reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(e) the words "herein", "hereof", "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular provision;
and
(f) the term "include" or "including" shall mean without limitation by
reason of enumeration.
Section 13.08 Reproduction of Documents.
-------------------------
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by any party at the closing, and (c) financial
statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process. The parties agree that
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 13.09 Notices.
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All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by registered mail, postage prepaid, to (a) in the case of the Company,
Ameriquest Mortgage Company, 1100 Town and Country Road, Orange, California
92868, Attention: General Counsel, or such other address as may hereafter be
furnished to the Purchaser in writing by the Company and (b) in the case of the
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Purchaser, Salomon Brothers Realty Corp., Seven World Trade Center, New York,
New York 10048, Attention: Mortgage Finance Group.
Section 13.10 Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement. If the invalidity of any part, provision, representation or
warranty of this Agreement shall deprive any party of the economic benefit
intended to be conferred by this Agreement, the parties shall negotiate in good-
faith to develop a structure the economic effect of which is nearly as possible
the same as the economic effect of this Agreement without regard to such
invalidity.
Section 13.11 No Partnership.
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Nothing herein contained shall be deemed or construed to create a co-
partnership or joint venture between the parties hereto and the services of the
Company shall be rendered as an independent contractor and not as agent for the
Purchaser.
Section 13.12 Execution; Successors and Assigns.
---------------------------------
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same agreement. Subject to Section 7.04, Section 10.01
and Section 11.01, this Agreement shall inure to the benefit of and be binding
upon the Company and the Purchaser and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as of the day and year first above written.
SALOMON BROTHERS REALTY CORP.,
Purchaser
By:___________________________
Name:___________________
Title:________________________
AMERIQUEST MORTGAGE COMPANY,
Company
By:___________________________
Name:___________________
Title:________________________
<PAGE>
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This is an Assignment, Assumption and Recognition Agreement made this 30th
day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"),
Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Ameriquest
Mortgage Company (the "Company").
WHEREAS, pursuant to a Liquidation Agreement (the "Liquidation Agreement"),
dated as of September 30, 1998, among Salomon Brothers Mortgage Securities VII,
Inc. ("Salomon Brothers"), the Company, Norwest Bank Minnesota, National
Association ("Norwest") and Salomon Smith Barney Inc. ("SSBI"), the Trust Fund
(as defined in the Pooling and Servicing Agreement (the "Servicing Agreement"),
dated as of January 1, 1997, relating to 1997-LB1, among Salomon Brothers, the
Company f/k/a Long Beach Mortgage Company and Norwest) was liquidated and
terminated, and SSBI became the owner of a 100% ownership interest in the
mortgage loans identified on the Mortgage Loan Schedule annexed hereto as
EXHIBIT ONE (the "Mortgage Loans");
WHEREAS, the Seller is the holder of all right, title and interest in and
to the Mortgage Loans pursuant to the Liquidation Agreement;
WHEREAS, the Company made certain representations and warranties with
respect to the Mortgage Loans pursuant to a Mortgage Loan Purchase Agreement
(the "Purchase Agreement"), dated January 22, 1997, among Salomon Brothers, the
Company and the Seller which was terminated in accordance with the terms of the
Liquidation Agreement;
WHEREAS, pursuant to Article III of the Liquidation Agreement, the Company
restated such representations and warranties with respect to the Mortgage Loans
as of January 22, 1997; and
WHEREAS, pursuant to Article III of the Liquidation Agreement, the Mortgage
Loans are being serviced by the Company in accordance with the terms of the
Servicing Agreement;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, the Mortgage Loans;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Seller, the Purchaser and the
Company agree as follows:
WARRANTIES
----------
1. (a) The Seller and the Company warrant and represent that attached
hereto as EXHIBIT TWO is a true, accurate and complete copy of the Liquidation
Agreement.
(b) The Seller warrants and represents that attached hereto as
EXHIBIT THREE is a true, accurate and complete copy of the Purchase Agreement as
in effect prior to the termination of such Purchase Agreement.
<PAGE>
(c) The Seller warrants and represents that it is the lawful owner of
the Mortgage Loans with the full right to transfer the Mortgage Loans free from
any claim or encumbrance whatsoever.
(d) The Seller hereby warrants and represents to the Purchaser that
no event has occurred from January 22, 1997 to the date hereof that would result
in any representation and warranty made pursuant to Section 6 of the Purchase
Agreement being untrue if made as of the date hereof with respect to the
Mortgage Loans (other than any statistical information with respect to the
Mortgage Loans and any changes due to the receipt of payments on the Mortgage
Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and
similar changes, which information reflected on EXHIBIT ONE hereto is accurate
in all material respects as of September 1, 1998). In the event of a breach of
the foregoing representation and warranty which materially and adversely affects
the value of any Mortgage Loan or the Purchaser's interest therein, the Seller
shall repurchase such affected Mortgage Loan at a repurchase price equal to the
unpaid principal balance of such Mortgage Loan plus accrued interest at the net
Mortgage Interest Rate from the paid through date of the Mortgage Loan to the
first day of the month following the month in which such repurchase is effected;
provided, that to the extent that the Company would otherwise be required to
repurchase a Mortgage Loan due to the breach of any of the representations and
warranties that are made or deemed to have been made by the Company as of
January 22, 1997, then the Seller shall repurchase the affected Mortgage Loan
from the Purchaser upon the reassignment of the Liquidation Agreement from the
Purchaser to the Seller with respect to such Mortgage Loan. It is understood and
agreed that the obligations of the Seller set forth in this Section 1(d) to
repurchase an affected Mortgage Loan constitutes the sole remedy of the
Purchaser respecting a breach of the representation and warranty made in this
Section 1(d).
ASSIGNMENT AND ASSUMPTION
-------------------------
2. The Seller hereby assigns to the Purchaser all of its right, title and
interest in, and to the Mortgage Loans.
3. The Seller hereby assigns to the Purchaser all of its right, title and
interest in, and under Article III of the Liquidation Agreement to the extent of
the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's
obligation under Article III of the Liquidation Agreement to the extent of the
Mortgage Loans from and after the date hereof.
RECOGNITION OF THE PURCHASER
----------------------------
4. From and after the date hereof, the Company shall recognize the
Purchaser as the owner of the Mortgage Loans.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SALOMON BROTHERS REALTY CORP.,
Seller
By:____________________________
Name:__________________________
Title:_________________________
WILSHIRE REAL ESTATE INVESTMENT
TRUST INC.
Purchaser
By:____________________________
Name:__________________________
Title:_________________________
AMERIQUEST MORTGAGE COMPANY
Company
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
This is a Mortgage Loan Purchase Agreement (the "Agreement"), dated
January 22, 1997, among Salomon Brothers Mortgage Securities VII, Inc., a
Delaware corporation (the "Purchaser"), Long Beach Mortgage Company, a Delaware
corporation (the "Originator") and Salomon Brothers Realty Corp., a New York
corporation (the "Seller").
Preliminary Statement
---------------------
The Seller intends to sell the Mortgage Loans (as hereinafter defined)
to the Purchaser on the terms and subject to the conditions set forth in this
Agreement. The Mortgage Loans were purchased by the Seller from the Originator
pursuant to a certain Master Mortgage Loan Purchase and Servicing Agreement,
dated as of May 1, 1996 (the "Purchase and Servicing Agreement"), among the
Seller, as initial purchaser and the Originator, as seller and servicer. The
Purchaser intends to deposit the Mortgage Loans into a mortgage pool comprising
the trust fund. The trust fund will be evidenced by a single series of asset-
backed floating rate certificates designated as Series 1997-LB1, (the
"Certificates"). The Certificates will consist of four classes of certificates.
The Certificates will be issued pursuant to a Pooling and Servicing Agreement,
dated as of January 1, 1997 (the "Pooling and Servicing Agreement"), among the
Purchaser, as depositor, Norwest Bank Minnesota, National Association, as
trustee, and the Originator, as master servicer (in such capacity, the "Master
Servicer"). Capitalized terms used but not defined herein shall have the
meanings set forth in the Pooling and Servicing Agreement.
The parties hereto agree as follows:
SECTION 1. Agreement to Purchase. The Seller agrees to sell, and the
---------------------
Purchaser agrees to purchase, on or before January 27, 1997 (the "Closing
Date"), certain adjustable-rate conventional residential mortgage loans (the
"Mortgage Loans"), having an aggregate principal balance as of the close of
business on January 1, 1997 (the "Cut-off Date") of approximately $202,390,689
(the "Closing Balance"), after giving effect to all payments due on the Mortgage
Loans on or before the Cut-off Date, whether or not received.
SECTION 2. Mortgage Loan Schedule. The Purchaser and the Seller have
----------------------
agreed upon which of the mortgage loans owned by the Seller are to be purchased
by the Purchaser pursuant to this Agreement and the Seller will prepare or cause
to be prepared on or prior to the Closing Date a final schedule (the "Closing
Schedule") that together shall describe such Mortgage Loans and set forth all of
the Mortgage Loans to be purchased under this Agreement. The Closing Schedule
will conform to the requirements set forth in this Agreement and to the
definition of "Mortgage Loan Schedule" under the Pooling and Servicing
Agreement. The Closing Schedule shall be used as the Mortgage Loan Schedule
under the Pooling and Servicing Agreement.
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SECTION 3. Consideration.
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(a) In consideration for the Mortgage Loans to be purchased
hereunder, the Purchaser shall, as described in Section 8, pay to or upon the
order of the Seller in immediately available funds an amount (the "Purchase
Price") equal to approximately 106.6020% times the Closing Balance, plus accrued
interest thereon from the Cut-off Date up to but not including the Closing Date.
(b) The Purchaser or any assignee, transferee or designee of
the Purchaser shall be entitled to all scheduled payments of principal due after
the Cut-off Date, all other payments of principal due and collected after the
Cut-off Date, and all payments of interest on the Mortgage Loans allocable to
the period after the Cut-off Date. All scheduled payments of principal and
interest due on or before the Cut-off Date and collected after the Cut-off Date
shall belong to the Seller.
(c) Pursuant to the Pooling and Servicing Agreement, the
Purchaser will assign all of its right, title and interest in and to the
Mortgage Loans, together with its rights under this Agreement, to the Trustee
for the benefit of the related Certificateholders.
SECTION 4. Transfer of the Mortgage Loans.
------------------------------
(a) Possession of Mortgage Files. The Seller does hereby sell,
----------------------------
transfer, assign, set over and convey to the Purchaser, without recourse but
subject to the terms of this Agreement, all of its right, title and interest in,
to and under the Mortgage Loans. The contents of each Mortgage File not
delivered to the Purchaser or to any assignee, transferee or designee of the
Purchaser on or prior to the Closing Date are and shall be held in trust by the
Seller for the benefit of the Purchaser or any assignee, transferee or designee
of the Purchaser. Upon the sale of the Mortgage Loans the ownership of each
Mortgage Note, the related Mortgage and the other contents of the related
Mortgage File is vested in the Purchaser and the ownership of all records and
documents with respect to the related Mortgage Loan prepared by or that come
into the possession of the Seller on or after the Closing Date shall immediately
vest in the Purchaser and shall be delivered immediately to the Purchaser or as
otherwise directed by the Purchaser.
(b) Delivery of Mortgage Loan Documents. The Seller will, on or
-----------------------------------
prior to the Closing Date, deliver or cause to be delivered to the Purchaser or
any assignee, transferee or designee of the Purchaser each of the following
documents for each Mortgage Loan:
(i) the original Mortgage Note, endorsed in the following form: "Pay
to the order of Norwest Bank Minnesota, National Association, as Trustee
for the registered holders of Salomon Brothers Mortgage Securities VII,
Inc., Asset-Backed Floating Rate Certificates, Series 1997-LB1, without
recourse," with all prior and intervening endorse-
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ments showing a complete chain of endorsement from the originator to the
Person so endorsing to the Trustee;
(ii) the original Mortgage with evidence of recording thereon;
(iii) an original Assignment of Mortgage executed in the following
form: "Norwest Bank Minnesota, National Association, as Trustee for the
registered holders of Salomon Brothers Mortgage Securities VII, Inc.,
Asset-Backed Floating Rate Certificates, Series 1997-LB1";
(iv) the original recorded Assignment or Assignments of the Mortgage
showing a complete chain of assignment from the originator to the Person
assigning the Mortgage to the Trustee as contemplated by the immediately
preceding clause (iii);
(v) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any; and
(vi) the original lender's title insurance policy, together with all
endorsements or riders which were issued with or subsequent to the issuance
of such policy, insuring the priority of the Mortgage as a first lien on
the Mortgaged Property represented therein as a fee interest vested in the
Mortgagor.
Notwithstanding anything to the contrary contained in this Section 4,
if any document referred to in Section 4(b)(ii) or 4(b)(iv) above has been
submitted for recording but either (x) has not been returned from the applicable
public recording office or (y) has been lost or such public recording office has
retained the original of such document, the obligations of the Seller hereunder
shall be deemed to have been satisfied upon (1) delivery by or on behalf of the
Seller promptly upon receipt thereof to or on behalf of the Purchaser or any
assignee, transferee or designee of the Purchaser of either the original or a
copy of such document certified by the Originator in the case of (x) above or
the public recording office in the case of (y) above to be a true and complete
copy of the recorded original thereof and (2) if such copy is certified by the
Originator delivery promptly upon receipt thereof of either the original or a
copy of such document certified by the public recording office to be a true and
complete copy of the original.
In the event that the original lender's title insurance policy has not
yet been issued, the Seller shall deliver to the Purchaser or any assignee,
transferee or designee of the Purchaser a written commitment or interim binder
or preliminary report of title issued by the title insurance or escrow company.
The Seller shall deliver to the Purchaser or any assignee, transferee or
designee of the Purchaser promptly upon receipt by the Seller of any such
original title insurance policy or original Primary Mortgage Insurance Policy.
<PAGE>
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Each original document relating to a Mortgage Loan which is not
delivered to the Purchaser or its assignee, transferee or designee, if held by
the Seller or the Originator, shall be so held for the benefit of the Purchaser
or its assignee, transferee or designee.
(c) Acceptance of Mortgage Loans. The documents delivered
----------------------------
pursuant to Section 4(b) hereof shall be reviewed by the Purchaser or any
assignee, transferee or designee of the Purchaser at any time before or after
the Closing Date (and with respect to each document permitted to be delivered
after the Closing Date within seven days of its delivery) to ascertain that all
required documents have been executed and received and that such documents
relate to the Mortgage Loans identified on the Mortgage Loan Schedule.
(d) Transfer of Interest in Agreements. The Purchaser has the
----------------------------------
right to assign its interest under this Agreement, in whole or in part, to the
Trustee, as may be required to effect the purposes of the Pooling and Servicing
Agreement, without the consent of the Seller or the Originator, and the assignee
shall succeed to the rights and obligations hereunder of the Purchaser. Any
expense reasonably incurred by or on behalf of the Purchaser or the Trustee in
connection with enforcing any obligations of the Seller or the Originator under
this Agreement will be promptly reimbursed by the Seller or the Originator, as
applicable.
(e) Examination of Mortgage Files. Prior to the Closing Date,
-----------------------------
the Seller shall either (i) deliver in escrow to the Purchaser or to any
assignee, transferee or designee of the Purchaser, for examination, the Mortgage
File pertaining to each Mortgage Loan, or (ii) make such Mortgage Files
available to the Purchaser or to any assignee, transferee or designee of the
Purchaser for examination. Such examination may be made by the Purchaser or the
Trustee, and their respective designees, upon reasonable notice to the Seller
during normal business hours before the Closing Date and within 60 days after
the Closing Date. If any such person makes such examination prior to the Closing
Date and identifies any Mortgage Loans that do not conform to the requirements
of the Purchaser as described in this Agreement, such Mortgage Loans shall be
deleted from the Closing Schedule. The Purchaser may, at its option and without
notice to the Seller, purchase all or part of the Mortgage Loans without
conducting any partial or complete examination. The fact that the Purchaser or
any person has conducted or has failed to conduct any partial or complete
examination of the Mortgage Files shall not affect the rights of the Purchaser
or any assignee, transferee or designee of the Purchaser to demand repurchase or
other relief as provided herein or under the Pooling and Servicing Agreement.
SECTION 5. Representations, Warranties and Covenants of the
------------------------------------------------
Seller and the Originator.
-------------------------
(a) The Originator hereby represents and warrants to the Seller and
the Purchaser, as of the date hereof and as of the Closing Date, and covenants,
that:
(i) The Originator is a corporation duly organized, validly
existing and
<PAGE>
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in good standing under the laws of the State of Delaware and is duly authorized
and qualified to transact any and all business contemplated by this Agreement to
be conducted by the Originator in any state in which a Mortgaged Property is
located or is otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing business laws
of any such State, to the extent necessary to ensure its ability to enforce each
Mortgage Loan and to service the Mortgage Loans in accordance with the terms of
the Pooling and Servicing Agreement;
(ii) The Originator had the full corporate power and authority
to originate, hold and sell each Mortgage Loan and has the full corporate power
and authority to service each Mortgage Loan, and to execute, deliver and
perform, and to enter into and consummate the transactions contemplated by this
Agreement and has duly authorized by all necessary corporate action on the part
of the Originator the execution, delivery and performance of this Agreement; and
this Agreement, assuming the due authorization, execution and delivery thereof
by the Purchaser, constitutes a legal, valid and binding obligation of the
Originator, enforceable against the Originator in accordance with its terms,
except to the extent that (a) the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws relating
to creditors' rights generally and (b) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought;
(iii) The execution and delivery of this Agreement by the
Originator, the servicing of the Mortgage Loans by the Originator under the
Pooling and Servicing Agreement, the consummation of any other of the
transactions herein contemplated, and the fulfillment of or compliance with the
terms hereof are in the ordinary course of business of the Originator and will
not (A) result in a breach of any term or provision of the charter or by-laws of
the Originator or (B) conflict with, result in a breach, violation or
acceleration of, or result in a default under, the terms of any other material
agreement or instrument to which the Originator is a party or by which it may be
bound, or any statute, order or regulation applicable to the Originator of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Originator; and the Originator is not a party to, bound
by, or in breach or violation of any indenture or other agreement or instrument,
or subject to or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over it, which materially and adversely affects or, to the Originator's
knowledge, would in the future materially and adversely affect, (x) the ability
of the Originator to perform its obligations under this Agreement or (y) the
business, operations, financial condition, properties or assets of the
Originator taken as a whole;
(iv) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance by the Originator of, or compliance by the Originator with, this
Agreement or the consummation of the transactions contemplated hereby, or if any
such consent, approval, authorization or order is required, the Originator has
obtained the same;
<PAGE>
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(v) The Originator is an approved seller/servicer for FNMA or
FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203
of the National Housing Act; and
(vi) No litigation is pending against the Originator that would
materially and adversely affect the execution, delivery or enforceability of
this Agreement or the ability of the Originator to service the Mortgage Loans or
to perform any of its other obligations hereunder in accordance with the terms
hereof;
(b) The Seller hereby represents and warrants, as of the date hereof
and as of the Closing Date, and covenants, that:
(i) The Seller is a corporation, duly organized and validly
existing and in good standing under the laws of the State of New York with full
corporate power and authority to conduct its business as presently conducted by
it to the extent material to the consummation of the transactions contemplated
herein. The Seller had the full corporate power and authority to acquire the
Mortgage Loans. The Seller has the full corporate power and authority to own the
Mortgage Loans and to transfer and convey the Mortgage Loans to the Purchaser
and has the full corporate power and authority to execute and deliver, engage in
the transactions contemplated by, and perform and observe the terms and
conditions of this Agreement;
(ii) This Agreement has been duly and validly authorized,
executed and delivered by the Seller, all requisite corporate action having been
taken, and (assuming the due authorization, execution and delivery hereof by the
Purchaser and the Originator) constitutes the valid, legal and binding
obligation of the Seller, enforceable in accordance with its terms, except as
such enforcement may be limited by (A) bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, (B) general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law) or
(C) public policy considerations underlying the securities laws, to the extent
that such public policy considerations limit the enforceability of the
provisions of this Agreement which purport to provide indemnification from
securities laws liabilities;
(iii) No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or court is
required, under federal laws or the laws of the State of New York, for the
execution, delivery and performance by the Seller of, or compliance by the
Seller with, this Agreement or the consummation by the Seller of any other
transaction contemplated hereby and by the Pooling and Servicing Agreement;
provided, however, that the Seller makes no representation or warranty regarding
federal or state securities laws in connection with the sale or distribution of
the Certificates;
<PAGE>
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(iv) No certificate of an officer, statement or other
information furnished in writing or report delivered by the Seller to the
Purchaser, any affiliate of the Purchaser, the Certificate Insurer or the
Trustee for use in connection with the purchase of the Mortgage Loans and the
transactions contemplated hereunder and under the Pooling and Servicing
Agreement will contain any untrue statement of a material fact, or omit a
material fact necessary to make the information, certificate, statement or
report not misleading in any material respect.
(v) Neither the sale of the Mortgage Loans to the Purchaser,
nor the execution, delivery or performance of this Agreement by the Seller,
conflicts or will conflict with or results or will result in a breach of or
constitutes or will constitute a default (or an event, which with notice or
lapse of time or both, would constitute a default) under (A) any terms or
provisions of the certificate of incorporation or by-laws of the Seller, (B) any
term or provision of any material agreement, contract, instrument or indenture,
to which the Seller is a party or by which the Seller or any of its property is
bound, or (C) any law, rule, regulation, order, judgment, writ, injunction or
decree of any court or governmental authority having jurisdiction over the
Seller or any of its property, or results or will result in the creation or
imposition of any lien, charge or encumbrance which would have a material
adverse effect upon the Mortgage Loans or any documents or instruments
evidencing or securing the Mortgage Loans;
(vi) The Seller has not dealt with any broker, investment
banker, agent or other person, except for the Purchaser or any of its
affiliates, that may be entitled to any commission or compensation in connection
with the sale of the Mortgage Loans;
(vii) There is no litigation currently pending or, to the best
of the Seller's knowledge, threatened against the Seller that would reasonably
be expected to adversely affect the transfer of the Mortgage Loans, the issuance
of the Certificates, the execution, delivery, performance or enforceability of
this Agreement or that would result in a material adverse change in the
financial condition of the Seller;
(viii) Each Mortgage Note, each Mortgage, each Assignment and any
other document required to be delivered by or on behalf of the Seller under this
Agreement or the Pooling and Servicing Agreement to the Purchaser or any
assignee, transferee or designee of the Purchaser for each Mortgage Loan has
been or will be, in accordance with Section 4(b) hereof, delivered to the
Purchaser or any such assignee, transferee or designee. With respect to each
Mortgage Loan, the Seller is in possession of a complete Mortgage File in
compliance with the Pooling and Servicing Agreement, except for such documents
that (A) have been delivered (1) to the Purchaser or any assignee, transferee or
designee of the Purchaser or (2) for recording to the appropriate public
recording office and have not yet been returned or (B) are not required to be
delivered to the Purchaser or any assignee, transferee or designee of the
Purchaser until 90 days following the Closing Date or such later date as
provided in Section 4;
(ix) The transfer, assignment and conveyance of the Mortgage
Notes and
<PAGE>
-8-
the Mortgages by the Seller pursuant to this Agreement are not subject to the
bulk transfer or any similar statutory provisions in effect in any relevant
jurisdiction, except any as may have been complied with;
(x) The Seller (A) is a solvent entity and is paying its debts
as they become due and (B) after giving effect to the transfer of the Mortgage
Loans, will be a solvent entity and will have sufficient resources to pay its
debts as they become due;
(xi) The form of endorsement of each Mortgage Note satisfied
the requirement, if any, of endorsement in order to transfer all right, title
and interest of the party so endorsing, as noteholder or assignee thereof, in
and to that Mortgage Note; and each Assignment to be delivered hereunder is in
recordable form and is sufficient to effect the assignment of and to transfer to
the assignee thereunder the benefits of the assignor, as mortgagee or assignee
thereof, under each Mortgage to which that Assignment relates;
(xii) The transfer of the Mortgage Loans to the Purchaser at the
Closing Date will be treated by the Seller for financial accounting and
reporting purposes as a sale of assets; and
(xiii) Immediately prior to the sale of the Mortgage Loans to the
Purchaser as herein contemplated, the Seller had good title to, and was the sole
owner of, the Mortgage Loans, and such sale validly transfers the Mortgage Loans
to the Purchaser free and clear of any pledge, lien, encumbrance or security
interest.
(xiv) With respect to the Mortgage Loans, the Seller hereby
represents and warrants, as of the date hereof and as of the Closing Date, that
each Mortgage Loan constitutes a "qualified mortgage" within the meaning of
Section 860(G)(a)(3) of the Code.
SECTION 6. Representations and Warranties of the Originator
------------------------------------------------
Relating to the Mortgage Loans.
------------------------------
(a) Representations and Warranties as to Individual Mortgage Loans. The
--------------------------------------------------------------
Originator hereby represents and warrants to the Seller and the Purchaser, that
as to each Mortgage Loan as of the Closing Date:
(i) The information set forth on the related Mortgage Loan
Schedule with respect to each Mortgage Loan is true and correct in all material
respects;
(ii) Except as set forth on Exhibit 1, all payments due prior
to the Cut-off Date have been made and none of the Mortgage Loans will have been
contractually delinquent for more than one calendar month more than once since
the origination thereof;
<PAGE>
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(iii) Each Mortgage is a valid and enforceable first lien on the
Mortgaged Property, including all improvements thereon, subject only to (a) the
lien of nondelinquent current real property taxes and assessments, (b)
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 related Mortgage Loan, and (c) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(iv) Immediately prior to the assignment of the Mortgage Loans
to the Purchaser pursuant to the Purchase and Servicing Agreement, the
Originator had good title to, and was the sole legal and beneficial owner of,
each Mortgage Loan free and clear of any pledge, lien, encumbrance or security
interest and has full right and authority, subject to no interest or
participation of, or agreement with, any other party to sell and assign the
same;
(v) To the best of the Originator's knowledge, there is no
delinquent tax or assessment lien against any Mortgaged Property;
(vi) There is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the
unpaid principal of or interest on such Mortgage Note, nor will the operation of
any of the terms of the Mortgage Note and the Mortgage, or the exercise of any
right thereunder, render the Mortgage unenforceable, in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense, including
the defense of usury and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(vii) To the best of the Originator's knowledge, there are no
mechanics' liens or claims for work, labor or material affecting any Mortgaged
Property which are or may be a lien prior to, or equal with, the lien of the
related Mortgage, except those which are insured against by the title insurance
policy referred to in (xi) below;
(viii) To the best of the Originator's knowledge, each Mortgaged
Property is free of material damage and is in average repair;
(ix) Each Mortgage Loan at origination complied in all material
respects with applicable local, state and federal laws, including, without
limitation, usury, equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws;
<PAGE>
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(x) Neither the Originator nor any prior holder of any
Mortgage has modified the Mortgage in any material respect (except that a
Mortgage Loan may have been modified by a written instrument which has been
recorded, if necessary, to protect the interests of the Seller and the Purchaser
and which has been delivered to the Custodian); satisfied, cancelled or
subordinated such Mortgage in whole or in part; released the related Mortgaged
Property in whole or in part from the lien of such Mortgage; or executed any
instrument of release, cancellation, modification or satisfaction with respect
thereto;
(xi) A lender's policy of title insurance together with a
condominium endorsement and extended coverage endorsement, if applicable, and an
adjustable rate mortgage endorsement in an amount at least equal to the Cut-off
Date Principal Balance of each Mortgage Loan or a commitment (binder) to issue
the same was effective on the date of the origination of each Mortgage Loan,
each such policy is valid and remains in full force and effect, the transfer of
the related Mortgage Loan to the Seller and Purchaser will not affect the
validity or enforceability of such policy and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the Mortgaged
Property is located and acceptable to FNMA or FHLMC and in a form acceptable to
FNMA or FHLMC, which policy insures the Originator and successor owners of
indebtedness secured by the insured Mortgage, as to the first priority lien of
the Mortgage; to the best of the Originator's knowledge, no claims have been
made under such mortgage title insurance policy and no prior holder of the
related Mortgage, including the Originator, has done, by act or omission,
anything which would impair the coverage of such mortgage title insurance
policy;
(xii) Each Mortgage Loan was originated by the Originator or by
a savings and loan association, savings bank, commercial bank, credit union,
insurance company or similar institution which is supervised and examined by a
federal or state authority, or by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to sections 203 and 211 of the National
Housing Act and, if originated on behalf of the Originator by a Person other
than the Originator, is subject to the same standards and procedures used by the
Originator in originating mortgage loans directly;
(xiii) With respect to each Mortgage Loan on each Adjustment
Date, the Mortgage Interest Rate will be adjusted to equal the Index plus the
Margin, rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the
Maximum Rate and the Minimum Rate. Except for Balloon Loans, the related
Mortgage Note is payable on the first day of each month in self-amortizing
monthly installments of principal and interest, with interest payable in
arrears, and requires a Monthly Payment which is sufficient to fully amortize
the outstanding principal balance of the Mortgage Loan over its remaining term
and to pay interest at the applicable Mortgage Interest Rate. No Mortgage Loan
is subject to negative amortization. All rate adjustments have been performed in
accordance with the terms of the related Mortgage Note or subsequent
modifications, if any.
<PAGE>
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(xiv) To the best of the Originator's knowledge, all of the
improvements which were included for the purpose of determining the Appraised
Value of the Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining properties
encroach upon the Mortgaged Property;
(xv) All inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged Property
and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied under
applicable law;
(xvi) All parties which have had any interest in the Mortgage,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) in compliance with any
and all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located;
(xvii) The Mortgage Note and the related Mortgage are genuine,
and each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and with applicable laws. All parties
to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage
Note and the Mortgage and each Mortgage Note and Mortgage have been duly and
properly executed by such parties;
(xviii) The proceeds of each Mortgage Loan have been fully
disbursed, there is no requirement for future advances thereunder and any and
all requirements as to completion of any on-site or off-site improvements and as
to disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, closing or recording the Mortgage
Loans were paid;
(xix) The related Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is
no homestead or other exemption available to the Mortgagor which would interfere
with the right to sell the Mortgaged Property at a trustee's sale or the right
to foreclose the Mortgage;
(xx) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage, and
no fees or expenses are or will become payable by the Purchaser to the trustee
under the deed of trust, except in connection with a trustee's sale after
default by the Mortgagor;
(xxi) Each Mortgage Note and each Mortgage is in substantially
one of the
<PAGE>
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forms attached hereto as Exhibit 2;
(xxii) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary arrangements
for repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Originator have been capitalized under the
Mortgage or the related Mortgage Note;
(xxiii) The origination, underwriting and collection practices
used by the Originator with respect to each Mortgage Loan have been in all
respects legal, proper, prudent and customary in the mortgage servicing
business;
(xxiv) There is no pledged account or other security other than
real estate securing the Mortgagor's obligations;
(xxv) No Mortgage Loan has a shared appreciation feature, or
other contingent interest feature;
(xxvi) No Mortgage Loan provides for primary mortgage
insurance;
(xxvii) The improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy with a generally
acceptable carrier that provides for fire extended coverage and such other
hazards as are customary in the area where the Mortgaged Property is located
representing coverage not less than the lesser of the outstanding principal
balance of the related Mortgage Loan or the minimum amount required to
compensate for damage or loss on a replacement cost basis. All individual
insurance policies and flood policies referred to in clause (xxviii) below
contain a standard mortgagee clause naming the Originator or the original
mortgagee, and its successors in interest, as mortgagee, and the Originator has
received no notice that any premiums due and payable thereon have not been paid;
the Mortgage obligates the Mortgagor thereunder to maintain all such insurance,
including flood insurance, at the Mortgagor's cost and expense, and upon the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at the Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor;
(xxviii) If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance Administration is
in effect with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (A) the
original outstanding principal balance of the Mortgage Loan, (B) the minimum
amount required to compensate for damage or loss on a replacement cost basis or
(C) the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973;
<PAGE>
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(xxix) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the related Mortgage Note; and the
Originator has not waived any default, breach, violation or event of
acceleration;
(xxx) Each Mortgaged Property is improved by a one- to four-
family residential dwelling, including condominium units and dwelling units in
planned unit developments, which, to the best of the Originator's knowledge,
does not include cooperatives or mobile homes and does not constitute other than
real property under state law;
(xxxi) There is no obligation on the part of the Originator or
any other party under the terms of the Mortgage or related Mortgage Note to make
payments in addition to those made by the Mortgagor;
(xxxii) Any future advances made prior to the Cut-off Date have
been consolidated with the outstanding principal amount secured by the Mortgage,
and the secured principal amount, as consolidated, bears a single interest rate
and single repayment term reflected on the related Mortgage Loan Schedule. The
consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan;
(xxxiii) Each Mortgage Loan was underwritten in accordance with
the Originator's underwriting guidelines as described in the Prospectus
Supplement;
(xxxiv) The Mortgage File contains an appraisal which was
performed by an appraiser who satisfied, and which was conducted in accordance
with, all of the applicable requirements of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended;
(xxxv) None of the Mortgage Loans is a graduated payment
mortgage loan, nor is any Mortgage Loan subject to a temporary buydown or
similar arrangement;
(xxxvi) With respect to each Mortgage Loan, no loan junior in
lien priority to such Mortgage Loan and secured by the related Mortgaged
Property was originated by the Originator at the time of origination of such
Mortgage Loan;
(xxxvii) The characteristics of the Mortgage Loans as set forth
on Exhibit 1 hereto are true and correct in all material respects;
(xxxviii) The Mortgage contains an enforceable provision for the
acceleration of the payment of the unpaid principal balance of the Mortgage Loan
in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee
<PAGE>
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thereunder;
(xxxix) The Originator has not advanced funds, or induced,
solicited or knowingly received any advance of funds by a party other than the
mortgagor, directly or indirectly, for the payment of any amount required under
the mortgage loan; and
(xl) There is no proceeding pending, or to best of the
Originator's knowledge threatened, for the total or partial condemnation of the
Mortgaged Property or the taking by eminent domain of any Mortgaged Property.
SECTION 7. Repurchase Obligation for Defective Documentation and
-----------------------------------------------------
for Breach of Representation and Warranty.
-----------------------------------------
(a) The representations and warranties contained in Section 6 shall
not be impaired by any review and examination of loan files or other documents
evidencing or relating to the Mortgage Loans or any failure on the part of the
Seller or the Purchaser to review or examine such documents and shall inure to
the benefit of any assignee, transferee or designee of the Purchaser, including
the Trustee for the benefit of holders of asset-backed floating rate
certificates evidencing an interest in all or a portion of the Mortgage Loans
and the Certificate Insurer. With respect to the representations and warranties
contained herein which are made to the knowledge or the best of knowledge of the
Originator or the Seller, as the case may be, or as to which the Originator or
the Seller, as the case may be, has no knowledge, if it is discovered that the
substance of any such representation and warranty was inaccurate as of the date
such representation and warranty was made or deemed to be made, and such
inaccuracy materially and adversely affects the value of the related Mortgage
Loan or the interest therein of the Purchaser or the Purchaser's assignee,
transferee or designee, then notwithstanding the lack of knowledge by the
Originator or the Seller, as the case may be, with respect to the substance of
such representation and warranty being inaccurate at the time the representation
and warranty was made, the Originator or the Seller, as the case may be, shall
take such action described in the following paragraph in respect of such
Mortgage Loan.
<PAGE>
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Upon discovery by the Originator, the Seller, the Certificate Insurer,
the Purchaser or any assignee, transferee or designee of the Purchaser of any
materially defective document in, or that any material document was not
transferred by the Seller, and not transferred by the Originator to the Seller
(as listed on the Trustee's Preliminary Exception Report), as part of, any
Mortgage File or of a breach of any of the representations and warranties
contained in Section 5(a) or Section 6 that materially and adversely affects the
value of any Mortgage Loan or the interest therein of the Certificate Insurer,
the Purchaser or the Purchaser's assignee, transferee or designee, the party
discovering the breach shall give prompt written notice to the others. Within
ninety (90) days of its discovery or its receipt of notice of any such missing
documentation which was not transferred to the Seller as described above or
materially defective documentation or any such breach of a representation and
warranty the Originator promptly shall deliver such missing document or cure
such defect or breach in all material respects, or in the event the Originator
cannot deliver such missing document or such defect or breach cannot be cured,
the Originator shall, within 90 days of its discovery or receipt of notice,
either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such
term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the
provisions of the Pooling and Servicing Agreement, cause the removal of such
Mortgage Loan from the Trust Fund and substitute one or more Qualified
Substitute Mortgage Loans. With respect to Mortgage Loans where the Mortgage
File is missing a material document that was transferred from the Originator to
the Seller or upon discovery by the Originator, the Seller, the Certificate
Insurer, the Purchaser or any assignee, transferee or designee of the Purchaser
of a breach of any of the representations and warranties contained in Section
5(b)(xi), (xiii) and (xiv) that materially and adversely affects the value of
any Mortgage Loan or the interest therein of the Certificate Insurer, the
Purchaser or the Purchaser's assignee, transferee or designee, the party
discovering such breach shall give prompt written notice to the others. Within
ninety (90) days of its discovery or its receipt of notice of any such missing
document or any such breach of a representation and warranty the Seller promptly
shall deliver such missing document or cure such defect or breach in all
material respects, or in the event the Seller cannot deliver such missing
document or such defect or breach cannot be cured, the Seller shall, within 90
days of its discovery or receipt of notice, either (i) repurchase the affected
Mortgage Loan at the Purchase Price (as such term is defined in the Pooling and
Servicing Agreement) or (ii) pursuant to the provisions of the Pooling and
Servicing Agreement, cause the removal of such Mortgage Loan from the Trust Fund
and substitute one or more Qualified Substitute Mortgage Loans. The Originator
or the Seller, as the case may be, shall amend the Closing Schedule to reflect
the withdrawal of such Mortgage Loan from the terms of this Agreement and the
Pooling and Servicing Agreement and the addition, if any, of a Qualified
Substitute Mortgage Loan. The Originator or the Seller, as the case may be,
shall deliver to the Purchaser such amended Closing Schedule and shall deliver
such other documents as are required by this Agreement or the Pooling and
Servicing Agreement within five (5) days of any such amendment. Any repurchase
pursuant to this Section 7(a) shall be accomplished by deposit in the Collection
Account of the amount of the Purchase Price in accordance with Section 2.03 of
the Pooling and Servicing Agreement. Any repurchase or substitution required by
this Section shall be made in a manner consistent with Section 2.03 of the
Pooling and Servicing Agreement.
<PAGE>
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In addition, upon discovery by the Seller, the Purchaser, the
Certificate Insurer, or any assignee, transferee or designee of the Purchaser
that any Mortgage Loan does not constitute a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code, the party discovering the breach
shall give prompt written notice within two Business Days to the others. Within
ninety (90) days of its discovery or its receipt of notice, the Seller promptly
shall either (i) repurchase the affected Mortgage Loan at the Purchase Price (as
such term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to
the provisions of the Pooling and Servicing Agreement, cause the removal of such
Mortgage Loan from the Trust Fund and substitute one or more Qualified
Substitute Mortgage Loans.
(b) It is understood and agreed that the obligations of the
Originator or the Seller, as the case may be, set forth in this Section 7 to
cure, repurchase or substitute for a defective Mortgage Loan constitute the sole
remedies of the Seller, the Purchaser and the Certificate Insurer against the
Originator respecting a missing or defective document or a breach of the
representations and warranties contained in Section 5(a) or Section 6. It is
understood and agreed that the obligations of the Seller set forth in this
Section 7 to repurchase or substitute for a Mortgage Loan as to which a material
document is missing constitute the sole remedies of the Purchaser against the
Seller respecting a missing document.
SECTION 8. Closing; Payment for the Mortgage Loans. The closing of
---------------------------------------
the purchase and sale of the Mortgage Loans shall be held at the New York City
office of Thacher Proffitt & Wood at 10:00 AM New York City time on the Closing
Date.
The closing shall be subject to each of the following conditions:
(a) All of the representations and warranties of the Seller under
this Agreement shall be true and correct in all material respects
as of the date as of which they are made and no event shall have
occurred which, with notice or the passage of time, would
constitute a default under this Agreement;
(b) All of the representations and warranties of the Originator under
this Agreement shall be true and correct in all material respects
as of the date as of which they are made and no event shall have
occurred which, with notice or the passage of time, would
constitute a default under this Agreement;
(c) The Purchaser shall have received, or the attorneys of the
Purchaser shall have received in escrow (to be released from
escrow at the time of closing), all Closing Documents as
specified in Section 9 of this Agreement, in such forms as are
agreed upon and acceptable to the Purchaser, duly executed by all
signatories other than the Purchaser as required pursuant to the
respective
<PAGE>
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terms thereof;
(d) The Seller shall have delivered or caused to be delivered and
released to the Purchaser or to its designee, all documents
(including without limitation, the Mortgage Loans) required to be
so delivered by the Purchaser pursuant to Section 2.01 of the
Pooling and Servicing Agreement; and
(e) All other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Purchaser shall deliver or
cause to be delivered to the Seller on the Closing Date, against delivery and
release by the Seller to the Trustee of all documents required pursuant to the
Pooling and Servicing Agreement, the consideration for the Mortgage Loans as
specified in Section 3 of this Agreement, by delivery to the Seller of the
Purchase Price in immediately available funds.
SECTION 9. Closing Documents. Without limiting the generality of
-----------------
Section 8 hereof, the closing shall be subject to delivery of each of the
following documents:
(a) An Officers' Certificate of the Seller, dated the Closing
Date, upon which the Originator, the Purchaser, MBIA
Insurance Corporation ("MBIA") and Salomon Brothers Inc
(the "Underwriter") may rely, in the form of Exhibit 3
hereto, and attached thereto copies of the certificate of
incorporation, by-laws and certificate of good standing of
the Seller under the laws of New York;
(b) An Officers' Certificate of the Seller, dated the Closing
Date, upon which the Purchaser, MBIA and the Underwriter may
rely, in the form of Exhibit 4 hereto, with respect to
certain facts regarding the sale of the Mortgage Loans by
the Seller to the Purchaser;
(c) An Opinion of Counsel of the Seller, dated the Closing Date
and addressed to the Originator, the Purchaser, MBIA and the
Underwriter, substantially in the form attached hereto as
Exhibit 5;
(d) An Officer's Certificate of the Originator, dated the
Closing Date, upon which the Seller, the Purchaser, MBIA and
the Underwriter may rely, in the form of Exhibit 6 hereto,
and attached thereto copies of the certificate of
incorporation, by-laws and certificate of good standing of
the Originator under the laws of Delaware;
(e) An opinion of Counsel of the Originator, dated the Closing
Date and
<PAGE>
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addressed to the Seller, the Purchaser, MBIA and the
Underwriter, substantially in the form attached hereto as
Exhibit 7;
(f) Such opinions of counsel as the Rating Agencies or the
Trustee may request in connection with the sale of the
Mortgage Loans by the Seller to the Purchaser or the
Seller's execution and delivery of, or performance under,
this Agreement;
(g) A letter from Deloitte & Touche L.L.P., certified public
accountants, dated the date hereof and to the effect that
they have performed certain specified procedures as a result
of which they determined that certain information of an
accounting, financial or statistical nature set forth in the
Purchaser's Prospectus Supplement, dated January 22, 1997 in
the Summary under the subheading "The Mortgage Pool" and
under the captions "The Mortgage Pool" and "Pooling and
Servicing Agreement -- The Originator and Master Servicer"
agrees with the records of the Originator;
(h) The Originator shall deliver to the Seller for inclusion in
the Prospectus Supplement for Salomon Brothers Mortgage
Securities VII, Inc., Asset-Backed Floating Rate
Certificates, Series 1997-LB1, under the captions "The
Mortgage Pool -- Underwriting Standards; Representations"
and "Pooling and Servicing Agreement -- The Originator and
Master Servicer" , or for inclusion in other offering
material such publicly available information regarding the
Originator, its financial condition and its mortgage loan
delinquency, foreclosure and loss experience, underwriting
standards, lending activities and loan sales, production,
and servicing and collection practices, and any similar
nonpublic, unaudited financial information;
(i) A letter from Deloitte & Touche L.L.P., certified public
accountants, dated the date hereof and to the effect that
they have performed certain specified procedures as a result
of which they determined that certain information of an
accounting, financial or statistical nature set forth in the
Purchaser's Prospectus Supplement, dated January 22, 1997
under the captions "Summary of Prospectus Supplement",
"Yield on the Certificates" and "Description of the
Certificates" agrees with the records of the Seller; and
(j) Such further information, certificates, opinions and
documents as the
<PAGE>
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Purchaser, MBIA or the Underwriter may reasonably request.
SECTION 10. Costs. The Originator shall pay (or shall reimburse the
-----
Purchaser or any other Person to the extent that the Purchaser or such other
Person shall pay) all costs and expenses incurred in connection with the
transfer and delivery of the Mortgage Loans, including without limitation,
recording fees, fees for title policy endorsements and continuations and the
fees for recording Assignments of Mortgage, the fees and expenses of the
Originator's in-house accountants and in-house attorneys, the costs and expenses
incurred in connection with producing the Originator's loan loss, foreclosure
and delinquency experience, and the costs and expenses incurred in connection
with obtaining the documents referred to in Sections 9(d) and 9(e). The Seller
shall pay (or shall reimburse the Purchaser or any other Person to the extent
that the Purchaser or such other Person shall pay) the costs and expenses of
printing (or otherwise reproducing) and delivering this Agreement, the Pooling
and Servicing Agreement, the Certificates, the prospectus, prospectus
supplement, and private placement memorandum relating to the Certificates, the
Insurance Agreement and other related documents, the initial fees, costs and
expenses of the Trustee, the initial fees, costs and expenses of MBIA, the fees
and expenses of the Seller's counsel in connection with the preparation of all
documents relating to the securitization of the Mortgage Loans, the filing fee
charged by the Securities and Exchange Commission for registration of the
Certificates, the cost of outside special counsel that may be required for the
Originator, the cost of obtaining the documents referred to in Section 9(g) and
the fees charged by any rating agency to rate the Certificates. All other costs
and expenses in connection with the transactions contemplated hereunder shall be
borne by the party incurring such expense.
SECTION 11. Servicing. The Seller has represented to the Purchaser
---------
that the Mortgage Loans are being serviced under the Purchase and Servicing
Agreement with the Originator, and it is understood and agreed by and among the
Seller, the Originator and the Purchaser that the interim servicing arrangements
under the Purchase and Servicing Agreement with the Originator will be
superseded by the servicing arrangements set forth in the Pooling and Servicing
Agreement.
SECTION 12. Mandatory Delivery; Grant of Security Interest. The sale
----------------------------------------------
and delivery on the Closing Date of the Mortgage Loans described on the Mortgage
Loan Schedule in accordance with the terms and conditions of this Agreement is
mandatory. It is specifically understood and agreed that each Mortgage Loan is
unique and identifiable on the date hereof and that an award of money damages
would be insufficient to compensate the Purchaser for the losses and damages
incurred by the Purchaser in the event of the Seller's failure to deliver the
Mortgage Loans on or before the Closing Date. The Seller hereby grants to the
Purchaser a lien on and a continuing security interest in the Seller's interest
in each Mortgage Loan and each document and instrument evidencing each such
Mortgage Loan to secure the performance by the Seller of its obligation
hereunder, and the Seller agrees that it holds such Mortgage Loans in custody
for the Purchaser, subject to the Purchaser's (i) right, prior to the Closing
Date, to reject any Mortgage
<PAGE>
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Loan to the extent permitted by this Agreement, and (ii) obligation to deliver
or cause to be delivered the consideration for the Mortgage Loans pursuant to
Section 8 hereof. Any Mortgage Loans rejected by the Purchaser shall
concurrently therewith be released from the security interest created hereby.
The Seller agrees that, upon acceptance of the Mortgage Loans by the Purchaser
or its designee and delivery of payment to the Seller, that its security
interest in the Mortgage Loans shall be released. All rights and remedies of the
Purchaser under this Agreement are distinct from, and cumulative with, any other
rights or remedies under this Agreement or afforded by law or equity and all
such rights and remedies may be exercised concurrently, independently or
successively.
Notwithstanding the foregoing, if on the Closing Date, each of the
conditions set forth in Section 8 hereof shall have been satisfied and the
Purchaser shall not have paid or caused to be paid the Purchase Price, or any
such condition shall not have been waived or satisfied and the Purchaser
determines not to pay or cause to be paid the Purchase Price, the Purchaser
shall immediately effect the redelivery of the Mortgage Loans, if delivery to
the Purchaser has occurred and the security interest created by this Section 12
shall be deemed to have been released.
SECTION 13. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered to or mailed by registered mail, postage prepaid, or
transmitted by telex or telegraph and confirmed by a similar mailed writing, if
to the Purchaser, addressed to the Purchaser at Seven World Trade Center, New
York, New York 10048, Attention: Mortgage Finance Group, or such other address
as may hereafter be furnished to the Seller and the Originator in writing by the
Purchaser; if to the Seller, addressed to the Seller at Seven World Trade
Center, New York, New York 10048, Attention: Mortgage Finance Group, or to such
other address as the Seller may designate in writing to the Purchaser and the
Originator; and if to the Originator, addressed to the Originator at 1100 Town
and Country Road, Orange, California 92668, Attention: Del Dillingham, Esq., or
to such other address as the Originator may designate in writing to the
Purchaser and the Seller.
SECTION 14. Severability of Provisions. Any part, provision,
--------------------------
representation or warranty of this Agreement which is prohibited or which is
held to be void or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof. Any part, provision, representation or warranty of this Agreement which
is prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.
SECTION 15. Agreement of Parties. The Originator, the Seller and the
--------------------
Purchaser
<PAGE>
-21-
each agree to execute and deliver such instruments and take such actions as
either of the others may, from time to time, reasonably request in order to
effectuate the purpose and to carry out the terms of this Agreement and the
Pooling and Servicing Agreement.
SECTION 16. Survival. (a) The Seller agrees that the
--------
representations, warranties and agreements made by it herein and in any
certificate or other instrument delivered pursuant hereto shall be deemed to be
relied upon by the Purchaser and the Certificate Insurer, notwithstanding any
investigation heretofore or hereafter made by the Purchaser or the Certificate
Insurer or on either of their behalf, and that the representations, warranties
and agreements made by the Seller herein or in any such certificate or other
instrument shall survive the delivery of and payment for the Mortgage Loans and
shall continue in full force and effect, notwithstanding any restrictive or
qualified endorsement on the Mortgage Notes and notwithstanding subsequent
termination of this Agreement, the Pooling and Servicing Agreement or the Trust
Fund.
(b) The Originator agrees that the representations, warranties and
agreements made by it herein and in any certificate or other instrument
delivered pursuant hereto shall be deemed to be relied upon by the Seller, the
Purchaser and the Certificate Insurer, notwithstanding any investigation
heretofore or hereafter made by the Seller, the Purchaser or the Certificate
Insurer or on the behalf of any of them, and that the representations,
warranties and agreements made by the Originator herein or in any such
certificate shall continue in full force and effect, notwithstanding subsequent
termination of this Agreement, the Pooling and Servicing Agreement or the Trust
Fund.
SECTION 17. Indemnification. (a) The Originator will indemnify and
---------------
hold harmless the Purchaser and each person, if any, who controls the Purchaser
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
against any losses, claims, damages or liabilities to which such Purchaser or
such controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Prospectus Supplement dated
January 22, 1997 (the "Prospectus Supplement"), as amended or supplemented,
relating to the public offering of the Certificates, representing interests in
the Mortgage Loans, or in any other offering document (the "Private Placement
Memorandum") relating to the offering by the Purchaser or an affiliate thereof,
of the Class CE Certificates, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission relates to
information set forth in the Prospectus Supplement on the front cover in the
fifth paragraph (except the last sentence thereof), in the Summary under the
subheadings "Originator," "Master Servicer" and "The Mortgage Pool" and under
the captions "The Mortgage Pool -- General", "-- Underwriting Standards;
Representations" and "Pooling and Servicing Agreement -- The Originator and
Master Servicer" (and substantially
<PAGE>
-22-
identical information approved by the Originator set forth in the Private
Placement Memorandum relating to the Class CE Certificates) (collectively, the
"Originator Information") and will reimburse the Purchaser and each such
controlling person for any legal or other expenses reasonably incurred by such
Purchaser and each such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. The Originator's
liability under this Section 17 shall be in addition to any other liability the
Originator may otherwise have.
(b) The Purchaser agrees to indemnify and hold harmless the
Originator, its officers and its directors, and each person who controls the
Seller within the meaning of either the 1933 Act or the 1934 Act against any and
all losses, claims, damages or liabilities, joint or several, to which they may
become subject under the 1933 Act, the 1934 Act, or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based in whole or in part upon any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus Supplement, the
Prospectus or Private Placement Memorandum, or in any revision or amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, as of the date thereof and as of the
Closing Date, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made therein in reliance upon and in conformity with the Originator's
Information and will reimburse the Originator and each such controlling person
for any legal or other expenses reasonably incurred by such Originator and each
such controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action. The Purchaser's liability under this
Section 17 shall be in addition to any other liability the Purchaser may
otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either Section 17(a) or 17(b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the reasonable fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same
<PAGE>
-23-
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by the Purchaser, in the case of parties indemnified pursuant to clause
17(a) and by the Originator, in the case of parties indemnified pursuant to
clause 17(b). The indemnifying party may, at its option, at any time upon
written notice to the indemnified party, assume the defense of any proceeding
and may designate counsel satisfactory to the indemnified party in connection
therewith provided that the counsel so designated would have no actual or
potential conflict of interest in connection with such representation. Unless it
shall assume the defense of any proceeding, the indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnifying party assumes the defense of any proceeding, it shall be
entitled to settle such proceeding with the consent of the indemnified party or,
if such settlement provides for release of the indemnified party in connection
with all matters relating to the proceeding which have been asserted against the
indemnified party in such proceeding by the other parties to such settlement,
without the consent of the indemnified party.
(d) If the indemnification provided for in this Section 17 is
unavailable to an indemnified party under Section 17(a) or 17(b) hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the
indemnified and indemnifying parties in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
indemnified and indemnifying parties shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such parties and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Purchaser and the Originator agree that it would not be just
and equitable if contribution pursuant to Section 17 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the considerations referred to in Section 17(d) above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in this Section 17 shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim, except where the indemnified party is required to bear
such expenses pursuant to this Section 17, which expenses the indemnifying party
shall pay as and when incurred, at the request of the indemnified party, to the
extent that the indemnifying party will be ultimately obligated to pay such
expenses. In the event that any expenses so paid by the indemnifying party are
subsequently determined to not be required
<PAGE>
-24-
to be borne by the indemnifying party hereunder, the party which received such
payment shall promptly refund the amount so paid to the party which made such
payment. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 17 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the Purchaser
or any person controlling the Purchaser or by or on behalf of the Originator and
their respective directors or officers or any person controlling the Originator,
and (iii) acceptance of and payment for any of the Certificates.
SECTION 18. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS, DUTIES,
-------------
OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS (INCLUDING THE CHOICE OF LAW PROVISIONS)
AND DECISIONS OF THE STATE OF NEW YORK. THE PARTIES HERETO INTEND THAT THE
PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY
TO THIS AGREEMENT.
SECTION 19. Miscellaneous. This Agreement may be executed in two or
-------------
more counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
It is the express intent of the parties hereto that the conveyance of
the Mortgage Loans by the Seller to the Purchaser as provided in Section 4
hereof be, and be construed as, a sale of the Mortgage Loans by the Seller to
the Purchaser and not as a pledge of the Mortgage Loans by the Seller to the
Purchaser to secure a debt or other obligation of the Seller. However, in the
event that, notwithstanding the aforementioned intent of the parties, the
Mortgage Loans are held to be property of the Seller, then, (a) it is the
express intent of the parties that such conveyance be deemed a pledge of the
Mortgage Loans by the Seller to the Purchaser to secure a debt or other
obligation of the Seller and (b) (1) this Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the New York
Uniform Commercial Code; (2) the conveyance provided for in Section 4 hereof
shall be deemed to be a grant by the Seller to the Purchaser of a security
interest in all of the Seller's right, title and interest in and to the Mortgage
Loans and all
<PAGE>
-25-
amounts payable to the holders of the Mortgage Loans in accordance with the
terms thereof and all proceeds of the conversion, voluntary or involuntary, of
the foregoing into cash, instruments, securities or other property, including
without limitation all amounts, other than investment earnings, from time to
time held or invested in the Collection Account whether in the form of cash,
instruments, securities or other property; (3) the possession by the Purchaser
or its agent of Mortgage Notes, the related Mortgages and such other items of
property that constitute instruments, money, negotiable documents or chattel
paper shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the New York
Uniform Commercial Code; and (4) notifications to persons holding such property,
and acknowledgments, receipts or confirmations from persons holding such
property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Purchaser for the purpose of perfecting such security interest under
applicable law. Any assignment of the interest of the Purchaser pursuant to
Section 4(d) hereof shall also be deemed to be an assignment of any security
interest created hereby. The Seller and the Purchaser shall, to the extent
consistent with this Agreement, take such actions as may be necessary to ensure
that, if this Agreement were deemed to create a security interest in the
Mortgage Loans, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of this Agreement and the Pooling and Servicing
Agreement.
SECTION 20. Third Party Beneficiary. The Certificate Insurer shall
-----------------------
be a third party beneficiary hereof and shall be entitled to enforce the
provisions hereof as if a party hereto, except the provisions of Section 17.
<PAGE>
-1-
IN WITNESS WHEREOF, the Purchaser, the Seller and the Originator have
caused their names to be signed by their respective officers thereunto duly
authorized as of the date first above written.
SALOMON BROTHERS MORTGAGE SECURITIES VII, INC.
By:___________________________________________
Name: Susan S. Woodbury
Title: Assistant Vice President
SALOMON BROTHERS REALTY CORP.
By:___________________________________________
Name: Susan S. Woodbury
Title: Authorized Agent
LONG BEACH MORTGAGE COMPANY
By:___________________________________________
Name: Jeffery A Sorensen
Title: Vice President
EXHIBIT 1
<PAGE>
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This is an Assignment, Assumption and Recognition Agreement made this 30th
day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"),
Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Long Beach
Mortgage Company (the "Company").
In consideration of the mutual promises contained herein the parties hereto
agree that the mortgage loans listed on EXHIBIT ONE annexed hereto purchased by
the Seller from the Company in 1997 (the "1997 Mortgage Loans"), the mortgage
loans listed on EXHIBIT TWO annexed hereto purchased by the Seller from the
Company on February 20, 1998 (the "February Mortgage Loans"), the mortgage loans
listed on EXHIBIT THREE annexed hereto purchased by the Seller from the Company
on March 2, 1998 (the "March Mortgage Loans") and the mortgage loans listed on
EXHIBIT FOUR annexed hereto purchased by the Seller from the Company on April
14, 1998 (the "April Mortgage Loans", collectively with the 1997 Mortgage Loans,
the February Mortgage Loans and the March Mortgage Loans, the "Mortgage Loans")
now serviced by the Company for the Seller pursuant to the Master Mortgage Loan
Purchase and Servicing Agreement (the "Purchase Agreement"), dated as of June 1,
1997, between the Seller and the Company shall be subject to the terms of this
Agreement.
WARRANTIES
----------
1. (a) The Company and the Seller warrant and represent that attached
hereto as EXHIBIT FIVE is a true, accurate and complete copy of the Purchase
Agreement, which Purchase Agreement is in full force and effect as of the date
hereof and which has not been amended or modified in any respect nor has any
notice of termination been given thereunder.
(b) The Seller warrants and represents that it is the lawful owner of
the Mortgage Loans with the full right to transfer the Mortgage Loans free from
any claim or encumbrance whatsoever.
(c) The Seller hereby warrants and represents to the Purchaser that
no event has occurred from the date of origination, August 20, 1998, September
2, 1998 and September 30, 1998, respectively, with respect to the 1997 Mortgage
Loans, the February Mortgage Loans, the March Mortgage Loans and the April
Mortgage Loans, respectively, to the date hereof that would result in any
representation and warranty made pursuant to Section 3.01 of the Purchase
Agreement being untrue if made as of the date hereof with respect to the
Mortgage Loans (other than any statistical information with respect to the
Mortgage Loans and any changes due to the receipt of payments on the Mortgage
Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and
similar changes, which information as reflected on EXHIBIT ONE, EXHIBIT TWO,
EXHIBIT THREE and EXHIBIT FOUR hereto is accurate in all material respects as of
September 1, 1998). In the event of a breach of the foregoing representation and
warranty which materially and adversely affects the value of any Mortgage Loan
or the Purchaser's interest therein, the Seller shall repurchase such affected
Mortgage Loan at a repurchase price equal to the unpaid principal balance of
such Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from
the paid through date of the Mortgage Loan to the first day of the month
following the month in which such repurchase is effected; provided, that to the
<PAGE>
extent that the Company would otherwise be required to repurchase a Mortgage
Loan due to the breach of any of the representations and warranties that are
made or deemed to have been made by the Company (other than any statistical
information with respect to the Mortgage Loans and any changes due to the
receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest
Rates on the Mortgage Loans and similar changes) after the date of origination
with respect to the 1997 Mortgage Loans, after August 20, 1998 with respect to
the February Mortgage Loans, after September 2, 1998 with respect to the March
Mortgage Loans and after September 30, 1998 with respect to the April Mortgage
Loans, then the Company (and not the Seller) shall be required to repurchase the
affected Mortgage Loan, and the Purchaser shall have no remedy against the
Seller. It is understood and agreed that the obligations of the Seller set forth
in this Section 1(c) to repurchase an affected Mortgage Loan constitutes the
sole remedy of the Purchaser respecting a breach of the representation and
warranty made in this Section 1(c).
ASSIGNMENT AND ASSUMPTION
-------------------------
2. The Seller hereby assigns to the Purchaser (i) all of its right,
title and interest in and to the Mortgage Loans and (ii) all of its right,
title, and interest in, to, and under the Purchase Agreement to the extent of
the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's
obligations under the Purchase Agreement with respect to the Mortgage Loans from
and after the date hereof, and the parties hereto agree that the Seller shall be
relieved and released of all of its obligations under the Purchase Agreement to
the extent of the Mortgage Loans from and after the date hereof.
RECOGNITION OF THE PURCHASER
----------------------------
3. From and after the date hereof, the Company shall recognize the
Purchaser as the owner of the Mortgage Loans and will service the Mortgage Loans
for the Purchaser as if the Purchaser and the Company had entered into a
separate servicing agreement for the servicing of the Mortgage Loans in the form
of the Purchase Agreement, the terms of which are incorporated herein by
reference. It is the intention of the Seller, the Company and the Purchaser that
this Agreement will be a separate and distinct agreement, and the entire
agreement, between the Company and the Purchaser to the extent of the Mortgage
Loans and shall be binding upon and for the benefit of the respective successors
and assigns of the parties hereto.
ACKNOWLEDGEMENT
---------------
4. It is hereby acknowledged and agreed by the Purchaser, the Seller and
the Company that the assignment of the Seller's rights under this Agreement to
the extent of the Mortgage Loans and the Purchaser's assumption of such rights
shall not entitle the Purchaser to purchase mortgage loans pursuant to the
Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SALOMON BROTHERS REALTY CORP.,
Seller
By:____________________________
Name:__________________________
Title:_________________________
WILSHIRE REAL ESTATE INVESTMENT
TRUST, INC.
Purchaser
By:____________________________
Name:__________________________
Title:_________________________
LONG BEACH MORTGAGE COMPANY
Company
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
EXECUTION COPY
MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT
Dated and effective as of June 1, 1997
SALOMON BROTHERS REALTY CORP.
(Purchaser)
and
LONG BEACH MORTGAGE COMPANY
(Company)
Fixed Rate and Adjustable Rate Mortgage Loans
Flow Delivery Program
<PAGE>
TABLE OF CONTENTS
_________________
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS....................................................... 1
Adjustable Rate
Mortgage Loan.......................................................... 1
Adjustment Date........................................................ 1
Agreement.............................................................. 2
Appraised Value........................................................ 2
Assignment and
Conveyance............................................................. 2
Assignment of Mortgage................................................. 2
Available Remittance
Amount................................................................. 2
Balloon Loan........................................................... 2
Business Day........................................................... 2
Closing Date........................................................... 2
Commitment Letters..................................................... 2
Company................................................................ 2
Confirmation........................................................... 3
Custodial Account...................................................... 3
Custodial Agreement.................................................... 3
Custodian.............................................................. 3
Customary Servicing Procedures......................................... 3
Cut-off Date........................................................... 3
Cut-off Date Principal Balance......................................... 3
Deleted Mortgage Loan.................................................. 3
Determination Date..................................................... 3
Due Date............................................................... 3
Due Period............................................................. 4
Eligible Account....................................................... 4
Escrow Account......................................................... 4
Escrow Payments........................................................ 4
Event of Default....................................................... 4
FDIC................................................................... 4
FHLMC.................................................................. 4
Fidelity Bond.......................................................... 4
Final Closing Date..................................................... 4
Final Due Diligence Date............................................... 4
Final Closing Date Principal Balance................................... 4
FNMA................................................................... 4
HUD.................................................................... 5
Index.................................................................. 5
Initial Closing Date................................................... 5
Initial Custodial Account Deposit...................................... 5
Liquidated Mortgage Loan............................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Liquidation Proceeds................................................... 5
Loan-to-Value Ratio.................................................... 5
LTV.................................................................... 5
Margin................................................................. 5
Maximum Rate........................................................... 5
Minimum Rate........................................................... 5
Monthly Payment........................................................ 6
Mortgage............................................................... 6
Mortgage File.......................................................... 6
Mortgage Interest Rate................................................. 6
Mortgage Loan.......................................................... 6
Mortgage Loan Documents................................................ 6
Mortgage Loan Package.................................................. 6
Mortgage Loan Remittance Rate.......................................... 6
Mortgage Loan Schedule................................................. 6
Mortgage Note.......................................................... 8
Mortgaged Property..................................................... 8
Mortgagor.............................................................. 8
Net Liquidation Proceeds............................................... 8
Net REO Disposition Proceeds........................................... 8
Nonrecoverable Advance................................................. 8
Officers' Certificate.................................................. 8
Opinion of Counsel..................................................... 8
OTS.................................................................... 8
P&I Advance............................................................ 8
Pass-Through Transfer.................................................. 9
Periodic Rate Cap...................................................... 9
Person................................................................. 9
Prepayment Interest Excess............................................. 9
Prepayment Interest Shortfall.......................................... 9
Principal Prepayment................................................... 9
Purchaser.............................................................. 9
Purchase Price......................................................... 9
Qualified Substitute Mortgage Loan..................................... 9
Realized Loss.......................................................... 10
Reconstitution Agreements.............................................. 10
Reconstitution Date.................................................... 10
Remittance Date........................................................ 11
REO Account............................................................ 11
REO Disposition........................................................ 11
REO Disposition Proceeds............................................... 11
REO Property........................................................... 11
Servicer............................................................... 11
Servicing Advances..................................................... 11
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Servicing Compensation.................................................. 11
Servicing Fee........................................................... 11
Servicing Fee Rate...................................................... 11
Servicing Officer....................................................... 12
Stated Principal Balance................................................ 12
Sub-Servicer............................................................ 12
ARTICLE II AGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE;PURCHASE PRICE;
------------------------------------------------------------
CONVEYANCE OF MORTGAGE LOANS;POSSESSION OF MORTGAGE FILES; BOOK AND
-------------------------------------------------------------------
RECORDS;DELIVERY OF MORTGAGE LOAN DOCUMENTS............................. 13
-------------------------------------------
Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase
--------------------------------------------------------
Price..................................................... 13
-----
Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage
----------------------------------------------------
Files..................................................... 14
-----
Section 2.03 Books and Records......................................... 14
-----------------
Section 2.04 Delivery of Mortgage Loan Documents....................... 15
-----------------------------------
Section 2.05 Underwriting: Review of the Mortgage Files................ 16
------------------------------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY; REPURCHASE OF
------------------------------------------------------------
MORTGAGE LOANS; CLOSING; CLOSING DOCUMENTS; COSTS....................... 18
-------------------------------------------------
Section 3.01 Individual Mortgage Loans ....................... 18
-------------------------
Section 3.02 Company Representations................................... 23
-----------------------
Section 3.03 Repurchase and Substitution............................... 25
---------------------------
Section 3.04 Closing................................................... 27
-------
Section 3.05 Closing Documents......................................... 27
-----------------
Section 3.06 Costs..................................................... 29
-----
ARTICLE IV ADMINISTRATION AND SERVICING OF MORTGAGE LOANS.................... 30
----------------------------------------------
Section 4.01 Company to Act as Servicer................................ 30
--------------------------
Section 4.02 Liquidation of Mortgage Loans............................. 30
-----------------------------
Section 4.03 Collection of Mortgage Loan Payments...................... 31
------------------------------------
Section 4.04 Establishment of Custodial Account; Deposits in Custodial
---------------------------------------------------------
Account................................................... 31
-------
Section 4.05 Withdrawals From the Custodial Account.................... 32
--------------------------------------
Section 4.06 Establishment of Escrow Account; Deposits in Escrow
---------------------------------------------------
Account................................................... 34
-------
Section 4.07 Withdrawals From Escrow Account........................... 34
-------------------------------
Section 4.08 Payment of Taxes, Insurance and Other Charges............. 35
---------------------------------------------
Section 4.09 Transfer of Accounts...................................... 35
--------------------
Section 4.10 Maintenance of Hazard Insurance........................... 35
-------------------------------
Section 4.11 Fidelity Bond; Errors and Omissions Insurance............. 36
---------------------------------------------
Section 4.12 Title, Management and Disposition of REO Property......... 37
-------------------------------------------------
Section 4.13 Liquidation Reports....................................... 38
-------------------
Section 4.14 Delivery of Documents in Possession of Custodian.......... 39
------------------------------------------------
Section 4.15 Notification of Adjustments............................... 39
---------------------------
ARTICLE V PAYMENTS TO THE PURCHASER.......................................... 40
-------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 5.01 Distributions............................................. 40
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Section 5.02 Statements to the Purchaser............................... 40
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Section 5.03 Advances by the Company................................... 42
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Section 5.04 Prepayment Interest Shortfalls............................ 42
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ARTICLE VI GENERAL SERVICING PROCEDURE....................................... 43
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Section 6.01 Assumption Agreements..................................... 43
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Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files... 43
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Section 6.03 Servicing Compensation.................................... 44
----------------------
Section 6.04 Annual Statement as to Compliance......................... 44
---------------------------------
Section 6.05 Annual Independent Public Accountants' Servicing Report... 44
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Section 6.06 Option to Acquire Servicing; Continuation of Company as
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Servicer.................................................. 45
Section 6.07 Purchaser's Right to Examine Company Records.............. 45
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ARTICLE VII.................................................................. 46
REPORTS TO BE PREPARED BY COMPANY............................................ 46
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Section 7.01 Company Shall Provide Access and Information as Reasonably
----------------------------------------------------------
Required.................................................. 46
--------
Section 7.02 Financial Statements...................................... 46
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ARTICLE VIII................................................................. 47
REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENT UPON A WHOLE
- -------------------------------------------------------------------------
LOAN TRANSFER OR A PASS-THROUGH TRANSFER ON ONE OR MORE RECONSTITUTION
----------------------------------------------------------------------
DATES................................................................... 47
-----
Section 8.01 Removal of Mortgage Loans from Inclusion Under this
Agreement Upon a Whole Loan Transfer or a Pass-Through
Transfer on One or More Reconstitution Dates.............. 47
-------------------------
ARTICLE IX THE COMPANY....................................................... 50
-----------
Section 9.01 Indemnification; Third Party Claims....................... 50
-----------------------------------
Section 9.02 Merger or Consolidation of the Company.................... 50
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Section 9.03 Limitation on Liability of the Company and Others..........51
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Section 9.04 Company Not to Resign..................................... 51
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Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement......... 51
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ARTICLE X DEFAULT............................................................ 53
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Section 10.01 Events of Default..........................................53
-----------------
Section 10.02 Waiver of Defaults........................................ 54
------------------
Section 10.03 Servicer to Retain Previous Entitlement................... 54
---------------------------------------
ARTICLE XI TERMINATION....................................................... 55
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Section 11.01 Termination............................................... 55
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</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII.................................................................. 56
MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST............................. 56
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Section 12.01 Mandatory Delivery; Grant of Security Interest............ 56
ARTICLE XIII................................................................. 57
MISCELLANEOUS PROVISIONS..................................................... 57
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Section 13.01 Successor to the Company.................................. 57
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Section 13.02 Amendment................................................. 58
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Section 13.03 Recordation of Agreement.................................. 58
------------------------
Section 13.04 Recordation of Assignment of Mortgages.................... 58
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Section 13.05 Duration of Agreement..................................... 58
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Section 13.06 Governing Law............................................. 58
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Section 13.07 General Interpretive Principles........................... 59
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Section 13.08 Reproduction of Documents................................. 59
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Section 13.09 Notices................................................... 60
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Section 13.10 Severability of Provisions................................ 60
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Section 13.11 No Partnership............................................ 60
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Section 13.12 Execution; Successors and Assigns......................... 60
---------------------------------
</TABLE>
v
<PAGE>
Exhibits
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EXHIBIT A Contents of Mortgage Files
EXHIBIT B Custodial Account Letter Agreement
EXHIBIT C Escrow Account Letter Agreement
EXHIBIT D REO Account Letter Agreement
EXHIBIT E Assignment and Conveyance
EXHIBIT F Mortgage Loan Schedule
EXHIBIT G Form of Mortgage Note and Mortgage/Deed of Trust
EXHIBIT H Company's Underwriting Guidelines
EXHIBIT I [Intentionally Deleted]
EXHIBIT J Officer's Certificate
EXHIBIT K Resolutions
EXHIBIT L Security Release Certification
EXHIBIT M Representations and Warranties with Respect to the Pool
Characteristics of each Mortgage Loan Package
EXHIBIT N Commitment Letters
EXHIBIT O Sub-Servicing Agreement
vi
<PAGE>
This is a Master Mortgage Loan Purchase and Servicing Agreement, dated
and effective as of June 1, 1997, and is executed between Salomon Brothers
Realty Corp., as purchaser (hereinafter, the "Purchaser"), and Long Beach
Mortgage Company, as seller and servicer (hereinafter, the "Company").
The Purchaser has agreed to purchase from the Company and the Company
has agreed to sell to the Purchaser Mortgage Loans, as described herein and in
the related Confirmations, on a servicing retained basis that shall be delivered
in groups of whole loans on various Closing Dates as provided herein.
All of the Mortgage Loans are secured by first mortgages or deeds of
trust on residential dwellings situated within the State(s) indicated on the
Mortgage Loan Schedule for the related Mortgage Loan Package, which is to be
annexed hereto on the related Closing Date as part of Exhibit F.
The Purchaser and the Company wish to prescribe the manner of purchase
by the Purchaser of the Mortgage Loans and the management, servicing and control
of the Mortgage Loans.
The Purchaser has purchased certain Mortgage Loans from the Company
pursuant to the Commitment Letters and such Mortgage Loans will be governed by
the terms of this Agreement.
Following its purchase of the Mortgage Loans from the Company, the
Purchaser desires to sell some or all of the Mortgage Loans to one or more
purchasers as a whole loan transfer in a whole loan or participation format or a
public or private mortgage-backed securities transaction.
In consideration of the premises and the mutual agreements hereinafter
set forth, the Purchaser and the Company agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
"Adjustable Rate Mortgage Loan": A Mortgage Loan which bears interest
at a rate which adjusts from time to time in accordance with the terms of the
Mortgage Note.
<PAGE>
"Adjustment Date": As to each Adjustable Rate Mortgage Loan, the date
on which the Mortgage Interest Rate adjusts as provided in the related Mortgage
Note.
"Agreement": This Master Mortgage Loan Purchase and Servicing
Agreement, including all exhibits hereto, and all amendments hereof and
supplements hereto.
"Appraised Value": With respect to a Mortgage Loan, the value of the
related Mortgaged Property based upon the appraisal made at the origination of
the Mortgage Loan or the sale price of the Mortgaged Property at the origination
of the Mortgage Loan, whichever is less.
"Assignment and Conveyance": An assignment and conveyance of the
Mortgage Loans purchased on a Closing Date in the form attached hereto as
Exhibit E.
"Assignment of Mortgage": 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
of record the sale of the Mortgage Loan to the Purchaser.
"Available Remittance Amount": With respect to each Remittance Date,
(a) all amounts deposited in the Custodial Account as of the close of business
on the preceding Determination Date (net of charges against or withdrawals from
the Custodial Account pursuant to Section 4.05 except 4.05(i)), plus (b) all
amounts, if any, which the Company is obligated to deposit pursuant to Section
5.03, Section 5.04 or Section 4.12 and minus (c) any amounts attributable to
Monthly Payments collected but due on a Due Date or Dates subsequent to the Due
Period ending on the first day of the month of the Remittance Date, which
amounts shall be remitted on the Remittance Date next succeeding the Due Period
for such amounts.
"Balloon Loan": Any Mortgage Loan that by its original terms or by
virtue of any modification entered into as of the Closing Date provides for an
amortization schedule extending beyond its stated maturity date.
"Business Day": Any day other than (i) a Saturday or Sunday, or (ii)
a day on which banking or savings and loan institutions in the State of
California or the State of New York are authorized or obligated by law or
executive order to be closed.
"Closing Date": With respect to any Mortgage Loan Package, the date
on which the Purchaser shall purchase from the Company and the Company shall
sell to the Purchaser the Mortgage Loans listed on the related Mortgage Loan
Schedule.
"Commitment Letters": The letter agreements between the Purchaser and
the Company, including all exhibits thereto, a copy of each of which is attached
hereto as Exhibit N.
<PAGE>
-3-
"Company": Long Beach Mortgage Company, or its successor in interest
or any successor to the Company under this Agreement appointed as herein
provided.
"Confirmation": With respect to the purchase and sale of any Mortgage
Loan Package, the agreement between the Purchaser and the Company setting forth
the variances, if any, of the terms and conditions of such purchase and sale
from the terms and conditions set forth in the related Commitment Letter.
"Custodial Account": The separate Eligible Account or Accounts
created and maintained pursuant to Section 4.04.
"Custodial Agreement": The agreement among the Purchaser, the Company
and the Custodian for the retention of each Mortgage Note, Mortgage, Assignment
of Mortgage and other documents.
"Custodian": The custodian under the Custodial Agreement, initially
Texas Commerce Bank, N.A., or its successor.
"Customary Servicing Procedures": Procedures (including collection
procedures) that the Company customarily employs and exercises in servicing and
administering mortgage loans similar to the Mortgage Loans for its own account
and which are in accordance with accepted mortgage servicing practices of
prudent lending institutions servicing mortgage loans similar to the Mortgage
Loans, giving due consideration to the Purchaser's reliance on the Company.
"Cut-off Date": With respect to any Mortgage Loan, the first day of
the month in which the related Closing Date occurs.
"Cut-off Date Principal Balance": As to any Mortgage Loan, the
scheduled unpaid principal balance thereof as of the close of business on the
related Cut-off Date after application of all payments of principal due on or
prior thereto, whether or not received, and all Principal Prepayments received
on or prior to the related Cut-off Date, but without giving effect to any
installments of principal received in respect of Due Dates after the related
Cut-off Date; provided that with respect to any Mortgage Loan originated after
the related Cut-off Date, the "Cut-off Date Principal Balance" shall mean the
original principal balance thereof.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced
with a Qualified Substitute Mortgage Loan.
"Determination Date": The 20th day (or if such 20th day is not a
Business Day, the Business Day immediately preceding such 20th day) of the month
of the related Remittance Date.
<PAGE>
-4-
"Due Date": The first day of the month of the related Remittance
Date.
"Due Period": With respect to each Remittance Date, the applicable
Due Period shall be the period beginning on the second day of the month
preceding the month of the Remittance Date, and ending on the first day of the
month of the Remittance Date.
"Eligible Account": (i) an account or accounts maintained with a
depository institution the short-term debt obligations of which are rated A-1 or
better by Standard & Poor's Corporation, or (ii) an account or accounts the
deposits in which are fully insured by the FDIC, or (iii) a trust account or
accounts maintained with a federal or state chartered depository institution or
trust company acting in its fiduciary capacity.
"Escrow Account": The separate Eligible Account or Accounts created
and maintained pursuant to Section 4.06.
"Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, mortgage insurance premiums, fire and hazard insurance
premiums and other payments required to be escrowed by the Mortgagor with the
mortgagee pursuant to any Mortgage Loan.
"Event of Default": Any one of the conditions or circumstances
enumerated in Section 10.01.
"FDIC": The Federal Deposit Insurance Corporation or any successor.
"FHLMC": The Federal Home Loan Mortgage Corporation or any successor.
"Fidelity Bond": A fidelity bond required to be obtained by the
Company pursuant to Section 4.11.
"Final Closing Date": With respect to each Mortgage Loan, the Final
Closing Date set forth in the related Commitment Letter.
"Final Due Diligence Date": With respect to each Mortgage Loan, the
date which is 30 days after the Final Closing Date.
"Final Closing Date Principal Balance": The aggregate unpaid
principal balance of the related Mortgage Loans as of the Final Closing Date.
"Final Settlement Date": With respect to each Mortgage Loan, the Final
Settlement Date set forth in the related Commitment Letter.
<PAGE>
-5-
"FNMA": The Federal National Mortgage Association or any successor.
"HUD": The United States Department of Housing and Urban Development
or any successor organization.
"Index": As to each Adjustable Rate Mortgage Loan, the index for the
adjustment of the Mortgage Interest Rate set forth as such in the related
Mortgage Note. Should the Index become unavailable, the Purchaser, with the
consent of the Servicer, will select a new index that is based upon comparable
information.
"Initial Closing Date": July 30, 1997.
"Initial Custodial Account Deposit": An amount equal to, with respect
to each Mortgage Loan, the amount of all payments in respect of such Mortgage
Loan received by the Servicer before the applicable Closing Date in respect of
Due Dates after the applicable Cut-off Date.
"Liquidated Mortgage Loan": Any defaulted Mortgage Loan as to which
the Company has determined that all amounts which it reasonably and in good
faith expects to recover have been recovered from or on account of such Mortgage
Loan.
"Liquidation Proceeds": Cash (other than REO Disposition Proceeds),
including but not limited to insurance proceeds, and any other amounts
(including the sales price) received in connection with the liquidation of a
defaulted Mortgage Loan, whether through the sale or assignment of the Mortgage
Loan, trustee's sale, foreclosure sale or otherwise.
"Loan-to-Value Ratio" or "LTV": With respect to any Mortgage Loan,
the original principal balance of such Mortgage Loan divided by the Appraised
Value.
"Margin": With respect to each Adjustable Rate Mortgage Loan, the
fixed amount set forth in the related Mortgage Note to be added to the Index on
each Adjustment Date in accordance with the terms of the related Mortgage Note
to determine the Mortgage Interest Rate for such Adjustable Rate Mortgage Loan.
The Margin as to each Adjustable Rate Mortgage Loan is set forth on the related
Mortgage Loan Schedule.
"Maximum Rate": With respect to each Adjustable Rate Mortgage Loan,
the rate per annum set forth in the related Mortgage Note as the maximum
Mortgage Interest Rate thereunder. The Maximum Rate as to each Mortgage Loan is
set forth on the related Mortgage Loan Schedule.
"Minimum Rate": With respect to each Adjustable Rate Mortgage Loan,
the rate per annum set forth in the related Mortgage Note as the minimum
Mortgage Interest Rate
<PAGE>
-6-
thereunder. The Minimum Rate as to each Mortgage Loan is set forth on the
related Mortgage Loan Schedule.
"Monthly Payment": The scheduled monthly payment of principal and
interest on a Mortgage Loan which is payable by a Mortgagor from time to time
under the related Mortgage Note.
"Mortgage": The mortgage, deed of trust or other instrument creating
a first lien on or first priority ownership interest in an estate in fee simple
in real property securing a Mortgage Note.
"Mortgage File": The items referred to in Exhibit A annexed hereto
pertaining to a particular Mortgage Loan (and any additional documents required
to be added to the Mortgage File pursuant to this Agreement).
"Mortgage Interest Rate": The annual rate at which interest accrues
on any Mortgage Loan in accordance with the provisions of the related Mortgage
Note. The Mortgage Interest Rate as of the Cut-off Date as to each Mortgage
Loan is set forth on the related Mortgage Loan Schedule.
"Mortgage Loan": An individual mortgage loan which is the subject of
this Agreement, each mortgage loan originally sold and subject to this Agreement
being identified on the related Mortgage Loan Schedule, including without
limitation the contents of the Mortgage File, the Monthly Payments, Principal
Prepayments, Liquidation Proceeds, insurance proceeds, condemnation proceeds,
REO Disposition Proceeds and all other rights, benefits, proceeds and
obligations arising from or in connection with such mortgage loan after the
related Cut-off Date.
"Mortgage Loan Documents": The documents set forth in Section 2.04.
"Mortgage Loan Package": The Mortgage Loans listed on a Mortgage Loan
Schedule.
"Mortgage Loan Remittance Rate": As to each Mortgage Loan, the annual
rate of interest remitted to the Purchaser, which shall be equal to the related
Mortgage Interest Rate minus the related Servicing Fee Rate.
"Mortgage Loan Schedule": With respect to each Mortgage Loan Package,
the schedule of Mortgage Loans subject to this Agreement and identified as being
part of such Mortgage Loan Package to be attached hereto as part of Exhibit F on
the related Closing Date, which schedule (as amended from time to time to
reflect the addition of any Qualified Substitute Mortgage Loans) shall have
attached thereto a Prepayment Charge summary, if applicable, in the form
mutually agreed upon by the parties, and shall set forth the following
information with respect to each Mortgage Loan in such Mortgage Loan Package:
<PAGE>
-7-
(i) the loan number and name of the Mortgagor;
(ii) the address, including zip codes, of the Mortgaged
Property;
(iii) the initial Mortgage Interest Rate and the current
Mortgage Interest Rate;
(iv) the maturity date;
(v) the principal balance at origination;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the related Cut-off
Date;
(ix) the principal balance as of the related Cut-off Date as
used in determining the Cut-off Date Principal Balance;
(x) the Loan-to-Value Ratio at origination;
(xi) with respect to each Adjustable Rate Mortgage Loan, the
Margin;
(xii) with respect to each Adjustable Rate Mortgage Loan, the
next Adjustment Date after the related Cut-off Date;
(xiii) with respect to each Adjustable Rate Mortgage Loan, the
Minimum Rate and Maximum Rate;
(xiv) the occupancy status;
(xv) the Appraised Value of the Mortgaged Property at
origination;
(xvi) a code indicating the Company's credit grade category of
the Mortgage Loan at origination;
(xv) a code indicating whether such Mortgage Loan is a step-
down mortgage loan;
(xvi) a documentation code;
(xvii) a code indicating the existence of a prepayment penalty;
<PAGE>
-8-
(xviii) a code indicating the purpose of the Mortgage Loan;
(xix) the interest paid to date as of the related Cut-off Date;
(xx) a code indicating the type of Prepayment Charge, if
applicable; and
(xxi) the expiration date of the Prepayment Charge, if
applicable.
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property": The real property securing repayment of the debt
evidenced by a Mortgage Note, consisting of a single parcel of property
considered to be real estate under the law of the state in which it is located.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": Liquidation Proceeds net of the sum of any
reimbursements to the Servicer for such Liquidated Mortgage Loan made therefrom
pursuant to Section 4.05(ii).
"Net REO Disposition Proceeds": REO Disposition Proceeds net of the sum
of any unreimbursed Servicing Advances, accrued and unpaid servicing fees and
P&I Advances with respect to the related Mortgage Loan and reimbursements to the
Servicer for such REO Disposition and the related Mortgage Loan made therefrom
pursuant to Section 4.05(ii).
"Nonrecoverable Advance": As of any date of determination, any P&I
Advance previously made or any P&I Advance or Servicing Advance proposed to be
made in respect of a Mortgage Loan which, in the good faith judgment of the
Company, will not or, in the case of a proposed advance, would not be ultimately
recoverable pursuant to Section 4.05(ii). The determination by the Company that
it has made a Nonrecoverable Advance or that any proposed advance would
constitute a Nonrecoverable Advance shall be evidenced by an Officer's
Certificate delivered to the Purchaser on or before the Determination Date in
any month.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, or the Vice Chairman of the Board, the President, a Vice President, an
Assistant Vice President, the Treasurer, the Secretary, one of the Assistant
Treasurers or Assistant Secretaries or other officer whose position is of
equivalent responsibility of the Company, and delivered to the Purchaser as
required by this Agreement.
<PAGE>
-9-
"Opinion of Counsel": A written opinion of counsel, who may be in-house
counsel of the Company, reasonably acceptable to the Purchaser.
"OTS": The Office of Thrift Supervision or any successor.
"P&I Advance": Any advance made pursuant to Section 5.03.
"Pass-Through Transfer": The sale or transfer of some or all of the
Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly
issued or privately placed mortgage-backed securities transaction.
"Periodic Rate Cap": With respect to each Adjustable Rate Mortgage
Loan, the provision in each Mortgage Note that limits permissible increases and
decreases in the Mortgage Interest Rate on any Adjustment Date to not more than
one percentage point.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Charge": Each prepayment charge payable in connection with
Principal Prepayments on the Mortgage Loans transferred and assigned to the
Purchaser, the Prepayment Charges so held being identified in the Mortgage Loan
Schedule.
"Prepayment Interest Excess": With respect to any Remittance Date after
the first Remittance Date for the related Mortgage Loan, for each Mortgage Loan
that was the subject of a Principal Prepayment in full from the first day
through the twentieth day of the month of such Remittance Date, any payment of
interest received in connection therewith (net of the Servicing Fee)
representing interest accrued for any portion of such month of receipt after the
Due Date.
"Prepayment Interest Shortfall": With respect to each Principal
Prepayment received after the previous Determination Date during the calendar
month preceding the month of a Remittance Date (or in the case of such first
Remittance Date, from the related Cut-off Date), an amount to be deposited in
the Custodial Account prior to the related Remittance Date, to the extent of and
limited to the amount of the Servicing Fee received in respect of the related
Due Period equal to the difference between (a) 30 days' interest on the Stated
Principal Balance as of the beginning of the Due Period at the Mortgage Loan
Remittance Rate and (b) the amount of interest actually received on each such
Mortgage Loan for such Due Period net of the Servicing Fee.
"Principal Prepayment": Any payment or other recovery of principal on a
Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon, if any, and is not accompanied by an
amount of interest
<PAGE>
-10-
representing scheduled interest due on any date or dates in any month or months
subsequent to the month of prepayment.
"Purchaser": Salomon Brothers Realty Corp.
"Purchase Price": With respect to any Mortgage Loan, the price paid by
the Purchaser to the Company in connection with the purchase and sale of such
Mortgage Loan on the related Closing Date, calculated in accordance with Section
2.01.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted by
the Company for a Deleted Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding principal balance, after deduction of all
scheduled payments due and received in the month of substitution (or in the case
of a substitution of more than one mortgage loan for a Deleted Mortgage Loan, an
aggregate principal balance), not in excess of the Stated Principal Balance of
the Deleted Mortgage Loan and not less than ninety percent (90%) of the Stated
Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to
be distributed by the Company to the Purchaser in the month of substitution),
(ii) have a remaining term to maturity not greater than (and not more than one
year less than) that of the Deleted Mortgage Loan, (iii) have a Mortgage
Interest Rate not less than (and not more than one percentage point greater
than) the Mortgage Interest Rate of the Deleted Mortgage Loan, (iv) have a
Servicing Fee Rate as provided herein for all Mortgage Loans subject to this
Agreement, (v) with respect to each Adjustable Rate Mortgage Loan, have a
Minimum Rate not less than that of the Deleted Mortgage Loan, (vi) with respect
to each Adjustable Rate Mortgage Loan, have a Maximum Rate not less than that of
the Deleted Mortgage Loan and not more than two (2) percentage points above that
of the Deleted Mortgage Loan, (vii) with respect to each Adjustable Rate
Mortgage Loan, have a Margin not less than that of the Deleted Mortgage Loan,
(viii) with respect to each Adjustable Rate Mortgage Loan, have a Periodic Rate
Cap equal to that of the Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio
at the time of substitution equal to or less than the Loan-to-Value Ratio of the
Deleted Mortgage Loan at the time of substitution, (x) with respect to each
Adjustable Rate Mortgage Loan, have the same Adjustment Date as that of the
Deleted Mortgage Loan, (xi) with respect to each Adjustable Rate Mortgage Loan,
have an Index as provided herein for all Adjustable Rate Mortgage Loans subject
to this Agreement, (xii) comply as of the date of substitution with each
representation and warranty set forth in Sections 3.01 and 3.02 and (xiii) be in
the same credit grade category as the Deleted Mortgage Loan.
"Realized Loss": As to any Liquidated Mortgage Loan, the amount, if
any, by which (i) the Stated Principal Balance (including any accrued and unpaid
interest) thereof as of the date of liquidation exceeds (ii) Net Liquidation
Proceeds realized thereon.
"Reconstitution Agreements": The agreement or agreements entered into by
the Company and the Purchaser and/or certain third parties on the Reconstitution
Date or Dates with respect to any or all of the Mortgage Loans serviced
hereunder, in connection with a Whole Loan Transfer or a Pass-Through Transfer
as set forth in Article XII, including, but not limited to, a pooling and
servicing agreement substantially in the form previously entered into by
<PAGE>
-11-
the Company in connection with public offerings of pass-through securities
backed by mortgage loans similar to the Mortgage Loans and sold by the Company
or such other form that has been entered into between the Purchaser (or an
affiliate of the Purchaser) and the Company since the Initial Closing Date. Such
agreement or agreements shall prescribe the rights and obligations of the
Company in servicing the related Mortgage Loans.
"Reconstitution Date": With respect to any Mortgage Loan, the date on
which such Mortgage Loan serviced under this Agreement shall be removed from
this Agreement and reconstituted as part of a Whole Loan Transfer or Pass-
Through Transfer pursuant to Article 12 hereof. On such date, the Mortgage Loans
transferred shall cease to be covered by this Agreement and the Company shall
cease to service those Mortgage Loans under this Agreement in accordance with
the termination provisions set forth in Article XII hereof.
"Remittance Date": The 24th day of any month, beginning in the month
next following the month in which the related Cut-off Date occurs, or if such
24th day is not a Business Day, the first Business Day immediately following.
"REO Account": The Eligible Account or Accounts maintained pursuant to
Section 4.12.
"REO Disposition": The final sale by the Company on behalf of the
Purchaser of a Mortgaged Property acquired by the Company in foreclosure or by
deed in lieu of foreclosure.
"REO Disposition Proceeds": All amounts received with respect to an REO
Disposition pursuant to Section 4.12.
"REO Property": A Mortgaged Property acquired by the Company on behalf
of the Purchaser through foreclosure or by deed in lieu of foreclosure, as
described in Section 4.12.
"Servicer": Long Beach Mortgage Company, or any successor appointed as
herein provided.
"Servicing Advances": All customary, reasonable and necessary "out-of-
pocket" costs and expenses incurred in the performance by the Company of its
servicing obligations, including, but not limited to, the cost of (a) payments
made by the Company pursuant to Section 4.08, (b) the preservation, restoration
and protection of the Mortgaged Property, (c) any enforcement or judicial
proceedings, including foreclosures and (d) the management and liquidation of
the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of
the Mortgage.
"Servicing Compensation": The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Section 6.03.
<PAGE>
-12-
"Servicing Fee": With respect to each Mortgage Loan, the amount of the
annual fee to be paid to the Servicer, which shall, for a period of one full
month, be equal to one-twelfth of the product of (a) the Servicing Fee Rate and
(b) the principal balance of such Mortgage Loan. Such fee shall be payable
monthly, computed on the basis of the same principal amount and period
respecting which any related interest payment on a Mortgage Loan is computed.
The Servicing Fee is limited to, and payable solely from, full payments of the
interest portion (including recoveries with respect to interest from Liquidation
Proceeds, condemnation proceeds, REO Disposition Proceeds and all other
proceeds) of such Monthly Payments collected by the Company, or as otherwise
provided under Section 4.05.
"Servicing Fee Rate": 0.50% per annum.
"Servicing Officer": Any officer of the Company involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name appears on a list of servicing officers furnished to the Purchaser by the
Company, as such list may from time to time be amended.
"Stated Principal Balance": As to each Mortgage Loan, (i) the Cut-off
Date Principal Balance of the Mortgage Loan, minus (ii) all amounts previously
distributed to the Purchaser with respect to the Mortgage Loan representing
payments or recoveries of principal, or advances in lieu thereof.
"Sub-Servicer": Any Person with which the Company has entered into a
sub-servicing agreement and which shall be (A) either (i) an institution the
accounts of which are insured by the FDIC or (ii) another entity that engages in
the business of originating mortgage loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the sub-servicer to perform its obligations
hereunder and under the sub-servicing agreement, and in either case shall be a
FHLMC or FNMA approved mortgage servicer and (B) approved by the Purchaser.
"Subservicing Agreement": As applicable, the Master Sub-Servicing
Agreement between Long Beach Mortgage Company (formerly known as Ameriquest
Mortgage Corporation), as Master Servicer, and Ameriquest Mortgage Company
(formerly known as Long Beach Mortgage Company), as Sub-Servicer, dated as of
April 28, 1997, substantially in the form attached hereto as Exhibit O.
"Whole Loan Transfer": The sale or transfer by Purchaser of some or all
of the Mortgage Loans in a whole loan format or a certificated participation
format pursuant to a Reconstitution Agreement.
<PAGE>
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ARTICLE II
AGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE;
----------------------------------------------
PURCHASE PRICE; CONVEYANCE OF MORTGAGE LOANS;
---------------------------------------------
POSSESSION OF MORTGAGE FILES; BOOK AND RECORDS;
-----------------------------------------------
DELIVERY OF MORTGAGE LOAN DOCUMENTS
-----------------------------------
Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase
--------------------------------------------------------
Price.
-----
The Company agrees to sell, and the Purchaser agrees to purchase,
Mortgage Loans having an aggregate principal balance on the related Cut-off Date
in an amount as set forth in the related Commitment Letter, subject to the
permitted variances set forth therein. The Company agrees to use its best
efforts to deliver the principal amount of loans in accordance with the delivery
schedule set forth as Exhibit B to the related Commitment Letter. In any event,
the Company shall deliver the Mortgage Loans no later than the related Final
Settlement Date.
The Company shall deliver the Mortgage Loan Schedule for a Mortgage Loan
Package to be purchased on a particular Closing Date to the Purchaser on or
prior to the related Closing Date.
The Purchase Price for each Mortgage Loan listed on the related Mortgage
Loan Schedule shall be calculated as provided in the related Commitment Letter.
In addition to the Purchase Price as described above, the Purchaser
shall pay to the Company, on a particular Closing Date, accrued interest as set
forth in the related Commitment Letter.
The Purchaser shall be entitled to all scheduled payments of principal
due after the Cut-off Date, all other recoveries of principal collected and due
after the Cut-off Date, and all payments of interest on the Mortgage Loans
(minus that portion of any such payment which is allocable to the period prior
to the Cut-off Date). The principal balance of each Mortgage Loan as of the Cut-
off Date is determined after application of payments of principal due on or
before the Cut-off Date, whether or not collected. Therefore, payments of
scheduled principal and interest prepaid for a due date beyond the Cut-off Date
shall not be applied to the principal balance as of the Cut-off Date. Such
prepaid amounts shall be the property of the Purchaser. The Company shall
deposit any such prepaid amounts into the Custodial Account, which account is
established for the benefit of the Purchaser for subsequent remittance by the
Company to the
<PAGE>
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Purchaser. All scheduled payments of principal due on or before the Cut-off Date
and collected by the Company after the Cut-off Date shall belong to the Company.
Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage
----------------------------------------------------
Files.
-----
The Company, simultaneously with the payment of the Purchase Price,
shall execute and deliver to the Purchaser an Assignment and Conveyance with
respect to the related Mortgage Loan Package in the form attached hereto as
Exhibit E. The contents of each Mortgage File not delivered to the Custodian
shall be held in trust by the Company for the benefit of the Purchaser as the
owner thereof and the Company's possession of the portion of each Mortgage File
so retained shall be at the will of the Purchaser for the sole purpose of
servicing the related Mortgage Loan, and such retention and possession by the
Company is in a custodial capacity only. Upon the purchase of the Mortgage
Loans, the ownership of each Mortgage Note, Mortgage and each related Mortgage
File shall be vested in the Purchaser and the ownership of all records and
documents with respect to each related Mortgage Loan prepared by or which come
into the possession of the Company shall immediately vest in the Purchaser and
shall be retained and maintained, in trust, by the Company at the will of the
Purchaser in such custodial capacity only. The Company shall release from its
custody the contents of any Mortgage File only in accordance with written
instructions from the Purchaser, unless such release is required as incidental
to the Company's servicing of the Mortgage Loans or is in connection with a
repurchase of any Mortgage Loan pursuant to Section 3.03.
Section 2.03 Books and Records.
-----------------
Notwithstanding the sale of the Mortgage Loans to the Purchaser, record
title to each Mortgage and the related Mortgage Note for which the Mortgaged
Property is located in California shall continue in the name of the Company and
be retained by the Company in trust for the Purchaser for the sole purpose of
facilitating the servicing and the supervision of the servicing of the Mortgage
Loans. The foregoing procedures shall be applicable only so long as the related
Mortgage Files are maintained in the State of California. In the event that (i)
the Company or the Servicer gives written notice to the Custodian that recording
is required to protect the right, title and interest of the Purchaser in and to
any Mortgage Loan for which the Mortgaged Property is located in California, or
(ii) in case a court should recharacterize the sale of the Mortgage Loans as a
financing or, (iii) as a result of any change in or amendment to the laws of
California or any applicable political subdivision thereof, or any change in
official position regarding application or interpretation of such laws,
including a holding by a court of competent jurisdiction that such recording is
so required, or (iv) if the Company or the Servicer admits in writing its
inability to pay its debts as they become due, files a petition to take
advantage of any applicable insolvency or reorganization statute, makes an
assignment for the benefit of its creditors, or if the Company or the Servicer
voluntarily suspends payment of its obligations, or (v) if the Servicer receives
a notice of termination pursuant to Section 10.01 or the Purchaser receives the
resignation of the Servicer evidenced by an Opinion of Counsel pursuant
<PAGE>
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to Section 7.04, or the Servicer is removed as servicer, then the Servicer shall
cause each such previously unrecorded Assignment of Mortgage to be submitted for
recording in the applicable jurisdiction as specified in the definition of
Assignment of Mortgage. However, in the event the Servicer fails to cause each
such previously unrecorded Assignment of Mortgage to be submitted for recording
as set forth in clauses (i) through (v) above, the successor Servicer shall
cause such previously unrecorded Assignment of Mortgage to be submitted for
recording in the manner specified above and at the expense of the Company. All
rights arising out of the Mortgage Loans including, but not limited to, all
funds received on or in connection with a Mortgage Loan as provided in Section
2.01 shall be held by the Company in trust for the benefit of the Purchaser as
the owner of the Mortgage Loans.
The sale of each Mortgage Loan shall be reflected on the Company's
balance sheet and other financial statements as a sale of assets by the Company.
The Company shall be responsible for maintaining, and shall maintain, a complete
set of books and records for each Mortgage Loan which shall be clearly marked
to reflect the ownership of each Mortgage Loan by the Purchaser.
Section 2.04 Delivery of Mortgage Loan Documents.
-----------------------------------
The Company shall in connection with each Closing Date deliver to the
Custodian, as agent of and custodian for the Purchaser, each of the following
documents for each Mortgage Loan to be purchased and sold on such Closing Date:
(a) The original Mortgage Note including any addendums thereto, endorsed by
the Company without recourse in the following form: "Pay to the order
of ________________, without recourse" and signed, by facsimile or
manual signature, in the name of the Company by an officer, together
with all intervening endorsements showing a complete chain of
endorsement from the originator to the Company;
(b) The original recorded Mortgage or, if the original Mortgage has not yet
been returned from the applicable recording office, a copy of the
Mortgage certified by an appropriate officer of the Company to be a true
and complete copy of the original Mortgage submitted for recording;
(c) A duly executed Assignment of Mortgage, in blank, from the Company,
which assignment shall be in form and substance acceptable for recording
or, if as a result of the related Mortgage not having been returned from
the applicable recording office, a copy of the Assignment of Mortgage
excluding information to be provided by the recording office;
(d) the original recorded Assignment or Assignments of the Mortgage, if any,
showing a complete chain of assignment from the originator to the
Company or, if any such
<PAGE>
-16-
Assignment of Mortgage has not been returned from the applicable public
recording office, a copy of such Assignment of Mortgage certified by an
appropriate officer of the Company to be a true and complete copy of the
original Assignment of Mortgage submitted or to be submitted for
recording;
(e) the original or duplicate original title insurance policy (or a
commitment (binder) to issue same) relating to the Mortgage Loan;
(f) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any;
(g) the original power of attorney, if any, or if the original power of
attorney has not been returned from the applicable public recording
office, a copy thereof certified by an appropriate officer of the
Company to be a true and complete copy of the original submitted for
recording, if any; and
(h) if identified on the Mortgage Loan Schedule as a step-down Mortgage
Loan, the related Addendum to Promissory Note.
In the event that the original Mortgage was not delivered pursuant to (b) above,
the original title insurance policy was not delivered pursuant to (e) above, the
duly executed Assignment of Mortgage was not delivered pursuant to (c) above or
the original recorded Assignment or Assignments of the Mortgage, if any, showing
a complete chain of assignment from the originator to the Company was not
delivered pursuant to (d) above, the Company shall use best reasonable efforts
to promptly secure the delivery of such originals and shall cause such originals
to be delivered to the Custodian promptly upon receipt thereof. In the event
that the Company cannot deliver the original Mortgage, the Company shall deliver
a copy of such Mortgage certified as true and complete by the appropriate
recording office in those instances where a copy thereof certified by the
Company was delivered pursuant to clause (b) above. In the event that the
original Mortgage or a certified copy thereof or the original policy of title
insurance is not so delivered to the Custodian within 365 days following the
related Closing Date, the related Mortgage Loan shall, upon the written request
of the Purchaser, be repurchased by the Company at the price and in the manner
specified in Section 3.03. The Custodian has certified its receipt of each
document set forth in clauses (a) through (e) above as evidenced by its Initial
Certification in the form annexed to the Custodial Agreement.
Section 2.05 Underwriting: Review of the Mortgage Files.
------------------------------------------
With respect to each Mortgage Loan, the Company shall make all documents
and instruments relating to such Mortgage Loan (including copies of any original
documents previously delivered to the Custodian and the mortgagor payment
histories specifying the number of times each Mortgage Loan was delinquent
within the immediately preceding twelve month period) available at its offices
for review during normal business hours, or such other location as
<PAGE>
-17-
the Purchaser and the Company shall mutually agree. Until the Final Due
Diligence Date, the Purchaser and any certificate guaranty insurance company
designated by the Purchaser and their designees shall have the right to review
the files and documents relating to each Mortgage Loan, to inspect, evaluate and
appraise the real property securing each such Mortgage Loan and to obtain
appraisal recertifications and otherwise to underwrite each such Mortgage Loan,
which shall not be an expense of the Company. Prior to the Final Due Diligence
Date, the Purchaser may reject any such Mortgage Loan which, either individually
or as part of a pool of all or some of the Mortgage Loans, does not, in its sole
discretion, conform to the underwriting standards of the Company, regardless of
whether a Closing Date has already occurred with respect to such Mortgage Loans.
With respect to any Mortgage Loan rejected by the Purchaser pursuant to the
preceding sentence as to which a Closing Date has already occurred, the Company
shall repurchase such Mortgage Loan at a price equal to the Purchase Price paid
for such Mortgage Loan by the Purchaser hereunder. The underwriting described in
this paragraph shall not impair or diminish the rights of the Purchaser, or any
assignee of the Purchaser, under this Agreement with respect to a breach of
representations and warranties contained in this Agreement.
<PAGE>
-18-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY;
----------------------------------------------
REPURCHASE OF MORTGAGE LOANS; CLOSING;
--------------------------------------
CLOSING DOCUMENTS; COSTS
------------------------
Section 3.01 Individual Mortgage Loans.
-------------------------
The Company hereby represents and warrants to the Purchaser that, as to
each Mortgage Loan, as of the related Closing Date (or such other date as may be
specified herein or in the applicable Assignment and Conveyance):
(a) The information set forth on the related Mortgage Loan Schedule with
respect to each Mortgage Loan is true and correct in all material
respects;
(b) Except as set forth on Exhibit M, all payments due prior to the related
Cut-off Date have been made and none of the Mortgage Loans will have
been contractually delinquent for more than one calendar month more than
once since the origination thereof;
(c) Each Mortgage is a valid and enforceable first lien on the Mortgaged
Property, including all improvements thereon, subject only to (a) the
lien of nondelinquent current real property taxes and assessments, (b)
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 related
Mortgage Loan, and (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of
the security intended to be provided by such Mortgage;
(d) Immediately prior to the assignment of the Mortgage Loans to the
Purchaser, the Company had good title to, and was the sole legal and
beneficial owner of, each Mortgage Loan free and clear of any pledge,
lien, encumbrance or security interest and has full right and authority,
subject to no interest or participation of, or agreement with, any other
party to sell and assign the same;
(e) To the best of the Company's knowledge, there is no delinquent tax or
assessment lien against any Mortgaged Property;
<PAGE>
-19-
(f) There is no valid offset, defense or counterclaim to any Mortgage Note
or Mortgage, including the obligation of the Mortgagor to pay the unpaid
principal of or interest on such Mortgage Note, nor will the operation
of any of the terms of the Mortgage Note and the Mortgage, or the
exercise of any right thereunder, render the Mortgage unenforceable, in
whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury and no such
right of rescission, set-off, counterclaim or defense has been asserted
with respect thereto;
(g) To the best of the Company's knowledge, there are no mechanics' liens or
claims for work, labor or material affecting any Mortgaged Property
which are or may be a lien prior to, or equal with, the lien of the
related Mortgage, except those which are insured against by the title
insurance policy referred to in (k) below;
(h) To the best of the Company's knowledge, each Mortgaged Property is free
of material damage and is in good repair;
(i) Each Mortgage Loan at origination complied in all material respects with
applicable local, state and federal laws, including, without limitation,
usury, equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the
transactions contemplated hereby will not involve the violation of any
such laws;
(j) Neither the Company nor any prior holder of any Mortgage has modified
the Mortgage in any material respect (except that a Mortgage Loan may
have been modified by a written instrument which has been recorded, if
necessary, to protect the interests of the Purchaser and which has been
delivered to the Custodian); satisfied, cancelled or subordinated such
Mortgage in whole or in part; released the related Mortgaged Property in
whole or in part from the lien of such Mortgage; or executed any
instrument of release, cancellation, modification or satisfaction with
respect thereto;
(k) A lender's policy of title insurance together with a condominium
endorsement and extended coverage endorsement, if applicable, and, with
respect to each Adjustable Rate Mortgage Loan, an adjustable rate
mortgage endorsement in an amount at least equal to the related Cut-off
Date Principal Balance of each such Mortgage Loan or a commitment
(binder) to issue the same was effective on the date of the origination
of each Mortgage Loan, each such policy is valid and remains in full
force and effect, the transfer of the related Mortgage Loan to the
Purchaser will not affect the validity or enforceability of such policy
and each such policy was issued by a title insurer qualified to do
business in the jurisdiction where the Mortgaged Property is located and
acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC,
which policy insures the Company and successor owners of indebtedness
secured by the insured Mortgage, as to the first priority lien of the
Mortgage; to the best of the
<PAGE>
-20-
Company's knowledge, no claims have been made under such mortgage title
insurance policy and no prior holder of the related Mortgage, including
the Company, has done, by act or omission, anything which would impair
the coverage of such mortgage title insurance policy;
(l) Each Mortgage Loan was originated by the Company (or, if generated on
behalf of the Company by a Person other than the Company, is subject to
the same standards and procedures used by the Company in originating
mortgage loans directly) or by a savings and loan association, savings
bank, commercial bank, credit union, insurance company or similar
institution which is supervised and examined by a federal or state
authority, or by a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to sections 203 and 211 of the National
Housing Act;
(m) With respect to each Adjustable Rate Mortgage Loan on each Adjustment
Date, the Mortgage Interest Rate will be adjusted to equal the Index
plus the Margin, rounded to the nearest 0.125%, subject to the Periodic
Rate Cap, the Maximum Rate and the Minimum Rate. Except for Balloon
Loans, the related Mortgage Note is payable on the first day of each
month in self-amortizing monthly installments of principal and interest,
with interest payable in arrears, and requires a Monthly Payment which
is sufficient to fully amortize the outstanding principal balance of the
Mortgage Loan over its remaining term and to pay interest at the
applicable Mortgage Interest Rate. No Mortgage Loan is subject to
negative amortization;
(n) To the best of the Company's knowledge, all of the improvements which
were included for the purpose of determining the Appraised Value of the
Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon the Mortgaged Property;
(o) All inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgaged Property and,
with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy, have been made or obtained from
the appropriate authorities and the Mortgaged Property is lawfully
occupied under applicable law;
(p) All parties which have had any interest in the Mortgage, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period in
which they held and disposed of such interest, were) in compliance with
any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located;
(q) The Mortgage Note and the related Mortgage are genuine, and each is the
legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms and with applicable laws. All parties to the
Mortgage Note and the Mortgage had
<PAGE>
-21-
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage have been duly and properly executed by such
parties;
(r) The proceeds of each Mortgage Loan have been fully disbursed, there is
no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site improvements
and as to disbursements of any escrow funds therefor have been complied
with. All costs, fees and expenses incurred in making, closing or
recording the Mortgage Loans were paid;
(s) The related Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure.
There is no homestead or other exemption available to the Mortgagor
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage;
(t) With respect to each Mortgage constituting a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, and no
fees or expenses are or will become payable by the Purchaser to the
trustee under the deed of trust, except in connection with a trustee's
sale after default by the Mortgagor;
(u) Each Mortgage Note and each Mortgage is in substantially the forms
attached hereto as Exhibit G;
(v) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments
of other charges or payments due the Company have been capitalized under
the Mortgage or the related Mortgage Note;
(w) The origination, underwriting and collection practices used by the
Company with respect to each Mortgage Loan have been in all respects
legal, proper, prudent and customary in the mortgage servicing business;
(x) There is no pledged account or other security other than real estate
securing the Mortgagor's obligations;
(y) No Mortgage Loan has a shared appreciation feature, or other contingent
interest feature;
(z) No Mortgage Loan provides for primary mortgage insurance;
<PAGE>
-22-
(aa) The improvements upon each Mortgaged Property are covered by a valid and
existing hazard insurance policy with a generally acceptable carrier
that provides for fire extended coverage and such other hazards as are
customary in the area where the Mortgaged Property is located
representing coverage not less than the lesser of the outstanding
principal balance of the related Mortgage Loan or the minimum amount
required to compensate for damage or loss on a replacement cost basis.
All individual insurance policies and flood policies referred to in
clause (bb) below contain a standard mortgagee clause naming the Company
or the original mortgagee, and its successors in interest, as mortgagee,
and the Company has received no notice that any premiums due and payable
thereon have not been paid; the Mortgage obligates the Mortgagor
thereunder to maintain all such insurance, including flood insurance, at
the Mortgagor's cost and expense, and upon the Mortgagor's failure to do
so, authorizes the holder of the Mortgage to obtain and maintain such
insurance at the Mortgagor's cost and expense and to seek reimbursement
therefor from the Mortgagor;
(bb) If the Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special
flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property with
a generally acceptable carrier in an amount representing coverage not
less than the least of (A) the original outstanding principal balance of
the Mortgage Loan, (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis or (C) the maximum amount of
insurance that is available under the Flood Disaster Protection Act of
1973;
(cc) There is no default, breach, violation or event of acceleration existing
under the Mortgage or the related Mortgage Note; and the Company has not
waived any default, breach, violation or event of acceleration;
(dd) Each Mortgaged Property is improved by a one- to four-family residential
dwelling, including condominium units and dwelling units in planned unit
developments, which, to the best of the Company's knowledge, does not
include cooperatives or mobile homes and does not constitute other than
real property under state law;
(ee) There is no obligation on the part of the Company or any other party
under the terms of the Mortgage or related Mortgage Note to make
payments in addition to those made by the Mortgagor;
(ff) Any future advances made prior to the related Cut-off Date have been
consolidated with the outstanding principal amount secured by the
Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment
<PAGE>
-23-
term reflected on the related Mortgage Loan Schedule. The consolidated
principal amount does not exceed the original principal amount of the
Mortgage Loan;
(gg) Each Mortgage Loan was underwritten in accordance with the Company's
underwriting guidelines set forth as an exhibit hereto;
(hh) The Mortgage File contains an appraisal which was performed by an
appraiser who satisfied, and which was conducted in accordance with, all
of the applicable requirements of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended;
(ii) None of the Mortgage Loans is a graduated payment mortgage loan, nor is
any Mortgage Loan subject to a temporary buydown or similar arrangement;
(jj) With respect to each Mortgage Loan, no loan junior in lien priority to
such Mortgage Loan and secured by the related Mortgaged Property was
originated by the Company at the time of origination of such Mortgage
Loan;
(kk) The characteristics of the related Mortgage Loan Package are as set
forth in the form of Exhibit M delivered in respect of the related
Closing Date;
(ll) Except as set forth in the related Confirmation, on the Final Closing
Date, the Mortgage Loans comply with the conditions set forth in Section
2 of the related Commitment Letter; and
(mm) The Mortgage contains an enforceable provision for the acceleration of
the payment of the unpaid principal balance of the Mortgage Loan in the
event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee thereunder.
Section 3.02 Company Representations.
-----------------------
The Company hereby represents and warrants to the Purchaser as of the
Initial Closing Date and each subsequent Closing Date (or such other date as may
be specified herein or in the applicable Assignment and Conveyance):
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly
authorized and qualified to transact any and all business contemplated
by this Agreement to be conducted by the Company in any state in which a
Mortgaged Property is located or is otherwise not required under
applicable law to effect such qualification and, in any event, is in
compliance with the doing business laws of any such State, to the extent
necessary to
<PAGE>
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ensure its ability to enforce each Mortgage Loan and to service the
Mortgage Loans in accordance with the terms of this Agreement;
(b) The Company has the full corporate power and authority to originate,
hold, sell and service each Mortgage Loan, and to execute, deliver and
perform, and to enter into and consummate the transactions contemplated
by this Agreement and has duly authorized by all necessary corporate
action on the part of the Company the execution, delivery and
performance of this Agreement; and this Agreement, assuming the due
authorization, execution and delivery thereof by the Purchaser,
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to
the extent that (a) the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought;
(c) The execution and delivery of this Agreement by the Company, the
servicing of the Mortgage Loans by the Company hereunder, the
consummation of any other of the transactions herein contemplated, and
the fulfillment of or compliance with the terms hereof are in the
ordinary course of business of the Company and will not (A) result in a
breach of any term or provision of the charter or by-laws of the Company
or (B) conflict with, result in a breach, violation or acceleration of,
or result in a default under, the terms of any other material agreement
or instrument to which the Company is a party or by which it may be
bound, or any statute, order or regulation applicable to the Company of
any court, regulatory body, administrative agency or governmental body
having jurisdiction over the Company; and the Company is not a party to,
bound by, or in breach or violation of any indenture or other agreement
or instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and
adversely affects or, to the Company's knowledge, would in the future
materially and adversely affect, (x) the ability of the Company to
perform its obligations under this Agreement or (y) the business,
operations, financial condition, properties or assets of the Company
taken as a whole;
(d) The Company is an approved seller/servicer for FNMA or FHLMC in good
standing and is a HUD approved mortgagee pursuant to Section 203 of the
National Housing Act;
(e) No litigation is pending against the Company that would materially and
adversely affect the execution, delivery or enforceability of this
Agreement or the ability of the Company to service the Mortgage Loans or
to perform any of its other obligations hereunder in accordance with the
terms hereof;
<PAGE>
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(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Company of, or compliance by the Company with, this
Agreement or the consummation of the transactions contemplated hereby,
or if any such consent, approval, authorization or order is required,
the Company has obtained the same;
(g) The information set forth in the applicable part of the Mortgage Loan
Schedule relating to the existence of a prepayment penalty is complete,
true and correct in all material respects at the date or dates
respecting which such information is furnished and each Prepayment
Charge is permissible and enforceable in accordance with its terms
(except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally or the collectability thereof
may be limited due to acceleration in connection with a foreclosure)
under the applicable state law; and
(h) The Company will not waive the Prepayment Charge (including any waiver
of a Prepayment Charge in connection with a refinancing of a Mortgage
Loan that is related to a default or a reasonably foreseeable default)
unless such waiver would maximize recovery of total proceeds taking into
account the value of the Prepayment Charge and related Mortgage Loan and
doing so is standard and customary in servicing similar Mortgage Loans,
and in no event will it waive a Prepayment Charge in connection with a
refinancing of a Mortgage Loan that is not related to a default or a
reasonably foreseeable default.
Section 3.03 Repurchase and Substitution.
---------------------------
It is understood and agreed that the representations and warranties set
forth in Sections 3.01 and 3.02 shall survive delivery of the Mortgage Loans to
the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding
any restrictive or qualified endorsement on any Mortgage Note or Assignment of
Mortgage or the examination of any Mortgage File. Upon discovery (including
receipt of notice to such effect from the Purchaser) by either the Company or
the Purchaser of a breach of any of the foregoing representations and
warranties, without regard to any limitation set forth in such representation or
warranty concerning the knowledge of the Company as to the facts stated therein,
which materially and adversely affects the interest of the Purchaser in any
Mortgage Loan, the party discovering such breach shall give prompt notice to the
other parties. Within 90 days of the earlier of either discovery by or notice
to the Company of any breach of a representation or warranty, the Company shall
use its best efforts to promptly cure such breach in all material respects and,
if such breach cannot be cured, the Company shall repurchase such Mortgage Loan
at a price equal to (i) the Stated Principal Balance of the Mortgage Loan, plus
(ii) interest on such Stated Principal Balance at the Mortgage Loan Remittance
Rate from the date to which interest has last been paid by the Mortgagor to the
first day of the month in which such purchase price is to be distributed which
purchase price shall be
<PAGE>
-26-
deposited in the Custodial Account on the next succeeding Determination Date
(after deducting therefrom any principal and interest amounts received in
respect of such repurchased Mortgage Loan and being held in the Custodial
Account for future distribution). However, the Company may, at its option and
assuming that the Company has a Qualified Substitute Mortgage Loan or Loans,
rather than repurchase the Mortgage Loan as provided above, remove such Mortgage
Loan ("Deleted Mortgage Loan") and substitute in its place a Qualified
Substitute Mortgage Loan or Loans, provided, however, that (i) if the Purchaser
exercises its rights under Section 2.05, the Company may not effect a
substitution without the prior written consent of the Purchaser and (ii) any
such substitution shall be effected not later than 120 days after the related
Closing Date. If the Company has no Qualified Substitute Mortgage Loan, it shall
repurchase the deficient Mortgage Loan. Any repurchase of a Mortgage Loan or
Loans pursuant to the foregoing provisions of this Section 3.03 shall be
accomplished by deposit in the Custodial Account of the amount of the repurchase
price set forth above (after deducting therefrom any principal and interest
amounts received in respect of such repurchased Mortgage Loan or Loans and being
held in the Custodial Account for future distribution).
If the representation made by the Company in Section 3.02(g) is
breached, the Company shall not have the right or obligation to cure, substitute
or repurchase the affected Mortgage Loan but shall deposit in the Custodial
Account, prior to the next succeeding Remittance Date, the amount of the
Prepayment Charge indicated on the applicable part of the Mortgage Loan Schedule
to be due from the Mortgagor in the circumstances less any amount collected and
paid by the Company into the Custodial Account; provided, however, that if a
representation in addition to that set forth in Section 3.01(g) is breached with
respect to a Mortgage Loan or Mortgage Loans, the Company shall both deposit the
applicable Prepayment Charge as provided in this paragraph and cure, substitute
or repurchase the affected Mortgage Loan or Mortgage Loans as provided in this
Section 3.03. In addition, if the covenant made by the Company in Section
3.02(h) is breached, the Company shall pay into the Custodial Account the amount
of the waived Prepayment Charge.
As to any Deleted Mortgage Loan for which the Company substitutes a
Qualified Substitute Mortgage Loan or Loans, the Company shall effect such
substitution by delivering to the Custodian for such Qualified Substitute
Mortgage Loan or Loans the Mortgage Note, the Mortgage, the Assignment of
Mortgage and such other documents and agreements as are required by Section
2.04, with the Mortgage Note endorsed as required by Section 2.04. No
substitution will be made in any calendar month after the Determination Date for
such month. The Company shall deposit in the Custodial Account the Monthly
Payment less the Servicing Fee due on such Qualified Substitute Mortgage Loan or
Loans in the month following the date of such substitution. Monthly Payments
due with respect to Qualified Substitute Mortgage Loans in the month of
substitution will be retained by the Company. For the month of substitution,
distributions to the Purchaser will include the Monthly Payment less the
Servicing Fee due on such Deleted Mortgage Loan or Loans in the month of
substitution, and the Company shall thereafter be entitled to retain all amounts
subsequently received by the Company in respect of such Deleted Mortgage Loan.
The Company shall give written notice to the Purchaser that such
<PAGE>
-27-
substitution has taken place and shall amend the related Mortgage Loan Schedule
to reflect the removal of such Deleted Mortgage Loan from the terms of this
Agreement and the substitution of the Qualified Substitute Mortgage Loan or
Loans. Upon such substitution, such Qualified Substitute Mortgage Loan or Loans
shall be subject to the terms of this Agreement in all respects, and the Company
shall be deemed to have made with respect to such Qualified Substitute Mortgage
Loan or Loans, as of the date of substitution, the covenants, representations
and warranties set forth in Sections 3.01 and 3.02.
For any month in which the Company substitutes one or more Qualified
Substitute Mortgage Loan or Loans for one or more Deleted Mortgage Loans, the
Company will determine the amount (if any) by which the aggregate principal
balance of all such Qualified Substitute Mortgage Loans as of the date of
substitution (after application of scheduled principal payments due in the month
of substitution which have been received or as to which an advance has been
made) is less than the aggregate Stated Principal Balance of all such Deleted
Mortgage Loans. The amount of such shortfall shall be distributed by the
Company in the month of substitution pursuant to Section 5.01. Accordingly, on
the date of such substitution, the Company will deposit from its own funds into
the Custodial Account an amount equal to the amount of such shortfall.
In addition to such cure, repurchase and substitution obligation, the
Company shall indemnify the Purchaser and hold it harmless against any losses,
damages, penalties, fines, forfeitures, reasonable and necessary legal fees and
related costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, a
breach of the Company's representations and warranties contained in this Article
III. It is understood and agreed that the obligations of the Company set forth
in this Section 3.03 to cure or repurchase a defective Mortgage Loan and to
indemnify the Purchaser as provided in this Section 3.03 constitute the sole
remedies of the Purchaser respecting a breach of the foregoing representations
and warranties.
Any cause of action against the Company relating to or arising out of
the breach of any representations and warranties made in Sections 3.01 or 3.02
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the
Purchaser or notice thereof by the Company to the Purchaser, (ii) failure by the
Company to cure such breach or repurchase such Mortgage Loan as specified above,
and (iii) demand upon the Company by the Purchaser for all amounts payable in
respect of such Mortgage Loan.
Section 3.04 Closing.
-------
The closing for the purchase and sale of each Mortgage Loan Package
shall take place on the related Closing Date. The closing shall, at the
Purchaser's option, be either: by telephone, confirmed by letter or wire as the
parties shall agree; or conducted in person, at such place as the parties shall
agree.
<PAGE>
-28-
The closing for the Mortgage Loans to be purchased on each Closing Date
shall be subject to each of the following conditions:
(a) All of the representations and warranties of the Company under
this Agreement shall be true and correct as of the related Closing Date and no
event shall have occurred which, with notice or the passage of time, would
constitute a default or Event of Default under this Agreement;
(b) The Purchaser and the Company shall have received, or the
Company's attorneys shall have received in escrow, all closing documents as
specified in Section 3.05 of this Agreement, in such forms as are agreed upon
and acceptable to the Purchaser and the Company, duly executed by all
signatories as required pursuant to the respective terms thereof;
(c) The Company shall have delivered and released to the Purchaser
under this Agreement all documents required pursuant thereto; and
(d) All other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Purchaser shall pay to the
Company on the related Closing Date the Purchase Price, plus accrued interest
pursuant to Section 2.01 of this Agreement, by wire transfer of immediately
available funds to the account designated by the Company.
Section 3.05 Closing Documents.
-----------------
(a) On or before the Initial Closing Date, the Company shall submit
to the Purchaser fully executed originals of the following closing documents:
1. This Agreement, in two counterparts;
2. Custodial Account Letter Agreement, in the form of Exhibit B
of this Agreement;
3. Escrow Account Letter Agreement, in the form of Exhibit C of
this Agreement; and
4. Officer's Certificate, in substantially the form of Exhibit J,
and attached thereto the Resolutions of the Company, in the
form of Exhibit K hereto, together with copies of the charter,
by-laws and a Certificate of Good Standing of the Company; and
<PAGE>
5. Sub-Servicing Agreement in substantially the form of Exhibit O
hereto.
(b) The closing documents for the Mortgage Loans to be purchased on
each Closing Date shall consist of fully executed originals of the following
documents:
1. The related Mortgage Loan Documents required pursuant to
Section 2.04 of this Agreement;
2. The related Mortgage Loan Schedule, one copy to be attached to
each counterpart of this Agreement;
3. If requested by the Purchaser, an Officer's Certificate, in
the form of Exhibit J, and attached thereto the Resolutions of
the Company, in the form of Exhibit K hereto, together with
copies of the charter and by-laws of the Company, or a
statement from the Company that the Company's charter and by-
laws have not changed since the last Closing Date;
4. Security Release Certification, in substantially the form of
Exhibit L executed by any other person as requested by
Purchaser if any of the Mortgage Loans have at any time been
subject to any security interest, pledge or hypothecation for
the benefit of such person;
5. The related Commitment Letter, to be attached hereto as
Exhibit N, and the related Confirmation;
6. Assignment and Conveyance, in the form of Exhibit E;
7. Certificate or other evidence of merger or change of name,
signed or stamped by the applicable regulatory authority, if
any of the Mortgage Loans were acquired by the Company by
merger or acquired or originated by the Company while
conducting business under a name other than its present name;
and
8. The Initial Certification of the Custodian in the form annexed
to the Custodial Agreement.
Section 3.06 Costs.
-----
The Purchaser will pay any commissions due its salesmen and the legal
fees and expenses of its attorneys. All other costs and expenses incurred in
connection with the transfer
<PAGE>
-30-
and delivery of the Mortgage Loans, including fees for title policy endorsements
and continuations and the Company's attorney's fees, shall be paid by the
Company.
<PAGE>
-31-
ARTICLE IV
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
----------------------------------------------
Section 4.01 Company to Act as Servicer.
--------------------------
The Company, as independent contract servicer, shall service and
administer the Mortgage Loans and shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Company may deem necessary or desirable and consistent
with the terms of this Agreement.
Consistent with the terms of this Agreement, the Company may waive,
modify or vary any term of any Mortgage Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Mortgagor, provided, however, that (unless the Mortgagor is in default with
respect to the Mortgage Loan, or such default is, in the judgment of the
Company, imminent, and the Company has the consent of the Purchaser) the Company
may not permit any modification with respect to any Mortgage Loan that would
change the Mortgage Interest Rate (except for any change made pursuant to the
adjustment provisions, if any, of the related Mortgage Note), defer or forgive
the payment of any principal or interest, change the outstanding principal
amount, make any future advances or extend the final maturity date on such
Mortgage Loan. Without limiting the generality of the foregoing, the Company
shall continue, and is hereby authorized and empowered to execute and deliver on
behalf of itself, and the Purchaser, all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Mortgage Loans and the Mortgaged Properties.
If reasonably required by the Company, the Purchaser shall furnish the Company
with any powers of attorney and other documents necessary or appropriate to
enable the Company to carry out its servicing and administrative duties under
this Agreement.
In servicing and administering the Mortgage Loans, the Company shall
employ Customary Servicing Procedures.
Section 4.02 Liquidation of Mortgage Loans.
-----------------------------
In the event that any payment due under any Mortgage Loan is not paid
when the same becomes due and payable, or in the event the Mortgagor fails to
perform any other covenant or obligation under the Mortgage Loan and such
failure continues beyond any applicable grace period, the Company shall take
such action as it shall deem to be in the best interest of the Purchaser. In
the event that any payment due under any Mortgage Loan remains delinquent for a
period of 60 days or more, the Company shall exercise reasonable efforts to
foreclose upon or otherwise comparably convert (which may include an REO
Disposition) the ownership of properties securing such of the Mortgage Loans as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. The
<PAGE>
-32-
Company shall use reasonable efforts to realize upon such defaulted Mortgage
Loans in such manner as will maximize the receipt of principal and interest by
the Purchaser, taking into account, among other things, the timing of
foreclosure proceedings.
In such connection, the Company shall from its own funds make all
necessary and proper Servicing Advances if it is deemed to increase the proceeds
to the Purchaser or is necessary to preserve the lien of the related Mortgage.
Section 4.03 Collection of Mortgage Loan Payments.
------------------------------------
Continuously from the date hereof until the principal and interest on
all Mortgage Loans are paid in full, the Company will proceed diligently to
collect all payments due under each of the Mortgage Loans when the same shall
become due and payable and will take special care in ascertaining and estimating
annual ground rents, taxes, assessments, water rates, fire and hazard insurance
premiums, mortgage insurance premiums, and all other charges that, as provided
in any Mortgage, will become due and payable to the end that the installments
payable by the Mortgagors will be sufficient to pay such charges as and when
they become due and payable.
Section 4.04 Establishment of Custodial Account; Deposits in Custodial
---------------------------------------------------------
Account.
-------
The Company shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan separate and apart from any of its own funds and
general assets and shall establish and maintain one or more Custodial Accounts
(collectively, the "Custodial Account"), in the form of time deposit or demand
accounts, which may be interest bearing, titled "Long Beach Mortgage Company, in
trust for the Purchaser - Fixed Rate and Adjustable Rate Mortgage Loans, Flow
Delivery Program". Such Custodial Account shall be established with a
commercial bank, a national bank, a national banking association, a mutual
savings bank or a savings and loan association. Funds in the Custodial Account
shall be fully insured by the FDIC, or such account shall be a trust account,
and in either case may be drawn on by the Company. The creation of any
Custodial Account shall be evidenced by a letter agreement substantially in the
form of Exhibit B hereto. A copy of such letter agreement shall be furnished to
the Purchaser upon request.
The Company shall deposit, without duplication, in the Custodial Account
on a daily basis within one day of receipt of good funds or as otherwise
required by this Agreement, and retain therein the following payments and
collections due and received or made by it subsequent to the related Cut-off
Date:
<PAGE>
-33-
(i) all payments on account of principal, including Principal
Prepayments on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans
adjusted to the Mortgage Loan Remittance Rate;
(iii) all Liquidation Proceeds and other amounts required to be
deposited pursuant to Section 4.02;
(iv) all proceeds received by the Company under any title,
hazard, primary mortgage guaranty or other insurance policy, including amounts
required to be deposited pursuant to Section 4.10, other than proceeds to be
held in the Escrow Account and applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor in accordance with Customary
Servicing Procedures;
(v) all awards or settlements in respect of condemnation
proceedings or eminent domain affecting any Mortgaged Property which are not
released to the Mortgagor in accordance with Customary Servicing Procedures;
(vi) any amount required to be deposited in the Custodial Account
pursuant to Sections 5.03 and 6.02;
(vii) any amounts payable in connection with the repurchase of any
Mortgage Loan pursuant to Section 3.03, and all amounts required to be
deposited by the Company in connection with shortfalls in principal amount of
Qualified Substitute Mortgage Loans pursuant to Section 3.03;
(viii) any amounts payable in connection with Prepayment Interest
Shortfalls pursuant to Section 5.04; and
(ix) any amount required to be deposited in the Custodial Account
pursuant to Section 4.12.
The foregoing requirements for deposit in the Custodial Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of late payment charges and assumption
fees, to the extent permitted by Section 6.01, in addition to Prepayment
Interest Excess and prepayment penalties other than Prepayment Charges, need not
be deposited by the Company in the Custodial Account.
<PAGE>
-34-
Section 4.05 Withdrawals From the Custodial Account.
--------------------------------------
The Company shall, from time to time, withdraw funds from the Custodial
Account for the following purposes:
(i) to make payments to the Purchaser in the amounts and in the
manner provided for in Section 5.01;
(ii) to reimburse itself for unreimbursed Servicing Advances, any
unpaid Servicing Fees and for unreimbursed P&I Advances, the Company's right
to reimburse itself pursuant to this subclause (ii) being limited to related
Liquidation Proceeds, condemnation proceeds, amounts representing proceeds of
insurance policies covering the related Mortgaged Property, late payments of
principal and/or interest and such other amounts as may be collected by the
Company from the Mortgagor or otherwise relating to the Mortgage Loan, it
being understood that, in the case of any such reimbursement, the Company's
right thereto shall be prior to the rights of the Purchaser unless the Company
is required to repurchase a Mortgage Loan pursuant to Section 3.03, in which
case the Company's right to such reimbursement shall be subsequent to the
payment to the Purchaser of the repurchase price pursuant to Section 3.03 and
all other amounts required to be paid to the Purchaser with respect to such
Mortgage Loan;
(iii) to reimburse itself for expenses incurred by and reimbursable
to it pursuant to Section 9.01;
(iv) to pay to itself any interest earned on funds deposited in
the Custodial Account and to pay itself any unpaid Servicing Compensation,
such withdrawal to be made monthly not later than the Remittance Date;
(v) to reimburse itself for any P&I Advance previously made which
the Company has determined to be a Nonrecoverable Advance;
(vi) to utilize any excess funds on deposit to make any advance
pursuant to the last sentence of Section 5.03, provided that such withdrawal
does not reduce the amount that would otherwise be available pursuant to
clauses (i) through (v), inclusive, of this Section 4.05 in respect of the
current or future Determination Dates;
(vii) to clear and terminate the Custodial Account upon the
termination of this Agreement and to distribute funds therein at such time to
the Purchaser, exclusive of funds therein payable to the Company pursuant to
this Agreement; and
(viii) to withdraw any amounts deposited in the Custodial Account in
error.
<PAGE>
-35-
On each Remittance Date, the Company shall withdraw all funds from the
Custodial Account except for those amounts which the Company is not obligated to
remit on such Remittance Date. The Company may use such withdrawn funds only
for the purposes described in this Section 4.05.
Section 4.06 Establishment of Escrow Account; Deposits in Escrow
---------------------------------------------------
Account.
-------
The Company shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan which constitute Escrow Payments separate and
apart from any of its own funds and general assets and shall establish and
maintain one or more Escrow Accounts (collectively, the "Escrow Account"), in
the form of time deposit or demand accounts, which may be interest bearing,
titled "Long Beach Mortgage Company, in trust for the Purchaser of Fixed Rate
and Adjustable Rate Mortgage Loans, Flow Delivery Program". The Escrow Account
shall be established with a commercial bank, a national bank, a national banking
association, a mutual savings bank or a savings and loan association. Funds in
the Escrow Account shall be fully insured by the FDIC, or such account shall be
a trust account, and in either case may be drawn on by the Company. The
creation of any Escrow Account shall be evidenced by a letter agreement
substantially in the form of Exhibit C hereto. A copy of such letter agreement
shall be furnished to the Purchaser upon request.
The Company shall deposit in the Escrow Account on a daily basis, and
retain therein: (i) all Escrow Payments collected on account of the Mortgage
Loans, for the purpose of effecting timely payment of any such items as required
under the terms of this Agreement, and (ii) all amounts representing proceeds of
any hazard insurance policy which are to be applied to the restoration or repair
of any Mortgaged Property. The Company shall make withdrawals therefrom only in
accordance with Section 4.07 hereof. To the extent required by law, the Company
shall pay, without right of reimbursement, interest on escrowed funds to the
Mortgagor notwithstanding that the Escrow Account may not bear interest.
<PAGE>
-36-
Section 4.07 Withdrawals From Escrow Account.
-------------------------------
Withdrawals from the Escrow Account shall be made by the Company only
(a) to effect timely payments of taxes, assessments, water rates, fire and
hazard insurance premiums or other items constituting Escrow Payments for the
related Mortgage, (b) to refund to any Mortgagor any funds found to be in excess
of the amounts required under the terms of the related Mortgage Loan, (c) for
application to restoration or repair of the Mortgaged Property, (d) to pay to
the Mortgagor, to the extent required by law, any interest due on the funds
deposited in the Escrow Account, (e) to pay to itself any interest earned on
funds deposited in the Escrow Account (and not required to be paid to the
Mortgagor), such withdrawal to be made monthly not later than the Remittance
Date, (f) to withdraw any amounts deposited in the Escrow Account in error, (g)
to reimburse the Company for any Servicing Advance made by the Company with
respect to a related Mortgage Loan but only from amounts received on the related
Mortgage Loan which represent late payments or collections of Escrow Payments
thereunder or (h) to clear and terminate the Escrow Account upon the termination
of this Agreement.
Section 4.08 Payment of Taxes, Insurance and Other Charges.
---------------------------------------------
With respect to each Mortgage Loan, the Company shall maintain accurate
records reflecting the status of taxes, assessments, water rates and other
charges which are or may become a lien upon the Mortgaged Property and the
status of fire and hazard insurance coverage and shall obtain, from time to
time, all bills for the payment of such charges (including renewal premiums) and
shall effect payment thereof prior to the applicable penalty or termination date
and at a time appropriate for securing maximum discounts allowable, employing
for such purpose deposits of the Mortgagor in the Escrow Account which shall
have been estimated and accumulated by the Company in amounts sufficient for
such purposes, as allowed under the terms of the Mortgage. To the extent that a
Mortgage does not provide for Escrow Payments, the Company shall determine that
any such payments are made by the Mortgagor at the time they first become due.
The Company assumes full responsibility for the timely payment of all such bills
and shall effect timely payments of all such bills irrespective of the
Mortgagor's faithful performance in the payment of same or the making of the
Escrow Payments and shall make advances from its own funds to effect such
payments.
Section 4.09 Transfer of Accounts.
--------------------
With prior written notice to the Purchaser, the Company may transfer the
Custodial Account or the Escrow Account to a different depository institution
satisfying the requirements of Section 4.04 or 4.06, respectively.
Section 4.10 Maintenance of Hazard Insurance.
-------------------------------
<PAGE>
-37-
The Servicer shall maintain or cause to be maintained for each Mortgage
Loan and REO Property with insurance companies satisfactory to FNMA or FHLMC
primary hazard insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the replacement value of the
improvements, as determined by the insurance company, on such Mortgaged
Property. Pursuant to Section 4.04, any amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the property subject to the related Mortgage or amounts released to the
Mortgagor in accordance with Customary Servicing Procedures) shall be deposited
in the Custodial Account, subject to withdrawal pursuant to Section 4.05. Any
cost incurred by the Servicer in maintaining any such insurance shall not, for
the purpose of calculating monthly distributions to the Purchaser, be added to
the unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit. It is understood and agreed that no
earthquake or other additional insurance is to be required of any Mortgagor or
maintained on property acquired in respect of a Mortgage Loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. If the Mortgaged Property
or REO Property is located at the time of origination of the Mortgage Loan in a
federally designated special flood hazard area, the Servicer will cause to be
maintained flood insurance in respect thereof. Such flood insurance shall be in
an amount equal to the lesser of (i) the replacement value of the improvements
which are part of such Mortgaged Property, (ii) the maximum amount of such
insurance available for the related Mortgaged Property under the national flood
insurance program (regardless of whether the area in which such Mortgaged
Property is located is participating in such program) and (iii) the original
face value of the Mortgage Loan securing such Mortgaged Property. All such
policies shall be endorsed with standard mortgagee clauses with loss payable to
the Company, or upon request to the Purchaser, and shall provide for at least
thirty days prior written notice of any cancellation, reduction in the amount
of, or material change in, coverage to the Company. The Company shall not
interfere with the Mortgagor's freedom of choice in selecting either his
insurance carrier or agent, provided, however, that the Company shall not accept
any such insurance policies from insurance companies unless such companies
currently reflect a General Policy Rating of A:VI or better in Best's Key Rating
Guide and are licensed to do business in the state wherein the property subject
to the policy is located.
In the event that the Servicer shall obtain and maintain a blanket
policy insuring against hazard losses on all of the Mortgage Loans in an amount
consistent with Customary Servicing Procedures, it shall conclusively be deemed
to have satisfied its obligations as set forth in the first sentence of this
Section 4.10, it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property or REO Property
a policy complying with the first sentence of this Section 4.10, and there shall
have been one or more losses which would have been covered by such policy,
deposit from its own funds in the Custodial Account the amount not otherwise
payable under the blanket policy because of such deductible clause. In
connection with its activities as administrator and servicer of the Mortgage
Loans, the Servicer
<PAGE>
-38-
agrees to prepare and present, on behalf of itself and the Purchaser, claims
under any such blanket policy in a timely fashion in accordance with the terms
of such policy. Upon request of the Purchaser, the Company shall cause to be
delivered to the Purchaser a certified true copy of such policy and a statement
from the insurer thereunder that such policy shall in no event be terminated or
materially modified without thirty days prior written notice to the Purchaser.
Section 4.11 Fidelity Bond; Errors and Omissions Insurance.
---------------------------------------------
The Company shall maintain with responsible companies, at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy,
with broad coverage on all officers, employees or other persons acting in any
capacity requiring such persons to handle funds, money, documents or papers
relating to the Mortgage Loans ("Company Employees"). Any such fidelity bond and
errors and omissions insurance shall be in the form of the Mortgage Banker's
Blanket Bond and shall protect and insure the Company against losses, including
forgery, theft, embezzlement, fraud, errors and omissions, failure to maintain
any insurance policies required pursuant to this Agreement, and negligent acts
of such Company Employees. Such fidelity bond shall also protect and insure the
Company against losses in connection with the release or satisfaction of a
Mortgage Loan without having obtained payment in full of the indebtedness
secured thereby. No provision of this Section 4.11 requiring such fidelity bond
and errors and omissions insurance shall diminish or relieve the Company from
its duties and obligations as set forth in this Agreement. The minimum coverage
under any such bond and insurance policy shall be at least equal to the
corresponding amounts required by FNMA in the FNMA MBS Selling and Servicing
Guide or by FHLMC in the FHLMC Sellers' & Servicer's Guide, as amended or
restated from time to time. Upon the request of the Purchaser, the Company shall
cause to be delivered to the Purchaser a certified true copy of such fidelity
bond and insurance policy and a statement from the surety and the insurer that
such fidelity bond and insurance policy shall in no event be terminated or
materially modified without 30 days prior written notice to the Purchaser.
Section 4.12 Title, Management and Disposition of REO Property.
-------------------------------------------------
In the event that title to the Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the Purchaser or its designee of record on the
date of acquisition of title.
The Company shall manage, conserve, protect and operate each REO
Property in trust for the Purchaser solely for the purpose of its prompt
disposition and sale. The Company shall either itself or through an agent
selected by the Company, manage, conserve, protect and operate the REO Property
in the same manner that it manages, conserves, protects and operates other
foreclosed property for its own account, and in the same manner that similar
property in the same locality as the REO Property is managed. The Company shall
attempt to sell the same (and
<PAGE>
-39-
may temporarily rent the same) on such terms and conditions as the Company deems
to be in the best interest of the Purchaser. Notwithstanding anything to the
contrary in this Section 4.12, the Company shall not be required to advance any
of its own funds pursuant to this Section 4.12 if such advance would be a
Nonrecoverable Advance.
With respect to each REO Property, the Company shall hold all funds
collected and received in connection with the operation of the REO Property
separate and apart from its own funds or general assets and shall establish and
maintain with respect to all REO Property a REO Account or Accounts, in the form
of a demand account, titled "Long Beach Mortgage Company, in trust for the
Purchaser as of [date of acquisition of title] of Fixed Rate and Adjustable Rate
Mortgage Loans, Flow Delivery Program" unless an Opinion of Counsel is obtained
by the Company to the effect that the classification for federal income tax
purposes of the arrangement under which the Mortgage Loans and the REO Property
are held will not be adversely affected by holding such funds in another manner
specified in such Opinion of Counsel. Such REO Accounts shall be established
with a commercial bank, a national bank, a national banking association, a
mutual savings bank or a savings and loan association. Funds in the REO Account
shall be fully insured by the FDIC, or such account shall be a trust account,
and in either case may be drawn on by the Company. The creation of any REO
Account shall be evidenced by a letter agreement substantially in the form of
Exhibit D hereto. A copy of such letter agreement shall be furnished to the
Purchaser upon request.
The Company shall cause to be deposited on a daily basis in each REO
Account all revenues received with respect to the conservation and disposition
of the related REO Property and shall withdraw therefrom funds necessary for the
proper operation, management and maintenance of the REO Property, including the
cost of maintaining any hazard insurance pursuant to Section 4.10 hereof and the
fees of any managing agent acting on behalf of the Company. The Company shall
not be entitled to retain interest paid or other earnings, if any, on funds
deposited in such REO Account.
The Company shall use its best efforts to dispose of the REO Property as
soon as possible and shall sell such REO Property in any event within two years
after title has been taken to such REO Property, unless (i) a REMIC election has
not been made with respect to the arrangement under which the REO Property is
held, and (ii) the Company determines, and gives an appropriate notice to the
Purchaser, that a longer period is necessary for the orderly liquidation of such
REO Property. If a period longer than two years is permitted under this
Agreement and is necessary to sell any REO Property, (i) the Company shall
report monthly to the Owners as to the progress being made in selling such REO
Property and (ii) if, with the written consent of the Purchaser, a purchase
money mortgage is taken in connection with such sale, such purchase money
mortgage shall name the Company as mortgagee, and a participation agreement
among the Company and the Purchaser shall be entered into with respect to such
purchase money mortgage.
The disposition of REO Property shall be carried out by the Company only
with the prior written consent of the Purchaser (which consent shall not be
unreasonably withheld or
<PAGE>
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delayed) and shall be made at such price, and upon such terms and conditions, as
the Company deems to be in the best interests of the Purchaser. The proceeds of
sale of the REO Property shall be promptly deposited in the REO Account and, as
soon as practical thereafter, the expenses of such sale shall be paid. Prior to
each Remittance Date, the Company shall deposit in the Custodial Account all
funds in the REO Accounts, net of unreimbursed Servicing Advances, accrued and
unpaid Servicing Fees and unreimbursed advances made pursuant to Section 5.03
which shall be retained by the Company with respect to the related Mortgage
Loan.
Upon request, with respect to any REO Property, the Company shall
furnish to the Purchaser a statement covering the Company's efforts in
connection with the sale of that REO Property and any rental of the REO Property
incidental to the sale thereof for the previous month (together with an
operating statement). That statement shall be accompanied by such other
information as the Purchaser shall reasonably request.
Section 4.13 Liquidation Reports.
-------------------
The Company shall submit to the Purchaser monthly, at the time of the
remittance report required pursuant to Section 5.02, a liquidation report with
respect to each Mortgaged Property sold in a foreclosure sale as of the related
Record Date and not previously reported.
Section 4.14 Delivery of Documents in Possession of Custodian.
------------------------------------------------
The Purchaser shall cause the Custodian to deliver to the Company, on a
timely basis, those Mortgage Files that the Company may request from the
Custodian from time to time. Should the Custodian fail to deliver requested
Mortgage Files on a timely basis, the Company shall not be liable for any
related loss and any Event of Default which is attributable to the failure to
deliver, or the untimely delivery of, the requested Mortgage Files shall be
deemed to have not occurred.
Section 4.15 Notification of Adjustments.
---------------------------
On each Adjustment Date, the Company shall make interest rate
adjustments for each Mortgage Loan in compliance with the requirements of the
related Mortgage and Mortgage Note. The Company shall execute and deliver the
notices required by each Mortgage and Mortgage Note regarding interest rate
adjustments. The Company shall also provide timely notification to the Purchaser
of all applicable data and information regarding such interest rate adjustments
and the Company's methods of implementing such interest rate adjustments. Upon
the discovery by the Company or the Purchaser that the Company has failed to
adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of
the related Mortgage Note and Mortgage, the Company shall immediately deposit in
the Custodial Account from its own funds the amount of any interest loss caused
thereby without reimbursement therefor.
<PAGE>
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ARTICLE V
PAYMENTS TO THE PURCHASER
-------------------------
Section 5.01 Distributions.
-------------
On each Remittance Date the Company shall remit by wire transfer of
immediately available funds to the account designated in writing by the
Purchaser the Available Remittance Amount.
Section 5.02 Statements to the Purchaser.
---------------------------
Not later than each Remittance Date, the Company will furnish to the
Purchaser a statement in a computer readable format setting forth the following
information with respect to the related remittance:
(i) the amount of such remittance allocable to principal
(including a separate breakdown of any Principal Prepayments, including the
date of such prepayment);
(ii) the amount of such distribution allocable to interest;
(iii) the amount of Servicing Compensation received by the Company
during the prior Due Period;
(iv) the aggregate Stated Principal Balance of the Mortgage Loans
as of the close of business on the related Determination Date;
(v) the aggregate of any expenses reimbursed to the Company
during the prior distribution period pursuant to Section 9.01;
(vi) the weighted average maturity of the Mortgage Loans as of
the close of business on the applicable Determination Date;
(vii) in the event the Mortgage Loans bear different Mortgage
Interest Rates, the weighted average Mortgage Interest Rate and Mortgage Loan
Remittance Rate of the Mortgage Loans as of the close of business on the
applicable Determination Date;
(viii) the number and aggregate principal balances of Mortgage
Loans (a) delinquent (1) 31 days, (2) 61 days, (3) 91 days or more, (b) as to
which foreclosure has commenced, and (c) as to which REO Property has been
acquired;
<PAGE>
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(ix) the aggregate amount of advances made pursuant to Section
5.03 included in such distribution, and the aggregate amount of such advances
outstanding as of the close of business on such Remittance Date;
(x) the amount of all Liquidation Proceeds;
(xi) the amount of all proceeds received by the Company under any
title, hazard, primary mortgage guaranty or other insurance policy, including
amounts required to be deposited pursuant to Section 4.10, other than proceeds
to be held in the Escrow Account and applied to the restoration or repair of
the Mortgaged Property or released to the Mortgagor in accordance with
Customary Servicing Procedures;
(xii) the amount of all awards or settlements in respect of
condemnation proceedings or eminent domain affecting any Mortgaged Property
which are not released to the Mortgagor in accordance with Customary Servicing
Procedures;
(xiii) the amounts, if any, required to be deposited in the
Custodial Account pursuant to Sections 4.12, 5.03, 5.04 and 6.02; and
(xiv) the amounts, if any, payable in connection with the
repurchase of any Mortgage Loan pursuant to Section 3.03, and all amounts
required to be deposited by the Company in connection with shortfalls in
principal amount of Qualified Substitute Mortgage Loans pursuant to Section
3.03.
Within 60 days after the end of each calendar year, the Company will
furnish a report to the Purchaser. Such report shall state the aggregate of
amounts reported pursuant to (i) through (iii) and (v) above for such calendar
year. Such obligation of the Company shall be deemed to have been satisfied to
the extent that substantially comparable information shall be provided by the
Company pursuant to any requirements of the Internal Revenue Code of 1986 as
from time to time in force.
The Company shall prepare and file any and all tax returns, information
statements or other filings required to be delivered to any governmental taxing
authority or to the Purchaser pursuant to any applicable law with respect to the
Mortgage Loans and the transactions contemplated hereby. In addition, the
Company shall provide the Purchaser with such information concerning the
Mortgage Loans as is necessary for the Purchaser to prepare its federal income
tax return as the Purchaser may reasonably request from time to time.
Section 5.03 Advances by the Company.
-----------------------
On the second Business Day preceding each Remittance Date, the Company
shall deposit in the Custodial Account an amount equal to all Monthly Payments
(with interest adjusted to the Mortgage Loan Remittance Rate) which were due on
the Mortgage Loans on the
<PAGE>
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Due Date in the month of the Remittance Date and not received by the close of
business on the immediately preceding Determination Date. The Company's
obligation to make such advances as to any Mortgage Loan will continue until the
liquidation thereof, an REO Disposition in connection therewith or the purchase
or repurchase thereof. Notwithstanding anything to the contrary, the obligation
of the Company to make such advances pursuant to this Section 5.03 is mandatory,
except that no advance shall be required to be made hereunder that would, if
made, constitute a Nonrecoverable Advance. The Company may pay all or a portion
of any advance out of excess amounts on deposit in the Custodial Account and
held for future distribution on the date such advance is made; any such excess
amounts so used shall be replaced by the Company by deposit to the Custodial
Account on or before the next succeeding Determination Date.
Section 5.04 Prepayment Interest Shortfalls.
------------------------------
Prior to each Remittance Date, the Servicer shall either deposit in the
Custodial Account from its own funds and without any right of reimbursement
therefor, or leave on deposit in the Custodial Account to the extent not
previously retained or withdrawn, a total amount equal to the aggregate of the
Prepayment Interest Shortfalls for such Remittance Date; provided that the
Servicer's obligations under this Section on any Remittance Date shall not be
more than the total amount of Servicing Fee paid to or retained by the Servicer
since the preceding Remittance Date.
<PAGE>
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ARTICLE VI
GENERAL SERVICING PROCEDURE
---------------------------
Section 6.01 Assumption Agreements.
---------------------
The Company will use its best efforts to enforce any "due-on-sale"
provision contained in any Mortgage or Mortgage Note and to deny assumption by
the person to whom the Mortgaged Property has been or is about to be sold
whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains liable on the Mortgage and the Mortgage Note. When the
Mortgaged Property has been or will be conveyed by the Mortgagor, the Company
will, to the extent it has knowledge of such conveyance, exercise its rights to
accelerate the maturity of such Mortgage Loan under the "due-on-sale" clause
applicable thereto, provided, however, the Company will not exercise such rights
if prohibited by law from doing so. If the Company reasonably believes it is
unable under applicable law to enforce such "due-on-sale" clause, the Company
will obtain the written permission of the Purchaser (which consent shall not be
unreasonably withheld or delayed) prior to entering into an assumption and
modification agreement with the person to whom such property has been conveyed,
pursuant to which such person becomes liable under the Mortgage Note and, to the
extent permitted by applicable law, the Mortgagor remains liable thereon. If an
assumption fee is collected by the Company for entering into an assumption
agreement the entire such fee will be retained by the Company as additional
Servicing Compensation. In connection with any such assumption, the outstanding
principal amount, the Monthly Payment and (except pursuant to the adjustable
rate provisions, if any, of the Mortgage Loan) the Mortgage Interest Rate of the
related Mortgage Note shall not be changed, and the term of the Mortgage Loan
will not be increased or decreased. If an assumption is allowed pursuant to this
Section 6.01, the Company with the prior consent of the primary mortgage
guaranty insurer, if any, is authorized to enter into a substitution of
liability agreement with the purchaser of the Mortgaged Property pursuant to
which the original Mortgagor is released from liability and the purchaser of the
Mortgaged Property is substituted as Mortgagor and becomes liable under the
Mortgage Note.
Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files.
-------------------------------------------------------
Upon the payment in full of any Mortgage Loan, or the receipt by the
Company of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Company will obtain the portion of the Mortgage
File that is in the possession of the Custodian, prepare and process any
required satisfaction or release of the Mortgage and notify the Purchaser. No
expense incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Custodial Account or the Purchaser.
<PAGE>
-45-
Immediately after the payment in full of such Mortgage Loan, the Company
shall give prompt written notice to the Purchaser of such payment in full.
In the event the Company grants a satisfaction or release of a Mortgage
without having obtained payment in full of the indebtedness secured by the
Mortgage or should the Company otherwise prejudice any right the Purchaser may
have under the mortgage instruments, the Company shall remit to the Purchaser
the Stated Principal Balance of the related Mortgage Loan by deposit thereof in
the Custodial Account including Prepayment Interest Shortfall, if any. The
Company shall maintain the Fidelity Bond as provided for in Section 4.11
insuring the Company against any loss it may sustain with respect to any
Mortgage Loan not satisfied in accordance with the procedures set forth herein.
Section 6.03 Servicing Compensation.
----------------------
As compensation for its services hereunder, the Company shall be
entitled to retain from interest payments on the Mortgage Loans the Company's
Servicing Fee. Additional servicing compensation in the form of assumption fees
and other administrative fees and late payment charges shall be retained by the
Company. The Company also shall be entitled to receive from the Custodial
Account as additional servicing compensation interest or other income earned on
deposits therein, as well as any Prepayment Interest Excess and prepayment
penalties other than Prepayment Charges. The Company shall be required to pay
all expenses incurred by it in connection with its servicing activities
hereunder and shall not be entitled to reimbursement therefor except as
specifically provided for herein.
Section 6.04 Annual Statement as to Compliance.
---------------------------------
The Company will deliver to the Purchaser, on or before April 15 of each
year beginning April 15, 1998, an Officer's Certificate stating that (i) the
Company has fully complied with the provisions of Article IV, (ii) a review of
the activities of the Company during the preceding calendar year and of
performance under this Agreement has been made under such officer's supervision,
and (iii) to the best of such officer's knowledge, based on such review, the
Company has fulfilled all its obligations under this Agreement throughout such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and the action being taken by the Company to cure such default.
Section 6.05 Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
On or before the later of (i) April 15 of each year beginning April 15,
1998, or (ii) within 30 days of the issuance of the annual audited Financial
Statements beginning with the audit for the period ending December 31, 1997, the
Company at its expense shall cause a firm of independent public accountants
which is a member of the American Institute of Certified Public Accountants to
furnish a statement to the Purchaser to the effect that based on an examination
of
<PAGE>
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certain specified documents and records relating to the servicing of the
Company's mortgage loan portfolio conducted substantially in compliance with the
audit program for mortgages serviced for FNMA and FHLMC, the United States
Department of Housing and Urban Development Mortgage Audit Standards, or the
Uniform Single Attestation Program for Mortgage Bankers (the "Applicable
Accounting Standards"), such firm is of the opinion that such servicing has been
conducted in compliance with the Applicable Accounting Standards except for (a)
such exceptions as such firm shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement.
Section 6.06 Option to Acquire Servicing; Continuation of Company as
-------------------------------------------------------
Servicer.
--------
If so provided in the related Commitment Letter, the Purchaser shall
have the right to purchase the servicing rights for the related Mortgage Loans,
in accordance with the terms set forth in such Commitment Letter.
Subject to exercise of the option, if any, to acquire servicing as
described above, the Purchaser hereby agrees that any agreement entered into by
the Purchaser in connection with any Pass-Through Transfer shall provide for the
continuation of the Company as the servicer of the Mortgage Loans pursuant to
the related Reconstitution Agreement without diminution of the Company's rights
hereunder.
Section 6.07 Purchaser's Right to Examine Company Records.
--------------------------------------------
The Purchaser shall have the right, at all reasonable times and as often
as reasonably required, to examine and audit any and all of the books, records
or other information of the Company, whether held by the Company or by another
on behalf of the Company, which may be relevant to the performance or observance
by the Company of the terms, covenants or conditions of this Agreement.
<PAGE>
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ARTICLE VII
REPORTS TO BE PREPARED BY COMPANY
---------------------------------
Section 7.01 Company Shall Provide Access and Information as Reasonably
----------------------------------------------------------
Required.
--------
The Company shall provide to the Purchaser access to any documentation
regarding the Mortgage Loans which is required by applicable regulations. Such
access shall be afforded without charge, but only upon reasonable request,
during normal business hours and at the offices of the Company.
In addition, the Company shall furnish to the Purchaser upon request,
during the term of this Agreement, such periodic, special or other reports or
information, whether or not provided for herein, as shall be necessary,
reasonable or appropriate with respect to the purposes of this Agreement and the
applicable regulations. All such reports or information shall be provided by and
in accordance with all reasonable instructions and directions the Purchaser may
require. The Company agrees to execute and deliver all such instruments and take
all such action as the Purchaser, from time to time, may reasonably request in
order to effectuate the purposes and to carry out the terms of this Agreement.
Section 7.02 Financial Statements.
--------------------
Upon written request of the Purchaser, the Company shall provide a
Consolidated Statement of Income of the Company for the most recently completed
three fiscal years respecting which such statements are available, as well as a
Consolidated Balance Sheet at the end of the last two fiscal years covered by
such Consolidated Statement of Income, and any comparable interim statements, to
the extent any such statements have been prepared by the Company (and are
available upon request to members or stockholders of the Company, or to the
public at large).
Upon reasonable request, during normal business hours and at the offices
of the Company, the Company also agrees to make available to the Purchaser or
prospective purchaser of the Mortgage Loans a knowledgeable financial or
accounting officer for the purpose of answering questions respecting recent
developments affecting the Company or the financial statements of the Company
and to permit the Purchaser or prospective purchaser of the Mortgage Loans to
inspect the Company's servicing facilities for the purpose of satisfying the
Purchaser or prospective purchaser of the Mortgage Loans that the Company has
the ability to service the Mortgage Loans in accordance with this Agreement.
Notwithstanding the preceding sentence, the Company shall not be required to
provide any information that it deems confidential.
<PAGE>
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ARTICLE VIII
REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENT UPON A WHOLE LOAN
- ------------------------------------------------------------------------------
TRANSFER OR A PASS-THROUGH TRANSFER ON ONE OR MORE RECONSTITUTION DATES
- -----------------------------------------------------------------------
Section 8.01 Removal of Mortgage Loans from Inclusion Under this
Agreement Upon a Whole Loan Transfer or a Pass-Through
Transfer on One or More Reconstitution Dates. Removal of
-------------------------------------
Mortgage Loans from Inclusion Under this Agreement Upon a
---------------------------------------------------------
Whole Loan Transfer or a Pass-Through Transfer on One or
--------------------------------------------------------
More Reconstitution Dates.
-------------------------
Company and Purchaser agree that with respect to some or all of the
Mortgage Loans, within 12 months from the respective Closing Date, the Purchaser
shall effect either:
(1) one or more Whole Loan Transfers; and/or
(2) one or more Pass-Through Transfers;
provided, however, that no Mortgage Loan shall be the subject of more than one
Whole Loan Transfer or one Pass-Through Transfer hereunder. The Company and
Purchaser agree that in no event will the Company be required to remit funds or
send remittance reports to more than four (4) persons at any given time with
respect to any Whole Loan Transfer or Pass-Through Transfer.
With respect to each Whole Loan Transfer or Pass-Through Transfer, as
the case may be, entered into by Purchaser, Company agrees:
(1) to cooperate fully with Purchaser and any prospective purchaser with
respect to all reasonable requests and due diligence procedures;
(2) to execute all Reconstitution Agreements and such ancillary
documents (including a Custodial Agreement) that are standard in the
industry provided that each of the Company and the Purchaser is
given an opportunity to review and reasonably negotiate in good
faith the content of such documents not specifically referenced or
provided for herein; and provided, further, that any such agreement
entered into in connection with a Whole Loan Transfer or Pass-
Through Transfer, servicing retained, shall permit the related
Mortgage Loans to be sub-serviced by the Sub-Servicer
<PAGE>
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and master serviced by the Company in accordance with the Sub-
Servicing Agreement attached hereto as Exhibit O;
(3) with respect to any Whole Loan Transfer or Pass-Through Transfer
occurring within 6 months (unless otherwise specified in the related
Confirmation) of the Final Closing Date, the Company shall make the
representations and warranties regarding the Company and the
Mortgage Loans as of the date of the Whole Loan Transfer or Pass-
Through Transfer, modified to the extent necessary to accurately
reflect the pool statistics of the Mortgage Loans as of the date of
such Whole Loan Transfer or Pass-Through Transfer;
(4) to deliver to the Purchaser for inclusion in any prospectus or other
offering material such publicly available information regarding the
Company, its financial condition and its mortgage loan delinquency,
foreclosure and loss experience, underwriting standards, lending
activities and loan sales, production, and servicing and collection
practices, generally as is set forth in prospectus supplements
previously delivered in connection with public offerings of pass-
through securities backed by mortgage loans similar to the Mortgage
Loans and sold by the Company, and to deliver to the Purchaser any
similar nonpublic, unaudited financial information, in which case
the Purchaser shall bear the cost of having such information audited
by certified public accountants if the Purchaser desires such an
audit, or as is otherwise reasonably requested by the Purchaser and
which the Company is capable of providing without unreasonable
effort or expense, and to indemnify the Purchaser and its affiliates
for material misstatements contained in such information;
(5) to deliver to the Purchaser and to any Person designated by the
Purchaser, at the Purchaser's expense, such statements and audit
letters of reputable, certified public accounts pertaining to
information provided by the Company pursuant to clause 4 above as
shall be reasonably requested by the Purchaser;
(6) to deliver to the Purchaser, and to any Person designated by the
Purchaser, such in-house opinions of counsel as are customarily
delivered by originators or servicers, as the case may be, in
connection with Whole Loan Transfers or Pass-Through Transfers, as
the case may be, it being understood that the cost of any opinions
of outside special counsel that may be required for a Whole Loan
Transfer or Pass-Through Transfer, as the case may be, shall be the
responsibility of the Purchaser; and
<PAGE>
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(7) to cooperate fully with the Purchaser and any prospective
purchaser with respect to the preparation of Mortgage Loan
Documents and other documents with respect to servicing
requirements reasonably requested by the rating agencies and
credit enhancers.
All Mortgage Loans not sold or transferred pursuant to a Whole Loan
Transfer or Pass-Through Transfer shall be subject to this Agreement and shall
continue to be serviced in accordance with the terms of this Agreement and with
respect thereto this Agreement shall remain in full force and effect.
<PAGE>
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ARTICLE IX
THE COMPANY
-----------
Section 9.01 Indemnification; Third Party Claims.
-----------------------------------
The Company agrees to indemnify and hold harmless the Purchaser against
any and all claims, losses, penalties, fines, forfeitures, legal fees and
related costs, judgments, and any other costs, fees and expenses that the
Purchaser may sustain in any way related to the failure of the Company to
perform its duties and service the Mortgage Loans in strict compliance with the
terms of this Agreement. The Company shall immediately notify the Purchaser if
a claim is made by a third party with respect to this Agreement or the Mortgage
Loans, and the Company shall assume the defense of any such claim and advance
all expenses in connection therewith, including counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Company or the Purchaser in respect of such claim. The Purchaser shall promptly
reimburse the Company for all amounts advanced by it pursuant to the preceding
sentence except when the claim in any way relates to the Company's failure to
service and administer the Mortgage Loans in strict compliance with the terms of
this Agreement.
Section 9.02 Merger or Consolidation of the Company.
--------------------------------------
The Company will keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans and to perform its
duties under this Agreement.
Any Person into which the Company may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Company shall be a party, or any Person succeeding to substantially all of the
business of the Company (whether or not related to loan servicing), shall be the
successor of the Company hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding; provided, however, that the successor or surviving
Person shall be an institution (i) having a GAAP net worth of not less than
$15,000,000, (ii) the deposits of which are insured by the FDIC or which is a
HUD-approved mortgagee whose primary business is in origination and servicing of
mortgage loans comparable to the Mortgage Loans and (iii) who is a FNMA approved
seller/servicer in good standing.
<PAGE>
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Section 9.03 Limitation on Liability of the Company and Others.
-------------------------------------------------
The Company and any director, officer, employee or agent of the Company
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 9.01,
the Company shall have no obligation to appear with respect to, prosecute or
defend any legal action which is not incidental to the Company's duty to service
the Mortgage Loans in accordance with this Agreement.
Section 9.04 Company Not to Resign.
---------------------
The Company shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Company and the Purchaser or upon the determination that the Company's duties
hereunder are no longer permissible under applicable law and such incapacity
cannot be readily cured by the Company without additional expenses. Any such
determination permitting the resignation of the Company shall be evidenced by an
Opinion of Counsel to such effect delivered to the Purchaser. No such
resignation shall become effective until a successor which satisfies the
requirements of Section 9.02 has assumed the Company's responsibilities and
obligations hereunder in accordance with Section 13.01.
Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement.
-------------------------------------------------
With respect to the retention of the Company to service the Mortgage
Loans hereunder, the Company acknowledges that the Purchaser has acted in
reliance upon the Company's independent status, the adequacy of its servicing
facilities, plant, personnel, records and procedures, its integrity, reputation
and financial standing and the continuance thereof. Without in any way limiting
the generality of this Section, and subject to Section 6.06 and this 9.05, the
Company shall not either assign this Agreement or the servicing hereunder or
delegate its rights or duties hereunder or any portion thereof.
Notwithstanding the foregoing, the Company may enter into the Sub-
Servicing Agreement with the Sub-Servicer for the servicing and administration
of the Mortgage Loans.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Company and a
Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise,
the Company shall remain obligated and primarily liable to the Purchaser for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of Section 4.01 without diminution of such obligation or liability by
virtue of such Sub-Servicing Agreements or arrangements or by virtue of
indemnification from the Sub-Servicer and to the same extent and under the same
terms and conditions as if the Company alone were servicing and administering
the Mortgage Loans. The
<PAGE>
-53-
Company shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Company by such Sub-Servicer and nothing contained in
this Agreement shall be deemed to limit or modify such indemnification.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Company alone, and the Purchaser shall not be deemed parties thereto and shall
have no claims, rights, obligations, duties or liabilities with respect to the
Sub-Servicer except as set forth in the Sub-Servicing Agreement. The Company
shall be solely liable for all fees owed by it to any Sub-Servicer, irrespective
of whether the Company's compensation pursuant to this Agreement is sufficient
to pay such fees.
<PAGE>
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ARTICLE X
DEFAULT
-------
Section 10.01 Events of Default.
-----------------
In case one or more of the following Events of Default by the Company
shall occur and be continuing, that is to say:
(i) any failure by the Company to remit to the Purchaser any
payment required to be made under the terms of this Agreement which continues
unremedied for a period of 5 days after the date upon which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Company by the Purchaser; or
(ii) failure by the Company to duly observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Company as set forth in this Agreement which failure continues unremedied for
a period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Company by the
Purchaser; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a receiver or liquidator
in any insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Company and such decree or order shall
have remained in force, undischarged or unstayed for a period of 60 days; or
(iv) the Company shall consent to the appointment of a receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Company or relating
to all or substantially all of the Company's property; or
(v) the Company shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations; or
(vi) any failure of the Company to make any advance when required
to be made pursuant to Section 5.03 that continues unremedied for a period of
one Business Day after the date on which telecopied notice of such failure,
requiring the same to be remedied, shall have been given to the Company by the
Purchaser (followed by written notice delivered within one Business Day
thereafter);
<PAGE>
-55-
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Purchaser, by notice in writing to the Company, may, in
addition to whatever rights the Purchaser may have at law or equity to damages,
including injunctive relief and specific performance, commence termination of
all the rights and obligations of the Company under this Agreement and in and to
the Mortgage Loans and the proceeds thereof. Upon receipt by the Company of a
second written notice from the Purchaser stating that they intend to terminate
the Company as a result of such Event of Default, all authority and power of the
Company under this Agreement, whether with respect to the Mortgage Loans or
otherwise, shall pass to and be vested in the successor appointed pursuant to
Section 13.01. Upon receipt of such second written notice, the Company shall
prepare, execute and deliver to a successor any and all documents and other
instruments, place in such successor's possession all Mortgage Files and do or
cause to be done all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, including, but not limited to, the
transfer and endorsement or assignment of the Mortgage Loans and related
documents to the successor, all at the Company's sole expense. The Company
agrees to cooperate with the Purchaser and such successor in effecting the
termination of the Company's responsibilities and rights hereunder, including,
without limitation, the transfer to such successor for administration by it of
all amounts which shall at the time be credited or should have been credited by
the Company to the Custodial Account or Escrow Account or REO Account or
thereafter received with respect to the Mortgage Loans.
Section 10.02 Waiver of Defaults.
------------------
The Purchaser may waive any default by the Company in the performance of
its obligations hereunder and its consequences. Upon any waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Section 10.03 Servicer to Retain Previous Entitlement.
---------------------------------------
Notwithstanding any termination of the activities of the Servicer
hereunder pursuant to Section 10.01, the Servicer shall be entitled to receive,
out of any late collection of a Monthly Payment on a Mortgage Loan which was due
prior to the notice terminating the Servicer's rights and obligations as
Servicer hereunder and received after such notice, that portion thereof to which
the Servicer would have been entitled pursuant to Section 4.05, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
<PAGE>
-56-
ARTICLE XI
TERMINATION
-----------
Section 11.01 Termination.
-----------
This Agreement shall terminate upon either: (i) the later of the
distribution to the Purchaser of final payment or liquidation with respect to
the last Mortgage Loan (or advances of same by the Company), or the disposition
of all property acquired upon foreclosure or deed in lieu of foreclosure with
respect to the last Mortgage Loan and the remittance of all funds due hereunder;
(ii) the mutual consent of the Company and the Purchaser in writing; or (iii)
the acquisition of all servicing pursuant to Section 6.06 hereof.
<PAGE>
-57-
ARTICLE XII
MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST
------------------------------------------------
Section 12.01 Mandatory Delivery; Grant of Security Interest.
----------------------------------------------
The sale and delivery on the related Closing Date of the Mortgage Loans
described on the related Mortgage Loan Schedule is mandatory from and after the
date of the execution of the related Confirmation unless otherwise noted on the
Confirmation, it being specifically understood and agreed that each Mortgage
Loan is unique and identifiable on the date thereof and that an award of money
damages would be insufficient to compensate the Purchaser for the losses and
damages incurred by the Purchaser (including damages to prospective purchasers
of the Mortgage Loans) in the event of the Company's failure to deliver (i) each
of the related Mortgage Loans or (ii) one or more Qualified Substitute Mortgage
Loans or (iii) one or more Mortgage Loans otherwise acceptable to the Purchaser
on or before the related Closing Date. As of the date of each mandatory
delivery Confirmation, the Company hereby grants to the Purchaser a lien on and
a continuing security interest in each related Mortgage Loan and each document
and instrument evidencing each such Mortgage Loan to secure the performance by
the Company of its obligation to deliver the Mortgage Loans on the Closing Date
therefor, and the Company agrees that it holds such Mortgage Loans in custody
for the Purchaser subject to the Purchaser's (i) right to reject any Mortgage
Loan (or Qualified Substitute Mortgage Loan) under the terms of this Agreement
and to require another Mortgage Loan (or Qualified Substitute Mortgage Loan) to
be substituted therefor, and (ii) obligation to pay the Purchase Price for the
Mortgage Loans.
The Company intends that the conveyance of the Company's right, title
and interest in and to the Mortgage Loans to the Purchaser shall constitute a
sale and not a pledge of security for a loan. If such conveyance is deemed to
be a pledge of security for a loan, however, the Company intends that the rights
and obligations of the parties to such loan shall be established pursuant to the
terms of the Agreement. The Company also intends and agrees that, in such
event, (i) the Company shall be deemed to have granted to the Purchaser and its
assigns a first priority security interest in the Company's entire right, title
and interest in and to the Mortgage Loans, all principal and interest received
or receivable with respect to the Mortgage Loans, all amounts held from time to
time in the accounts mentioned pursuant to this Agreement and all reinvestment
earnings on such amounts, together with all of the Company's right, title and
interest in and to the proceeds of any title, hazard or other insurance policies
related to such Mortgage Loans and (ii) the Agreement shall constitute a
security agreement under applicable law. All rights and remedies of the
Purchaser under this Agreement are distinct from, and cumulative with, any other
rights or remedies under this Agreement or afforded by law or equity and all
such rights and remedies may be exercised concurrently, independently or
successively.
<PAGE>
-58-
ARTICLE XIII
MISCELLANEOUS PROVISIONS
------------------------
Section 13.01 Successor to the Company.
------------------------
Prior to termination of the Company's responsibilities and duties under
this Agreement pursuant to Sections 9.04, 10.01 or 11.01, the Purchaser shall
(i) succeed to and assume all of the Company's responsibilities, rights, duties
and obligations under this Agreement, or (ii) appoint a successor having the
characteristics set forth in Section 9.02 hereof and which shall succeed to all
rights and assume all of the responsibilities, duties and liabilities of the
Company under this Agreement prior to the termination of the Company's
responsibilities, duties and liabilities under this Agreement. In connection
with such appointment and assumption, the Purchaser may make such arrangements
for the compensation of such successor out of payments on Mortgage Loans as it
and such successor shall agree. In the event that the Company's duties,
responsibilities and liabilities under this Agreement should be terminated
pursuant to the aforementioned Sections, the Company shall discharge such duties
and responsibilities during the period from the date it acquires knowledge of
such termination until the effective date thereof with the same degree of
diligence and prudence which it is obligated to exercise under this Agreement,
and shall take no action whatsoever that might impair or prejudice the rights or
financial condition of its successor. The resignation or removal of the Company
pursuant to the aforementioned Sections shall not become effective until a
successor shall be appointed pursuant to this Section and shall in no event
relieve the Company of the representations and warranties made pursuant to
Sections 3.01 and 3.02 or its obligations under Section 9.01 and the remedies
available to the Purchaser under Section 3.03, it being understood and agreed
that the provisions of such Sections 3.01, 3.02, 3.03 and 9.01 shall be
applicable to the Company notwithstanding any such resignation or termination of
the Company, or the termination of this Agreement. In addition, notwithstanding
any such resignation or termination, the Company shall cooperate with all
reasonable requests for information by the Purchaser in connection with a Whole
Loan Transfer or a Pass-Through Transfer occurring within 180 days of such
termination; provided such information is in the possession of the Company and
the Purchaser pays for all out-of-pocket expenses of the Company incurred in
providing the same.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Company and to the Purchaser an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Company, with like effect as if originally named as a party to this Agreement.
Any termination or resignation of the Company or this Agreement pursuant to
Section 9.04, 10.01 or 11.01 shall not affect any claims that the Purchaser may
have against the Company arising prior to any such termination or resignation.
<PAGE>
-59-
The Company shall promptly deliver to the successor the funds in the
Custodial Account, Escrow Account and REO Account and all Mortgage Files and
related documents and statements held by it hereunder and the Company shall
account for all funds and shall execute and deliver such instruments and do such
other things as may reasonably be required to more fully and definitively vest
in the successor all such rights, powers, duties, responsibilities, obligations
and liabilities of the Company, all at the Company's sole expense.
Section 13.02 Amendment.
---------
This Agreement may be amended from time to time by the Company and the
Purchaser by written agreement signed by the Company and the Purchaser.
Section 13.03 Recordation of Agreement.
------------------------
To the extent permitted by applicable law, this Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Company at the Company's expense upon direction of the Purchaser, but only when
such direction is accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the Purchaser
or is necessary for the administration or servicing of the Mortgage Loans.
Section 13.04 Recordation of Assignment of Mortgages.
--------------------------------------
As provided in the Custodial Agreement, each Assignment of Mortgage
shall be in a form acceptable for recording in all appropriate public offices
for real property records in the jurisdiction in which the Mortgaged Property
recited in each such Assignment of Mortgage is situated.
Section 13.05 Duration of Agreement.
---------------------
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 13.06 Governing Law.
-------------
This Agreement shall be construed in accordance with the laws of the
State of New York, except to the extent preempted by Federal law, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Section 13.07 General Interpretive Principles.
-------------------------------
<PAGE>
-60-
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(c) references herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Agreement;
(d) a reference to a Subsection without further reference to a Section
is a reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(e) the words "herein", "hereof", "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular provision;
and
(f) the term "include" or "including" shall mean without limitation by
reason of enumeration.
Section 13.08 Reproduction of Documents.
-------------------------
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by any party at the closing, and (c) financial
statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process. The parties agree that
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 13.09 Notices.
-------
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by registered mail, postage prepaid, to (a) in the case of the Company, Long
Beach Mortgage Company, 1100 Town and Country Road, Orange, California 92868,
Attention: General Counsel, or such other address as may hereafter be furnished
to the Purchaser in writing by the Company and (b) in the case of the
<PAGE>
-61-
Purchaser, Salomon Brothers Realty Corp., Seven World Trade Center, New York,
New York 10048, Attention: Susan Mills.
Section 13.10 Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement. If the invalidity of any part, provision, representation or
warranty of this Agreement shall deprive any party of the economic benefit
intended to be conferred by this Agreement, the parties shall negotiate in good-
faith to develop a structure the economic effect of which is nearly as possible
the same as the economic effect of this Agreement without regard to such
invalidity.
Section 13.11 No Partnership.
--------------
Nothing herein contained shall be deemed or construed to create a co-
partnership or joint venture between the parties hereto and the services of the
Company shall be rendered as an independent contractor and not as agent for the
Purchaser.
Section 13.12 Execution; Successors and Assigns.
---------------------------------
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same agreement. Subject to Section 7.04, Section 10.01
and Section 11.01, this Agreement shall inure to the benefit of and be binding
upon the Company and the Purchaser and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as of the day and year first above written.
SALOMON BROTHERS REALTY CORP.,
Purchaser
By:_________________________
Name:___________________
Title:______________________
LONG BEACH MORTGAGE COMPANY,
Company
By:_________________________
Name:___________________
Title:______________________
<PAGE>
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This is an Assignment, Assumption and Recognition Agreement made this 30th
day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"),
Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and National
Mortgage Sales Corporation (the "Company").
In consideration of the mutual promises contained herein the parties hereto
agree that the mortgage loans listed on Exhibit One annexed hereto (the
"Mortgage Loans") now interim serviced by the Company for the Seller pursuant to
the Mortgage Loan Purchase and Interim Servicing Agreement (the "Purchase
Agreement"), dated as of September 1, 1998, between the Seller and the Company
shall be subject to the terms of this Agreement.
WARRANTIES
----------
1. (a) The Company and the Seller warrant and represent that attached
hereto as EXHIBIT TWO is a true, accurate and complete copy of the Purchase
Agreement, which Purchase Agreement is in full force and effect as of the date
hereof and which has not been amended or modified in any respect nor has any
notice of termination been given thereunder.
(b) The Seller warrants and represents that it is the lawful owner of
the Mortgage Loans with the full right to transfer the Mortgage Loans free from
any claim or encumbrance whatsoever.
(c) The Seller hereby warrants and represents to the Purchaser that
no event has occurred from September 29, 1998 with respect to a Mortgage Loan to
the date hereof that would result in any representation and warranty made
pursuant to Subsection 7.02 of the Purchase Agreement being untrue if made as of
the date hereof with respect to the Mortgage Loans (other than any statistical
information with respect to the Mortgage Loans and any changes due to the
receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest
Rates on the Mortgage Loans and similar changes, which information as reflected
on EXHIBIT ONE hereto is accurate in all material respects as of September 1,
1998). In the event of a breach of the foregoing representation and warranty
which materially and adversely affects the value of any Mortgage Loan or the
Purchaser's interest therein, the Seller shall repurchase such affected Mortgage
Loan at a repurchase price equal to the unpaid principal balance of such
Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from the
paid through date of the Mortgage Loan to the first day of the month following
the month in which such repurchase is effected; provided, that to the extent
that the Company would otherwise be required to repurchase a Mortgage Loan due
to the breach of any of the representations and warranties that are made or
deemed to have been made by the Company as of September 29, 1998, then the
Company (and not the Seller) shall be required to repurchase the affected
Mortgage Loan, and the Purchaser shall have no remedy against the Seller. It is
understood and agreed that the obligations of the Seller set forth in this
Section 1(c) to repurchase an affected Mortgage Loan constitutes the sole remedy
of the Purchaser respecting a breach of the representation and warranty made in
this Section 1(c).
<PAGE>
ASSIGNMENT AND ASSUMPTION
-------------------------
2. The Seller hereby assigns to the Purchaser (i) all of its right, title
and interest in and to the Mortgage Loans and (ii) all of its right, title, and
interest in, to, and under the Purchase Agreement to the extent of the Mortgage
Loans, and the Purchaser hereby assumes all of the Seller's obligations under
the Purchase Agreement with respect to the Mortgage Loans from and after the
date hereof, and the parties hereto agree that the Seller shall be relieved and
released of all of its obligations under the Purchase Agreement to the extent of
the Mortgage Loans from and after the date hereof.
RECOGNITION OF THE PURCHASER
----------------------------
3. From and after the date hereof, the Company shall recognize the
Purchaser as the owner of the Mortgage Loans and will interim service the
Mortgage Loans for the Purchaser as if the Purchaser and the Company had entered
into a separate servicing agreement for the servicing of the Mortgage Loans in
the form of the Purchase Agreement, the terms of which are incorporated herein
by reference. It is the intention of the Seller, the Company and the Purchaser
that this Agreement will be a separate and distinct agreement, and the entire
agreement, between the Company and the Purchaser to the extent of the Mortgage
Loans and shall be binding upon and for the benefit of the respective successors
and assigns of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SALOMON BROTHERS REALTY CORP.,
Seller
By:____________________________
Name:__________________________
Title:_________________________
WILSHIRE REAL ESTATE INVESTMENT
TRUST, INC.
Purchaser
By:____________________________
Name:__________________________
Title:_________________________
NATIONAL MORTGAGE SALES
CORPORATION
Company
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
================================================================================
MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT
________________________________
SALOMON BROTHERS REALTY CORP.
Initial Purchaser
________________________________
NATIONAL MORTGAGE SALES CORPORATION
Seller and Interim Servicer
________________________________
Dated as of September 1, 1998
Adjustable Rate Mortgage Loans
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Definitions............................................................................. 1
-----------
SECTION 2. Agreement to Purchase................................................................... 12
---------------------
SECTION 3. Mortgage Loan Schedule.................................................................. 12
----------------------
SECTION 4. Purchase Price.......................................................................... 12
--------------
SECTION 5. Examination of Mortgage Files........................................................... 13
-----------------------------
SECTION 6. Conveyance from Seller to Initial Purchaser............................................. 14
-------------------------------------------
Subsection 6.01. Conveyance of Mortgage Loans; Possession of Servicing Files.................. 14
-----------------------------------------------------------
Subsection 6.02. Books and Records............................................................ 15
-----------------
Subsection 6.03. Delivery of Mortgage Loan Documents.......................................... 15
-----------------------------------
SECTION 7. Representations, Warranties and Covenants of the Seller; Remedies for Breach............ 16
-----------------------------------------------------------------------------
Subsection 7.01. Representations and Warranties Respecting the Seller......................... 16
----------------------------------------------------
Subsection 7.02. Representations and Warranties Regarding Individual Mortgage Loans........... 18
------------------------------------------------------------------
Subsection 7.03. Remedies for Breach of Representations and Warranties........................ 24
-----------------------------------------------------
Subsection 7.04 Repurchase of Certain Mortgage Loans......................................... 26
------------------------------------
Subsection 7.05 Principal Prepayments in Full................................................ 27
-----------------------------
SECTION 8. Closing................................................................................. 27
-------
SECTION 9. Closing Documents....................................................................... 28
-----------------
SECTION 10. Costs................................................................................... 29
-----
SECTION 11. Seller's Servicing Obligations.......................................................... 29
------------------------------
Subsection 11.01 Seller to Act as Servicer.................................................... 29
-------------------------
Subsection 11.02 Collection of Mortgage Loan Payments......................................... 30
------------------------------------
Subsection 11.03 Realization Upon Defaulted Mortgage Loans.................................... 30
-----------------------------------------
Subsection 11.04 Establishment of Custodial Accounts; Deposits in Custodial Accounts.......... 32
-------------------------------------------------------------------
Subsection 11.05 Permitted Withdrawals From the Custodial Account............................. 34
------------------------------------------------
Subsection 11.06 Establishment of Escrow Accounts: Deposits in Escrow Accounts................ 35
-------------------------------------------------------------
Subsection 11.07 Permitted Withdrawals From Escrow Account.................................... 35
-----------------------------------------
Subsection 11.08 Payment of Taxes, Insurance and Other Charges................................ 36
---------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Subsection 11.09 Transfer of Accounts.......................................................... 36
--------------------
Subsection 11.10 Maintenance of Hazard Insurance............................................... 36
-------------------------------
Subsection 11.11 Maintenance of Mortgage Impairment Insurance Policy........................... 37
---------------------------------------------------
Subsection 11.12 Fidelity Bond; Errors and Omissions Insurance................................. 38
---------------------------------------------
Subsection 11.13 Title, Management and Disposition of REO Property............................. 38
-------------------------------------------------
Subsection 11.14 Distributions................................................................. 40
-------------
Subsection 11.15 Remittance Reports............................................................ 41
------------------
Subsection 11.16 Statements to the Purchaser................................................... 41
---------------------------
Subsection 11.17 Real Estate Owned Reports..................................................... 42
-------------------------
Subsection 11.18 Liquidation Reports........................................................... 42
-------------------
Subsection 11.19 Assumption Agreements......................................................... 42
---------------------
Subsection 11.20 Satisfaction of Mortgages and Release of Mortgage Files....................... 43
-------------------------------------------------------
Subsection 11.21 Servicing Advance Reimbursement............................................... 44
-------------------------------
Subsection 11.22 Servicing Compensation........................................................ 44
----------------------
Subsection 11.23 Statement as to Compliance.................................................... 44
--------------------------
Subsection 11.24 Independent Public Accountants' Servicing Report.............................. 45
------------------------------------------------
Subsection 11.25 Access to Certain Documentation............................................... 45
-------------------------------
Subsection 11.26 Notification of Adjustments................................................... 46
---------------------------
Subsection 11.27 Sub-Servicing Agreements Between Seller and Sub-Servicers..................... 46
---------------------------------------------------------
Subsection 11.28 Successor Sub-Servicers....................................................... 47
-----------------------
Subsection 11.29 Liability of the Seller....................................................... 47
-----------------------
Subsection 11.30 No Contractual Relationship Between Sub-Servicers and Purchaser............... 48
---------------------------------------------------------------
SECTION 12. [Reserved]............................................................................... 48
SECTION 13. The Seller............................................................................... 48
----------
Subsection 13.01. Additional Indemnification by the Seller...................................... 48
----------------------------------------
Subsection 13.02. Merger or Consolidation of the Seller......................................... 48
-------------------------------------
Subsection 13.03. Limitation on Liability of the Seller and Others.............................. 49
------------------------------------------------
Subsection 13.04. Seller Not to Resign.......................................................... 49
--------------------
Subsection 13.05. No Transfer of Servicing...................................................... 49
------------------------
SECTION 14. Default.................................................................................. 50
-------
Subsection 14.01. Events of Default............................................................. 50
-----------------
Subsection 14.02. Waiver of Defaults............................................................ 51
------------------
SECTION 15. Termination.............................................................................. 51
-----------
SECTION 16. Successor to the Seller.................................................................. 52
-----------------------
SECTION 17. Financial Statements..................................................................... 53
--------------------
SECTION 18. Mandatory Delivery; Grant of Security Interest........................................... 53
----------------------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 19. Notices...................................................................... 54
-------
SECTION 20. Severability Clause.......................................................... 54
-------------------
SECTION 21. Counterparts................................................................. 55
------------
SECTION 22. Governing Law................................................................ 55
-------------
SECTION 23. Intention of the Parties..................................................... 55
------------------------
SECTION 24. Successors and Assigns....................................................... 55
----------------------
SECTION 25. Waivers...................................................................... 56
-------
SECTION 26. Exhibits..................................................................... 56
--------
SECTION 27. Nonsolicitation.............................................................. 56
---------------
SECTION 28. General Interpretive Principles.............................................. 56
-------------------------------
SECTION 29. Reproduction of Documents.................................................... 56
-------------------------
SECTION 30. Further Agreements........................................................... 57
------------------
</TABLE>
iii
<PAGE>
EXHIBITS
EXHIBIT 1 FORM OF SELLER'S OFFICER'S CERTIFICATE
EXHIBIT 2 FORM OF OPINION OF COUNSEL TO THE SELLER
EXHIBIT 3 [INTENTIONALLY OMITTED]
EXHIBIT 4 CONTENTS OF EACH MORTGAGE FILE
EXHIBIT 5 FORM OF CUSTODIAL ACCOUNT LETTER AGREEMENT
EXHIBIT 6 FORM OF ESCROW ACCOUNT LETTER AGREEMENT
EXHIBIT 7 MORTGAGE LOAN DOCUMENTS
EXHIBIT 8 FORM OF MONTHLY DATA REPORT
SCHEDULE I MORTGAGE LOAN SCHEDULE
iv
<PAGE>
MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT
------------------------------------------------------
This is a MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT (the
"Agreement"), dated as of September 1, 1998, by and between Salomon Brothers
Realty Corp., having an office at Seven World Trade Center, New York, New York
10048 (the "Initial Purchaser," and the Initial Purchaser or the Person, if any,
to which the Initial Purchaser has assigned its rights and obligations hereunder
as Purchaser with respect to a Mortgage Loan, and each of their respective
successors and assigns, the "Purchaser") and National Mortgage Sales
Corporation, having an office at 7600 East Orchard Road, Suite 330S, Englewood,
Colorado 80111-4943 (the "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Seller, certain pools of 6 month LIBOR
adjustable rate mortgage loans (the "Mortgage Loans") as described herein on a
servicing released basis, and which shall be delivered as whole loans on the
date provided herein (the "Closing Date");
WHEREAS, each Mortgage Loan is secured by a mortgage, deed of trust or
other security instrument creating a first lien on a residential dwelling
located in the jurisdiction indicated on the Mortgage Loan Schedule, which is to
be annexed hereto on the Closing Date as Schedule I;
----------
WHEREAS, the Purchaser and the Seller wish to prescribe the manner of
the conveyance, interim servicing and control of the Mortgage Loans; and
WHEREAS, following its purchase of the Mortgage Loans from the Seller,
the Purchaser desires to sell some or all of the Mortgage Loans to one or more
purchasers as a whole loan transfer in a whole loan or participation format or a
public or private mortgage-backed securities transaction;
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Purchaser and the Seller agree
as follows:
SECTION 1. Definitions. For purposes of this Agreement the following
-----------
capitalized terms shall have the respective meanings set forth below.
Adjustment Date: With respect to each Mortgage Loan, the date set
---------------
forth in the related Mortgage Note on which the Mortgage Interest Rate on the
Mortgage Loan is adjusted in accordance with the terms of the Mortgage Note.
<PAGE>
Agreement: This Mortgage Loan Purchase and Interim Servicing
---------
Agreement including all exhibits, schedules, amendments and supplements hereto.
Appraised Value: With respect to any Mortgaged Property, the lesser
---------------
of (i) the value thereof as determined by an appraisal made for the originator
of the Mortgage Loan at the time of origination of the Mortgage Loan by an
appraiser who met the minimum requirements for appraisers set forth in the NMC
Non-Conforming Program Guide, and (ii) the purchase price paid for the related
Mortgaged Property by the Mortgagor with the proceeds of the Mortgage Loan,
provided, however, in the case of a Refinanced Mortgage Loan, such value of the
Mortgaged Property is based solely upon the value determined by an appraisal
made for the originator of such Refinanced Mortgage Loan at the time of
origination of such Refinanced Mortgage Loan by an appraiser who met the minimum
requirements for appraisers set forth in the NMC Non-Conforming Program Guide.
Each appraisal was performed in accordance with the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989.
Assignment of Mortgage: An individual 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,
when the Purchaser's name is filled in as the assignee, to give record notice of
the sale of the Mortgage to the Purchaser.
Bankruptcy Act: The Bankruptcy Reform Act of 1978, as amended (Title
--------------
11 of the United States Code).
Business Day: Any day other than a Saturday or Sunday, or a day on
------------
which banking and savings and loan institutions in the State of Colorado or the
State of New York are authorized or obligated by law or executive order to be
closed.
Cash-Out Refinancing: A Refinanced Mortgage Loan the proceeds of
--------------------
which were in excess of the principal balance of all existing mortgage loans
secured by the related Mortgaged Property and related closing costs, and were
used to pay off all liens on the related Mortgaged Property and related closing
costs, and, in some cases, other indebtedness of the Mortgagor, and in
connection with which the Mortgagor retains one percent or more of the principal
balance of the Refinanced Mortgage Loan after the pay-off of such liens and
indebtedness.
Closing Date: September 29, 1998.
------------
Closing Documents: The documents required pursuant to Section 9.
-----------------
Code: The Internal Revenue Code of 1986, or any successor statute
----
thereto.
Condemnation Proceeds: All awards, compensation and settlements in
---------------------
respect of a taking of all or part of a Mortgaged Property by exercise of the
power of condemnation or the right of eminent domain.
<PAGE>
3
Confirmation: With respect to the Mortgage Loans purchased and sold
------------
on the Closing Date, the letter agreement, dated September 18, 1998, between the
Initial Purchaser and the Seller, setting forth the terms and conditions of such
transaction and describing the Mortgage Loans to be purchased by the Purchaser
on the Closing Date.
Custodial Account: The separate account or accounts, each of which
-----------------
shall be an Eligible Account, created and maintained by the Seller or a Sub-
Servicer pursuant to this Agreement, which shall be entitled
"__________________________, as servicer, in trust for the Purchaser and various
Mortgagors, Adjustable Rate Mortgage Loans".
Cut-off Date: September 1, 1998.
------------
Debt Consolidation Refinancing: A Refinanced Mortgage Loan, the
------------------------------
proceeds of which were used to satisfy the then-existing first mortgage loan and
any subordinated mortgage loan(s) and other liens on the related Mortgaged
Property and to pay related closing costs, and which were used to pay other
indebtedness of the Mortgagor, and in connection with which the Mortgagor
retains either no cash or cash in an amount less than one percent of the initial
principal balance of such Refinanced Mortgage Loan from the proceeds of such
Refinanced Mortgage Loan.
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by
---------------------
a Qualified Substitute Mortgage Loan.
Determination Date: With respect to each Distribution Date, the
------------------
fifteenth (15th) day of the calendar month in which such Distribution Date
occurs or, if such fifteenth (15th) day is not a Business Day, the Business Day
immediately preceding such fifteenth (15th) day.
Distribution Date: The eighteenth (18th) day of each month,
-----------------
commencing on the eighteenth (18th) day of the month next following the month in
which the Cut-off Date occurs, or if such eighteenth (18th) day is not a
Business Day, the first Business Day immediately following such eighteenth
(18th) day.
Due Date: With respect to each Distribution Date, the day of the
--------
calendar month in which such Distribution Date occurs, which is the day on which
the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.
Due Period: With respect to each Distribution Date, the period
----------
commencing on the second day of the month preceding the month of the
Distribution Date and ending on the first day of the month of the Distribution
Date.
Eligible Account: Either (i) an account or accounts maintained with a
----------------
federal or state chartered depository institution or trust company, the short-
term unsecured debt obligations
<PAGE>
4
of which (or, in the case of a depository institution or trust company that is
the principal subsidiary of a holding company, the short-term unsecured debt
obligations of such holding company) are rated A-1 by S&P or Prime-1 by Moody's
(or a comparable rating if another rating agency is specified by the Initial
Purchaser by written notice to the Seller) at the time any amounts are held on
deposit therein, (ii) an account or accounts the deposits in which are fully
insured by the FDIC or (iii) a trust account or accounts maintained with a
federal or state chartered depository institution or trust company acting in its
fiduciary capacity. Eligible Accounts may bear interest.
Escrow Account: The separate trust account or accounts created and
--------------
maintained by the Seller or a Sub-Servicer pursuant to this Agreement which
shall be entitled "__________________________, as servicer, in trust for the
Purchaser and various Mortgagors, Adjustable Rate Mortgage Loans."
Escrow Payments: The amounts constituting ground rents, taxes,
---------------
assessments, water charges, sewer rents, Primary Mortgage Insurance Policy
premiums, fire and hazard insurance premiums and other payments required to be
escrowed by the Mortgagor with the Mortgagee pursuant to the terms of any
Mortgage Note or Mortgage.
Event of Default: Any one of the events enumerated in Subsection
----------------
14.01.
FDIC: The Federal Deposit Insurance Corporation or any successor
----
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation or any successor
-----
thereto.
Final Recovery Determination: With respect to any defaulted Mortgage
----------------------------
Loan or any REO Property (other than a Mortgage Loan or REO Property purchased
by the Seller pursuant to this Agreement), a determination made by the Seller
that all Insurance Proceeds, Liquidation Proceeds and other payments or
recoveries which the Seller, in its reasonable good faith judgment, expects to
be finally recoverable in respect thereof have been so recovered. The Seller
shall maintain records, prepared by a servicing officer of the Seller, of each
Final Recovery Determination.
FNMA: The Federal National Mortgage Association or any successor
----
thereto.
Gross Margin: With respect to any Mortgage Loan, the fixed percentage
------------
amount set forth in the related Mortgage Note and the Mortgage Loan Schedule
that is added to the Index on each Adjustment Date in accordance with the terms
of the related Mortgage Note to determine the new Mortgage Interest Rate for
such Mortgage Loan.
<PAGE>
5
HUD: The United States Department of Housing and Urban Development or
---
any successor thereto.
Index: On each Adjustment Date, the applicable index shall be a rate
-----
per annum equal to the average of interbank offered rates for six-month U.S.
dollar deposits in the London Market based on quotations of major banks, as
published by The Wall Street Journal, using the most recent figure available as
-----------------------
of the first Business Day of the month immediately preceding the month in which
each Adjustment Date occurs. If the Index ceases to be available, the Seller
shall choose a new Index based on comparable information.
Insurance Proceeds: With respect to each Mortgage Loan, proceeds of
------------------
insurance policies insuring the Mortgage Loan or the related Mortgaged Property.
Initial Purchaser: Salomon Brothers Realty Corp. or any successor.
-----------------
Interim Servicing Period: With respect to any Mortgage, the period
------------------------
during which the Seller shall service the Mortgage Loans in accordance with the
provisions of this Agreement, commencing on the Closing Date and ending on the
earlier to occur of (i) the close of business on the thirtieth (30th) day
following the Closing Date (or if such day is not a Business Day, the Business
Day immediately following such day), or such later date as specified by the
Purchaser at its sole discretion in a written notice from the Purchaser to the
Seller or (ii) such date as of which the Purchaser and Seller agree to terminate
such period.
Liquidation Event: With respect to any Mortgage Loan or REO Property,
-----------------
either of the following events: (i) a Final Recovery Determination is made as
to such Mortgage Loan or REO Property; or (ii) such Mortgage Loan or REO
Property is removed from this Agreement by reason of its being repurchased, sold
or replaced pursuant to or as contemplated by any provision of this Agreement.
Liquidation Proceeds: Amounts, other than Insurance Proceeds and
--------------------
Condemnation Proceeds, received in connection with the liquidation of a
defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise,
other than amounts received following the acquisition of REO Property.
Loan-to-Value Ratio or LTV: With respect to any Mortgage Loan as of
------------------- ---
any date of determination, the ratio on such date of the outstanding principal
amount of the Mortgage Loan to the Appraised Value of the Mortgaged Property.
Maximum Mortgage Interest Rate: With respect to each Mortgage Loan, a
------------------------------
rate that is set forth on the Mortgage Loan Schedule and in the related Mortgage
Note and is the maximum interest rate to which the Mortgage Interest Rate on
such Mortgage Loan may be increased on any Adjustment Date.
<PAGE>
6
Minimum Mortgage Interest Rate: With respect to each Mortgage Loan, a
------------------------------
rate that is set forth on the Mortgage Loan Schedule and in the related Mortgage
Note and is the minimum interest rate to which the Mortgage Interest Rate on
such Mortgage Loan may be decreased on any Adjustment Date.
Monthly Payment: With respect to any Mortgage Loan, the scheduled
---------------
combined payment of principal and interest payable by a Mortgagor under the
related Mortgage Note on each Due Date, which may be changed on any Adjustment
Date as provided in the related Mortgage Note.
Moody's: Moody's Investors Service, Inc. or its successor in
-------
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first lien on Mortgaged Property securing the Mortgage Note.
Mortgagee: The mortgagee or beneficiary named in the Mortgage and the
---------
successors and assigns of such mortgagee or beneficiary.
Mortgage File: The items pertaining to a particular Mortgage Loan
-------------
referred to in Exhibit 4 annexed hereto, and any additional documents required
---------
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Interest Rate: With respect to each Mortgage Loan, the
----------------------
annual rate at which interest accrues on such Mortgage Loan from time to time in
accordance with the provisions of the related Mortgage Note, which rate, (i) as
of any date of determination until the first Adjustment Date following the Cut-
off Date shall be the rate set forth in the Mortgage Loan Schedule as the
Mortgage Interest Rate in effect immediately following the Cut-off Date and (ii)
as of any date of determination thereafter shall be the rate as adjusted on the
most recent Adjustment Date, to equal the sum of the applicable Index plus the
related Gross Margin rounded, in some cases, to the next highest multiple of
0.125%, and, in other cases, to the nearest multiple of 0.125%; provided that
the Mortgage Interest Rate on such Mortgage Loan on any Adjustment Date shall
never be (a) more than the lesser of (1) the sum of the Mortgage Interest Rate
in effect immediately prior to the Adjustment Date plus the related Periodic
Rate Cap, if any, and (2) the related Maximum Mortgage Interest Rate or, (b)
less than the greater of (1) the remainder of the Mortgage Interest Rate in
effect immediately prior to the Adjustment Date minus the related Periodic Rate
Cap, if any, and (2) the related Minimum Mortgage Interest Rate.
Mortgage Loan: Each mortgage loan sold, assigned and transferred to
-------------
the Purchaser pursuant to this Agreement and identified on the Mortgage Loan
Schedule annexed to this Agreement on such Closing Date, which Mortgage Loan
includes without limitation the Mortgage File, the Monthly Payments, Principal
Prepayments, Liquidation Proceeds,
<PAGE>
7
Condemnation Proceeds, Insurance Proceeds, REO Disposition proceeds, and all
other rights, benefits, proceeds and obligations arising from or in connection
with such Mortgage Loan.
Mortgage Loan Documents: The documents listed in Exhibit 7 hereto
----------------------- ---------
pertaining to any Mortgage Loan.
Mortgage Loan Schedule: The schedule of Mortgage Loans to be annexed
----------------------
hereto as Schedule I on the Closing Date which shall be delivered not less than
----------
three (3) days prior to the Closing Date in both hard copy and floppy disk, such
schedule setting forth the following information with respect to each Mortgage
Loan: (1) the Seller's Mortgage Loan identifying number; (2) the Mortgagor's
first and last name; (3) the street address of the Mortgaged Property including
the state and zip code; (4) a code indicating whether the Mortgaged Property is
owner-occupied; (5) the type of Residential Dwelling constituting the Mortgaged
Property; (6) the original number of months to maturity; (7) the original date
of the Mortgage; (8) the Loan-to-Value Ratio at origination; (9) the Mortgage
Interest Rate in effect immediately following the Cut-off Date; (10) the date on
which the first Monthly Payment was or is to be due on the Mortgage Loan; (11)
the stated maturity date; (12) the amount of the Monthly Payment at origination;
(13) the amount of the Monthly Payment as of the Cut-off Date; (14) the last Due
Date on which a Monthly Payment was actually applied to the unpaid Stated
Principal Balance; (15) the original principal amount of the Mortgage Loan; (16)
the Stated Principal Balance of the Mortgage Loan as of the close of business on
the Cut-off Date; (17) the first Adjustment Date; (18) the Gross Margin; (19) a
code indicating the purpose of the loan (i.e., purchase financing, Rate/Term
Refinancing, Cash-Out Refinancing, Debt-Consolidation Refinancing); (20) the
Maximum Mortgage Interest Rate under the terms of the Mortgage Note; (21) the
Minimum Mortgage Interest Rate under the terms of the Mortgage Note; (22) the
Mortgage Interest Rate at origination; (23) the Periodic Rate Cap; (24) a code
indicating the documentation style (i.e., full, alternative or reduced); (25) a
code indicating if the Mortgage Loan is subject to a Primary Mortgage Insurance
Policy; (26) the first Adjustment Date immediately following the Cut-off Date;
(27) the Index; (28) the Appraised Value of the Mortgaged Property; (29) the
sale price of the Mortgaged Property, if applicable; (30) the actual unpaid
principal balance of the Mortgage Loan as of the Cut-off Date; (31) the
Servicing Fee; and (32) the combined Loan-to-Value Ratio at origination. With
respect to the Mortgage Loans in the aggregate, the Mortgage Loan Schedule shall
set forth the following information, as of the Cut-off Date: (1) the number of
Mortgage Loans; (2) the current principal balance of the Mortgage Loans; (3) the
weighted average Mortgage Interest Rate of the Mortgage Loans; and (4) the
weighted average remaining term to maturity of the Mortgage Loans.
Mortgage Note: The original executed note or other evidence of the
-------------
Mortgage Loan indebtedness of a Mortgagor.
<PAGE>
8
Mortgaged Property: The Mortgagor's real property securing repayment
------------------
of a related Mortgage Note, consisting of a fee simple interest in a single
contiguous parcel of real property improved by a Residential Dwelling.
Mortgagor: The obligor on a Mortgage Note, the owner of the Mortgaged
---------
Property and the grantor or mortgagor named in the related Mortgage and such
grantor's or mortgagor's successor's in title to the Mortgaged Property.
Net Mortgage Rate: With respect to any Mortgage Loan (or the related
-----------------
REO Property), as of any date of determination, a per annum rate of interest
equal to the then applicable Mortgage Interest Rate for such Mortgage Loan minus
the Servicing Fee Rate.
NMC Non-Conforming Program Guide: National Mortgage Corporation's "NMC
--------------------------------
Non-Conforming Program Guide", as in effect on the Closing Date and as
identified to the Initial Purchaser by the Seller in connection with the Initial
Purchaser's examination of Mortgage Files pursuant to Section 5.
Officer's Certificate: A certificate signed by the President or an
---------------------
Executive Vice President or a Vice President, and by the Treasurer or the
Secretary or one of the Assistant Treasurers or Assistant Secretaries of the
Person on behalf of whom such certificate is being delivered.
Opinion of Counsel: A written opinion of counsel, who may be salaried
------------------
counsel for the Person on behalf of whom the opinion is being given, reasonably
acceptable to each Person to whom such opinion is addressed.
Pass-Through Transfer: The sale or transfer of some or all of the
---------------------
Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly
issued or privately placed mortgage-backed securities transaction.
Periodic Rate Cap: With respect to each Mortgage Loan and any
-----------------
Adjustment Date therefor, a number of percentage points per annum that is set
forth in the Mortgage Loan Schedule and in the related Mortgage Note, which is
the maximum amount by which the Mortgage Interest Rate for such Mortgage Loan
may increase (without regard to the Maximum Mortgage Interest Rate) or decrease
(without regard to the Minimum Mortgage Interest Rate) on such Adjustment Date
from the Mortgage Interest Rate in effect immediately prior to such Adjustment
Date.
Person: An individual, corporation, partnership, joint venture,
------
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
<PAGE>
9
Preliminary Servicing Period: With respect to any Mortgage Loan, the
----------------------------
period commencing on the Closing Date and ending on the date the Seller enters
into a Reconstitution Agreement which amends or restates the servicing
provisions of this Agreement.
Principal Prepayment: Any payment or other recovery of principal on a
--------------------
Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon (which, if such penalty or premium has
been waived by the Seller or an affiliate of the Seller or otherwise not
collected despite still being in effect, shall be paid by the Seller to the
Purchaser), which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
Purchase Price: The price paid on the Closing Date by the Purchaser
--------------
to the Seller pursuant to the Confirmation in exchange for the Mortgage Loans
purchased on the Closing Date as calculated as provided in Section 4.
Qualified Substitute Mortgage Loan: A mortgage loan substituted for a
----------------------------------
Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on the
date of such substitution, (i) have an outstanding principal balance, after
application of all scheduled payments of principal and interest due during or
prior to the month of substitution, not in excess of the Stated Principal
Balance of the Deleted Mortgage Loan as of the Due Date in the calendar month
during which the substitution occurs, (ii) have a Mortgage Interest Rate not
less than (and not more than one percentage point in excess of) the Mortgage
Interest Rate of the Deleted Mortgage Loan, (iii) have a Net Mortgage Rate equal
to the Net Mortgage Rate of the Deleted Mortgage Loan, (iv) have a remaining
term to maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan, (v) have the same Due Date as the Due Date on the
Deleted Mortgage Loan, (vi) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date, (vii) conform to each representation and warranty
set forth in Subsection 7.02 of this Agreement and (viii) have a per annum rate
at which the Servicing Fee accrues equal to 0.50% per annum. In the event that
one or more mortgage loans are substituted for one or more Deleted Mortgage
Loans, the amounts described in clause (i) hereof shall be determined on the
basis of aggregate principal balances, the Mortgage Interest Rates described in
clause (ii) hereof shall be determined on the basis of weighted average Mortgage
Interest Rates, the Net Mortgage Rates described in clause (iii) hereof shall be
determined on the basis of weighted average Net Mortgage Rates satisfied as to
each such mortgage loan, the terms described in clause (iv) shall be determined
on the basis of weighted average remaining terms to maturity, the Loan-to-Value
Ratios described in clause (vi) hereof shall be satisfied as to each such
mortgage loan and, except to the extent otherwise provided in this sentence, the
representations and warranties described in clause (vii) hereof must be
satisfied as to each Qualified Substitute Mortgage Loan or in the aggregate, as
the case may be.
<PAGE>
10
Rate/Term Refinancing: A Refinanced Mortgage Loan, the proceeds of
---------------------
which were used to satisfy the then-existing first mortgage loan and any
subordinated mortgage loan(s) and other liens on the related Mortgaged Property
and to pay related closing costs, but were not used to pay any other
indebtedness of the Mortgagor, and in connection with which the Mortgagor
retains either no cash or cash in an amount less than one percent of the initial
principal balance of such Refinanced Mortgage Loan from the proceeds of such
Refinanced Mortgage Loan.
Reconstitution Agreement: Any agreement or agreements entered into by
------------------------
the Seller and the Purchaser, with or without any third Persons, on any
Reconstitution Date with respect to a Pass-Through Transfer or Whole Loan
Transfer of one or more Mortgage Loans serviced hereunder.
Reconstitution Date: The date or dates on which any or all of the
-------------------
Mortgage Loans serviced under this Agreement shall be removed from this
Agreement and reconstituted as part of a Whole Loan Transfer or Pass-Through
Transfer pursuant to Section 12 hereof.
Record Date: With respect to each Distribution Date, the last
-----------
Business Day of the month immediately preceding the month in which such
Distribution Date occurs.
Refinanced Mortgage Loan: A Mortgage Loan the proceeds of which were
------------------------
not used to purchase the related Mortgaged Property.
REMIC: A "real estate mortgage investment conduit" within the meaning
-----
of Section 860D of the Code.
REO Account: The separate trust account or accounts created and
------------
maintained by the Seller or a Sub-Servicer pursuant to this Agreement which
shall be entitled "____________________, in trust for the Purchaser, as of [date
of acquisition of title], Adjustable Rate Mortgage Loans".
REO Disposition: The final sale by the Seller of any REO Property.
---------------
REO Property: A Mortgaged Property acquired as a result of the
------------
liquidation of a Mortgage Loan.
Repurchase Price: With respect to any Mortgage Loan, a price equal to
----------------
(i)(A) prior to the earlier of the Reconstitution Date with respect to the
Mortgage Loan, or twelve (12) months after the date hereof, the product of the
Stated Principal Balance of such Mortgage Loan times the greater of (x) the
Purchase Price percentage as stated in the Confirmation and (y) 100%, and (B)
thereafter, the Stated Principal Balance of such Mortgage Loan, plus (ii)
interest on such Stated Principal Balance at the Mortgage Interest Rate from and
including the last Due Date through which interest has been paid by or on behalf
of the Mortgagor to the first day of the
<PAGE>
11
month following the date of repurchase, less amounts received in respect of such
repurchased Mortgage Loan which are being held in the Custodial Account (or by
any successor servicer or other agent of the Purchaser) for distribution in
connection with such Mortgage Loan.
Residential Dwelling: Any one of the following: (i) a detached one-
--------------------
family dwelling, (ii) a detached two- to four-family dwelling, (iii) a one-
family dwelling unit in a condominium project eligible under the NMC Non-
Conforming Program Guide, or (iv) a detached one-family dwelling in a planned
unit development, none of which is a co-operative, a mobile home or a
manufactured home which is not real estate under applicable state law.
Servicing Advances: All customary, reasonable and necessary "out-of-
------------------
pocket" costs and expenses incurred by the Seller in the performance of its
servicing obligations, including, but not limited to, the cost of (i)
preservation, restoration and repair of a Mortgaged Property, (ii) any
enforcement or judicial proceedings with respect to a Mortgage Loan, including
foreclosure actions, (iii) the management and liquidation of REO Property and
(iv) advances of insurance premiums, taxes, assessments and other charges unpaid
by the Mortgagor.
Servicing Fee: With respect to each Mortgage Loan, the amount of the
-------------
annual servicing fee the Purchaser shall pay to the Seller, which shall, for
each month, be equal to one-twelfth of the product of (a) the Servicing Fee Rate
and (b) the unpaid principal balance of the Mortgage Loan. Such fee shall be
payable monthly, computed on the basis of the same principal amount and period
respectively which any related interest payment on a Mortgage Loan is computed.
The obligation of the Purchaser to pay the Servicing Fee is limited to, and
payable solely from, the interest portion (including recoveries with respect to
interest from Liquidation Proceeds and other proceeds, to the extent permitted
by Section 11.05) of related Monthly Payment collected by the Seller, or as
otherwise provided under Section 11.05.
Servicing Fee Rate: The per annum rate at which the Servicing Fee
------------------
accrues, which rate shall be equal to 0.50% per annum.
Servicing File: With respect to each Mortgage Loan, the file retained
--------------
by the Seller consisting of originals of all documents in the Mortgage File
which are not delivered to the Purchaser or its designee and copies of the
Mortgage Loan Documents.
S&P: Standard & Poor's Ratings Services or its successor in interest.
---
Stated Principal Balance: As to each Mortgage Loan as of any date of
------------------------
determination, (i) the principal balance of the Mortgage Loan as of the Cut-off
Date after giving effect to payments of principal due on or before such date,
whether or not collected from the Mortgagor on or before such date, minus (ii)
all amounts previously distributed to the Purchaser with respect to the related
Mortgage Loan representing payments or recoveries of principal.
<PAGE>
12
Sub-Servicer: Any mortgage loan servicing institution other than the
------------
Seller which is responsible for the servicing and administration of any Mortgage
Loan or any successor appointed pursuant to any Sub-Servicing Agreement.
Sub-Servicing Agreement: Each agreement providing for the servicing
-----------------------
of any of the Mortgage Loans by a Sub-Servicer.
Sub-Servicing Fee: As to each Mortgage Loan, the monthly fee payable
-----------------
to the Sub-Servicer, paid by the Seller from its Servicing Fee.
Whole Loan Transfer: Any sale or transfer of some or all of the
-------------------
Mortgage Loans by the Purchaser to a third party, which sale or transfer is not
a Pass-Through Transfer.
SECTION 2. Agreement to Purchase. The Seller agrees to sell, and
---------------------
the Initial Purchaser agrees to purchase, Mortgage Loans having an aggregate
principal balance on the Cut-off Date in an amount as set forth in the
Confirmation, or in such other amount as agreed by the Initial Purchaser and the
Seller as evidenced by the actual aggregate principal balance of the Mortgage
Loans accepted by the Initial Purchaser on the Closing Date.
SECTION 3. Mortgage Loan Schedule. The Seller shall deliver the
----------------------
Mortgage Loan Schedule to the Initial Purchaser at least three (3) days prior to
the Closing Date.
SECTION 4. Purchase Price. The Purchase Price for each Mortgage
--------------
Loan listed on the Mortgage Loan Schedule shall be the percentage of par as
stated in the Confirmation (subject to adjustment as provided therein),
multiplied by its Stated Principal Balance as of the Cut-off Date. If so
provided in the Confirmation, portions of the Mortgage Loans shall be priced
separately.
In addition to the Purchase Price as described above, the Initial
Purchaser shall pay to the Seller, at closing, accrued interest on the Stated
Principal Balance of each Mortgage Loan as of the Cut-off Date at its Mortgage
Interest Rate from the Cut-off Date through the day prior to the Closing Date,
both inclusive, less the Servicing Fee Rate, pro rated on the basis of a 30-day
month.
The Purchaser shall own and be entitled to receive with respect to
each Mortgage Loan purchased, (1) all scheduled principal due after the Cut-off
Date, (2) all other recoveries of principal collected after the Cut-off Date
(provided, however, that all scheduled payments of principal due on or before
the Cut-off Date and collected by the Seller after the Cut-off Date shall belong
to the Seller), and (3) all payments of interest on the Mortgage Loans net of
the Servicing Fee (minus that portion of any such interest payment that is
allocable to the period prior to the Cut-off Date). The Stated Principal
Balance of each Mortgage Loan as of the Cut-off Date is
<PAGE>
13
determined after application to the reduction of principal of payments of
principal due on or before the Cut-off Date whether or not collected. Therefore,
for the purposes of this Agreement, payments of scheduled principal and interest
prepaid for a Due Date beyond the Cut-off Date shall not be applied to the
principal balance as of the Cut-off Date. Such prepaid amounts (minus the
applicable Servicing Fee) shall be the property of the Purchaser. The Seller
shall deposit any such prepaid amounts into the Custodial Account, which account
is established for the benefit of the Purchaser, for remittance by the Seller to
the Purchaser on the first Distribution Date. All payments of principal and
interest, less the applicable Servicing Fee, due on a Due Date following the
Cut-off Date shall belong to the Purchaser.
In addition to the above, the Seller hereby assigns to the Purchaser,
effective upon the Seller's receipt of the Purchase Price, all of the Seller's
rights (which may be enforced independently from this Agreement) and remedies
(which are in addition to the Purchaser's remedies set forth in this Agreement
and not in lieu thereof) under that certain letter agreement, dated September
29, 1998, between National Mortgage Corporation ("NMC") and the Seller, under
which NMC made certain representations, warranties and covenants to the Seller
with respect to the Mortgage Loans.
SECTION 5. Examination of Mortgage Files. In addition to the rights
-----------------------------
granted to the Initial Purchaser under the Confirmation to underwrite the
Mortgage Loans and review the Mortgage Files prior to the Closing Date, prior to
the Closing Date, the Seller shall (a) deliver to the Purchaser or its designee
in escrow, for examination with respect to each Mortgage Loan to be purchased,
the related Mortgage File, including the Assignment of Mortgage, pertaining to
each Mortgage Loan, or (b) make the related Mortgage File available to the
Initial Purchaser for examination at the Seller's offices or such other location
as shall otherwise be agreed upon by the Initial Purchaser and the Seller. Such
examination may be made by the Initial Purchaser or its designee at any
reasonable time before or after the Closing Date. If the Initial Purchaser
makes such examination prior to the Closing Date and identifies any Mortgage
Loans which do not satisfy the underwriting standards set forth in the NMC Non-
Conforming Program Guide (except to the extent that there are compensating
factors reasonably acceptable to the Initial Purchaser), such Mortgage Loans
may, at the Initial Purchaser's option, be rejected for purchase by the Initial
Purchaser. If the Initial Purchaser makes such examination after the Closing
Date and identifies any Mortgage Loans that do not conform to the NMC Non-
Conforming Program Guide (except to the extent that there are compensating
factors reasonably acceptable to the Initial Purchaser), such Mortgage Loans
shall, if requested by the Initial Purchaser within thirty (30) days after the
Closing Date, be repurchased by the Seller pursuant to Subsection 7.03. If not
purchased by the Initial Purchaser or if repurchased by the Seller, such
Mortgage Loans shall be deleted from the Mortgage Loan Schedule. The Initial
Purchaser may, at its option and without notice to the Seller, purchase all or a
portion of the Mortgage Loans without conducting any partial or complete
examination. The fact that the Initial Purchaser has conducted or has
determined not to conduct any partial or complete examination of the Mortgage
Files shall not affect the Purchaser's (or any of its
<PAGE>
14
successors') rights to demand repurchase or other relief or remedy provided for
in this Agreement.
SECTION 6. Conveyance from Seller to Initial Purchaser.
-------------------------------------------
Subsection 6.01. Conveyance of Mortgage Loans; Possession of
-------------------------------------------
Servicing Files.
---------------
The Seller, simultaneously with the payment of the Purchase Price does
hereby sell, transfer, assign, set over and convey to Salomon Brothers Realty
Corp. as the Initial Purchaser under this Agreement, without recourse, but
subject to the terms of this Agreement, all rights, title and interest of the
Seller in and to the Mortgage Loans listed on the Mortgage Loan Schedule
attached hereto, together with the related Mortgage Files and all rights and
obligations arising under the documents contained therein. Pursuant to
Subsection 6.03 of this Agreement, the Seller has delivered to the Initial
Purchaser or its designee the documents for each Mortgage Loan to be purchased
as set forth in Exhibit 7. The contents of each related Servicing File required
to be retained by the Seller to service the Mortgage Loans pursuant to this
Agreement and thus not delivered to the Purchaser are and shall be held in trust
by the Seller for the benefit of the Purchaser as the owner thereof. The
Seller's possession of any portion of each such Servicing File is at the will of
the Purchaser for the sole purpose of facilitating servicing of the related
Mortgage Loan pursuant to this Agreement, and such retention and possession by
the Seller shall be in a custodial capacity only. The ownership of each
Mortgage Note, Mortgage, and the contents of the Mortgage File and Servicing
File is vested in the Purchaser and the ownership of all records and documents
with respect to the related Mortgage Loan prepared by or which come into the
possession of the Seller shall immediately vest in the Purchaser and shall be
retained and maintained, in trust, by the Seller at the will of the Purchaser in
such custodial capacity only. The Servicing File retained by the Seller
pursuant to this Agreement shall be appropriately identified in the Seller's
computer system to clearly reflect the sale of the related Mortgage Loan to the
Purchaser. The Seller shall release from its custody the contents of any
Servicing File retained by it only in accordance with this Agreement, except
when such release is required in connection with a repurchase of any such
Mortgage Loan pursuant to Subsection 7.03.
Subsection 6.02. Books and Records.
-----------------
Record title to each Mortgage and the related Mortgage Note as of the
Closing Date shall be in the name of the Seller, the Initial Purchaser or one or
more designees of the Purchaser, as such designee(s) may be designated by the
Initial Purchaser. Notwithstanding the foregoing, beneficial ownership of each
Mortgage and the related Mortgage Note shall be vested solely in the Purchaser
or the appropriate designee of the Purchaser, as the case may be, upon
<PAGE>
15
payment of the Purchase Price. All rights arising out of the Mortgage Loans
including, but not limited to, all funds received by the Seller after the Cut-
off Date on or in connection with a Mortgage Loan as provided in Section 4 shall
be vested on the Closing Date, upon the Purchaser's payment of the Purchase
Price, in the Purchaser or one or more designees of the Purchaser; provided,
however, that all such funds received on or in connection with a Mortgage Loan
as provided in Section 4 shall be received and held by the Seller in trust for
the benefit of the Purchaser or the assignee of the Purchaser, as the case may
be, as the owner of the Mortgage Loans pursuant to the terms of this Agreement.
It is the express intention of the parties that the transactions
contemplated by this Agreement be, and be construed as, a sale of the Mortgage
Loans by the Seller and not a pledge of the Mortgage Loans by the Seller to the
Purchaser to secure a debt or other obligation of the Seller. Consequently, the
sale of each Mortgage Loan shall be reflected as a sale on the Seller's business
records, tax returns and financial statements.
Subsection 6.03. Delivery of Mortgage Loan Documents.
-----------------------------------
The Seller shall, at least three (3) days prior to the Closing Date,
deliver and release to the Purchaser or its designee those Mortgage Loan
Documents as required by Exhibit 7 hereto with respect to each Mortgage Loan to
---------
be purchased and sold on the Closing Date and set forth on the Mortgage Loan
Schedule delivered with such Mortgage Loan Documents.
The Seller shall forward to the Purchaser or its designee original
documents evidencing an assumption, modification, consolidation or extension of
any Mortgage Loan entered into in accordance with this Agreement within two (2)
weeks of their execution, provided, however, that the Seller shall provide the
Purchaser or its designee with a certified true copy of any such document
submitted for recordation within two (2) weeks of its execution, and shall
provide the original of any document submitted for recordation or a copy of such
document certified by the appropriate public recording office to be a true and
complete copy of the original promptly upon the Seller's receipt of such
original document or such certified copy of an original document from the
applicable public recording office. In the event that the Seller cannot deliver
the original of any document submitted for recordation or a copy of such
document certified by the appropriate public recording office to be a true and
complete copy of the original within 180 days following the Closing Date, the
Seller shall provide the Purchaser with an Officer's Certificate stating that
the Seller has been unable to deliver such document because of a delay caused by
the applicable recording office.
SECTION 7. Representations, Warranties and Covenants of the Seller;
--------------------------------------------------------
Remedies for Breach.
-------------------
<PAGE>
16
Subsection 7.01. Representations and Warranties Respecting the Seller.
----------------------------------------------------
The Seller represents, warrants and covenants to the Purchaser as of
the Closing Date and as of such date specifically provided herein:
(i) The Seller is duly organized, validly existing and in good
standing under the laws of the State of Colorado and is and will remain in
compliance with the laws of each state in which any Mortgaged Property is
located to the extent necessary to ensure the enforceability of each Mortgage
Loan and the servicing of the Mortgage Loan in accordance with the terms of this
Agreement;
(ii) The Seller has the full power and authority to hold each
Mortgage Loan, to sell each Mortgage Loan, and to execute, deliver and perform,
and to enter into and consummate, all transactions contemplated by this
Agreement. The Seller has duly authorized the execution, delivery and
performance of this Agreement, has duly executed and delivered this Agreement,
and this Agreement, assuming due authorization, execution and delivery by the
Purchaser, constitutes a legal, valid and binding obligation of the Seller,
enforceable against it in accordance with its terms except as the enforceability
thereof may be limited by bankruptcy, insolvency or reorganization;
(iii) The execution and delivery of this Agreement by the Seller and
the performance of and compliance with the terms of this Agreement will not
violate the Seller's articles of incorporation or by-laws or constitute a
default under or result in a breach or acceleration of, any material contract,
agreement or other instrument to which the Seller is a party or which may be
applicable to the Seller or its assets;
(iv) The Seller is not in violation of, and the execution and
delivery of this Agreement by the Seller and its performance and compliance with
the terms of this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction over the Seller or its
assets, which violation might have consequences that would materially and
adversely affect the condition (financial or otherwise) or the operation of the
Seller or its assets or might have consequences that would materially and
adversely affect the performance of its obligations and duties hereunder;
(v) National Mortgage Corporation is an approved seller/servicer for
FNMA and FHLMC in good standing and is a HUD approved mortgagee pursuant to
Section 203 of the National Housing Act. No event has occurred, including but
not limited to a change in insurance coverage, which would make National
Mortgage Corporation unable to comply with FNMA, FHLMC or HUD eligibility
requirements or which would require notification to FNMA, FHLMC or HUD;
<PAGE>
17
(vi) The Seller does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant contained in
this Agreement;
(vii) The Mortgage Note, the Mortgage, the Assignment of Mortgage and
any other Mortgage Loan Documents have been delivered to the Purchaser or its
designee. With respect to each Mortgage Loan, the Seller is in possession of a
complete Mortgage File in compliance with Exhibit 4, except for such documents
---------
as have been delivered to the Purchaser or its designee;
(viii) Immediately prior to the payment of the Purchase Price for
each Mortgage Loan, the Seller was the owner of record of the related Mortgage
and the indebtedness evidenced by the related Mortgage Note and upon the payment
of the Purchase Price by the Purchaser, in the event that the Seller retains
record title, the Seller shall retain such record title to each Mortgage, each
related Mortgage Note and the related Mortgage Files with respect thereto during
the Interim Servicing Period in trust for the Purchaser as the owner thereof and
only for the purpose of servicing and supervising the servicing of each Mortgage
Loan during the Interim Servicing Period;
(ix) There are no actions or proceedings against, or investigations
of, the Seller before any court, administrative or other tribunal (A) that might
prohibit its entering into this Agreement, (B) seeking to prevent the sale of
the Mortgage Loans or the consummation of the transactions contemplated by this
Agreement or (C) that might prohibit or materially and adversely affect the
performance by the Seller of its obligations under, or the validity or
enforceability of, this Agreement;
(x) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Seller of, or compliance by the Seller with, this Agreement
or the consummation of the transactions contemplated by this Agreement, except
for such consents, approvals, authorizations or orders, if any, that have been
obtained prior to the Closing Date;
(xi) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Seller, and the
transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by
the Seller pursuant to this Agreement are not subject to the bulk transfer or
any similar statutory provisions;
(xii) The information delivered by the Seller to the Purchaser with
respect to the Seller's loan loss, foreclosure and delinquency experience for
the twelve (12) months immediately preceding the Closing Date on adjustable rate
level payment mortgage loans underwritten to the same standards as the Mortgage
Loans and covering mortgaged properties similar to the Mortgaged Properties, is
true and correct in all material respects; and
<PAGE>
18
(xiii) Neither this Agreement nor any written statement, report or
other document prepared and furnished or to be prepared and furnished by the
Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading.
Subsection 7.02. Representations and Warranties Regarding Individual
---------------------------------------------------
Mortgage Loans.
--------------
The Seller hereby represents and warrants to the Purchaser that, as to
each Mortgage Loan, as of the Closing Date:
(i) The information set forth in the Mortgage Loan Schedule is
complete, true and correct;
(ii) All payments required to be made prior to the Cut-off Date for
such Mortgage Loan under the terms of the Mortgage Note have been made; the
Seller has not advanced funds, or induced, solicited or knowingly received any
advance of funds from a party other than the owner of the related Mortgaged
Property, directly or indirectly, for the payment of any amount required by the
Mortgage Note or Mortgage;
(iii) There are no delinquent taxes, ground rents, water charges,
sewer rents, assessments, insurance premiums, leasehold payments, including
assessments payable in future installments or other outstanding charges
affecting the related Mortgaged Property;
(iv) The terms of the Mortgage Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments, recorded in the applicable public recording office if necessary to
maintain the lien priority of the Mortgage, and which have been delivered to the
Purchaser or its designee; the substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the related policy, and is reflected on the Mortgage Loan Schedule. No
instrument of waiver, alteration or modification has been executed, and no
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by the title insurer, to the extent required by
the policy, and which assumption agreement has been delivered to the Purchaser
or its designee and the terms of which are reflected in the Mortgage Loan
Schedule;
(v) The Mortgage Note and the Mortgage are not subject to any right
of rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the Mortgage Note and the
Mortgage, or the exercise of any right thereunder, render the Mortgage
unenforceable, in whole or in part, or subject to any right of
<PAGE>
19
rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto;
(vi) All buildings upon the Mortgaged Property are insured by a
generally acceptable insurer against loss by fire, hazards of extended coverage
and such other hazards as are customary in the area where the Mortgaged Property
is located, pursuant to insurance policies conforming to the requirements of
Subsection 11.10. All such insurance policies contain a standard mortgagee
clause naming the loan originator, its successors and assigns as mortgagee and
all premiums thereon have been paid. If the Mortgaged Property is in an area
identified on a Flood Hazard Map or Flood Insurance Rate Map issued by the
Federal Emergency Management Agency as having special flood hazards (and such
flood insurance has been made available), a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
is in effect, which policy conforms to the requirements of the NMC Non-
Conforming Program Guide. The Mortgage obligates the Mortgagor thereunder to
maintain all such insurance at the Mortgagor's cost and expense, and on the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to maintain
such insurance at Mortgagor's cost and expense and to seek reimbursement
therefor from the Mortgagor;
(vii) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity, fair housing
or disclosure laws applicable to the origination and servicing of mortgage loans
of a type similar to the Mortgage Loans have been complied with;
(viii) The Mortgage has not been satisfied, canceled, subordinated or
rescinded, in whole or in part, and the Mortgaged Property has not been released
from the lien of the Mortgage, in whole or in part, nor has any instrument been
executed that would effect any such satisfaction, cancellation, subordination,
rescission or release;
(ix) The Mortgage is a valid, existing and enforceable first lien on
the Mortgaged Property, including all improvements on the Mortgaged Property
subject only to (a) the lien of current real property taxes and assessments not
yet due and payable, (b) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of recording
being acceptable to mortgage lending institutions generally and specifically
referred to in the lender's title insurance policy delivered to the originator
of the Mortgage Loan and which do not adversely affect the Appraised Value of
the Mortgaged Property, and (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property. Any security agreement,
chattel mortgage or equivalent document related to and delivered in connection
with the Mortgage Loan establishes and creates a valid, existing and enforceable
first lien and first priority security interest on the property described
therein and the Seller has full right to sell and assign the same to the
<PAGE>
20
Purchaser. Except to the extent that the Mortgage Loan Schedule reflects a
difference between the LTV and the combined LTV, the Mortgaged Property was not,
as of the date of origination of the Mortgage Loan, subject to a mortgage, deed
of trust, deed to secure debt or other security instrument creating a lien
subordinate to the lien of the Mortgage;
(x) The Mortgage Note and the related Mortgage are genuine and each
is the legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms, except as such enforcement may be limited by (A)
bankruptcy, insolvency or reorganization laws or other similar laws affecting
creditors' rights generally or (B) general principles of equity, whether
considered in a proceeding at law or in equity;
(xi) All parties to the Mortgage Note and the Mortgage had legal
capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage
Note and the Mortgage, and the Mortgage Note and the Mortgage have been duly and
properly executed by such parties. The Mortgagor is a natural person;
(xii) The proceeds of the Mortgage Loan have been fully disbursed to
or for the account of the Mortgagor and there is no obligation for the Mortgagee
to advance additional funds thereunder and any and all requirements as to
completion of any on-site or off-site improvement and as to disbursements of any
escrow funds therefor have been complied with. All costs, fees and expenses
incurred in making or closing the Mortgage Loan and the recording of the
Mortgage have been paid, and the Mortgagor is not entitled to any refund of any
amounts paid or due to the Mortgagee pursuant to the Mortgage Note or Mortgage;
(xiii) The Seller is the sole legal, beneficial and equitable owner
of the Mortgage Note and the Mortgage (and National Mortgage Corporation is the
sole record owner thereof) and has full right to transfer and sell the Mortgage
Loan to the Purchaser free and clear of any encumbrance, equity, lien, pledge,
charge, claim or security interest;
(xiv) All parties which have had any interest in the Mortgage Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) in compliance with any
and all applicable "doing business" and licensing requirements of the laws of
the state wherein the Mortgaged Property is located;
(xv) The Mortgage Loan is covered by an American Land Title
Association lender's title insurance policy acceptable under the NMC Non-
Conforming Program Guide, issued by a title insurer acceptable under the NMC
Non-Conforming Program Guide and qualified to do business in the jurisdiction
where the Mortgaged Property is located, insuring (subject to the exceptions
contained in (ix)(a) and (b) above) the loan originator, its successors and
assigns as to the first priority lien of the Mortgage in the original principal
amount of the Mortgage Loan and against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the Mortgage
providing for adjustment in the Mortgage Interest
<PAGE>
21
Rate and Monthly Payment. Additionally, such lender's title insurance policy
affirmatively insures ingress and egress to and from the Mortgaged Property, and
against encroachments by or upon the Mortgaged Property or any interest therein.
The Seller is the sole insured under such lender's title insurance policy, and
such lender's title insurance policy is in full force and effect and will be in
full force and effect upon the consummation of the transactions contemplated by
this Agreement. No claims have been made under such lender's title insurance
policy, and no prior holder of the related Mortgage, including the Seller, has
done, by act or omission, anything which would impair the coverage of such
lender's title insurance policy;
(xvi) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event of
acceleration (other than a payment delinquency of less than thirty (30) days),
and the Seller has not waived any default, breach, violation or event of
acceleration;
(xvii) There are no mechanics' or similar liens or claims which have
been filed for work, labor or material (and no rights are outstanding that under
law could give rise to such lien) affecting the related Mortgaged Property which
are or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage;
(xviii) All improvements which were considered in determining the
Appraised Value of the related Mortgaged Property lay wholly within the
boundaries and building restriction lines of the Mortgaged Property, and no
improvements on adjoining properties encroach upon the Mortgaged Property. Each
appraisal has been performed in accordance with the provisions of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989;
(xix) The Mortgage Loan was originated by National Mortgage
Corporation or by a savings and loan association, a savings bank, a commercial
bank or similar institution which is supervised and examined by a federal or
state authority, or by a mortgagee approved as such by the Secretary of HUD;
(xx) Principal payments on the Mortgage Loan commenced no more than
sixty (60) days after the proceeds of the Mortgage Loan were disbursed. The
Mortgage Loan bears interest at the Mortgage Interest Rate. With respect to
each Mortgage Loan, the Mortgage Note is payable monthly in Monthly Payments
which are changed on each Adjustment Date to an amount which will fully amortize
the Stated Principal Balance of the Mortgage Loan over its remaining term at the
Mortgage Interest Rate. The Mortgage Note does not permit negative
amortization. No Mortgage Loan is convertible to a fixed rate mortgage loan;
(xxi) The origination and collection practices used by the Seller
and the loan originator with respect to each Mortgage Note and Mortgage have
been in all respects legal, proper, prudent and customary in the mortgage
origination and servicing industry. The Mortgage
<PAGE>
22
Loan has been serviced by the Seller and any predecessor servicer in accordance
with the terms of the Mortgage Note. With respect to escrow deposits and Escrow
Payments, if any, all such payments are in the possession of, or under the
control of, the Seller or its Sub-Servicer and there exist no deficiencies in
connection therewith for which customary arrangements for repayment thereof have
not been made. No escrow deposits or Escrow Payments or other charges or
payments due the Seller have been capitalized under any Mortgage or the related
Mortgage Note;
(xxii) The Mortgaged Property is free of damage and waste that would
materially adversely affect the value of the Mortgaged Property as security for
the Mortgage Loan or the use of which the premises were intended and there is no
proceeding pending for the total or partial condemnation thereof;
(xxiii) The Mortgage and related Mortgage Note 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 provided thereby, including, (a) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (b) otherwise by
judicial foreclosure. The Mortgaged Property has not been subject to any
bankruptcy proceeding or foreclosure proceeding and the Mortgagor has not filed
for protection under applicable bankruptcy laws, in either case since the
origination of the related Mortgage Loan. There is no homestead or other
exemption available to the Mortgagor which would interfere with the right to
sell the Mortgaged Property at a trustee's sale or the right to foreclose the
Mortgage. The Mortgagor has not notified the Seller and the Seller has no
knowledge of any relief requested or allowed to the Mortgagor under the Soldiers
and Sailors Civil Relief Act of 1940;
(xxiv) The Mortgage Loan was underwritten in accordance with
underwriting standards which are acceptable under the NMC Non-Conforming Program
Guide; and the Mortgage Note and Mortgage are on forms acceptable under the NMC
Non-Conforming Program Guide;
(xxv) The Mortgage Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage on the Mortgaged
Property and the security interest of any applicable security agreement or
chattel mortgage referred to in (ix) above;
(xxvi) The Mortgage File contains an appraisal of the related
Mortgaged Property made and signed, prior to the approval of the Mortgage Loan
application, by a qualified appraiser, duly appointed by the Mortgage Loan's
originator, who had no interest, direct or indirect in the Mortgaged Property or
in any loan made on the security thereof, whose compensation is not affected by
the approval or disapproval of the Mortgage Loan and who met the minimum
qualifications of the NMC Non-Conforming Program Guide;
<PAGE>
23
(xxvii) In the event the Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by the Purchaser to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor;
(xxviii) No Mortgage Loan contains provisions pursuant to which
Monthly Payments are (a) paid or partially paid with funds deposited in any
separate account established by the Seller, the Mortgagor, or anyone on behalf
of the Mortgagor or (b) paid by any source other than the Mortgagor or contains
any other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature;
(xxix) The Mortgagor has executed a statement to the effect that the
Mortgagor has received all disclosure materials required by applicable law with
respect to the making of adjustable rate mortgage loans and rescission materials
with respect to Refinanced Mortgage Loans, and such statement is and will remain
in the Mortgage File;
(xxx) No Mortgage Loan was made in connection with (a) the
construction or rehabilitation of a Mortgaged Property or (b) facilitating the
trade-in or exchange of a Mortgaged Property;
(xxxi) Except for the credit rating of the related Mortgagor, the
Seller has no knowledge of any circumstances or condition with respect to the
Mortgage, the Mortgaged Property, the Mortgagor or the Mortgagor's credit
standing that should reasonably be expected to cause the Mortgage Loan to be an
unacceptable investment, cause the Mortgage Loan to become delinquent, or
adversely affect the value of the Mortgage Loan;
(xxxii) At origination, the Mortgaged Property was lawfully occupied
under applicable law; all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged Property
and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy, have been made or obtained from the
appropriate authorities;
(xxxiii) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Mortgage Loan has taken place on the part
of any person, including without limitation the Mortgagor, any appraiser, any
builder or developer, or any other party involved in the origination of the
Mortgage Loan or in the application of any insurance in relation to such
Mortgage Loan;
(xxxiv) The Assignment of Mortgage is in recordable form and is
acceptable for recording under the laws of the jurisdiction in which the
Mortgaged Property is located;
<PAGE>
24
(xxxv) Any principal advances made to the Mortgagor prior to the
Cut-off Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term. The lien of the Mortgage
securing the consolidated principal amount is expressly insured as having first
lien priority by a title insurance policy, an endorsement to the policy insuring
the mortgagee's consolidated interest or by other title evidence acceptable
under the NMC Non-Conforming Program Guide. The consolidated principal amount
does not exceed the original principal amount of the Mortgage Loan;
(xxxvi) No Mortgage Loan has a balloon payment feature;
(xxxvii) Interest on each Mortgage Loan is calculated on the basis of
a 360-day year consisting of twelve 30-day months;
(xxxviii) If the Residential Dwelling on the Mortgaged Property is a
condominium unit or a unit in a planned unit development (other than a de
minimis planned unit development) such condominium or planned unit development
project meets the applicable Qualified Insurer's eligibility requirements under
the NMC Non-Conforming Program Guide;
(xxxix) The Mortgage Loan was not prepaid in full prior to the
Closing Date; and
(xl) To the Seller's actual knowledge, without independent
investigation, the Mortgaged Property is in material compliance with all
applicable environmental laws pertaining to environmental hazards including,
without limitation, asbestos, and neither the Seller nor, to the Seller's actual
knowledge, without independent investigation, the related Mortgagor, has
received any notice of any violation or potential violation of such law.
Subsection 7.03. Remedies for Breach of Representations and
------------------------------------------
Warranties.
----------
It is understood and agreed that the representations and warranties
set forth in Subsections 7.01 and 7.02 shall survive the sale of the Mortgage
Loans to the Purchaser and shall inure to the benefit of the Purchaser,
notwithstanding any restrictive or qualified endorsement on any Mortgage Note or
Assignment of Mortgage or the examination or lack of examination of any Mortgage
File. Upon discovery by either the Seller or the Purchaser of a breach of any
of the foregoing representations and warranties which materially and adversely
affects the value of the Mortgage Loans or the interest of the Purchaser (or
which materially and adversely affects the interests of the Purchaser in the
related Mortgage Loan in the case of a representation and warranty relating to a
particular Mortgage Loan), the party discovering such breach shall give prompt
written notice to the other.
<PAGE>
25
Within sixty (60) days of the earlier of either discovery by or notice
to the Seller of any breach of a representation or warranty which materially and
adversely affects the value of a Mortgage Loan or the Mortgage Loans, the Seller
shall use its best efforts promptly to cure such breach in all material respects
and, if such breach cannot be cured, the Seller shall, at the Purchaser's
option, repurchase such Mortgage Loan at the Repurchase Price. In the event
that a breach shall involve any representation or warranty set forth in
Subsection 7.01 in a manner that materially and adversely affects the value of a
Mortgage Loan or Mortgage Loans or the interest of the Purchaser in such
Mortgage Loan or Mortgage Loans and such breach cannot be cured within sixty
(60) days of the earlier of either discovery by or notice to the Seller of such
breach, all of the Mortgage Loans shall, at the Purchaser's option, be
repurchased by the Seller at the Repurchase Price. The Seller may, with the
consent of the Purchaser and assuming that the Seller has a Qualified Substitute
Mortgage Loan, rather than repurchase the Mortgage Loan as provided above,
remove such Mortgage Loan and substitute in its place a Qualified Substitute
Mortgage Loan or Loans. If the Seller has no Qualified Substitute Mortgage
Loan, or does not wish to substitute, it shall repurchase the deficient Mortgage
Loan. Any repurchase of a Mortgage Loan(s) pursuant to the foregoing provisions
of this Subsection 7.03 shall occur on a date designated by the Purchaser and
shall be accomplished by deposit in the Custodial Account of the amount of the
Repurchase Price for distribution to the Purchaser on the next scheduled
Distribution Date.
At the time of substitution or repurchase of any deficient Mortgage
Loan, the Purchaser and the Seller shall arrange for the reassignment of the
deficient or repurchased Mortgage Loan to the Seller and the delivery to the
Seller of any documents held by the Purchaser or its designee relating to the
deficient or repurchased Mortgage Loan. In the event the Repurchase Price is
deposited in the Custodial Account, the Seller shall, simultaneously with such
deposit, give written notice to the Purchaser that such deposit has taken place.
Upon such repurchase the Mortgage Loan Schedule shall be amended to reflect the
withdrawal of the repurchased Mortgage Loan from this Agreement.
As to any Deleted Mortgage Loan for which the Seller substitutes a
Qualified Substitute Mortgage Loan or Loans, the Seller shall effect such
substitution by delivering to the Purchaser or its designee for such Qualified
Substitute Mortgage Loan or Loans the Mortgage Loan Documents. The Seller shall
deposit in the Custodial Account the Monthly Payment less the Servicing Fee due
on such Qualified Substitute Mortgage Loan or Loans in the month following the
date of such substitution. Monthly Payments due with respect to Qualified
Substitute Mortgage Loans in the month of substitution will be retained by the
Seller. For the month of substitution, distributions to the Purchaser will
include the Monthly Payment due on such Deleted Mortgage Loan in the month of
substitution, and the Seller shall thereafter be entitled to retain all amounts
subsequently received by the Seller in respect of such Deleted Mortgage Loan
from the terms of this Agreement in all respects, and the Seller shall be deemed
to have made with respect to such Qualified Substitute Mortgage Loan or Loans,
as of the date of substitution, the covenants, representations and warranties
set forth in Sections 7.01 and 7.02.
<PAGE>
26
For any month in which the Seller substitutes one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Seller
will determine the amount (if any) by which the aggregate principal balance of
all such Qualified Substitute Mortgage Loans as of the date of substitution is
less than the aggregate Stated Principal Balance of all such Deleted Mortgage
Loans (after application of scheduled principal payments due in the month of
substitution). An amount equal to the product of the amount of such shortfall
multiplied by the Repurchase Price shall be distributed by the Seller in the
month of substitution. Accordingly, on the date of such substitution the Seller
will deposit from its own funds into the Custodial Account an amount equal to
such amount.
In addition to such cure, repurchase and substitution obligation, the
Seller shall indemnify the Purchaser and hold it harmless against any losses,
damages, penalties, fines, forfeitures, reasonable and necessary legal fees and
related costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, a
breach of the Seller's representations and warranties contained in this Section
7. It is understood and agreed that the obligations of the Seller set forth in
this Subsection 7.03 to cure or repurchase a defective Mortgage Loan and to
indemnify the Purchaser as provided in this Subsection 7.03 constitute the sole
remedies of the Purchaser respecting a breach of the foregoing representations
and warranties.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Subsections 7.01 or
7.02 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by
the Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by
the Seller to cure such breach or repurchase such Mortgage Loan as specified
above within the applicable cure period, and (iii) demand upon the Seller by the
Purchaser for compliance with the relevant provisions of this Agreement.
Subsection 7.04 Repurchase of Certain Mortgage Loans.
------------------------------------
In the event that a Mortgagor fails to make the first monthly payment
required to be made under the terms of the related Mortgage Note within fifty-
nine (59) days of the Due Date therefor then, in such case, the Seller shall
repurchase the affected Mortgage Loan at the Repurchase Price, which shall be
paid as provided for in Subsection 7.03.
Subsection 7.05 Principal Prepayments in Full.
-----------------------------
In the event that the principal balance due on a Mortgage Loan is paid
in full by the related Mortgagor on or before December 31, 1998, the Seller
shall remit to the Purchaser (to be paid by the Seller out of its own funds
without reimbursement therefor) within two (2)
<PAGE>
27
Business Days an amount equal to the product of the Principal Prepayment in full
and the excess, if any, of the Purchase Price percentage as stated in the
Confirmation over 100% (reduced, but not below $0, by the amount of any
prepayment penalty received by the Purchaser with respect to the Mortgage Loan).
SECTION 8. Closing. The closing shall take place on the Closing
-------
Date. At the Purchaser's option, the closing shall be either: by telephone,
confirmed by letter or wire as the parties shall agree, or conducted in person,
at such place as the parties shall agree.
The closing for the Mortgage Loans to be purchased on the Closing Date
shall be subject to each of the following conditions:
(a) all of the representations and warranties of the Seller under
this Agreement shall be true and correct as of the Closing Date
and no event shall have occurred which, with notice or the
passage of time, would constitute a default under this Agreement;
(b) the Initial Purchaser shall have received, or the Initial
Purchaser's attorneys shall have received in escrow, all Closing
Documents as specified in Section 9, in such forms as are agreed
upon and acceptable to the Purchaser, duly executed by all
signatories other than the Purchaser as required pursuant to the
terms hereof;
(c) the Seller shall have delivered and released to the Purchaser or
its designee all documents required to be so delivered hereunder;
and
(d) all other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Initial Purchaser shall pay
to the Seller on the Closing Date the Purchase Price, plus accrued interest
pursuant to Section 4, by wire transfer of immediately available funds to the
account designated by the Seller.
SECTION 9. Closing Documents.
-----------------
On or before the Closing Date, the Seller shall submit to the Initial
Purchaser fully executed originals of the following documents:
1 this Agreement, in four (4) counterparts;
<PAGE>
28
2 a Custodial Account Letter Agreement in the form attached as
Exhibit 5 hereto;
---------
3 an Escrow Account Letter Agreement in the form attached as
Exhibit 6 hereto;
---------
4 an Officer's Certificate, in the form of Exhibit 1 hereto,
---------
including all attachments thereto;
5 an Opinion of Counsel of the Seller, in the form of Exhibit 2
---------
hereto;
6 the Confirmation;
7 the Mortgage Loan Schedule, one copy to be attached hereto;
8 the Seller's underwriting guidelines;
9 a letter agreement, dated September 29, 1998, between National
Mortgage Corporation and the Seller under which National Mortgage
Corporation makes certain representations, warranties and
covenants (which shall be identical to those made by the Seller
in Section 7 hereof) to the Seller with respect to the Mortgage
Loans, which shall be acceptable to the Initial Purchaser;
10 a Security Release Certification, in a form acceptable to the
Initial Purchaser, if any of the Mortgage Loans has at any time
been subject to any security interest, pledge or hypothecation
for the benefit of any Person; and
11 a certificate or other evidence of merger or change of name,
signed or stamped by the applicable regulatory authority, if any
of the Mortgage Loans were acquired by the Seller by merger or
acquired or originated by the Seller while conducting business
under a name other than its present name, if applicable.
SECTION 10. Costs. The Initial Purchaser shall pay any commissions
-----
due its salesmen and the legal fees and expenses of its attorneys. All costs
and expenses incurred in connection with the transfer and delivery of the
Mortgage Loans, including without limitation recording fees, fees for title
policy endorsements and continuations, fees for recording Assignments of
Mortgage and the Seller's attorney's fees, shall be paid by the Seller.
SECTION 11. Seller's Servicing Obligations.
------------------------------
<PAGE>
29
Subsection 11.01 Seller to Act as Servicer.
-------------------------
The Seller, as independent contract servicer, shall service and
administer the Mortgage Loans in accordance with this Agreement during the
Interim Servicing Period and shall have full power and authority, acting alone
or through Sub-Servicers as provided in Subsection 11.27, to do or cause to be
done any and all things in connection with such servicing and administration
which the Seller may deem necessary or desirable and consistent with the terms
of this Agreement.
Consistent with the terms of this Agreement, the Seller may waive,
modify or vary any term of any Mortgage Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Mortgagor if in the Seller's reasonable and prudent determination such waiver,
modification, postponement or indulgence is consistent with the goal of
collecting all amounts due under the related Mortgage Loan; provided, however,
that the Seller shall not permit any modification with respect to any Mortgage
Loan that would change the Mortgage Interest Rate, defer or forgive the payment
thereof or of any principal or interest payments, reduce the outstanding
principal amount (except for actual payments of principal), make additional
advances of additional principal or extend the final maturity date on such
Mortgage Loan. Without limiting the generality of the foregoing, the Seller
shall continue, and is hereby authorized and empowered, to execute and deliver
on behalf of itself, and the Purchaser, all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Mortgage Loans and with respect to the
Mortgaged Property. If reasonably required by the Seller, the Purchaser shall
furnish the Seller and any Sub-Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Seller and any Sub-Servicer to
carry out their servicing and administrative duties under this Agreement.
In servicing and administering the Mortgage Loans, the Seller shall
employ procedures, including collection procedures, and exercise the same care
that it customarily employs and exercises in servicing and administering
mortgage loans for its own account giving due consideration to accepted mortgage
servicing practices of prudent lending institutions that service mortgage loans
made to borrowers of similar credit quality as the Mortgagors on the Mortgage
Loans and the Purchaser's reliance on the Seller.
Subsection 11.02 Collection of Mortgage Loan Payments.
-------------------------------------
Continuously from the date hereof until the principal and interest on
all Mortgage Loans are paid in full, the Seller shall proceed diligently to
collect all payments due under each Mortgage Loan when the same shall become due
and payable and shall, to the extent such procedures shall be consistent with
this Agreement, follow such collection procedures as it
<PAGE>
30
follows with respect to mortgage loans comparable to the Mortgage Loans and held
for its own account. Further, the Seller shall take special care in ascertaining
and estimating annual ground rents, taxes, assessments, water rates, fire and
hazard insurance premiums, mortgage insurance premiums, and all other charges
that, as provided in the Mortgage, will become due and payable to the end that
the installments payable by the Mortgagors will be sufficient to pay such
charges as and when they become due and payable.
Subsection 11.03 Realization Upon Defaulted Mortgage Loans.
-----------------------------------------
(a) The Seller shall use its best efforts, consistent with the
procedures that the Seller would use in servicing loans for its own account, to
foreclose upon or otherwise comparably convert the ownership of those Mortgaged
Properties securing Mortgage Loans that come into and continue in default and as
to which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Subsection 11.01. The Seller shall use its best efforts to
realize upon defaulted Mortgage Loans in such a manner as will maximize the
receipt of principal and interest by the Purchaser, taking into account, among
other things, the timing of foreclosure proceedings. The foregoing is subject
to the provisions that, in any case in which Mortgaged Property shall have
suffered damage, the Seller shall not be required to expend its own funds toward
the restoration of such property in excess of $2,000 unless it shall determine
in its discretion (i) that such restoration will, in the Seller's good faith
judgement, increase the proceeds of liquidation of the related Mortgage Loan to
the Purchaser after reimbursement to itself for such expenses, and (ii) that
such expenses will be recoverable by the Seller through Insurance Proceeds or
Liquidation Proceeds from the related Mortgaged Property, as contemplated in
Subsection 11.05. In the event that any payment due under any Mortgage Loan is
not paid when the same becomes due and payable, or in the event the Mortgagor
fails to perform any other covenant or obligation under the Mortgage Loan and
such failure continues beyond any applicable grace period, the Seller shall take
such action as it shall deem to be in the best interest of the Purchaser. In
the event that any payment due under any Mortgage Loan remains delinquent for a
period of ninety (90) days or more, the Seller shall commence foreclosure
proceedings, provided that prior to commencing foreclosure proceedings, the
Seller shall notify the Purchaser in writing of the Seller's intention to do so,
and the Seller shall not commence foreclosure proceedings if the Purchaser
objects to such action within ten (10) Business Days of receiving such notice.
The Seller shall notify the Purchaser in writing of the commencement of
foreclosure proceedings. In such connection, the Seller shall be responsible
for all costs and expenses incurred by it in any such proceedings; provided,
however, that it shall be entitled to reimbursement thereof from Liquidation
Proceeds or REO Disposition proceeds from the related Mortgaged Property, as
contemplated in Subsection 11.05.
(b) Notwithstanding the foregoing provisions of this Subsection 11.03,
with respect to any Mortgage Loan as to which the Seller has received actual
notice of, or has actual knowledge of, the presence of any toxic or hazardous
substance on the related Mortgaged
<PAGE>
31
Property, the Seller shall not either (i) obtain title to such Mortgaged
Property as a result of or in lieu of foreclosure or otherwise, or (ii)
otherwise acquire possession of, or take any other action, with respect to, such
Mortgaged Property if, as a result of any such action, the Purchaser would be
considered to hold title to, to be a mortgagee-in-possession of, or to be an
owner or operator of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Seller has also
previously determined, based on its reasonable judgment and a prudent report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:
(1) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that it would be in the best economic
interest of the Purchaser to take such actions as are necessary to
bring the Mortgaged Property into compliance therewith; and
(2) there are no circumstances present at such Mortgaged Property
relating to the use, management or disposal of any hazardous
substances, hazardous materials, hazardous wastes, or petroleum-based
materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any federal, state or
local law or regulation, or that if any such materials are present for
which such action could be required, that it would be in the best
economic interest of the Purchaser to take such actions with respect
to the affected Mortgaged Property.
The cost of the environmental audit report contemplated by this
Subsection 11.03 shall be advanced by the Seller, subject to the Seller's right
to be reimbursed therefor from the Custodial Account as provided in Subsection
11.05(vii).
If the Seller determines, as described above, that it is in the best
economic interest of the Purchaser to take such actions as are necessary to
bring any such Mortgaged Property into compliance with applicable environmental
laws, or to take such action with respect to the containment, clean-up or
remediation of hazardous substances, hazardous materials, hazardous wastes, or
petroleum-based materials affecting any such Mortgaged Property, then the Seller
shall take such action as it deems to be in the best economic interest of the
Purchaser. The cost of any such compliance, containment, cleanup or remediation
shall be advanced by the Seller, subject to the Seller's right to be reimbursed
therefor from the Custodial Account as provided in Subsection 11.05(vii).
(c) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds in respect of any Mortgage Loan, will
be applied in the following order of priority: first, to reimburse the Seller
-----
for any related unreimbursed Servicing Advances, pursuant to Subsection
<PAGE>
32
11.05(iii); second, to accrued and unpaid interest on the Mortgage Loan, to the
------
date of the Final Recovery Determination, or to the Due Date prior to the
Distribution Date on which such amounts are to be distributed if not in
connection with a Final Recovery Determination; and third, as a recovery of
-----
principal of the Mortgage Loan. If the amount of the recovery so allocated to
interest is less than the full amount of accrued and unpaid interest due on such
Mortgage Loan, the amount of such recovery will be allocated by the Seller as
follows: first, to unpaid Servicing Fees; and second, to the balance of the
----- ------
interest then due and owing. The portion of the recovery so allocated to unpaid
Servicing Fees shall be reimbursed to the Seller pursuant to Subsection
11.05(iii). The portion of the recovery allocated to interest (net of unpaid
Servicing Fees) and the portion of the recovery allocated to principal of the
Mortgage Loan shall be applied as part of the amounts to be distributed to the
Purchaser in accordance with Subsection 11.14.
Subsection 11.04 Establishment of Custodial Accounts; Deposits in
------------------------------------------------
Custodial Accounts.
-------------------
The Seller shall segregate and hold or cause the Sub-Servicer to
segregate and hold all funds collected and received pursuant to each Mortgage
Loan separate and apart from any of its own funds and general assets and shall
establish and maintain one or more Custodial Accounts, in the form of time
deposit or demand accounts; provided, however, that collections on the Mortgage
Loans may be held for one Business Day in the general clearing account for
mortgage loan collections prior to being credited to the Custodial Account. The
creation of any Custodial Account shall be evidenced by a Custodial Account
Letter Agreement in the form of Exhibit 6.
---------
The Seller shall deposit in the Custodial Account on a daily basis,
and retain therein the following payments and collections received by it
subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but
allocable to a period subsequent thereto, other than in respect of principal and
interest on the Mortgage Loans due on or before the Cut-off Date:
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans;
(iii) all Liquidation Proceeds;
(iv) all Insurance Proceeds including amounts required to be
deposited pursuant to Subsections 11.10 and 11.11, other than proceeds to be
held in the Escrow Account and applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor in accordance with the Seller's
normal servicing procedures, the loan documents or applicable law;
<PAGE>
33
(v) all Condemnation Proceeds affecting any Mortgaged Property
which are not released to the Mortgagor in accordance with the Seller's normal
servicing procedures, the loan documents or applicable law;
(vi) [Reserved]
(vii) all proceeds of any Mortgage Loan repurchased by the Seller in
accordance with Subsections 7.03 and 7.04 and all amounts required to be
deposited by the Seller in connection with shortfalls in principal amount of
Qualified Substitute Mortgage Loans pursuant to Subsection 7.03;
(viii) any amounts required to be deposited by the Seller pursuant to
Subsection 11.11 in connection with the deductible clause in any blanket hazard
insurance policy. Such deposit shall be made from the Seller's own funds,
without reimbursement therefor;
(ix) any amounts required to be deposited by the Seller in
connection with any REO Property pursuant to Subsection 11.13; and
(x) any amounts required to be deposited in the Custodial Account
pursuant to Subsections 11.19 or 11.20.
The foregoing requirements for deposit in the Custodial Account shall
be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of late payment charges and
assumption fees, to the extent permitted by Subsection 11.19, need not be
deposited by the Seller in the Custodial Account, and may be retained by the
Seller as additional servicing compensation. Such Custodial Account shall be an
Eligible Account. Any interest or earnings on funds deposited in the Custodial
Account by the depository institution shall accrue to the benefit of the Seller
and the Seller shall be entitled to retain and withdraw such interest from the
Custodial Account pursuant to Subsection 11.05(iv). The Seller shall give
notice to the Purchaser of the location of the Custodial Account when
established and prior to any change thereof.
If the balance on deposit in the Custodial Account exceeds $75,000 as
of the commencement of business on any Business Day and the Custodial Account
constitutes an Eligible Account solely pursuant to clause (ii) of the definition
of Eligible Account, the Seller shall, on or before twelve o'clock noon Eastern
Standard Time on such Business Day, withdraw from the Custodial Account any and
all amounts payable to the Purchaser and remit such amounts to the Purchaser by
wire transfer of immediately available funds. This paragraph shall not be
applicable to a Custodial Account that is an Eligible Account pursuant to clause
(i) or (iii) of the definition of Eligible Account.
Subsection 11.05 Permitted Withdrawals From the Custodial Account.
------------------------------------------------
<PAGE>
34
The Seller may, from time to time, withdraw from the Custodial Account for
the following purposes:
(i) to make distributions to the Purchaser in the amounts and in
the manner provided for in Subsection 11.14;
(ii) [Reserved];
(iii) to reimburse itself for unreimbursed Servicing Advances, the
Seller's right to reimburse itself pursuant to this subclause (iii) with respect
to any Mortgage Loan being limited to related Liquidation Proceeds, Condemnation
Proceeds, Insurance Proceeds, REO Disposition proceeds and such other amounts as
may be collected by the Seller from the Mortgagor or otherwise relating to the
Mortgage Loan, it being understood that, in the case of such reimbursement, the
Seller's right thereto shall be prior to the rights of the Purchaser, except
that, where the Seller is required to repurchase a Mortgage Loan, pursuant to
Subsection 7.03, the Seller's right to such reimbursement shall be subsequent to
the payment to the Purchaser of the Repurchase Price pursuant to Subsection 7.03
and all other amounts required to be paid to the Purchaser with respect to such
Mortgage Loans;
(iv) to pay to itself pursuant to Subsection 11.22 as servicing
compensation (a) any interest earned on funds in the Custodial Account (all such
interest to be withdrawn monthly not later than each Distribution Date), and (b)
the Servicing Fee from that portion of any payment or recovery as to interest on
a particular Mortgage Loan;
(v) to pay to itself with respect to each Mortgage Loan that has
been repurchased pursuant to Subsection 7.03 all amounts received thereon and
not distributed as of the date on which the related Repurchase Price is
determined;
(vi) [Reserved]
(vii) to pay, or to reimburse the Seller for advances in respect of,
expenses incurred in connection with any Mortgage Loan pursuant to Subsection
11.03, but only to the extent of amounts received in respect of the Mortgage
Loans to which such expense is attributable; and
(viii) to clear and terminate the Custodial Account on the termination
of this Agreement.
The Seller shall keep and maintain separate accounting, on a Mortgage
Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from
the Custodial Account pursuant to such subclauses (iii), (v), and (vii) above.
<PAGE>
35
Subsection 11.06 Establishment of Escrow Accounts: Deposits in Escrow
----------------------------------------------------
Accounts.
--------
The Seller shall segregate and hold or cause the Sub-Servicer to
segregate and hold all funds collected and received pursuant to each Mortgage
Loan which constitute Escrow Payments separate and apart from any of its own
funds and general assets and shall establish and maintain one or more Escrow
Accounts, in the form of time deposit or demand accounts; provided, however,
that collections on the Mortgage Loans (including Escrow Payments) may be held
for one Business Day in the Seller's general clearing account for Mortgage Loan
collections prior to being credited to the appropriate Escrow Account. The
creation of any Escrow Account shall be evidenced by an Escrow Account Letter
Agreement in the form of Exhibit 6.
---------
The Seller or the Sub-Servicer shall deposit in the Escrow Account or
Accounts on a daily basis, and retain therein, (i) all Escrow Payments collected
on account of the Mortgage Loans, for the purpose of effecting timely payment of
any such items as required under the terms of this Agreement, and (ii) all
Insurance Proceeds which are to be applied to the restoration or repair of any
Mortgaged Property. The Seller shall make withdrawals therefrom only to effect
such payments as are required under this Agreement, and for such other purposes
as shall be as set forth or in accordance with Subsection 11.08. The Seller
shall be entitled to retain, as additional servicing compensation, any interest
paid on funds deposited in the Escrow Account by the depository institution
other than interest on escrowed funds required by law to be paid to the
Mortgagor and, to the extent required by law, the Seller shall pay interest on
escrowed funds to the Mortgagor notwithstanding that the Escrow Account is non-
interest bearing or that interest paid thereon is insufficient for such
purposes.
Subsection 11.07 Permitted Withdrawals From Escrow Account.
-----------------------------------------
Withdrawals from the Escrow Account may be made by the Seller or the
Sub-Servicer (i) to effect timely payments of ground rents, taxes, assessments,
water rates, hazard insurance premiums, Primary Mortgage Insurance Policy
premiums, if applicable, and comparable items, (ii) to reimburse the Seller for
any Servicing Advance made by the Seller with respect to a related Mortgage Loan
but only from amounts received on the related Mortgage Loan which represent late
payments or collections of Escrow Payments thereunder, (iii) to refund to the
Mortgagor any funds as may be determined to be overages, (iv) for transfer to
the Custodial Account in accordance with the terms of this Agreement, (v) for
application to the restoration or repair of the Mortgaged Property, (vi) to pay
to the Seller, or to the Mortgagor to the extent required by law, any interest
paid on the funds deposited in the Escrow Account, or (vii) to clear and
terminate the Escrow Account on the termination of this Agreement.
Subsection 11.08 Payment of Taxes, Insurance and Other Charges.
---------------------------------------------
<PAGE>
36
With respect to each Mortgage Loan, the Seller shall maintain accurate
records reflecting the status of ground rents, taxes, assessments, water rates
and other charges which are or may become a lien upon the Mortgaged Property and
the status of Primary Mortgage Insurance Policy premiums and fire and hazard
insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges, including insurance renewal premiums and shall effect
payment thereof prior to the applicable penalty or termination date and at a
time appropriate for securing maximum discounts allowable, employing for such
purpose deposits of the Mortgagor in the Escrow Account which shall have been
estimated and accumulated by the Seller in amounts sufficient for such purposes,
as allowed under the terms of the Mortgage and applicable law. To the extent
that the Mortgage does not provide for Escrow Payments, the Seller shall
determine that any such payments are made by the Mortgagor at the time they
first become due. The Seller assumes full responsibility for the timely payment
of all such bills and shall effect timely payments of all such bills
irrespective of the Mortgagor's faithful performance in the payment of same or
the making of the Escrow Payments and shall make advances from its own funds to
effect such payments.
Subsection 11.09 Transfer of Accounts.
---------------------
The Seller may transfer the Custodial Account or the Escrow Account to
a different depository institution from time to time. Such transfer shall be
made only upon obtaining the consent of the Purchaser, which consent shall not
be unreasonably withheld. In any case, the Custodial Account and Escrow Account
shall be Eligible Accounts.
Subsection 11.10 Maintenance of Hazard Insurance.
-------------------------------
The Seller shall cause to be maintained for each Mortgage Loan fire
and hazard insurance with extended coverage as is customary in the area where
the Mortgaged Property is located in an amount which is at least equal to the
lesser of (i) the amount necessary to fully compensate for any damage or loss to
the improvements which are a part of such property on a replacement cost basis
or (ii) the outstanding principal balance of the Mortgage Loan, or (iii) the
maximum insurable value of the improvements as established by the insurer in
each case in an amount not less than such amount as is necessary to prevent the
Mortgagor and/or the Mortgagee from becoming a co-insurer. If the Mortgaged
Property is in an area identified on a Flood Hazard Boundary Map or Flood
Insurance Rate Map issued by the Flood Emergency Management Agency as having
special flood hazards and flood insurance has been made available, the Seller
will cause to be maintained a flood insurance policy meeting the requirements of
the current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier, in an amount representing coverage not less than
the lesser of (i) the outstanding principal balance of the Mortgage Loan or (ii)
the maximum amount of insurance which is available under the National Flood
Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as
<PAGE>
37
amended. The Seller also shall maintain on any REO Property, fire and hazard
insurance with extended coverage in an amount which is at least equal to the
amount required to be maintained for such REO Property when it was a Mortgage
Loan as provided above, liability insurance and, to the extent required and
available under the National Flood Insurance Act of 1968 and the Flood Disaster
Protection Act of 1973, as amended, flood insurance in an amount as provided
above. Pursuant to Subsection 11.04, any amounts collected by the Seller under
any such policies other than amounts to be deposited in the Escrow Account and
applied to the restoration or repair of the Mortgaged Property or REO Property,
or released to the Mortgagor in accordance with the Seller's normal servicing
procedures, shall be deposited in the Custodial Account, subject to withdrawal
pursuant to Subsection 11.05. Any cost incurred by the Seller in maintaining any
such insurance shall not, for the purpose of calculating distributions to the
Purchaser, be added to the unpaid principal balance of the related Mortgage
Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is
understood and agreed that no earthquake or other additional insurance need be
required by the Seller of the Mortgagor or maintained on property acquired in
respect of the Mortgage Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. All such policies shall be endorsed with standard
mortgagee clauses with loss payable to the Seller, or upon request to the
Purchaser, and shall provide for at least thirty days prior written notice of
any cancellation, reduction in the amount of, or material change in, coverage to
the Seller. The Seller shall not interfere with the Mortgagor's freedom of
choice in selecting either his insurance carrier or agent, provided, however,
that the Seller shall not accept any such insurance policies from insurance
companies unless such companies currently reflect a General Policy Rating of
B/III or A/II or better in Best's Key Rating Guide and are licensed to do
business in the state wherein the property subject to the policy is located.
Subsection 11.11 Maintenance of Mortgage Impairment Insurance Policy.
---------------------------------------------------
In the event that the Seller shall obtain and maintain a mortgage
impairment or blanket policy issued by an issuer that has a Best rating of A:VI
insuring against hazard losses on all of Mortgaged Properties securing the
Mortgage Loans, then, to the extent such policy provides coverage in an amount
equal to the amount required pursuant to Subsection 11.10 and otherwise complies
with all other requirements of Subsection 11.10, the Seller shall conclusively
be deemed to have satisfied its obligations as set forth in Subsection 11.10, it
being understood and agreed that such policy may contain a deductible clause, in
which case the Seller shall, in the event that there shall not have been
maintained on the related Mortgaged Property or REO Property a policy complying
with Subsection 11.10, and there shall have been one or more losses which would
have been covered by such policy, deposit in the Custodial Account the amount
not otherwise payable under the blanket policy because of such deductible
clause. In connection with its activities as servicer of the Mortgage Loans,
the Seller agrees to prepare and present on behalf of the Purchaser, claims
under any such blanket policy in a timely fashion in accordance
<PAGE>
38
with the terms of such policy. Upon request of the Purchaser, the Seller shall
cause to be delivered to the Purchaser a certified true copy of such policy and
a statement from the insurer thereunder that such policy shall in no event be
terminated or materially modified without thirty (30) days prior written notice
to the Purchaser.
Subsection 11.12 Fidelity Bond; Errors and Omissions Insurance.
---------------------------------------------
The Seller shall maintain, at its own expense, a blanket fidelity bond
and an errors and omissions insurance policy, with broad coverage with
responsible companies that meet the requirements of FNMA or FHLMC on all
officers, employees or other persons acting in any capacity with regard to the
Mortgage Loans to handle funds, money, documents and papers relating to the
Mortgage Loans. The fidelity bond and errors and omissions insurance shall be
in the form of the Mortgage Banker's Blanket Bond and shall protect and insure
the Seller against losses, including forgery, theft, embezzlement, fraud, errors
and omissions and negligent acts of such persons. Such fidelity bond shall also
protect and insure the Seller against losses in connection with the failure to
maintain any insurance policies required pursuant to this Agreement. No
provision of this Subsection 11.12 requiring the fidelity bond and errors and
omissions insurance shall diminish or relieve the Seller from its duties and
obligations as set forth in this Agreement. The minimum coverage under any such
bond and insurance policy shall be at least equal to the corresponding amounts
required by FNMA in the FNMA Servicing Guide or by FHLMC in the FHLMC Sellers'
and Servicers' Guide. Upon request of the Purchaser, the Seller shall cause to
be delivered to the Purchaser a certified true copy of the fidelity bond and
insurance policy and a statement from the surety and the insurer that such
fidelity bond or insurance policy shall in no event be terminated or materially
modified without thirty (30) days prior written notice to the Purchaser.
Subsection 11.13 Title, Management and Disposition of REO Property.
-------------------------------------------------
In the event that title to the Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the Seller or its Sub-Servicer or such other
person, if any, designated by the Purchaser. Any Person or Persons holding such
title other than the Purchaser shall acknowledge in writing that such title is
being held as nominee for the benefit of the Purchaser.
The Seller shall either itself or through an agent selected by the
Seller, manage, conserve, protect and operate each REO Property (and may
temporarily rent the same) in the same manner that it manages, conserves,
protects and operates other foreclosed property for its own account, and in the
same manner that similar property in the same locality as the REO Property is
managed. If a REMIC election is or is to be made with respect to the
arrangement under which the Mortgage Loans and any REO Property are held, the
Seller shall manage, conserve, protect and operate each REO Property in a manner
which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of
<PAGE>
39
the Code or result in the receipt by such REMIC of any "income from non-
permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or any
"net income from foreclosure property" within the meaning of Section 860G(c)(2)
of the Code. The Seller shall cause each REO Property to be inspected promptly
upon the acquisition of title thereto and shall cause each REO Property to be
inspected at least annually thereafter. The Seller shall make or cause to be
made a written report of each such inspection. Such reports shall be retained in
the Mortgage File and copies thereof shall be forwarded by the Seller to the
Purchaser. The Seller shall use its best efforts to dispose of the REO Property
as soon as possible and shall sell such REO Property in any event within one (1)
year after title has been taken to such REO Property, unless the Seller
determines, and gives appropriate notice to the Purchaser, that a longer period
is necessary for the orderly liquidation of such REO Property. If a period
longer than one (1) year is necessary to sell any REO property, (i) the Seller
shall report monthly to the Purchaser as to the progress being made in selling
such REO Property and (ii) if, with the written consent of the Purchaser, a
purchase money mortgage is taken in connection with such sale, such purchase
money mortgage shall name the Seller as mortgagee, and a separate servicing
agreement between the Seller and the Purchaser shall be entered into with
respect to such purchase money mortgage. Notwithstanding the foregoing, if a
REMIC election is made with respect to the arrangement under which the Mortgage
Loans and the REO Property are held, such REO Property shall be disposed of
within two (2) years or such other period as may be permitted under Section
860G(a)(8) of the Code.
With respect to each REO Property, the Seller shall segregate and hold
all funds collected and received in connection with the operation of the REO
Property separate and apart from its own funds or general assets and shall
establish and maintain a separate REO Account for each REO Property in the form
of a non-interest bearing demand account, unless an Opinion of Counsel is
obtained by the Seller to the effect that the classification as a grantor trust
or REMIC for federal income tax purposes of the arrangement under which the
Mortgage Loans and the REO Property is held will not be adversely affected by
holding such funds in another manner. Each REO Account shall be established
with the Seller or, with the prior consent of the Purchaser, with a commercial
bank, a mutual savings bank or a savings association. The creation of any REO
Account shall be evidenced by a letter agreement substantially in the form of
the Custodial Account Letter Agreement attached as Exhibit 6 hereto. An
---------
original of such letter agreement shall be furnished to any Purchaser upon
request.
The Seller shall deposit or cause to be deposited, on a daily basis in
each REO Account all revenues received with respect to the related REO Property
and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of the REO Property, including the cost of
maintaining any hazard insurance pursuant to Subsection 11.10 hereof and the
fees of any managing agent acting on behalf of the Seller. The Seller shall not
be entitled to retain interest paid or other earnings, if any, on funds
deposited in such REO Account. On or before each Determination Date, the Seller
shall withdraw from each REO Account and
<PAGE>
40
deposit into the Custodial Account the net income from the REO Property on
deposit in the REO Account.
The Seller shall furnish to the Purchaser on each Distribution Date,
an operating statement for each REO Property covering the operation of each REO
Property for the previous month. Such operating statement shall be accompanied
by such other information as the Purchaser shall reasonably request.
Each REO Disposition shall be carried out by the Seller at such price
and upon such terms and conditions as the Seller deems to be in the best
interest of the Purchaser only with the prior written consent of the Purchaser.
If as of the date title to any REO Property was acquired by the Purchaser or its
designee there were outstanding unreimbursed Servicing Advances with respect to
the REO Property, the Seller, upon an REO Disposition of such REO Property,
shall be entitled to reimbursement for any related unreimbursed Servicing
Advances from proceeds received in connection with such REO Disposition. The
proceeds from the REO Disposition, net of any payment to the Seller as provided
above, shall be deposited in the REO Account and shall be transferred to the
Custodial Account on the Determination Date in the month following receipt
thereof for distribution on the succeeding Distribution Date in accordance with
Subsection 11.14.
Subsection 11.14 Distributions.
-------------
On each Distribution Date, the Seller shall distribute to the
Purchaser all amounts credited to the Custodial Account as of the close of
business on the preceding Determination Date, net of charges against or
withdrawals from the Custodial Account pursuant to Subsection 11.05, minus any
amounts attributable to Monthly Payments collected but due on a Due Date or
Dates subsequent to the related Due Period.
All distributions made to the Purchaser on each Distribution Date will
be made to the Initial Purchaser or any subsequent Purchaser as most recently
identified to the Seller in writing by the previous Purchaser, and shall be
based on the Mortgage Loans owned and held by the Purchaser, and shall be made
by wire transfer of immediately available funds to the account of the Purchaser
at a bank or other entity having appropriate facilities therefor, if the
Purchaser shall have so notified the Seller or by check mailed to the address of
the Purchaser.
With respect to any remittance received by the Purchaser on or after
the second Business Day following the Business Day on which such payment was
due, the Seller shall pay to the Purchaser interest on any such late payment at
an annual rate equal to the rate of interest as is publicly announced from time
to time at its principal office by The Chase Manhattan Bank, New York, New York,
as its prime lending rate, adjusted as of the date of each change, plus three
percentage points, but in no event greater than the maximum amount permitted by
applicable law. Such interest shall be paid by the Seller to the Purchaser on
the date such late payment is made and shall cover the period commencing with
the day following such second Business Day
<PAGE>
41
and ending with the Business Day on which such payment is made, both inclusive.
Such interest shall be remitted along with such late payment. The payment by the
Seller of any such interest shall not be deemed an extension of time for payment
or a waiver of any Event of Default by the Seller.
Subsection 11.15 Remittance Reports.
------------------
The Seller shall furnish to the Purchaser or its designee on each
Distribution Date a computer tape containing, and a hard copy of, the monthly
data, the determination data and remittance report, as further described and set
forth in Exhibit 8, for the Mortgage Loans for the preceding calendar month,
---------
together with such other information with respect to the Mortgage Loans as the
Purchaser may reasonably require to allocate distributions made pursuant to this
Agreement and provide appropriate statements with respect to such distributions.
Subsection 11.16 Statements to the Purchaser.
---------------------------
Not later than fifteen (15) days after each Distribution Date, the
Seller shall forward to the Purchaser or its designee a statement prepared by
the Seller setting forth the status of the Custodial Account as of the close of
business on such Distribution Date and showing, for the period covered by such
statement, the aggregate amount of deposits into and withdrawals from the
Custodial Account of each category of deposit specified in Subsection 11.04 and
each category of withdrawal specified in Subsection 11.05.
In addition, not more than sixty (60) days after the end of each
calendar year, the Seller shall furnish to each Person who was the Purchaser at
any time during such calendar year, (i) as to the aggregate of remittances for
the applicable portion of such year, an annual statement in accordance with the
requirements of applicable federal income tax law, and (ii) a listing of the
principal balances of the Mortgage Loans outstanding at the end of such calendar
year or at the expiration of the Interim Servicing Period if the Seller was
terminated as servicer hereunder during such calendar year.
The Seller shall prepare and file any and all tax returns, information
statements or other filings required to be delivered to any governmental taxing
authority or to any Purchaser pursuant to any applicable law with respect to the
Mortgage Loans and the transactions contemplated hereby. In addition, the
Seller shall provide the Purchaser with such information concerning the Mortgage
Loans (during the period they were serviced by the Seller) as is necessary for
the Purchaser to prepare its federal income tax return as any Purchaser may
reasonably request from time to time.
Subsection 11.17 Real Estate Owned Reports.
-------------------------
<PAGE>
42
Together with the statement furnished pursuant to Subsection 11.13,
with respect to any REO Property, the Seller shall furnish to the Purchaser a
statement covering the Seller's efforts in connection with the sale of such REO
Property and any rental of such REO Property incidental to the sale thereof for
the previous month, together with the operating statement. Such statement shall
be accompanied by such other information as the Purchaser shall reasonably
request.
Subsection 11.18 Liquidation Reports.
-------------------
Upon the foreclosure sale of any Mortgaged Property or the acquisition
thereof by the Purchaser pursuant to a deed-in-lieu of foreclosure, the Seller
shall submit to the Purchaser a liquidation report with respect to such
Mortgaged Property.
Subsection 11.19 Assumption Agreements.
---------------------
The Seller shall, to the extent it has knowledge of any conveyance or
prospective conveyance by any Mortgagor of the Mortgaged Property (whether by
absolute conveyance or by contract of sale, and whether or not the Mortgagor
remains or is to remain liable under the Mortgage Note and/or the Mortgage),
exercise its rights to accelerate the maturity of such Mortgage Loan under any
"due-on-sale" clause applicable thereto; provided, however, that the Seller
shall not exercise any such rights if prohibited by law from doing so. If the
Seller reasonably believes it is unable under applicable law to enforce such
"due-on-sale" clause, the Seller shall use reasonable efforts to enter into an
assumption agreement with the person to whom the Mortgaged Property has been
conveyed or is proposed to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, to the extent permitted by applicable state
law, the Mortgagor remains liable thereon. Where an assumption is allowed
pursuant to this Subsection 11.19, the Seller is authorized to enter into a
substitution of liability agreement with the person to whom the Mortgaged
Property has been conveyed or is proposed to be conveyed pursuant to which the
original Mortgagor is released from liability and such Person is substituted as
Mortgagor and becomes liable under the related Mortgage Note. Any such
substitution of liability agreement shall be in lieu of an assumption agreement.
In connection with any such assumption or substitution of liability,
the Seller shall follow the underwriting practices and procedures included in
the NMC Non-Conforming Program Guide. With respect to an assumption or
substitution of liability, the Mortgage Interest Rate, the amount of the Monthly
Payment, and the final maturity date of such Mortgage Note may not be changed.
The Seller shall notify the Purchaser that any such substitution of liability or
assumption agreement has been completed by forwarding to the Purchaser the
original of any such substitution of liability or assumption agreement, which
document shall be added to the related Mortgage File and shall, for all
purposes, be considered a part of such Mortgage File to
<PAGE>
43
the same extent as all other documents and instruments constituting a part
thereof. Any fee collected by the Seller for entering into an assumption or
substitution of liability agreement in excess of one percent (1%) of the
outstanding principal balance of the Mortgage Loan shall be deposited in the
Custodial Account pursuant to Subsection 11.04.
Notwithstanding the foregoing paragraphs of this Subsection or any
other provision of this Agreement, the Seller shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reason of
any assumption of a Mortgage Loan by operation of law or any assumption which
the Seller may be restricted by law from preventing, for any reason whatsoever.
For purposes of this Subsection 11.19, the term "assumption" is deemed to also
include a sale of the Mortgaged Property subject to the Mortgage that is not
accompanied by an assumption or substitution of liability agreement.
Subsection 11.20 Satisfaction of Mortgages and Release of Mortgage
-------------------------------------------------
Files.
-----
Upon the payment in full of any Mortgage Loan, or the receipt by the
Seller of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Seller will immediately notify the Purchaser by
a certification of a servicing officer of the Seller (a "Servicing Officer"),
which certification shall include a statement to the effect that all amounts
received or to be received in connection with such payment which are required to
be deposited in the Custodial Account pursuant to Subsection 11.04 have been or
will be so deposited, and shall request execution of any document necessary to
satisfy the Mortgage Loan and delivery to it of the portion of the Mortgage File
held by the Purchaser or the Purchaser's designee. Upon receipt of such
certification and request, the Purchaser, shall promptly release the related
mortgage documents to the Seller and the Seller shall prepare and process any
satisfaction or release. No expense incurred in connection with any instrument
of satisfaction or deed of reconveyance shall be chargeable to the Custodial
Account or the Purchaser.
In the event the Seller satisfies or releases a Mortgage without
having obtained payment in full of the indebtedness secured by the Mortgage and
without the prior written consent of the Purchaser, the Seller, upon written
demand, shall remit to the Purchaser the then outstanding principal balance of
the related Mortgage Loan by deposit thereof in the Custodial Account. The
Seller shall maintain the fidelity bond insuring the Seller against any loss it
may sustain with respect to any Mortgage Loan not satisfied in accordance with
the procedures set forth herein.
From time to time and as appropriate for the servicing or foreclosure
of the Mortgage Loan, the Purchaser shall, upon request of the Seller and
delivery to the Purchaser of a servicing receipt signed by a Servicing Officer,
release the requested portion of the related Mortgage File held by the Purchaser
to the Seller. Such servicing receipt shall obligate the Seller
<PAGE>
44
to return the related Mortgage documents to the Purchaser when the need therefor
by the Seller no longer exists, unless the Mortgage Loan has been liquidated and
the Liquidation Proceeds relating to the Mortgage Loan have been deposited in
the Custodial Account or the Mortgage File or such document has been delivered
to an attorney, or to a public trustee or other public official as required by
law, for purposes of initiating or pursuing legal action or other proceedings
for the foreclosure of the Mortgaged Property either judicially or non-
judicially, and the Seller has delivered to the Purchaser a certificate of a
Servicing Officer certifying as to the name and address of the Person to which
such Mortgage File or such document was delivered and the purpose or purposes of
such delivery. Upon receipt of a certificate of a Servicing Officer stating that
such Mortgage Loan was liquidated, the servicing receipt shall be released by
the Purchaser to the Seller.
Subsection 11.21 Servicing Advance Reimbursement
-------------------------------
The Purchaser shall reimburse the Seller for unreimbursed Servicing
Advances that the Seller actually expended as servicer which the Seller would
have otherwise been entitled to recover upon receipt of collections from the
related Mortgagor pursuant to Section 11.05(iii), but for the termination of the
Interim Servicing Period. The Seller shall deliver to the Purchaser a detailed
statement of such unreimbursed Servicing Advances within fifteen (15) days of
the termination of the Interim Servicing Period, and the Purchaser shall
reimburse the Seller for such unreimbursed Servicing Advances within thirty (30)
days of receipt of such statement.
Subsection 11.22 Servicing Compensation.
----------------------
As compensation for its services hereunder, the Seller shall, subject
to Subsection 11.04(x), be entitled to withdraw from the Custodial Account or to
retain from interest payments on the Mortgage Loans the amounts provided for as
the Seller's Servicing Fee. Additional servicing compensation in the form of
assumption fees, as provided in Subsection 11.19, and late payment charges or
otherwise during the Interim Servicing Period shall be retained by the Seller to
the extent not required to be deposited in the Custodial Account. The Seller
shall be required to pay all expenses incurred by it in connection with its
servicing activities hereunder and shall not be entitled to reimbursement
therefor except as specifically provided for.
Subsection 11.23 Statement as to Compliance.
--------------------------
The Seller will deliver to the Purchaser not later than ninety (90)
days following the end of each fiscal year of the Seller, which as of the
Closing Date ends on the last day in December in each calendar year, an
Officer's Certificate stating, as to each signatory thereof, that (i) a review
of the activities of the Seller during the preceding year and of performance
under this
<PAGE>
45
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Seller has fulfilled all of
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. Copies of such
statement shall be provided by the Purchaser to any Person identified as a
prospective purchaser of the Mortgage Loans.
Subsection 11.24 Independent Public Accountants' Servicing Report.
------------------------------------------------
Not later than ninety (90) days following the end of each fiscal year
of the Seller, the Seller at its expense shall cause a firm of independent
public accountants (which may also render other services to the Seller) which is
a member of the American Institute of Certified Public Accountants to furnish a
statement to the Purchaser or its designee to the effect that such firm has
examined certain documents and records relating to the servicing of the Mortgage
Loans under this Agreement or of mortgage loans under pooling and servicing
agreements (including the Mortgage Loans and this Agreement) substantially
similar one to another (such statement to have attached thereto a schedule
setting forth the pooling and servicing agreements covered thereby) and that, on
the basis of such examination conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Attestation
Program for Mortgages serviced for FHLMC, such firm confirms that such servicing
has been conducted in compliance with such pooling and servicing agreements
except for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Attestation Program for Mortgage Bankers or the
Attestation Program for Mortgages serviced for FHLMC requires it to report.
Copies of such statement shall be provided by the Purchaser to any Person
identified as a prospective purchaser of the Mortgage Loans.
Subsection 11.25 Access to Certain Documentation.
-------------------------------
The Seller shall provide to the Office of Thrift Supervision, the FDIC
and any other federal or state banking or insurance regulatory authority that
may exercise authority over the Purchaser access to the documentation regarding
the Mortgage Loans serviced by the Seller required by applicable laws and
regulations. Such access shall be afforded without charge, but only upon
reasonable request and during normal business hours at the offices of the
Seller. In addition, access to the documentation will be provided to the
Purchaser and any Person identified to the Seller by the Purchaser without
charge, upon reasonable request during normal business hours at the offices of
the Seller.
Subsection 11.26 Notification of Adjustments.
---------------------------
<PAGE>
46
On each Adjustment Date, the Seller shall make interest rate
adjustments for each Mortgage Loan in compliance with the requirements of the
related Mortgage and Mortgage Note. The Seller shall execute and deliver the
notices required by each Mortgage and Mortgage Note regarding interest rate
adjustments. The Seller also shall provide timely notification to the Purchaser
of all applicable data and information regarding such interest rate adjustments
and the Seller's methods of implementing such interest rate adjustments. Upon
the discovery by the Seller or the Purchaser that the Seller has failed to
adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of
the related Mortgage Note and Mortgage, the Seller shall immediately deposit in
the Custodial Account from its own funds the amount of any interest loss caused
thereby without reimbursement therefor.
Subsection 11.27 Sub-Servicing Agreements Between Seller and Sub-
-----------------------------------------------
Servicers.
---------
(a) The Seller may enter into Sub-Servicing Agreements with Sub-
Servicers for the servicing and administration of the Mortgage Loans; provided
--------
however that nothing in this Agreement shall be deemed to grant any rights in
- -------
the Mortgage Loans to any Sub-Servicer following the termination of the Interim
Servicing Period. Subject to Section 16, the Seller and the Sub-Servicers may
make amendments to the Sub-Servicing Agreements or enter into different forms of
Sub-Servicing Agreements; provided, however, that any such amendments or
different forms shall be consistent with and not violate the provisions of this
Agreement, and that no such amendment or different form shall be made or entered
into which could be reasonably expected to be materially adverse to the
interests of the Purchaser, without the consent of the Purchaser.
(b) As part of its servicing activities hereunder, the Seller, for the
benefit of the Purchaser, shall enforce the obligations of each Sub-Servicer
under the related Sub-Servicing Agreement, including, without limitation, any
obligation to make advances in respect of delinquent payments as required by a
Sub-Servicing Agreement, or to purchase a Mortgage Loan on account of defective
documentation or on account of a breach of a representation or warranty, as
described in Subsections 7.01 and 7.02. Such enforcement, including, without
limitation, the legal prosecution of claims, termination of Sub-Servicing
Agreements and the pursuit of other appropriate remedies, shall be in such form
and carried out to such an extent and at such time as the Seller, in its good
faith business judgment, would require were it the owner of the related Mortgage
Loans. The Seller shall pay the costs of such enforcement at its own expense,
but shall be reimbursed therefor only (i) from a general recovery resulting from
such enforcement only to the extent, if any, that such recovery exceeds all
amounts due hereunder in respect of the related Mortgage Loans or (ii) from a
specific recovery of costs, expenses or attorneys' fees against the party
against whom such enforcement is directed.
<PAGE>
47
(c) As of the Closing Date, the Purchaser agrees that National
Mortgage Corporation is an acceptable Sub-Servicer hereunder.
Subsection 11.28 Successor Sub-Servicers.
-----------------------
The Seller shall be entitled to terminate any Sub-Servicing Agreement
and the rights and obligations of any Sub-Servicer pursuant to any Sub-Servicing
Agreement in accordance with the terms and conditions of such Sub-Servicing
Agreement. In the event of termination of any Sub-Servicer, all servicing
obligations of such Sub-Servicer shall be assumed simultaneously by the Seller
without any act or deed on the part of such Sub-Servicer or the Seller, and the
Seller either shall service directly the related Mortgage Loans or shall enter
into a Sub-Servicing Agreement with a successor Sub-Servicer which qualifies
under Subsection 11.27. If the Seller enters into a Sub-Servicing Agreement
with a successor Sub-Servicer, the Seller shall use reasonable efforts to have
the successor Sub-Servicer assume liability for the representations and
warranties made by the terminated Sub-Servicer in respect of the related
Mortgage Loans, and in the event of any such assumption by the successor Sub-
Servicer, the Seller may, in the exercise of its business judgment, release the
terminated Sub-Servicer from liability for such representations and warranties.
Subsection 11.29 Liability of the Seller.
-----------------------
Notwithstanding any Sub-Servicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Seller and a
Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise,
the Seller shall remain obligated and liable to the Initial Purchaser for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Sub-Servicing Agreements or arrangements or by virtue of
indemnification from the Sub-Servicer for any acts and omissions and to the same
extent and under the same terms and conditions as if the Seller alone were
servicing and administering the Mortgage Loans and any other transactions or
services relating to the Mortgage Loans involving the Sub-Servicer shall be
deemed to be between the Sub-Servicer and the Seller alone and the Purchaser
shall have no obligations, duties or liabilities with respect to the Sub-
Servicer including no obligation, duty or liability of the Purchaser to pay Sub-
Servicer's fees and expenses except pursuant to an assumption of the Seller's
obligations pursuant to Section 16. For purposes of this Agreement, the Seller
shall be deemed to have received payments on Mortgage Loans when the Sub-
Servicer has received such payments. The Seller shall be entitled to enter into
any agreement with a Sub-Servicer for indemnification of the Seller by such Sub-
Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification. The Seller shall pay all fees and expenses of the
Sub-Servicer from its own funds, the Servicing Fee or other amounts permitted to
be retained by or reimbursed to the Seller hereunder.
<PAGE>
48
Subsection 11.30 No Contractual Relationship Between Sub-Servicers
-------------------------------------------------
and Purchaser.
-------------
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Sub-Servicer and the Seller alone, and the Initial Purchaser shall not be
deemed a party thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the Sub-Servicer except as set forth in Section 16.
SECTION 12. [Reserved]
SECTION 13. The Seller.
----------
Subsection 13.01. Additional Indemnification by the Seller.
----------------------------------------
In addition to the indemnification provided in Subsection 7.03, the
Seller shall indemnify the Purchaser and hold the Purchaser harmless against any
and all claims, losses, damages, penalties, fines, forfeitures, reasonable and
necessary legal fees and related costs, judgments, and any other costs, fees and
expenses that the Purchaser may sustain in any way related to the failure of the
Seller to perform its obligations under this Agreement including but not limited
to its obligation to service and administer the Mortgage Loans in compliance
with the terms of this Agreement or any Reconstitution Agreement entered into
pursuant to Section 12.
Subsection 13.02. Merger or Consolidation of the Seller.
-------------------------------------
The Seller shall keep in full force and effect its existence, rights
and franchises as a corporation under the laws of the state of its incorporation
except as permitted herein, and shall obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans, and to enable the
Seller to perform its duties under this Agreement.
Any Person into which the Seller may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Seller shall be a party, or any Person succeeding to the business of the Seller,
shall be the successor of the Seller hereunder, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding; provided, however, that, for so
long as the Seller is servicing Mortgage Loans for the Purchaser under this
Agreement, the
<PAGE>
49
successor or surviving Person shall be an institution whose deposits are insured
by FDIC or a company whose business is the origination and servicing of mortgage
loans, shall be a FNMA or FHLMC approved seller/servicer and shall satisfy any
requirements of Section 16 with respect to the qualifications of a successor to
the Seller.
Subsection 13.03. Limitation on Liability of the Seller and Others.
------------------------------------------------
Neither the Seller nor any of the officers, employees or agents of the
Seller shall be under any liability to the Purchaser for any action taken or for
refraining from the taking of any action in good faith in connection with the
servicing of the Mortgage Loans pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Seller or
any such person against any breach of warranties or representations made herein,
or failure to perform its obligations in compliance with any standard of care
set forth in this Agreement, or any liability which would otherwise be imposed
by reason of any breach of the terms and conditions of this Agreement. The
Seller and any officer, employee or agent of the Seller may rely in good faith
on any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder. The Seller shall not be under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its obligation to sell or duty to service the Mortgage Loans in
accordance with this Agreement and which in its opinion may involve it in any
expenses or liability; provided, however, that the Seller may, with the consent
of the Purchaser, undertake any such action which it may deem necessary or
desirable in respect to this Agreement and the rights and duties of the parties
hereto. In such event, the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities for which
the Purchaser shall be liable, the Seller shall be entitled to reimbursement
therefor from the Purchaser upon written demand except when such expenses, costs
and liabilities are subject to the Seller's indemnification under Subsections
7.03 or 13.01.
Subsection 13.04. Seller Not to Resign.
--------------------
The Seller shall not assign this Agreement or resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Seller and the Purchaser or upon the determination that its servicing duties
hereunder are no longer permissible under applicable law and such incapacity
cannot be cured by the Seller in which event the Seller may resign as servicer.
Any such determination permitting the resignation of the Seller as servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Purchaser which Opinion of Counsel shall be in form and substance reasonably
acceptable to the Purchaser. No such resignation shall become effective until a
successor shall have assumed the Seller's responsibilities and obligations
hereunder in the manner provided in Section 16.
Subsection 13.05. No Transfer of Servicing.
------------------------
<PAGE>
50
With respect to the retention of the Seller to service the Mortgage
Loans during the Interim Servicing Period, the Seller acknowledges that the
Purchaser has acted in reliance upon the Seller's independent status, the
adequacy of its servicing facilities, plant, personnel, records and procedures,
its integrity, reputation and financial standing and the continuance thereof.
Without in any way limiting the generality of this Section, the Seller shall not
either assign this Agreement or the servicing hereunder or delegate its rights
or duties hereunder or any portion thereof, or sell or otherwise dispose of all
or substantially all of its property or assets, without the prior written
approval of the Purchaser, which consent will not be unreasonably withheld.
SECTION 14. Default.
-------
Subsection 14.01. Events of Default.
-----------------
In case one or more of the following Events of Default by the Seller
shall occur and be continuing, that is to say:
(i) any failure by the Seller to remit to the Purchaser any payment
required to be made under the terms of this Agreement which continues unremedied
for a period of three (3) Business Days after the date upon which written notice
of such failure, requiring the same to be remedied, shall have been given to the
Seller by the Purchaser; or
(ii) failure on the part of the Seller duly to observe or perform in
any material respect any other of the covenants or agreements on the part of the
Seller set forth in this Agreement which continues unremedied for a period of
thirty (30) days (except that such number of days shall be fifteen (15) in the
case of a failure to pay any premium for any insurance policy required to be
maintained under this Agreement) after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the Seller
by the Purchaser; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, bankruptcy, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Seller and such
decree or order shall have remained in force undischarged or unstayed for a
period of sixty (60) days; or
(iv) the Seller shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, bankruptcy, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Seller or of or relating to all or substantially all of its property; or
<PAGE>
51
(v) the Seller shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations; or
(vi) failure by the Seller or the Sub-Servicer to be in compliance
with the "doing business" or licensing laws of any jurisdiction where a
Mortgaged Property is located if such failure has an adverse effect on the value
of the related Mortgage Loans, the enforceability of such Mortgage Loans or the
interests of the Purchaser in such Mortgage Loans; or
(vii) the Sub-Servicer ceases to meet the qualifications of either a
FNMA or FHLMC seller/servicer; or
(viii) the Seller attempts to assign its right to servicing
compensation hereunder or the Seller attempts, without the consent of the
Purchaser, to sell or otherwise dispose of all or substantially all of its
property or assets or to assign this Agreement or the servicing responsibilities
hereunder or to delegate its duties hereunder or any portion thereof;
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Purchaser, by notice in writing to the Seller may, in
addition to whatever rights the Purchaser may have at law or equity to damages,
including injunctive relief and specific performance, terminate all the rights
and obligations of the Seller as servicer under this Agreement. On or after the
receipt by the Seller of such written notice, all authority and power of the
Seller to service the Mortgage Loans under this Agreement shall on the date set
forth in such notice pass to and be vested in the successor appointed pursuant
to Section 16.
Subsection 14.02. Waiver of Defaults.
------------------
The Purchaser may waive any default by the Seller in the performance
of its obligations hereunder and its consequences. Upon any such waiver of a
past default, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereon except to the extent expressly so waived.
SECTION 15. Termination. The respective obligations and
-----------
responsibilities of the Seller, as servicer, shall terminate at the expiration
of the Interim Servicing Period unless terminated on an earlier date at the
option of the Purchaser pursuant to Section 14. Upon written request from the
Purchaser in connection with any such termination, the Seller shall prepare,
execute and deliver, any and all documents and other instruments, place in the
Purchaser's possession all Mortgage Files, and do or accomplish all
<PAGE>
52
other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents, or otherwise, at the
Seller's sole expense. The Seller agrees to cooperate with the Purchaser and
such successor in effecting the termination of the Seller's responsibilities and
rights hereunder as servicer, including, without limitation, the transfer to
such successor for administration by it of all cash amounts which shall at the
time be credited by the Seller to the Custodial Account, REO Account or Escrow
Account or thereafter received with respect to the Mortgage Loans.
SECTION 16. Successor to the Seller. Prior to termination of the
-----------------------
Seller's responsibilities and duties under this Agreement pursuant to Section 14
or 15, the Purchaser shall (i) succeed to and assume all of the Seller's
responsibilities, rights, duties and obligations under this Agreement and the
Sub-Servicing Agreements, or (ii) appoint a successor which shall succeed to all
rights and assume all of the responsibilities, duties and liabilities of the
Seller as servicer under this Agreement and the Sub-Servicing Agreements. In
connection with such appointment and assumption, the Purchaser may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree. In the event that the Seller's
duties, responsibilities and liabilities as servicer under this Agreement should
be terminated pursuant to the aforementioned Sections, the Seller shall
discharge such duties and responsibilities during the period from the date it
acquires knowledge of such termination until the effective date thereof with the
same degree of diligence and prudence which it is obligated to exercise under
this Agreement, and shall take no action whatsoever that might impair or
prejudice the rights or financial condition of the Purchaser or such successor.
The termination of the Seller as servicer pursuant to the aforementioned
Sections shall not become effective until a successor shall be appointed
pursuant to this Section 16 and shall in no event relieve the Seller of the
representations and warranties made pursuant to Subsections 7.01 and 7.02 and
the remedies available to the Purchaser under Subsection 7.03 or 7.04, it being
understood and agreed that the provisions of such Subsections 7.01, 7.02 and
7.03 and 7.04 shall be applicable to the Seller notwithstanding any such
resignation or termination of the Seller, or the termination of this Agreement.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Seller and to the Purchaser an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Seller, with like effect as if originally named as a party to this Agreement,
provided, however, that such successor shall not assume, and Seller shall
indemnify such successor for, any and all liabilities arising out of the
Seller's acts as servicer. Any termination of the Seller as servicer pursuant
to Section 14 or 15 shall not affect any claims that the Purchaser may have
against the Seller arising prior to any such termination or resignation or
remedies with respect to such claims.
<PAGE>
53
The Seller shall timely deliver to the successor the funds in the
Custodial Account, REO Account and the Escrow Account and the Mortgage Files and
related documents and statements held by it hereunder and the Seller shall
account for all funds. The Seller shall execute and deliver such instruments
and do such other things all as may reasonably be required to more fully and
definitely vest and confirm in the successor all such rights, powers, duties,
responsibilities, obligations and liabilities of the Seller as servicer. The
successor shall make arrangements as it may deem appropriate to reimburse the
Seller for amounts the Seller actually expended as servicer pursuant to this
Agreement which the successor is entitled to retain hereunder and which would
otherwise have been recovered by the Seller pursuant to this Agreement but for
the appointment of the successor servicer.
SECTION 17. Financial Statements. The Seller understands that in
--------------------
connection with the Purchaser's marketing of the Mortgage Loans, the Purchaser
shall make available to prospective purchasers the Seller's financial statements
for the most recently completed three (3) fiscal years respecting which such
statements are available. The Seller also shall make available any comparable
interim statements to the extent any such statements have been prepared by the
Seller (and are available upon request to members or stockholders of the Seller
or the public at large). The Seller, if it has not already done so, agrees to
furnish promptly to the Purchaser copies of the statements specified above. The
Seller also shall make available information on its servicing performance with
respect to mortgage loans serviced for others, including delinquency ratios
relating to the most recently completed three fiscal years..
The Seller also agrees to allow reasonable access to knowledgeable
financial, accounting, origination and servicing officers of the Seller for the
purpose of answering questions asked by any prospective purchaser regarding
recent developments affecting the Seller, its loan origination or servicing
practices or the financial statements of the Seller.
SECTION 18. Mandatory Delivery; Grant of Security Interest. The sale
----------------------------------------------
and delivery of all of the Mortgage Loans on or before the Closing Date is
mandatory from and after the date of the execution of the Confirmation, it being
specifically understood and agreed that each Mortgage Loan is unique and
identifiable on the date hereof and that an award of money damages would be
insufficient to compensate the Initial Purchaser for the losses and damages
incurred by the Initial Purchaser (including damages to prospective purchasers
of the Mortgage Loans) in the event of the Seller's failure to deliver each of
the related Mortgage Loans or one or more Mortgage Loans otherwise acceptable to
the Purchaser on or before the Closing Date. The Seller hereby grants to the
Initial Purchaser a lien on and a continuing security interest in each Mortgage
Loan and each document and instrument evidencing each such Mortgage Loan to
secure the performance by the Seller of its obligation hereunder, and the Seller
agrees that it holds such Mortgage Loans in custody for the Initial Purchaser
subject to the Initial Purchaser's (i) right to reject any Mortgage Loan under
the terms of this Agreement and the Confirmation, and (ii) obligation to pay the
Purchase Price for the Mortgage Loans. All rights and remedies of the Purchaser
under this Agreement are distinct from, and cumulative with, any other rights or
remedies under this Agreement or afforded by law
<PAGE>
54
or equity and all such rights and remedies may be exercised concurrently,
independently or successively.
SECTION 19. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
mailed, by registered or certified mail, return receipt requested, or, if by
other means, when received by the other party at the address as follows:
(i) if to the Seller:
National Mortgage Sales Corporation
7600 East Orchard Road, Suite 330S
Attention: Mr. Scott Colclough and Mr. Craig Stulz
(ii) with a copy to:
Howard J. Glicksman, Esq.
Plaza Tower One, Suite 1200
6400 South Fiddler's Green Circle
Englewood, Colorado 80111
(iii) if to the Purchaser:
Salomon Brothers Realty Corp.
Seven World Trade Center
New York, New York 10048
Attention: Mr. Matthew Bollo
or such other address as may hereafter be furnished to the other party by like
notice. Any such demand, notice or communication hereunder shall be deemed to
have been received on the date delivered to or received at the premises of the
addressee (as evidenced, in the case of registered or certified mail, by the
date noted on the return receipt).
SECTION 20. Severability Clause. Any part, provision, representation
-------------------
or warranty of this Agreement which is prohibited or which is held to be void or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any part,
provision, representation or warranty of this Agreement which is prohibited or
unenforceable or is held to be void or unenforceable in any jurisdiction shall
be ineffective, as to such jurisdiction, to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereto
waive any provision of law which prohibits
<PAGE>
55
or renders void or unenforceable any provision hereof. If the invalidity of any
part, provision, representation or warranty of this Agreement shall deprive any
party of the economic benefit intended to be conferred by this Agreement, the
parties shall negotiate, in good-faith, to develop a structure the economic
effect of which is nearly as possible the same as the economic effect of this
Agreement without regard to such invalidity.
SECTION 21. Counterparts. This Agreement may be executed
------------
simultaneously in any number of counterparts. Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.
SECTION 22. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the State of New York without regard to any
conflicts of laws provisions and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with the laws of the State
of New York, except to the extent preempted by Federal law.
SECTION 23. Intention of the Parties. It is the intention of the
------------------------
parties that the Initial Purchaser is purchasing, and the Seller is selling, the
Mortgage Loans and not a debt instrument of the Seller or another security.
Accordingly, the parties hereto each intend to treat the transaction for federal
income tax purposes as a sale by the Seller, and a purchase by the Purchaser, of
the Mortgage Loans. The Initial Purchaser shall have the right to review the
Mortgage Loans and the related Mortgage Loan Files to determine the
characteristics of the Mortgage Loans which shall affect the federal income tax
consequences of owning the Mortgage Loans and the Seller shall cooperate with
all reasonable requests made by the Initial Purchaser in the course of such
review.
SECTION 24. Successors and Assigns. This Agreement shall bind and
----------------------
inure to the benefit of and be enforceable by the Seller and the Purchaser and
the respective successors and assigns of the Seller and the Purchaser. The
Purchaser may assign this Agreement to any Person to whom any Mortgage Loan is
transferred whether pursuant to a sale or financing and to any Person to whom
the servicing or master servicing of any Mortgage Loan is sold or transferred.
Upon any such assignment and written notice thereof to the Seller, the Person to
whom such assignment is made shall succeed to all rights and obligations of the
Purchaser under this Agreement to the extent of the related Mortgage Loan or
Mortgage Loans and this Agreement, to the extent of the related Mortgage Loan or
Loans, shall be deemed to be a separate and distinct Agreement between the
Seller and such Purchaser, and a separate and distinct Agreement between the
Seller and each other Purchaser to the extent of the other related Mortgage Loan
or Loans. This Agreement shall not be assigned, pledged or hypothecated by the
Seller to a third party without the consent of the Purchaser.
<PAGE>
56
SECTION 25. Waivers. No term or provision of this Agreement may be
-------
waived or modified unless such waiver or modification is in writing and signed
by the party against whom such waiver or modification is sought to be enforced.
SECTION 26. Exhibits. The exhibits to this Agreement are hereby
--------
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 27. Nonsolicitation. The Seller covenants and agrees that it
---------------
shall not take any action to solicit the refinancing of any Mortgage Loan
following the date hereof or provide information to any other entity to solicit
the refinancing of any Mortgage Loan; provided that, the foregoing shall not
preclude the Seller from engaging in solicitations to the general public by
newspaper, radio, television or other media which are not directed solely toward
the Mortgagors or from refinancing the Mortgage Loan of any Mortgagor who,
without solicitation, contacts the Seller to request the refinancing of the
related Mortgage Loan.
SECTION 28. General Interpretive Principles. For purposes of this
-------------------------------
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(c) references herein to "Articles," "Sections," "Subsections,"
"Paragraphs," and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Agreement;
(d) reference to a Subsection without further reference to a Section
is a reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(e) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision; and
(f) the term "include" or "including" shall mean without limitation by
reason of enumeration.
<PAGE>
57
SECTION 29. Reproduction of Documents. This Agreement and all
-------------------------
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
SECTION 30. Further Agreements. The Seller and the Purchaser each
------------------
agree to execute and deliver to the other such reasonable and appropriate
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Agreement.
Without limiting the generality of the foregoing, the Seller shall
cooperate with the Purchaser in connection with any Whole Loan Transfer or Pass-
Through Transfer contemplated by the Initial Purchaser pursuant to Section 12
hereof. In such connection, the Seller shall (a) execute any agreement in
accordance with the provisions of Section 12, and (b) provide to the Initial
Purchaser or any prospective purchaser from the Initial Purchaser: (i) any and
all information and appropriate verification of information, whether through
letters of its auditors and counsel or otherwise, as the Initial Purchaser shall
reasonably request; and (ii) such representations, warranties, covenants,
opinions of counsel, letters from auditors, and certificates of public officials
or officers of the Seller as are reasonably believed necessary by the Initial
Purchaser in connection with such transactions. The requirement of the Seller
pursuant to (ii) above shall terminate on the final Reconstitution Date. Prior
to incurring any out-of-pocket expenses pursuant to this paragraph, the Seller
shall notify the Initial Purchaser in writing of the estimated amount of such
expense. The Initial Purchaser shall reimburse the Seller for any such expense
following its receipt of appropriate details thereof.
<PAGE>
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as of the date first above written.
SALOMON BROTHERS REALTY CORP.
(Initial Purchaser)
By:_______________________________
Name:_____________________________
Title:____________________________
NATIONAL MORTGAGE SALES CORPORATION
(Seller)
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This is an Assignment, Assumption and Recognition Agreement made this 30th
day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"),
Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Ameriquest
Mortgage Company (the "Company").
WHEREAS, pursuant to a Liquidation Agreement (the "Liquidation Agreement"),
dated as of September 30, 1998, among Salomon Brothers Mortgage Securities VII,
Inc. ("Salomon Brothers"), the Company, Norwest Bank Minnesota, National
Association ("Norwest") and Salomon Smith Barney Inc. ("SSBI"), the Trust Fund
(as defined in the Pooling and Servicing Agreement (the "Servicing Agreement"),
dated as of November 1, 1996, relating to 1996-LB3, among Salomon Brothers, the
Company f/k/a Long Beach Mortgage Company and Norwest) was liquidated and
terminated, and SSBI became the owner of a 100% ownership interest in the
mortgage loans identified on the Mortgage Loan Schedule annexed hereto as
EXHIBIT ONE (the "Mortgage Loans");
WHEREAS, the Seller is the holder of all right, title and interest in and
to the Mortgage Loans pursuant to the Liquidation Agreement;
WHEREAS, the Company made certain representations and warranties with
respect to the Mortgage Loans pursuant to a Mortgage Loan Purchase Agreement
(the "Purchase Agreement"), dated November 20, 1996, among Salomon Brothers, the
Company and the Seller which was terminated in accordance with the terms of the
Liquidation Agreement;
WHEREAS, pursuant to Article III of the Liquidation Agreement, the Company
restated such representations and warranties with respect to the Mortgage Loans
as of November 20, 1996; and
WHEREAS, pursuant to Article III of the Liquidation Agreement, the Mortgage
Loans are being serviced by the Company in accordance with the terms of the
Servicing Agreement;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, the Mortgage Loans;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Seller, the Purchaser and the
Company agree as follows:
WARRANTIES
----------
1. (a) The Seller and the Company warrant and represent that attached
hereto as EXHIBIT TWO is a true, accurate and complete copy of the Liquidation
Agreement.
(b) The Seller warrants and represents that attached hereto as
EXHIBIT THREE is a true, accurate and complete copy of the Purchase Agreement as
in effect prior to the termination of such Purchase Agreement.
<PAGE>
(c) The Seller warrants and represents that it is the lawful owner of
the Mortgage Loans with the full right to transfer the Mortgage Loans free from
any claim or encumbrance whatsoever.
(d) The Seller hereby warrants and represents to the Purchaser that
no event has occurred from November 20, 1996 to the date hereof that would
result in any representation and warranty made pursuant to Section 6 of the
Purchase Agreement being untrue if made as of the date hereof with respect to
the Mortgage Loans (other than any statistical information with respect to the
Mortgage Loans and any changes due to the receipt of payments on the Mortgage
Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and
similar changes, which information reflected on EXHIBIT ONE hereto is accurate
in all material respects as of September 1, 1998). In the event of a breach of
the foregoing representation and warranty which materially and adversely affects
the value of any Mortgage Loan or the Purchaser's interest therein, the Seller
shall repurchase such affected Mortgage Loan at a repurchase price equal to the
unpaid principal balance of such Mortgage Loan plus accrued interest at the net
Mortgage Interest Rate from the paid through date of the Mortgage Loan to the
first day of the month following the month in which such repurchase is effected;
provided, that to the extent that the Company would otherwise be required to
repurchase a Mortgage Loan due to the breach of any of the representations and
warranties that are made or deemed to have been made by the Company as of
November 20, 1996, then the Seller shall repurchase the affected Mortgage Loan
from the Purchaser upon the reassignment of the Liquidation Agreement from the
Purchaser to the Seller with respect to such Mortgage Loan. It is understood and
agreed that the obligations of the Seller set forth in this Section 1(d) to
repurchase an affected Mortgage Loan constitutes the sole remedy of the
Purchaser respecting a breach of the representation and warranty made in this
Section 1(d).
ASSIGNMENT AND ASSUMPTION
-------------------------
2. The Seller hereby assigns to the Purchaser all of its right, title and
interest in, and to the Mortgage Loans.
3. The Seller hereby assigns to the Purchaser all of its right, title and
interest in, and under Article III of the Liquidation Agreement to the extent of
the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's
obligation under Article III of the Liquidation Agreement to the extent of the
Mortgage Loans from and after the date hereof.
RECOGNITION OF THE PURCHASER
----------------------------
4. From and after the date hereof, the Company shall recognize the
Purchaser as the owner of the Mortgage Loans.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SALOMON BROTHERS REALTY CORP.,
Seller
By:___________________________
Name:_________________________
Title:________________________
WILSHIRE REAL ESTATE INVESTMENT
TRUST INC.
Purchaser
By:___________________________
Name:_________________________
Title:________________________
AMERIQUEST MORTGAGE COMPANY
Company
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
This is a Mortgage Loan Purchase Agreement (the "Agreement"), dated
November 20, 1996, among Salomon Brothers Mortgage Securities VII, Inc., a
Delaware corporation (the "Purchaser"), Long Beach Mortgage Company, a Delaware
corporation (the "Originator") and Salomon Brothers Realty Corp., a New York
corporation (the "Seller").
Preliminary Statement
---------------------
The Seller intends to sell the Mortgage Loans (as hereinafter defined)
to the Purchaser on the terms and subject to the conditions set forth in this
Agreement. The Mortgage Loans were purchased by the Seller from the Originator
pursuant to a certain Master Mortgage Loan Purchase and Servicing Agreement,
dated as of May 1, 1996 (the "Purchase and Servicing Agreement"), among the
Seller, as initial purchaser and the Originator, as seller and servicer. The
Purchaser intends to deposit the Mortgage Loans into a mortgage pool comprising
the trust fund. The trust fund will be evidenced by a single series of asset-
backed floating rate certificates designated as Series 1996-LB3, (the
"Certificates"). The Certificates will consist of four classes of certificates.
The Certificates will be issued pursuant to a Pooling and Servicing Agreement,
dated as of November 1, 1996 (the "Pooling and Servicing Agreement"), among the
Purchaser, as depositor, Norwest Bank Minnesota, National Association, as
trustee, and the Originator, as master servicer (in such capacity, the "Master
Servicer"). Capitalized terms used but not defined herein shall have the
meanings set forth in the Pooling and Servicing Agreement.
The parties hereto agree as follows:
SECTION 1. Agreement to Purchase. The Seller agrees to sell, and the
---------------------
Purchaser agrees to purchase, on or before November 25, 1996 (the "Closing
Date"), certain adjustable-rate conventional residential mortgage loans (the
"Mortgage Loans"), having an aggregate principal balance as of the close of
business on November 1, 1996 (the "Cut-off Date") of approximately $199,895,673
(the "Closing Balance"), after giving effect to all payments due on the Mortgage
Loans on or before the Cut-off Date, whether or not received.
SECTION 2. Mortgage Loan Schedule. The Purchaser and the Seller have
----------------------
agreed upon which of the mortgage loans owned by the Seller are to be purchased
by the Purchaser pursuant to this Agreement and the Seller will prepare or cause
to be prepared on or prior to the Closing Date a final schedule (the "Closing
Schedule") that together shall describe such Mortgage Loans and set forth all of
the Mortgage Loans to be purchased under this Agreement. The Closing Schedule
will conform to the requirements set forth in this Agreement and to the
definition of "Mortgage Loan Schedule" under the Pooling and Servicing
Agreement. The Closing Schedule shall be used as the Mortgage Loan Schedule
under the Pooling and Servicing Agreement.
<PAGE>
-2-
SECTION 3. Consideration.
-------------
(a) In consideration for the Mortgage Loans to be purchased
hereunder, the Purchaser shall, as described in Section 8, pay to or upon the
order of the Seller in immediately available funds an amount (the "Purchase
Price") equal to approximately 106.644% times the Closing Balance, plus accrued
interest thereon from the Cut-off Date up to but not including the Closing Date.
(b) The Purchaser or any assignee, transferee or designee of the
Purchaser shall be entitled to all scheduled payments of principal due after the
Cut-off Date, all other payments of principal due and collected after the Cut-
off Date, and all payments of interest on the Mortgage Loans allocable to the
period after the Cut-off Date. All scheduled payments of principal and interest
due on or before the Cut-off Date and collected after the Cut-off Date shall
belong to the Seller.
(c) Pursuant to the Pooling and Servicing Agreement, the
Purchaser will assign all of its right, title and interest in and to the
Mortgage Loans, together with its rights under this Agreement, to the Trustee
for the benefit of the related Certificateholders.
SECTION 4. Transfer of the Mortgage Loans.
------------------------------
(a) Possession of Mortgage Files. The Seller does hereby sell,
----------------------------
transfer, assign, set over and convey to the Purchaser, without recourse but
subject to the terms of this Agreement, all of its right, title and interest in,
to and under the Mortgage Loans. The contents of each Mortgage File not
delivered to the Purchaser or to any assignee, transferee or designee of the
Purchaser on or prior to the Closing Date are and shall be held in trust by the
Seller for the benefit of the Purchaser or any assignee, transferee or designee
of the Purchaser. Upon the sale of the Mortgage Loans the ownership of each
Mortgage Note, the related Mortgage and the other contents of the related
Mortgage File is vested in the Purchaser and the ownership of all records and
documents with respect to the related Mortgage Loan prepared by or that come
into the possession of the Seller on or after the Closing Date shall immediately
vest in the Purchaser and shall be delivered immediately to the Purchaser or as
otherwise directed by the Purchaser.
(b) Delivery of Mortgage Loan Documents. The Seller will, on or
-----------------------------------
prior to the Closing Date, deliver or cause to be delivered to the Purchaser or
any assignee, transferee or designee of the Purchaser each of the following
documents for each Mortgage Loan:
(i) the original Mortgage Note, endorsed in the following form: "Pay
to the order of Norwest Bank Minnesota, National Association, as Trustee
for the registered holders of Salomon Brothers Mortgage Securities VII,
Inc., Asset-Backed Floating Rate Certificates, Series 1996-LB3, without
recourse," with all prior and intervening endorsements showing a complete
chain of endorsement from the originator to the Person so endorsing to the
Trustee;
<PAGE>
-3-
(ii) the original Mortgage with evidence of recording thereon;
(iii) an original Assignment of Mortgage executed in the following
form: "Norwest Bank Minnesota, National Association, as Trustee for the
registered holders of Salomon Brothers Mortgage Securities VII, Inc.,
Asset-Backed Floating Rate Certificates, Series 1996-LB3";
(iv) the original recorded Assignment or Assignments of the Mortgage
showing a complete chain of assignment from the originator to the Person
assigning the Mortgage to the Trustee as contemplated by the immediately
preceding clause (iii);
(v) the original or copies of each assumption, modification,
written assurance or substitution agreement, if any; and
(vi) the original lender's title insurance policy, together with all
endorsements or riders which were issued with or subsequent to the issuance
of such policy, insuring the priority of the Mortgage as a first lien on
the Mortgaged Property represented therein as a fee interest vested in the
Mortgagor.
Notwithstanding anything to the contrary contained in this Section 4,
if any document referred to in Section 4(b)(ii) or 4(b)(iv) above has been
submitted for recording but either (x) has not been returned from the applicable
public recording office or (y) has been lost or such public recording office has
retained the original of such document, the obligations of the Seller hereunder
shall be deemed to have been satisfied upon (1) delivery by or on behalf of the
Seller promptly upon receipt thereof to or on behalf of the Purchaser or any
assignee, transferee or designee of the Purchaser of either the original or a
copy of such document certified by the Originator in the case of (x) above or
the public recording office in the case of (y) above to be a true and complete
copy of the recorded original thereof and (2) if such copy is certified by the
Originator delivery promptly upon receipt thereof of either the original or a
copy of such document certified by the public recording office to be a true and
complete copy of the original.
In the event that the original lender's title insurance policy has not
yet been issued, the Seller shall deliver to the Purchaser or any assignee,
transferee or designee of the Purchaser a written commitment or interim binder
or preliminary report of title issued by the title insurance or escrow company.
The Seller shall deliver to the Purchaser or any assignee, transferee or
designee of the Purchaser promptly upon receipt by the Seller of any such
original title insurance policy or original Primary Mortgage Insurance Policy.
(c) Acceptance of Mortgage Loans. The documents delivered
----------------------------
pursuant to Section 4(b) hereof shall be reviewed by the Purchaser or any
assignee, transferee or designee of the Purchaser at any time before or after
the Closing Date (and with respect to each document permitted to be delivered
after the Closing Date within seven days of its delivery) to ascertain that all
required documents have been executed and received and that such documents
relate to the Mortgage Loans identified on the Mortgage Loan Schedule.
<PAGE>
-4-
(d) Transfer of Interest in Agreements. The Purchaser has the
----------------------------------
right to assign its interest under this Agreement, in whole or in part, to the
Trustee, as may be required to effect the purposes of the Pooling and Servicing
Agreement, without the consent of the Seller or the Originator, and the assignee
shall succeed to the rights and obligations hereunder of the Purchaser. Any
expense reasonably incurred by or on behalf of the Purchaser or the Trustee in
connection with enforcing any obligations of the Seller or the Originator under
this Agreement will be promptly reimbursed by the Seller or the Originator, as
applicable.
(e) Examination of Mortgage Files. Prior to the Closing Date,
-----------------------------
the Seller shall either (i) deliver in escrow to the Purchaser or to any
assignee, transferee or designee of the Purchaser, for examination, the Mortgage
File pertaining to each Mortgage Loan, or (ii) make such Mortgage Files
available to the Purchaser or to any assignee, transferee or designee of the
Purchaser for examination. Such examination may be made by the Purchaser or the
Trustee, and their respective designees, upon reasonable notice to the Seller
during normal business hours before the Closing Date and within 60 days after
the Closing Date. If any such person makes such examination prior to the Closing
Date and identifies any Mortgage Loans that do not conform to the requirements
of the Purchaser as described in this Agreement, such Mortgage Loans shall be
deleted from the Closing Schedule. The Purchaser may, at its option and without
notice to the Seller, purchase all or part of the Mortgage Loans without
conducting any partial or complete examination. The fact that the Purchaser or
any person has conducted or has failed to conduct any partial or complete
examination of the Mortgage Files shall not affect the rights of the Purchaser
or any assignee, transferee or designee of the Purchaser to demand repurchase or
other relief as provided herein or under the Pooling and Servicing Agreement.
SECTION 5. Representations, Warranties and Covenants of the
------------------------------------------------
Seller and the Originator.
-------------------------
(a) The Originator hereby represents and warrants to the Seller and
the Purchaser, as of the date hereof and as of the Closing Date, and covenants,
that:
(i) The Originator is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly authorized and qualified to transact any and all business contemplated by
this Agreement to be conducted by the Originator in any state in which a
Mortgaged Property is located or is otherwise not required under applicable law
to effect such qualification and, in any event, is in compliance with the doing
business laws of any such State, to the extent necessary to ensure its ability
to enforce each Mortgage Loan and to service the Mortgage Loans in accordance
with the terms of the Pooling and Servicing Agreement;
(ii) The Originator has the full corporate power and authority to
originate, hold, sell and service each Mortgage Loan, and to execute, deliver
and perform, and to enter into and consummate the transactions contemplated by
this Agreement and has duly authorized by all necessary corporate action on the
part of the Originator the execution, delivery
<PAGE>
-5-
and performance of this Agreement; and this Agreement, assuming the due
authorization, execution and delivery thereof by the Purchaser, constitutes a
legal, valid and binding obligation of the Originator, enforceable against the
Originator in accordance with its terms, except to the extent that (a) the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights generally and
(b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought;
(iii) The execution and delivery of this Agreement by the
Originator, the servicing of the Mortgage Loans by the Originator under the
Pooling and Servicing Agreement, the consummation of any other of the
transactions herein contemplated, and the fulfillment of or compliance with the
terms hereof are in the ordinary course of business of the Originator and will
not (A) result in a breach of any term or provision of the charter or by-laws of
the Originator or (B) conflict with, result in a breach, violation or
acceleration of, or result in a default under, the terms of any other material
agreement or instrument to which the Originator is a party or by which it may be
bound, or any statute, order or regulation applicable to the Originator of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Originator; and the Originator is not a party to, bound
by, or in breach or violation of any indenture or other agreement or instrument,
or subject to or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over it, which materially and adversely affects or, to the Originator's
knowledge, would in the future materially and adversely affect, (x) the ability
of the Originator to perform its obligations under this Agreement or (y) the
business, operations, financial condition, properties or assets of the
Originator taken as a whole;
(iv) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance by the Originator of, or compliance by the Originator with, this
Agreement or the consummation of the transactions contemplated hereby, or if any
such consent, approval, authorization or order is required, the Originator has
obtained the same;
(v) The Originator is an approved seller/servicer for FNMA or
FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203
of the National Housing Act; and
(vi) No litigation is pending against the Originator that would
materially and adversely affect the execution, delivery or enforceability of
this Agreement or the ability of the Originator to service the Mortgage Loans or
to perform any of its other obligations hereunder in accordance with the terms
hereof;
(b) The Seller hereby represents and warrants, as of the date hereof
and as of the Closing Date, and covenants, that:
<PAGE>
-6-
(i) The Seller is a corporation, duly organized and validly
existing and in good standing under the laws of the State of New York with full
corporate power and authority to conduct its business as presently conducted by
it to the extent material to the consummation of the transactions contemplated
herein. The Seller had the full corporate power and authority to acquire the
Mortgage Loans. The Seller has the full corporate power and authority to own the
Mortgage Loans and to transfer and convey the Mortgage Loans to the Purchaser
and has the full corporate power and authority to execute and deliver, engage in
the transactions contemplated by, and perform and observe the terms and
conditions of this Agreement;
(ii) This Agreement has been duly and validly authorized,
executed and delivered by the Seller, all requisite corporate action having been
taken, and (assuming the due authorization, execution and delivery hereof by the
Purchaser and the Originator) constitutes the valid, legal and binding
obligation of the Seller, enforceable in accordance with its terms, except as
such enforcement may be limited by (A) bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, (B) general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law) or
(C) public policy considerations underlying the securities laws, to the extent
that such public policy considerations limit the enforceability of the
provisions of this Agreement which purport to provide indemnification from
securities laws liabilities;
(iii) No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or court is
required, under federal laws or the laws of the State of New York, for the
execution, delivery and performance by the Seller of, or compliance by the
Seller with, this Agreement or the consummation by the Seller of any other
transaction contemplated hereby and by the Pooling and Servicing Agreement;
provided, however, that the Seller makes no representation or warranty regarding
federal or state securities laws in connection with the sale or distribution of
the Certificates;
(iv) Neither the sale of the Mortgage Loans to the Purchaser,
nor the execution, delivery or performance of this Agreement by the Seller,
conflicts or will conflict with or results or will result in a breach of or
constitutes or will constitute a default (or an event, which with notice or
lapse of time or both, would constitute a default) under (A) any terms or
provisions of the certificate of incorporation or by-laws of the Seller, (B) any
term or provision of any material agreement, contract, instrument or indenture,
to which the Seller is a party or by which the Seller or any of its property is
bound, or (C) any law, rule, regulation, order, judgment, writ, injunction or
decree of any court or governmental authority having jurisdiction over the
Seller or any of its property, or results or will result in the creation or
imposition of any lien, charge or encumbrance which would have a material
adverse effect upon the Mortgage Loans or any documents or instruments
evidencing or securing the Mortgage Loans;
(v) The Seller has not dealt with any broker, investment
banker, agent or other person, except for the Purchaser or any of its
affiliates, that may be entitled to any commission or compensation in connection
with the sale of the Mortgage Loans;
<PAGE>
-7-
(vi) There is no litigation currently pending or, to the best
of the Seller's knowledge, threatened against the Seller that would reasonably
be expected to adversely affect the transfer of the Mortgage Loans, the issuance
of the Certificates, the execution, delivery, performance or enforceability of
this Agreement or that would result in a material adverse change in the
financial condition of the Seller;
(vii) Each Mortgage Note, each Mortgage, each Assignment and any
other document required to be delivered by or on behalf of the Seller under this
Agreement or the Pooling and Servicing Agreement to the Purchaser or any
assignee, transferee or designee of the Purchaser for each Mortgage Loan has
been or will be, in accordance with Section 4(b) hereof, delivered to the
Purchaser or any such assignee, transferee or designee. With respect to each
Mortgage Loan, the Seller is in possession of a complete Mortgage File in
compliance with the Pooling and Servicing Agreement, except for such documents
that (A) have been delivered (1) to the Purchaser or any assignee, transferee or
designee of the Purchaser or (2) for recording to the appropriate public
recording office and have not yet been returned or (B) are not required to be
delivered to the Purchaser or any assignee, transferee or designee of the
Purchaser until 90 days following the Closing Date or such later date as
provided in Section 4;
(viii) The transfer, assignment and conveyance of the Mortgage
Notes and the Mortgages by the Seller pursuant to this Agreement are not subject
to the bulk transfer or any similar statutory provisions in effect in any
relevant jurisdiction, except any as may have been complied with;
(ix) The Seller (A) is a solvent entity and is paying its debts
as they become due and (B) after giving effect to the transfer of the Mortgage
Loans, will be a solvent entity and will have sufficient resources to pay its
debts as they become due;
(x) The form of endorsement of each Mortgage Note satisfied
the requirement, if any, of endorsement in order to transfer all right, title
and interest of the party so endorsing, as noteholder or assignee thereof, in
and to that Mortgage Note; and each Assignment to be delivered hereunder is in
recordable form and is sufficient to effect the assignment of and to transfer to
the assignee thereunder the benefits of the assignor, as mortgagee or assignee
thereof, under each Mortgage to which that Assignment relates;
(xi) The transfer of the Mortgage Loans to the Purchaser at the
Closing Date will be treated by the Seller for financial accounting and
reporting purposes as a sale of assets; and
(xii) Immediately prior to the sale of the Mortgage Loans to the
Purchaser as herein contemplated, the Seller had good title to, and was the sole
owner of, the Mortgage Loans, and such sale validly transfers the Mortgage Loans
to the Purchaser free and clear of any pledge, lien, encumbrance or security
interest.
<PAGE>
-8-
SECTION 6. Representations and Warranties of the Originator
------------------------------------------------
Relating to the Mortgage Loans.
------------------------------
(a) Representations and Warranties as to Individual Mortgage Loans. The
--------------------------------------------------------------
Originator hereby represents and warrants to the Seller and the Purchaser, that
as to each Mortgage Loan as of the Closing Date:
(i) The information set forth on the related Mortgage Loan
Schedule with respect to each Mortgage Loan is true and correct in all material
respects;
(ii) Except as set forth on Exhibit 1, all payments due prior
to the Cut-off Date have been made and none of the Mortgage Loans will have been
contractually delinquent for more than one calendar month more than once since
the origination thereof;
(iii) Each Mortgage is a valid and enforceable first lien on the
Mortgaged Property, including all improvements thereon, subject only to (a) the
lien of nondelinquent current real property taxes and assessments, (b)
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 related Mortgage Loan, and (c) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(iv) Immediately prior to the assignment of the Mortgage Loans
to the Purchaser pursuant to the Purchase and Servicing Agreement, the
Originator had good title to, and was the sole legal and beneficial owner of,
each Mortgage Loan free and clear of any pledge, lien, encumbrance or security
interest and has full right and authority, subject to no interest or
participation of, or agreement with, any other party to sell and assign the
same;
(v) To the best of the Originator's knowledge, there is no
delinquent tax or assessment lien against any Mortgaged Property;
(vi) There is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the
unpaid principal of or interest on such Mortgage Note, nor will the operation of
any of the terms of the Mortgage Note and the Mortgage, or the exercise of any
right thereunder, render the Mortgage unenforceable, in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense, including
the defense of usury and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(vii) To the best of the Originator's knowledge, there are no
mechanics' liens or claims for work, labor or material affecting any Mortgaged
Property which are or may
<PAGE>
-9-
be a lien prior to, or equal with, the lien of the related Mortgage, except
those which are insured against by the title insurance policy referred to in
(xi) below;
(viii) To the best of the Originator's knowledge, each Mortgaged
Property is free of material damage and is in average repair;
(ix) Each Mortgage Loan at origination complied in all material
respects with applicable local, state and federal laws, including, without
limitation, usury, equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws;
(x) Neither the Originator nor any prior holder of any
Mortgage has modified the Mortgage in any material respect (except that a
Mortgage Loan may have been modified by a written instrument which has been
recorded, if necessary, to protect the interests of the Seller and the Purchaser
and which has been delivered to the Custodian); satisfied, cancelled or
subordinated such Mortgage in whole or in part; released the related Mortgaged
Property in whole or in part from the lien of such Mortgage; or executed any
instrument of release, cancellation, modification or satisfaction with respect
thereto;
(xi) A lender's policy of title insurance together with a
condominium endorsement and extended coverage endorsement, if applicable, and,
with respect to each Mortgage Loan, an adjustable rate mortgage endorsement in
an amount at least equal to the Cut-off Date Principal Balance of each such
Mortgage Loan or a commitment (binder) to issue the same was effective on the
date of the origination of each Mortgage Loan, each such policy is valid and
remains in full force and effect, the transfer of the related Mortgage Loan to
the Seller and Purchaser will not affect the validity or enforceability of such
policy and each such policy was issued by a title insurer qualified to do
business in the jurisdiction where the Mortgaged Property is located and
acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC, which
policy insures the Originator and successor owners of indebtedness secured by
the insured Mortgage, as to the first priority lien of the Mortgage; to the best
of the Originator's knowledge, no claims have been made under such mortgage
title insurance policy and no prior holder of the related Mortgage, including
the Originator, has done, by act or omission, anything which would impair the
coverage of such mortgage title insurance policy;
(xii) Each Mortgage Loan was originated by the Originator or by
a savings and loan association, savings bank, commercial bank, credit union,
insurance company or similar institution which is supervised and examined by a
federal or state authority, or by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to sections 203 and 211 of the National
Housing Act and, if originated on behalf of the Originator by a Person other
than the Originator, is subject to the same standards and procedures used by the
Originator in originating mortgage loans directly;
(xiii) With respect to each Mortgage Loan on each Adjustment
Date, the
<PAGE>
-10-
Mortgage Interest Rate will be adjusted to equal the Index plus the Margin,
rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the Maximum
Rate and the Minimum Rate. Except for Balloon Loans, the related Mortgage Note
is payable on the first day of each month in self-amortizing monthly
installments of principal and interest, with interest payable in arrears, and
requires a Monthly Payment which is sufficient to fully amortize the outstanding
principal balance of the Mortgage Loan over its remaining term and to pay
interest at the applicable Mortgage Interest Rate. No Mortgage Loan is subject
to negative amortization. All rate adjustments have been performed in accordance
with the terms of the related Mortgage Note or subsequent modifications, if any.
(xiv) To the best of the Originator's knowledge, all of the
improvements which were included for the purpose of determining the Appraised
Value of the Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining properties
encroach upon the Mortgaged Property;
(xv) All inspections, licenses and certificates required to
be made or issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same, including but
not limited to certificates of occupancy, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied under
applicable law;
(xvi) All parties which have had any interest in the
Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are (or, during
the period in which they held and disposed of such interest, were) in compliance
with any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located;
(xvii) The Mortgage Note and the related Mortgage are genuine,
and each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and with applicable laws. All parties
to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage
Note and the Mortgage and each Mortgage Note and Mortgage have been duly and
properly executed by such parties;
(xviii) The proceeds of each Mortgage Loan have been fully
disbursed, there is no requirement for future advances thereunder and any and
all requirements as to completion of any on-site or off-site improvements and as
to disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, closing or recording the Mortgage
Loans were paid;
(xix) The related Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is
no homestead or other exemption available to the Mortgagor which would interfere
with the right to sell the Mortgaged Property at a trustee's sale or the right
to foreclose
<PAGE>
-11-
the Mortgage;
(xx) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage, and
no fees or expenses are or will become payable by the Purchaser to the trustee
under the deed of trust, except in connection with a trustee's sale after
default by the Mortgagor;
(xxi) Each Mortgage Note and each Mortgage is in
substantially one of the forms attached hereto as Exhibit 2;
(xxii) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary arrangements
for repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Originator have been capitalized under the
Mortgage or the related Mortgage Note;
(xxiii) The origination, underwriting and collection practices
used by the Originator with respect to each Mortgage Loan have been in all
respects legal, proper, prudent and customary in the mortgage servicing
business;
(xxiv) There is no pledged account or other security other
than real estate securing the Mortgagor's obligations;
(xxv) No Mortgage Loan has a shared appreciation feature, or
other contingent interest feature;
(xxvi) No Mortgage Loan provides for primary mortgage
insurance;
(xxvii) The improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy with a generally
acceptable carrier that provides for fire extended coverage and such other
hazards as are customary in the area where the Mortgaged Property is located
representing coverage not less than the lesser of the outstanding principal
balance of the related Mortgage Loan or the minimum amount required to
compensate for damage or loss on a replacement cost basis. All individual
insurance policies and flood policies referred to in clause (xxviii) below
contain a standard mortgagee clause naming the Originator or the original
mortgagee, and its successors in interest, as mortgagee, and the Originator has
received no notice that any premiums due and payable thereon have not been paid;
the Mortgage obligates the Mortgagor thereunder to maintain all such insurance,
including flood insurance, at the Mortgagor's cost and expense, and upon the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at the Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor;
(xxviii) If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood
<PAGE>
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insurance policy in a form meeting the requirements of the current guidelines of
the Flood Insurance Administration is in effect with respect to such Mortgaged
Property with a generally acceptable carrier in an amount representing coverage
not less than the least of (A) the original outstanding principal balance of the
Mortgage Loan, (B) the minimum amount required to compensate for damage or loss
on a replacement cost basis or (C) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973;
(xxix) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the related Mortgage Note; and the
Originator has not waived any default, breach, violation or event of
acceleration;
(xxx) Each Mortgaged Property is improved by a one- to four-
family residential dwelling, including condominium units and dwelling units in
planned unit developments, which, to the best of the Originator's knowledge,
does not include cooperatives or mobile homes and does not constitute other than
real property under state law;
(xxxi) There is no obligation on the part of the Originator or
any other party under the terms of the Mortgage or related Mortgage Note to make
payments in addition to those made by the Mortgagor;
(xxxii) Any future advances made prior to the Cut-off Date have
been consolidated with the outstanding principal amount secured by the Mortgage,
and the secured principal amount, as consolidated, bears a single interest rate
and single repayment term reflected on the related Mortgage Loan Schedule. The
consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan;
(xxxiii) Each Mortgage Loan was underwritten in accordance with
the Originator's underwriting guidelines as described in the Prospectus
Supplement;
(xxxiv) The Mortgage File contains an appraisal which was
performed by an appraiser who satisfied, and which was conducted in accordance
with, all of the applicable requirements of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended;
(xxxv) None of the Mortgage Loans is a graduated payment
mortgage loan, nor is any Mortgage Loan subject to a temporary buydown or
similar arrangement;
(xxxvi) With respect to each Mortgage Loan, no loan junior in
lien priority to such Mortgage Loan and secured by the related Mortgaged
Property was originated by the Originator at the time of origination of such
Mortgage Loan;
(xxxvii) The characteristics of the Mortgage Loans as set forth
on Exhibit 1 hereto are true and correct in all material respects;
<PAGE>
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(xxxviii) The Mortgage contains an enforceable provision for the
acceleration of the payment of the unpaid principal balance of the Mortgage Loan
in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee thereunder;
(xxxix) The Originator has not advanced funds, or induced,
solicited or knowingly received any advance of funds by a party other than the
mortgagor, directly or indirectly, for the payment of any amount required under
the mortgage loan; and
(xl) There is no proceeding pending, or to best of the
Originator's knowledge threatened, for the total or partial condemnation of the
Mortgaged Property or the taking by eminent domain of any Mortgaged Property.
SECTION 7. Repurchase Obligation for Defective Documentation and
-----------------------------------------------------
for Breach of Representation and Warranty.
-----------------------------------------
(a) The representations and warranties contained in Section 6 shall
not be impaired by any review and examination of loan files or other documents
evidencing or relating to the Mortgage Loans or any failure on the part of the
Seller or the Purchaser to review or examine such documents and shall inure to
the benefit of any assignee, transferee or designee of the Purchaser, including
the Trustee for the benefit of holders of asset-backed floating rate
certificates evidencing an interest in all or a portion of the Mortgage Loans.
With respect to the representations and warranties contained herein which are
made to the knowledge or the best of knowledge of the Originator or the Seller,
as the case may be, or as to which the Originator or the Seller, as the case may
be, has no knowledge, if it is discovered that the substance of any such
representation and warranty was inaccurate as of the date such representation
and warranty was made or deemed to be made, and such inaccuracy materially and
adversely affects the value of the related Mortgage Loan or the interest therein
of the Purchaser or the Purchaser's assignee, transferee or designee, then
notwithstanding the lack of knowledge by the Originator or the Seller, as the
case may be, with respect to the substance of such representation and warranty
being inaccurate at the time the representation and warranty was made, the
Originator or the Seller, as the case may be, shall take such action described
in the following paragraph in respect of such Mortgage Loan.
<PAGE>
-14-
Upon discovery by the Originator, the Seller, the Purchaser or any
assignee, transferee or designee of the Purchaser of any materially defective
document in, or that any material document was not transferred by the Seller,
and not transferred by the Originator to the Seller (as listed on the Trustee's
Preliminary Exception Report), as part of, any Mortgage File or of a breach of
any of the representations and warranties contained in Section 6 that materially
and adversely affects the value of any Mortgage Loan or the interest therein of
the Purchaser or the Purchaser's assignee, transferee or designee, the party
discovering the breach shall give prompt written notice to the others. Within
ninety (90) days of its discovery or its receipt of notice of any such missing
documentation which was not transferred to the Seller as described above or
materially defective documentation or any such breach of a representation and
warranty the Originator promptly shall deliver such missing document or cure
such defect or breach in all material respects, or in the event the Originator
cannot deliver such missing document or such defect or breach cannot be cured,
the Originator shall, within 90 days of its discovery or receipt of notice,
either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such
term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the
provisions of the Pooling and Servicing Agreement, cause the removal of such
Mortgage Loan from the Trust Fund and substitute one or more Qualified
Substitute Mortgage Loans. With respect to Mortgage Loans where the Mortgage
File is missing a material document that was transferred from the Originator to
the Seller, within ninety (90) days of its discovery or its receipt of notice of
any such missing document the Seller promptly shall deliver such missing
document or in the event the Seller cannot deliver such missing document, the
Seller shall, within 90 days of its discovery or receipt of notice, either (i)
repurchase the affected Mortgage Loan at the Purchase Price (as such term is
defined in the Pooling and Servicing Agreement) or (ii) pursuant to the
provisions of the Pooling and Servicing Agreement, cause the removal of such
Mortgage Loan from the Trust Fund and substitute one or more Qualified
Substitute Mortgage Loans. The Originator or the Seller, as the case may be,
shall amend the Closing Schedule to reflect the withdrawal of such Mortgage Loan
from the terms of this Agreement and the Pooling and Servicing Agreement and the
addition, if any, of a Qualified Substitute Mortgage Loan. The Originator or the
Seller, as the case may be, shall deliver to the Purchaser such amended Closing
Schedule and shall deliver such other documents as are required by this
Agreement or the Pooling and Servicing Agreement within five (5) days of any
such amendment. Any repurchase pursuant to this Section 7(a) shall be
accomplished by deposit in the Collection Account of the amount of the Purchase
Price in accordance with Section 2.03 of the Pooling and Servicing Agreement.
Any repurchase or substitution required by this Section shall be made in a
manner consistent with Section 2.03 of the Pooling and Servicing Agreement.
(b) It is understood and agreed that the obligations of the
Originator or the Seller, as the case may be, set forth in this Section 7 to
cure, repurchase or substitute for a defective Mortgage Loan constitute the sole
remedies of the Seller and the Purchaser against the Originator respecting a
missing or defective document or a breach of the representations and warranties
contained in Section 6. It is understood and agreed that the obligations of the
Seller set forth in this Section 7 to repurchase or substitute for a Mortgage
Loan as to which a material document is missing constitute the sole remedies of
the Purchaser against the Seller respecting a missing document.
<PAGE>
-15-
SECTION 8. Closing; Payment for the Mortgage Loans. The closing of
---------------------------------------
the purchase and sale of the Mortgage Loans shall be held at the New York City
office of Thacher Proffitt & Wood at 10:00 AM New York City time on the Closing
Date.
The closing shall be subject to each of the following conditions:
(a) All of the representations and warranties of the Seller under
this Agreement shall be true and correct in all material respects
as of the date as of which they are made and no event shall have
occurred which, with notice or the passage of time, would
constitute a default under this Agreement;
(b) All of the representations and warranties of the Originator under
this Agreement shall be true and correct in all material respects
as of the date as of which they are made and no event shall have
occurred which, with notice or the passage of time, would
constitute a default under this Agreement;
(c) The Purchaser shall have received, or the attorneys of the
Purchaser shall have received in escrow (to be released from
escrow at the time of closing), all Closing Documents as
specified in Section 9 of this Agreement, in such forms as are
agreed upon and acceptable to the Purchaser, duly executed by all
signatories other than the Purchaser as required pursuant to the
respective terms thereof;
(d) The Seller shall have delivered or caused to be delivered and
released to the Purchaser or to its designee, all documents
(including without limitation, the Mortgage Loans) required to be
so delivered by the Purchaser pursuant to Section 2.01 of the
Pooling and Servicing Agreement; and
(e) All other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Purchaser shall deliver or
cause to be delivered to the Seller on the Closing Date, against delivery and
release by the Seller to the Trustee of all documents required pursuant to the
Pooling and Servicing Agreement, the consideration for the Mortgage Loans as
specified in Section 3 of this Agreement, by delivery to the Seller of the
Purchase Price in immediately available funds.
SECTION 9. Closing Documents. Without limiting the generality of
-----------------
Section 8 hereof, the closing shall be subject to delivery of each of the
following documents:
<PAGE>
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(a) An Officers' Certificate of the Seller, dated the Closing
Date, upon which the Originator, the Purchaser, Financial
Security Assurance Inc. ("FSA") and Salomon Brothers Inc
(the "Underwriter") may rely, in the form of Exhibit 3
hereto, and attached thereto copies of the certificate of
incorporation, by-laws and certificate of good standing of
the Seller under the laws of New York;
(b) An Officers' Certificate of the Seller, dated the Closing
Date, upon which the Purchaser, FSA and the Underwriter may
rely, in the form of Exhibit 4 hereto, with respect to
certain facts regarding the sale of the Mortgage Loans by
the Seller to the Purchaser;
(c) An Opinion of Counsel of the Seller, dated the Closing Date
and addressed to the Originator, the Purchaser, FSA and the
Underwriter, substantially in the form attached hereto as
Exhibit 5;
(d) An Officer's Certificate of the Originator, dated the
Closing Date, upon which the Seller, the Purchaser, FSA and
the Underwriter may rely, in the form of Exhibit 6 hereto,
and attached thereto copies of the certificate of
incorporation, by-laws and certificate of good standing of
the Originator under the laws of Delaware;
(e) An opinion of Counsel of the Originator, dated the Closing
Date and addressed to the Seller, the Purchaser, FSA and the
Underwriter, substantially in the form attached hereto as
Exhibit 7;
(f) Such opinions of counsel as the Rating Agencies or the
Trustee may request in connection with the sale of the
Mortgage Loans by the Seller to the Purchaser or the
Seller's execution and delivery of, or performance under,
this Agreement;
(g) A letter from Deloitte & Touche L.L.P., certified public
accountants, dated the date hereof and to the effect that
they have performed certain specified procedures as a result
of which they determined that certain information of an
accounting, financial or statistical nature set forth in the
Purchaser's Prospectus Supplement, dated November 20, 1996
in the Summary under the subheading "The Mortgage Pool" and
under the captions "The Mortgage Pool" and "Pooling and
Servicing Agreement -- The Originator and Master Servicer"
agrees with the records of the Originator;
(h) The Originator shall deliver to the Seller for inclusion in
the Prospectus Supplement for Salomon Brothers Mortgage
Securities
<PAGE>
-17-
VII, Inc., Asset-Backed Floating Rate Certificates, Series
1996-LB3, under the captions "The Mortgage Pool --
Underwriting Standards; Representations" and "Pooling and
Servicing Agreement -- The Originator and Master Servicer" ,
or for inclusion in other offering material such publicly
available information regarding the Originator, its
financial condition and its mortgage loan delinquency,
foreclosure and loss experience, underwriting standards,
lending activities and loan sales, production, and servicing
and collection practices, and any similar nonpublic,
unaudited financial information;
(i) A letter from Deloitte & Touche L.L.P., certified public
accountants, dated the date hereof and to the effect that
they have performed certain specified procedures as a result
of which they determined that certain information of an
accounting, financial or statistical nature set forth in the
Purchaser's Prospectus Supplement, dated November 20, 1996
under the captions "Summary of Prospectus Supplement",
"Yield on the Certificates" and "Description of the
Certificates" agrees with the records of the Seller; and
(j) Such further information, certificates, opinions and
documents as the Purchaser or the Underwriter may reasonably
request.
SECTION 10. Costs. The Originator shall pay (or shall reimburse the
-----
Purchaser or any other Person to the extent that the Purchaser or such other
Person shall pay) all costs and expenses incurred in connection with the
transfer and delivery of the Mortgage Loans, including without limitation,
recording fees, fees for title policy endorsements and continuations and the
fees for recording Assignments of Mortgage, the fees and expenses of the
Originator's in-house accountants and in-house attorneys, the costs and expenses
incurred in connection with producing the Originator's loan loss, foreclosure
and delinquency experience, and the costs and expenses incurred in connection
with obtaining the documents referred to in Sections 9(d) and 9(e). The Seller
shall pay (or shall reimburse the Purchaser or any other Person to the extent
that the Purchaser or such other Person shall pay) the costs and expenses of
printing (or otherwise reproducing) and delivering this Agreement, the Pooling
and Servicing Agreement, the Certificates, the prospectus, prospectus
supplement, and private placement memorandum relating to the Certificates, the
Insurance Agreement and other related documents, the initial fees, costs and
expenses of the Trustee, the initial fees, costs and expenses of FSA, the fees
and expenses of the Seller's counsel in connection with the preparation of all
documents relating to the securitization of the Mortgage Loans, the filing fee
charged by the Securities and Exchange Commission for registration of the
Certificates, the cost of outside special counsel that may be required for the
Originator, the cost of obtaining the documents referred to in Section 9(g) and
the fees charged by any rating agency to rate the Certificates. All other costs
and expenses in connection with the transactions contemplated hereunder shall be
borne by the party incurring
<PAGE>
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such expense.
SECTION 11. Servicing. The Seller has represented to the Purchaser
---------
that the Mortgage Loans are being serviced under the Purchase and Servicing
Agreement with the Originator, and it is understood and agreed by and among the
Seller, the Originator and the Purchaser that the interim servicing arrangements
under the Purchase and Servicing Agreement with the Originator will be
superseded by the servicing arrangements set forth in the Pooling and Servicing
Agreement.
SECTION 12. Mandatory Delivery; Grant of Security Interest. The sale
----------------------------------------------
and delivery on the Closing Date of the Mortgage Loans described on the Mortgage
Loan Schedule in accordance with the terms and conditions of this Agreement is
mandatory. It is specifically understood and agreed that each Mortgage Loan is
unique and identifiable on the date hereof and that an award of money damages
would be insufficient to compensate the Purchaser for the losses and damages
incurred by the Purchaser in the event of the Seller's failure to deliver the
Mortgage Loans on or before the Closing Date. The Seller hereby grants to the
Purchaser a lien on and a continuing security interest in the Seller's interest
in each Mortgage Loan and each document and instrument evidencing each such
Mortgage Loan to secure the performance by the Seller of its obligation
hereunder, and the Seller agrees that it holds such Mortgage Loans in custody
for the Purchaser, subject to the Purchaser's (i) right, prior to the Closing
Date, to reject any Mortgage Loan to the extent permitted by this Agreement, and
(ii) obligation to deliver or cause to be delivered the consideration for the
Mortgage Loans pursuant to Section 8 hereof. Any Mortgage Loans rejected by the
Purchaser shall concurrently therewith be released from the security interest
created hereby. All rights and remedies of the Purchaser under this Agreement
are distinct from, and cumulative with, any other rights or remedies under this
Agreement or afforded by law or equity and all such rights and remedies may be
exercised concurrently, independently or successively.
Notwithstanding the foregoing, if on the Closing Date, each of the
conditions set forth in Section 8 hereof shall have been satisfied and the
Purchaser shall not have paid or caused to be paid the Purchase Price, or any
such condition shall not have been waived or satisfied and the Purchaser
determines not to pay or cause to be paid the Purchase Price, the Purchaser
shall immediately effect the redelivery of the Mortgage Loans, if delivery to
the Purchaser has occurred and the security interest created by this Section 12
shall be deemed to have been released.
SECTION 13. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered to or mailed by registered mail, postage prepaid, or
transmitted by telex or telegraph and confirmed by a similar mailed writing, if
to the Purchaser, addressed to the Purchaser at Seven World Trade Center, New
York, New York 10048, Attention: Mortgage Finance Group, or such other address
as may hereafter be furnished to the Seller and the Originator in writing by the
Purchaser; if to the Seller, addressed to the Seller at Seven World Trade
Center, New York, New York 10048, Attention: Mortgage Finance Group, or to such
other address as the Seller may
<PAGE>
-19-
designate in writing to the Purchaser and the Originator; and if to the
Originator, addressed to the Originator at 1100 Town and Country Road, Orange,
California 92668, Attention: Del Dillingham, Esq., or to such other address as
the Originator may designate in writing to the Purchaser and the Seller.
SECTION 14. Severability of Provisions. Any part, provision,
--------------------------
representation or warranty of this Agreement which is prohibited or which is
held to be void or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof. Any part, provision, representation or warranty of this Agreement which
is prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.
SECTION 15. Agreement of Parties. The Originator, the Seller and the
--------------------
Purchaser each agree to execute and deliver such instruments and take such
actions as either of the others may, from time to time, reasonably request in
order to effectuate the purpose and to carry out the terms of this Agreement and
the Pooling and Servicing Agreement.
SECTION 16. Survival. (a) The Seller agrees that the representations,
--------
warranties and agreements made by it herein and in any certificate or other
instrument delivered pursuant hereto shall be deemed to be relied upon by the
Purchaser, notwithstanding any investigation heretofore or hereafter made by the
Purchaser or on its behalf, and that the representations, warranties and
agreements made by the Seller herein or in any such certificate or other
instrument shall survive the delivery of and payment for the Mortgage Loans and
shall continue in full force and effect, notwithstanding any restrictive or
qualified endorsement on the Mortgage Notes and notwithstanding subsequent
termination of this Agreement, the Pooling and Servicing Agreement or the Trust
Fund.
(b) The Originator agrees that the representations, warranties and
agreements made by it herein and in any certificate or other instrument
delivered pursuant hereto shall be deemed to be relied upon by the Seller and
the Purchaser, notwithstanding any investigation heretofore or hereafter made by
the Seller or the Purchaser or on the behalf of either, and that the
representations, warranties and agreements made by the Originator herein or in
any such certificate shall continue in full force and effect, notwithstanding
subsequent termination of this Agreement, the Pooling and Servicing Agreement or
the Trust Fund.
SECTION 17. Indemnification. (a) The Originator will indemnify and
----------
hold harmless the Purchaser and each person, if any, who controls the Purchaser
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
against any losses, claims, damages or liabilities to which such Purchaser or
such controlling person may become subject,
<PAGE>
-20-
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Prospectus Supplement dated November 20, 1996 (the "Prospectus Supplement"),
as amended or supplemented, relating to the public offering of the Certificates,
representing interests in the Mortgage Loans, or in any other offering document
(the "Private Placement Memorandum") relating to the offering by the Purchaser
or an affiliate thereof, of the Class B Certificates, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission relates to information set forth in the Prospectus Supplement
on the front cover in the fifth paragraph, in the Summary under the subheadings
"Originator," "Master Servicer" and "The Mortgage Pool" and under the captions
"The Mortgage Pool --General", "-- Underwriting Standards; Representations" and
"Pooling and Servicing Agreement -- The Originator and Master Servicer" (and
substantially identical information approved by the Originator set forth in the
Private Placement Memorandum relating to the Class B Certificates)
(collectively, the "Originator Information") and will reimburse the Purchaser
and each such controlling person for any legal or other expenses reasonably
incurred by such Purchaser and each such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The Originator's liability under this Section 17 shall be in addition to any
other liability the Originator may otherwise have.
(b) The Purchaser agrees to indemnify and hold harmless the
Originator, its officers and its directors, and each person who controls the
Seller within the meaning of either the 1933 Act or the 1934 Act against any and
all losses, claims, damages or liabilities, joint or several, to which they may
become subject under the 1933 Act, the 1934 Act, or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based in whole or in part upon any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus Supplement, the
Prospectus or Private Placement Memorandum, or in any revision or amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, as of the date thereof and as of the
Closing Date, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made therein in reliance upon and in conformity with the Originator
Information and will reimburse the Originator and each such controlling person
for any legal or other expenses reasonably incurred by such Originator and each
such controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action. The Purchaser's liability under this
Section 17 shall be in addition to any other liability the Purchaser may
otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either
<PAGE>
-21-
Section 17(a) or 17(b) above, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the reasonable fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by the Purchaser, in the case of parties
indemnified pursuant to clause 17(a) and by the Originator, in the case of
parties indemnified pursuant to clause 17(b). The indemnifying party may, at its
option, at any time upon written notice to the indemnified party, assume the
defense of any proceeding and may designate counsel satisfactory to the
indemnified party in connection therewith provided that the counsel so
designated would have no actual or potential conflict of interest in connection
with such representation. Unless it shall assume the defense of any proceeding,
the indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. If the indemnifying party assumes the defense of
any proceeding, it shall be entitled to settle such proceeding with the consent
of the indemnified party or, if such settlement provides for release of the
indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
(d) If the indemnification provided for in this Section 17 is
unavailable to an indemnified party under Section 17(a) or 17(b) hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the
indemnified and indemnifying parties in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
indemnified and indemnifying parties shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such parties and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
<PAGE>
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(e) The Purchaser and the Originator agree that it would not be just
and equitable if contribution pursuant to Section 17 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the considerations referred to in Section 17(d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in this Section 17 shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim, except where the
indemnified party is required to bear such expenses pursuant to this
Section 17, which expenses the indemnifying party shall pay as and when
incurred, at the request of the indemnified party, to the extent that the
indemnifying party will be ultimately obligated to pay such expenses. In
the event that any expenses so paid by the indemnifying party are
subsequently determined to not be required to be borne by the indemnifying
party hereunder, the party which received such payment shall promptly
refund the amount so paid to the party which made such payment. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 17 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the Purchaser
or any person controlling the Purchaser or by or on behalf of the Originator and
their respective directors or officers or any person controlling the Originator,
and (iii) acceptance of and payment for any of the Certificates.
SECTION 18. GOVERNING LAW
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THIS AGREEMENT AND THE RIGHTS, DUTIES, OBLIGATIONS AND
RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS (INCLUDING THE CHOICE OF LAW PROVISIONS) AND DECISIONS
OF THE STATE OF NEW YORK. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS
AGREEMENT.
SECTION 19. Miscellaneous. This Agreement may be executed in two or
-------------
more counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
It is the express intent of the parties hereto that the conveyance of the
Mortgage Loans by the Seller to the Purchaser as provided in Section 4 hereof
be, and be construed as, a
<PAGE>
-23-
sale of the Mortgage Loans by the Seller to the Purchaser and not as a pledge of
the Mortgage Loans by the Seller to the Purchaser to secure a debt or other
obligation of the Seller. However, in the event that, notwithstanding the
aforementioned intent of the parties, the Mortgage Loans are held to be property
of the Seller, then, (a) it is the express intent of the parties that such
conveyance be deemed a pledge of the Mortgage Loans by the Seller to the
Purchaser to secure a debt or other obligation of the Seller and (b) (1) this
Agreement shall also be deemed to be a security agreement within the meaning of
Articles 8 and 9 of the New York Uniform Commercial Code; (2) the conveyance
provided for in Section 4 hereof shall be deemed to be a grant by the Seller to
the Purchaser of a security interest in all of the Seller's right, title and
interest in and to the Mortgage Loans and all amounts payable to the holders of
the Mortgage Loans in accordance with the terms thereof and all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash, instruments,
securities or other property, including without limitation all amounts, other
than investment earnings, from time to time held or invested in the Collection
Account whether in the form of cash, instruments, securities or other property;
(3) the possession by the Purchaser or its agent of Mortgage Notes, the related
Mortgages and such other items of property that constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" for purposes of perfecting the security interest pursuant to
Section 9-305 of the New York Uniform Commercial Code; and (4) notifications to
persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Purchaser for the purpose of perfecting
such security interest under applicable law. Any assignment of the interest of
the Purchaser pursuant to Section 4(d) hereof shall also be deemed to be an
assignment of any security interest created hereby. The Seller and the Purchaser
shall, to the extent consistent with this Agreement, take such actions as may be
necessary to ensure that, if this Agreement were deemed to create a security
interest in the Mortgage Loans, such security interest would be deemed to be a
perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of this Agreement and the Pooling and
Servicing Agreement.
<PAGE>
IN WITNESS WHEREOF, the Purchaser, the Seller and the Originator have
caused their names to be signed by their respective officers thereunto duly
authorized as of the date first above written.
SALOMON BROTHERS MORTGAGE SECURITIES VII, INC.
By:____________________________________________
Name: Susan S. Woodbury
Title:Assistant Vice President
SALOMON BROTHERS REALTY CORP.
By:_____________________________________________
Name: Susan S. Woodbury
Title: Authorized Agent
LONG BEACH MORTGAGE COMPANY
By:______________________________________________
Name: Jeffery A Sorensen
Title:Vice President
<PAGE>
EXHIBIT 99
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
PRO FORMA FINANCIAL INFORMATION - NARRATIVE FORMAT
The following unaudited pro forma financial information of Wilshire Real
Estate Investment Trust Inc. ("WREIT" or the "Company") gives effect to
acquisition of the mortgage loan pool purchased from Salomon Smith Barney Inc.,
as if the transactions occurred as of January 1, 1997 with respect to the
unaudited pro forma operating information and as of June 30, 1998 with respect
to the unaudited pro forma financial condition information.
The unaudited pro forma financial information is not necessarily indicative
of the results that might have been achieved by WREIT if the significant asset
acquisitions had been consummated as of the indicated dates. The unaudited pro
forma financial information should be read in conjunction with the historical
consolidated financial statements of WREIT, together with the related notes
thereto, which were filed August 14, 1998 on Form 10-Q for the period ended June
30, 1998.
-----------------------------------
On September 29, 1998, the Company purchased a pool of approximately 3,766
one-to-four family fully amortizing mortgage loans secured by first liens for
approximately $421.8 million plus closing costs from Salomon Smith Barney Inc.
who acquired the mortgage loans directly or indirectly from various originators.
The purchase was financed by securitizing these loans through its wholly owned
subsidiary, Wilshire REIT Trust Series 1998-1. The $374.2 million of investment-
grade, publicly offered securities were tranched into four classes and were
underwritten by Salomon Smith Barney Inc.
The pro forma effect of this transaction on the June 30, 1998 consolidated
statement of financial condition would have resulted in increase in total assets
from $441.9 million to $850.7 million and an increase in total liabilities from
$281.8 million to $690.1 million. The increase in total assets of $408.1 is a
result of the acquisition of loans as described above. Liabilities and
Stokholders' Equity increased by $408.1 million due to a bond payable created as
a result of the securitization of $374.2 million, short-term financing of $34.2
million and by the pro forma effect of adjusting retained earnings by $0.4
million for the acquisition of these assets.
Additionally, the pro forma effect of this acquisition to the consolidated
statements of operations for the year ended December 31, 1997 and six months
ended June 30, 1998 would be as follows:
* Increase/(decrease) in net interest income by $0.8 million and $(0.2)
million for the year ended December 31, 1997 and the six months
<PAGE>
ended June 30, 1998, respectively.
* Increase in management fee expenses by $0.2 million and $0.1 million for
the year ended December 31, 1997 and the six months ended June 30, 1998,
respectively.
* Increase in net income for the year ended December 31, 1997 by $0.7
million. Basic and diluted earnings per share would have increased by
$0.06.
* Decrease in net income for the six months ended June 30, 1998 by $0.3
million. Basic and diluted earnings per share would have decreased by
$0.02.
Pro forma interest income and interest expense are based on estimated cash
flows. The cash flow assumptions considered other factors such as mortgage
prepayments, default rates, timing of proceeds from foreclosure and other
modeling factors.
The loans are backed by $94.3 million fixed rate and $286.6 million
adjustable rate residential mortgage loans. The weighted average coupon on the
mortgage loans is approximately 10.23%. The weighted average remaining term to
stated maturity for the mortgage pool is approximately 29 years.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. All of the statements
contained in this report which are not identified as historical should be
considered forward- looking. In connection with certain forward-looking
statements contained in this report and those that may be made in the future by
or on behalf of the Company which are identified as forward-looking, the Company
notes that there are various factors that could cause actual results to differ
materially from those set forth in any such forward-looking statements. Such
factors include but are not limited to, the real estate market, the availability
of real estate assets at acceptable prices, the availability of financing,
interest rates, and European expansion. Accordingly, there can be no assurance
that the forward-looking statements contained in this report will be realized or
that actual results will not be significantly higher or lower. The forward-
looking statements have not been audited by, examined by, or subjected to
agreed-upon procedures by independent accountants, and no third party has
independently verified or reviewed such statements. Readers of this report
should consider these facts in evaluating the information contained herein. The
inclusion of the forward-looking statements contained in this report should not
be regarded as a representation by the Company or any other person that the
forward-looking statements contained in this report will be achieved. In light
of the foregoing, readers of this report are cautioned not to place undue
reliance on the forward-looking statements contained herein.
