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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
Or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission File Number 000-24051
UNITED PANAM FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 95-3211687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1300 SOUTH EL CAMINO REAL
SAN MATEO, CALIFORNIA 94402
(Address of principal executive offices) (Zip Code)
(650) 345-1800
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ -----
The number of shares outstanding of the Registrant's Common Stock as of November
6, 1998 was 17,275,000 shares.
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UNITED PANAM FINANCIAL CORP.
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations
for the three and nine months ended September 30, 1998
and September 30, 1997 2
Consolidated Statements of Cash Flows
for the three and nine months ended September 30, 1998
and September 30, 1997 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
--------------------
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands, except per share data) 1998 1997
------------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 45,436 $ 15,026
Short term investments 15,500 4,000
------------------- ------------------
Cash and cash equivalents 60,936 19,026
Securities available for sale, at fair value -- 1,002
Residual interests in securitizations, at fair value -- 8,230
Loans, net 187,197 148,535
Loans held for sale 167,070 120,002
Federal Home Loan Bank stock, at cost 2,089 1,945
Accrued interest receivable 2,046 1,494
Real estate owned, net 1,192 562
Premises and equipment, net 4,650 3,085
Deferred tax assets 2,975 3,171
Intangible assets 363 457
Other assets 8,758 3,333
------------------- ------------------
Total assets $437,276 $310,842
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $317,342 $233,194
Notes payable 10,930 12,930
Federal Home Loan Bank advances -- 28,000
Warehouse line of credit -- 6,237
Accrued expenses and other liabilities 22,285 17,472
------------------- ------------------
Total liabilities 350,557 297,833
------------------- ------------------
Commitments and contingencies
Preferred stock (par value $0.01 per share): -- --
Authorized, 2,000,000 shares
None issued and outstanding
Common stock (par value $0.01 per share): -- --
Authorized, 20,000,000 shares
Issued and outstanding, 17,275,000 and 10,950,000 shares at
September 30, 1998 and December 31, 1997, respectively 173 110
Additional paid-in capital 68,438 5,127
Retained earnings 18,108 7,772
------------------- ------------------
Total stockholders' equity 86,719 13,009
------------------- ------------------
Total liabilities and stockholders' equity $437,276 $310,842
=================== ==================
</TABLE>
See notes to unaudited consolidated financial statements. 1
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UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars in thousands, except per share data) Ended September 30, Ended September 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $11,617 $ 6,775 $32,786 $17,867
Short term investments and securities available
for sale 353 174 819 447
------------- ------------- ------------- -------------
Total interest income 11,970 6,949 33,605 18,314
------------- ------------- ------------- -------------
INTEREST EXPENSE
Deposits 4,063 2,532 11,186 6,710
Federal Home Loan Bank advances 114 389 659 1,001
Warehouse line of credit 652 -- 2,118 --
Notes payable 145 184 485 482
------------- ------------- ------------- -------------
Total interest expense 4,974 3,105 14,448 8,193
------------- ------------- ------------- -------------
Net interest income 6,996 3,844 19,157 10,121
Provision for loan losses 661 66 1,784 445
------------- ------------- ------------- -------------
Net interest income after provision for
loan losses 6,335 3,778 17,373 9,676
------------- ------------- ------------- -------------
NON-INTEREST INCOME
Gain on sale of loans, net 17,071 8,183 44,262 15,260
Loan related charges and fees 33 166 105 360
Service charges and fees 173 18 478 123
Other income 33 17 96 40
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Total non-interest income 17,310 8,384 44,941 15,783
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NON-INTEREST EXPENSE
Compensation and benefits 9,961 5,164 28,733 12,195
Occupancy expense 1,458 720 3,936 1,847
Other expenses 4,223 2,105 11,737 5,243
------------- ------------- ------------- -------------
Total non-interest expense 15,642 7,989 44,406 19,285
------------- ------------- ------------- -------------
Income before income taxes 8,003 4,173 17,908 6,174
Income taxes 3,333 1,752 7,572 2,580
------------- ------------- ------------- -------------
Net income $ 4,670 $ 2,421 $10,336 $ 3,594
============= ============= ============= =============
Earnings per share-basic $ 0.27 $ 0.23 $ 0.71 $ 0.34
============= ============= ============= =============
Earnings per share-diluted $ 0.26 $ 0.21 $ 0.67 $ 0.32
============= ============= ============= =============
Weighted average shares outstanding-basic 17,275 10,669 14,565 10,669
============= ============= ============= =============
Weighted average shares outstanding-diluted 18,021 11,126 15,359 11,117
============= ============= ============= =============
</TABLE>
See notes to unaudited consolidated financial statements. 2
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UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,670 $ 2,421 $ 10,336 $ 3,594
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Gain on sale of loans (17,071) (8,183) (44,262) (15,260)
Origination of mortgage loans held for sale (359,090) (161,726) (957,247) (338,214)
Sales of mortgage loans held for sale 356,443 158,660 919,009 298,454
Net proceeds from sale of residual interests in
securitizations -- -- 8,302 --
Provision for loan losses 661 66 1,784 445
Accretion of discount on loans (24) (185) (566) (538)
Depreciation and amortization 485 219 1,241 504
FHLB stock dividend (30) (33) (86) (74)
(Increase) decrease in accrued interest receivable (534) 76 (552) (82)
Increase in other assets (512) (2,711) (5,124) (3,345)
Deferred income taxes 26 (1,145) 196 (1,125)
Increase in accrued expenses and other liabilities 3,816 2,157 4,814 6,675
------------ ------------ ------------ ------------
Net cash used in operating activities (11,160) (10,384) (62,155) (48,966)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities -- -- 1,002 --
Repayments of mortgage loans 11,055 6,615 30,196 16,859
Originations, net of repayments, of non-mortgage loans (4,336) (2,322) (36,357) (30,346)
Purchase of securities available for sale -- -- -- (2,002)
Purchase of premises and equipment (581) (636) (2,684) (1,869)
Purchase of FHLB stock, net -- (65) (58) (407)
Proceeds from sale of real estate owned 545 609 995 1,797
Other, net -- -- (330) --
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities 6,683 4,201 (7,236) (15,968)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds, net of repayments, from notes payable to
shareholders -- 1,940 (2,000) 1,940
Net increase in deposits 17,008 15,632 84,148 51,722
Proceeds from initial public offering of common stock,
net -- -- 63,390 --
Proceeds, net of repayments, from warehouse line of
credit -- -- (6,237) --
Proceeds, net of repayments, from FHLB advances -- 15,000 (28,000) 31,000
------------ ------------ ------------ ------------
Net cash provided by financing activities 17,008 32,572 111,301 84,662
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents 12,531 26,389 41,910 19,728
Cash and cash equivalents at beginning of period 48,405 19,402 19,026 26,063
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 60,936 $ 45,791 $ 60,936 $ 45,791
============ ============ ============ ============
</TABLE>
See notes to unaudited consolidated financial statements. 3
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UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $5,047 $3,135 $14,625 $8,062
--------- -------- --------- --------
Taxes $5,775 $1,500 $ 8,285 $2,380
--------- -------- --------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Acquisition of real estate owned through
foreclosure of related mortgage loans $ 797 $ 416 $ 2,105 $1,446
--------- -------- --------- --------
</TABLE>
See notes to unaudited consolidated financial statements. 4
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1. ORGANIZATION
United PanAm Financial Corp. (the "Company") was incorporated in
California on April 9, 1998 for the purpose of reincorporating its business in
that state, through the merger of United PanAm Financial Corp., a Delaware
corporation (the "Predecessor"), into the Company. Unless the context indicates
otherwise, all references herein to the "Company" include the Predecessor. The
Company was originally organized as a holding company for Pan American
Financial, Inc. ("PAFI") and Pan American Bank, FSB (the "Bank") to purchase
certain assets and assume certain liabilities of Pan American Federal Savings
Bank from the Resolution Trust Corporation (the "RTC") on April 29, 1994
pursuant to a whole purchase and assumption agreement. The Company, PAFI and
the Bank are considered to be minority owned. PAFI is a wholly-owned subsidiary
of the Company, and the Bank is a wholly-owned subsidiary of PAFI. United PanAm
Mortgage Corporation, a California corporation, was organized in 1997 as a
wholly-owned subsidiary of the Company and is presently acting as agent for the
Bank in secondary marketing activities.
In 1997, the Company changed its fiscal year end from June 30 to December
31 for financial and income tax reporting purposes.
2. BASIS OF PRESENTATION
Certain statements in this Quarterly Report on Form 10-Q, including
statements regarding the Company's strategies, plans, objectives, expectations
and intentions, may include forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
involve certain risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in such forward-looking
statements. Such risks and uncertainties include, but are not limited to, the
following factors: limited operating history; loans made to credit-impaired
borrowers; need for additional sources of financing; concentration of business
in California; reliance on operational systems and controls and key employees;
competitive pressure in the banking and mortgage lending industry; changes in
the interest rate environment; rapid growth of the Company's businesses; risks
in connection with the securitization of mortgage loans; general economic
conditions; and other risks identified from time to time in the Company's
filings with the Securities and Exchange Commission (the "SEC"). See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That May Affect Future Results."
The accompanying unaudited consolidated financial statements include the
accounts of United PanAm Financial Corp., Pan American Financial, Inc., United
PanAm Mortgage Corporation and Pan American Bank, FSB. Substantially all of the
Company's revenues are derived from the operations of the Bank and United PanAm
Mortgage Corporation and they represent substantially all of the Company's
consolidated assets and liabilities as of September 30, 1998 and December 31,
1997. Significant inter-company accounts and transactions have been eliminated
in consolidation.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Company's financial
condition and results of operations for the interim periods presented in this
Form 10-Q have been included. Operating results for the interim periods are not
necessarily indicative of financial results for the full year. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Registration Statement on Form S-1 (File No. 333-39941), as amended, declared
effective by the SEC on April 23, 1998 in connection with its initial public
offering.
5
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The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. EARNINGS PER SHARE
At December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("SFAS 128").
Under SFAS 128, basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted from issuance of common
stock.
Basic EPS and diluted EPS are calculated as follows for the three and nine
months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars in thousands, except per share amounts) Ended September 30, Ended September 30,
-------------------------------- -----------------------------------
1998 1997 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Earnings per share -- basic
Net income $ 4,670 $ 2,421 $10,336 $ 3,594
============ ============ =========== ============
Average common shares outstanding 17,275 10,669 14,565 10,669
============ ============ =========== ============
Earnings per share -- basic $ 0.27 $ 0.23 $ 0.71 $ 0.34
============ ============ =========== ============
Earnings per share -- diluted
Net income $ 4,670 $ 2,421 $10,336 $ 3,594
============ ============ =========== ============
Average common shares outstanding 17,275 10,669 14,565 10,669
Add: Stock options 746 457 794 448
------------ ------------ ----------- ------------
Average common shares outstanding -- diluted 18,021 11,126 15,359 11,117
============ ============ =========== ============
Earnings per share -- diluted $ 0.26 $ 0.21 $ 0.67 $ 0.32
============ ============ =========== ============
</TABLE>
4. ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements. SFAS 130 does not, however, require a
specific format for presenting such information, but requires the Company to
display an amount representing total comprehensive income for the periods
presented in that financial statement. For the three and nine months ended
September 30, 1998 and 1997, the Company had no items of comprehensive income to
report other than net income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("SFAS 131"), which establishes standards
for the way that public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. SFAS 131 is effective for financial statements
for periods beginning after December 31, 1997, and the Company is in the process
of determining its preferred format for disclosure purposes.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments and for hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statements of financial condition and
measure those instruments at fair value. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
6
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5. INITIAL PUBLIC OFFERING
On April 23, 1998, the Company's Registration Statement on Form S-1 for
the initial public offering of 5,500,000 shares of its common stock at a price
of $11.00 per share was declared effective by the SEC. The Company received
approximately $56 million from the sale of its common stock after underwriting
discount and expenses associated with the offering. On May 22, 1998, the
Underwriters' over-allotment option for 825,000 shares of common stock was
exercised resulting in $8 million of additional proceeds being received by the
Company, after underwriting discount.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
Certain statements in this Quarterly Report on Form 10-Q including
statements regarding the Company's strategies, plans, objectives, expectations
and intentions, may include forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
involve certain risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in such forward-looking
statements. For discussion of the factors that might cause such a difference,
see "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations Factors That May Affect Future Results" and other risks
identified from time to time in the Company's filings with the SEC.
GENERAL
THE COMPANY
The Company is a diversified specialty finance company engaged primarily
in originating and acquiring for investment or sale residential mortgage loans,
personal automobile insurance premium finance contracts and retail automobile
installment sales contracts. The Company markets to customers who generally
cannot obtain financing from traditional lenders. These customers usually pay
higher loan origination fees and interest rates than those charged by
traditional lenders to gain access to consumer financing. The Company believes
that management's experience in originating, assessing, pricing and managing
credit risk enables the Company to earn attractive risk-adjusted returns. The
Company has funded its operations to date principally through retail deposits,
Federal Home Loan Bank ("FHLB") advances, a mortgage warehouse line of credit,
loan securitizations, and whole loan sales at the Bank.
The Company commenced operations in 1994 by purchasing from the RTC
certain assets and assuming certain liabilities of the Bank's predecessor, Pan
American Federal Savings Bank. The Company has used the Bank as a base for
expansion into its current specialty finance businesses. In 1995, the Company
commenced its insurance premium finance business through a joint venture with
BPN Corporation ("BPN"). In 1996, the Company commenced its current mortgage
and automobile finance businesses. The Company was incorporated in California
on April 9, 1998 for the purpose of reincorporating its business in that state,
through the merger of the Predecessor into the Company. Unless the context
indicates otherwise, all references herein to the "Company" include the
Predecessor.
Finance companies, such as the Company, generate income from a combination
of (i) "spread" or "net interest" income (i.e., the difference between the yield
on loans, net of loan losses, and the cost of funding) and (ii) "non-interest"
income (i.e., the fees received for various services and gain on the sale of
loans). Income is used to cover operating expenses incurred (i.e., compensation
and benefits, occupancy and other expenses) in generating that income. Each of
the Company's businesses, as described below, generates income from a
combination of spread and non-interest income.
MORTGAGE FINANCE
The Company originates and sells or securitizes subprime mortgage loans
collateralized primarily by first mortgages on single family residences. The
Company's mortgage finance customers are considered "subprime" because of
factors such as impaired credit history or high debt-to-income ratios compared
to customers of traditional mortgage lenders. The Company has funded its
mortgage finance business to date primarily through the Bank's deposits, FHLB
advances, a mortgage warehouse line of credit, the sale of its mortgage loan
originations to mortgage companies and investors through whole loan packages
offered for bid several times per month and, to a lesser extent, from loan
securitizations. The Company completed its first securitization of mortgage
loans in December 1997 and in March 1998 sold the residual interests in this
securitization for cash at a price in excess of its carrying value.
8
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To date, the Company's mortgage lending income is generated from cash
gains on sales of loans, and a spread component resulting from loans held prior
to sale. Income generated from this mortgage finance business covers operating
costs, including compensation, occupancy, loan origination, and administrative
expenses.
INSURANCE PREMIUM FINANCE
In May 1995, the Bank entered into a joint venture with BPN under the name
"ClassicPlan" (such business, "IPF"). Under this joint venture, which commenced
operations in September 1995, the Bank underwrites and finances primarily
automobile insurance premiums in California and BPN markets the financing
program and services the loans for the Bank. The Bank lends to individuals for
the purchase of single premium automobile insurance policies and the Bank's
collateral is the unearned insurance premium held by the insurance company. The
unearned portion of the insurance premium is refundable to IPF in the event the
underlying insurance policy is canceled. The Company does not sell or have the
risk of underwriting the underlying insurance policy.
As a result of BPN performing substantially all marketing and servicing
activities, the Company's role is primarily that of an underwriter and funder of
loans. Therefore, IPF's income is generated primarily on a spread basis,
supplemented by non-interest income generated from late payment and returned
check fees. The Bank uses this income to cover the costs of underwriting and
loan administration, including compensation, occupancy and data processing
expenses.
In January 1998, the Company and BPN purchased from Providian National
Bank and others the right to solicit new and renewal personal and commercial
insurance premium finance business from brokers who previously have provided
contracts to Commonwealth Premium Finance. The purchase price for the agreement
was provided 60% by the Company and 40% by BPN. The relationship between the
Company and BPN continues to be governed by the joint venture agreement already
in effect. The Company also acquired the Commonwealth name and certain equipment
and software. The agreement also provides that Providian National Bank and the
servicers of its insurance premium finance business may not solicit or engage in
the insurance premium finance business in California for a period of three
years.
As a result of the Commonwealth acquisition, IPF increased its commercial
insurance premium financing to approximately 10.9% of loans outstanding at
September 30, 1998, and it is expected that this business will increase to
approximately 15% of loans outstanding by the end of the year.
AUTOMOBILE FINANCE
In 1996, the Bank commenced its automobile finance business through its
subsidiary, United Auto Credit Corporation (such business, "UACC"). UACC
acquires, holds for investment and services subprime retail automobile
installment sales contracts ("auto contracts") generated by franchised and
independent dealers of used automobiles. UACC's customers are considered
"subprime" because they typically have limited credit histories or credit
histories that preclude them from obtaining loans through traditional sources.
As UACC provides all marketing, origination, underwriting and servicing
activities for its loans, income is generated from a combination of spread and
non-interest income and is used to cover all operating costs, including
compensation, occupancy and systems expense.
THE BANK
The Company has funded its operations to date primarily through the Bank's
deposits, FHLB advances, a mortgage warehouse line of credit and loan sales and
securitizations. As of September 30, 1998, the Bank was a five-branch federal
savings bank with $317.3 million in deposits. The loans generated by the
Company's mortgage, insurance premium and automobile finance businesses
currently are funded and held by the Bank. In addition, the Bank holds a
portfolio of primarily traditional residential mortgage loans acquired from the
RTC in 1994 and 1995 at a discount from the unpaid principal balance of such
loans, which loans aggregated $66.9 million in principal amount (before unearned
discounts and premiums) at September 30, 1998.
9
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The Bank generates spread income not only from loans originated or
purchased by each of the Company's principal businesses, but also from (i) loans
purchased from the RTC, (ii) its short term investments portfolio, and (iii)
consumer loans originated by its retail deposit branches. This income is
supplemented by non-interest income from its branch banking activities (e.g.,
deposit service charges, safe deposit box fees), and is used to cover operating
costs and other expenses.
YEAR 2000 COMPLIANCE
State of Readiness.
The Company is working to resolve the potential impact of the Year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the Year 1900 rather than the Year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operations.
The Company established a Year 2000 project management team in 1997 to
ensure that its operating systems will be fully capable of processing its
transactions. The Company also adopted a Year 2000 operating plan in accordance
with the guidelines prescribed by the Office of Thrift Supervision and the
Federal Financial Institutions Examination Council. The assessment and awareness
phases of the plan have been completed and the Company is now in the testing
phase. It is expected that all internal computer applications will be tested and
validated by the end of 1998.
The Company relies upon third-party software vendors and service providers
for a substantial amount of its electronic data processing. Thus, one of the
Company's Year 2000 focuses is to monitor the progress of its primary software
vendors and service providers towards compliance with Year 2000 issues and
prepare to test actual data of the Company on simulated processing of future
sensitive dates. It is expected that all critical systems provided by third
party service providers will be tested and validated by June 1999.
The Company has initiated formal communications with its customers and
vendors to determine the extent to which the Company may be affected by the
failure of these parties to correct their own year 2000 issues. The company's
borrowers and customers are generally consumers which mitigates much of the Year
2000 risk. As of this time, the Company has not identified any significant
issues with its major customers or vendors.
Costs to Address the Year 2000 Issue.
The Company has budgeted expenditures of approximately $600,000 in 1998
and 1999 to ensure that its systems are ready for processing information in the
Year 2000. The majority of these expenditures relate to the cost of fully
dedicated Year 2000 project management team resources, some of whom are third
party contractors. The Company estimates that it has incurred approximately
$200,000 of its Year 2000 budget expenditures through September 30, 1998 and
will incur an additional $75,000 by the end of 1998. In addition, the Company
has incurred, and will continue to incur, certain costs relating to the
temporary reallocation of its internal resources to address Year 2000 issues.
Risks Presented by the Year 2000 Issue.
Should the Company and/or its third-party software vendors and service
providers upon whom the Company relies fail to timely identify, address and
correct material Year 2000 issues, such failure could have a material adverse
impact on the Company's ability to operate. The range of adverse impacts may
include the requirement to pay significant overtime to manually process certain
transactions and added costs to process certain financing activity through a
centralized administrative function. In addition, if corrections made by such
third-party software vendors and service providers to address Year 2000 issues
are incompatible with the Company's systems, the Year 2000 issue could have a
material adverse impact on the Company's operations.
10
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Despite the Company's activities in regards to the Year 2000 issue, there
can be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software will not have a material adverse
effect on the Company's business, financial condition, results of operations and
business prospects.
Contingency Plans.
The Year 2000 project management team currently is developing contingency
plans in the event of an unanticipated business interruption as a result of a
Year 2000 systems failure. These plans will address how the Company operates
its critical activities in a business interruption resulting from any Year 2000
issues. An initial draft of the plan is scheduled to be completed by the end of
1998 with final plans adopted by June 1999. There can be no assurance, however,
that such contingency plans will be successful.
AVERAGE BALANCE SHEETS
The following tables set forth information relating to the Company for the
three and nine months ended September 30, 1998 and 1997. The yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- --------------------------------------
Average Average
(Dollars in thousands) Average Yield/ Average Yield/
Balance(1) Interest Cost Balance(1) Interest Cost
------------ ----------- ---------- ------------ ------------ ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Investment securities $ 32,474 $ 353 4.35% $ 12,510 $ 174 5.56%
Mortgage loans, net(2) 299,338 6,839 9.14% 155,668 3,855 9.91%
IPF loans, net(3) 53,725 1,756 13.07% 48,696 1,688 13.87%
Automobile installment
Contracts, net(4) 50,118 3,022 24.12% 19,112 1,232 25.78%
----------- --------- ----------- ---------
Total interest earning assets 435,655 11,970 10.99% 235,986 6,949 11.78%
--------- ---------
Non-interest earnings assets 37,630 21,311
----------- -----------
Total assets $473,285 $257,297
=========== ===========
LIABILITIES AND EQUITY
Interest bearing liabilities
Customer deposits $306,254 $ 4,063 5.26% $203,968 $2,532 4.93%
Notes payable 10,930 145 5.26% 11,415 184 6.40%
FHLB advances 7,871 114 5.75% 23,607 389 6.54%
Warehouse line of credit 38,039 652 6.71% -- -- --
----------- --------- ----------- ---------
Total interest bearing
liabilities 363,094 4,974 5.43% 238,990 3,105 5.15%
Non-interest bearing liabilities 26,665 10,776
----------- -----------
Total liabilities 389,759 249,766
Equity 83,526 7,531
----------- -----------
Total liabilities and equity $473,285 $257,297
=========== ===========
Net interest income before provision
for loan losses $ 6,996 $3,844
--------- ---------
Net interest rate spread(5) 5.56% 6.62%
Net interest margin(6) 6.42% 6.52%
Ratio of interest earning assets to 99%
interest bearing liabilities 120%
</TABLE>
__________________________________
(1) Average balances are measured on a month-end basis.
(2) Net of deferred loan origination fees, unamortized discounts, premiums and
allowance for estimated loan losses; includes loans held for sale and non-
performing loans.
(3) Net of allowance for estimated losses; includes non-performing loans.
(4) Net of unearned finance charges and allowance for estimated losses;
includes non-performing loans.
(5) Net interest rate spread represents the difference between the yield on
interest earning assets and the cost of interest bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest earning assets.
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- --------------------------------------
Average Average
(Dollars in thousands) Average Yield/ Average Yield/
Balance(1) Interest Cost Balance(1) Interest Cost
------------ ----------- ---------- ------------ ------------ ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Investment securities $ 20,893 $ 819 5.23% $ 9,772 $ 447 6.12%
Mortgage loans, net(2) 275,573 20,197 9.77% 143,715 10,378 9.63%
IPF loans, net(3) 49,725 4,992 13.39% 44,591 4,735 14.16%
Automobile installment
contracts, net(4) 40,450 7,597 25.04% 14,113 2,754 26.09%
----------- --------- ----------- ---------
Total interest earning assets 386,641 33,605 11.59% 212,191 18,314 11.51%
--------- ---------
Non-interest earnings assets 36,390 17,485
----------- -----------
Total assets $423,031 $229,676
=========== ===========
LIABILITIES AND EQUITY
Interest bearing liabilities
Customer deposits $283,814 $11,186 5.27% $183,134 $ 6,710 4.89%
Notes payable 11,730 485 5.53% 11,124 482 5.79%
FHLB advances 15,441 659 5.71% 20,334 1,001 6.38%
Warehouse line of credit 43,498 2,118 6.51% -- -- --
----------- --------- ----------- ---------
Total interest bearing
liabilities 354,483 14,448 5.45% 214,592 8,193 5.10%
--------- ---------
Non-interest bearing liabilities 20,671 7,459
----------- -----------
Total liabilities 375,154 222,051
Equity 47,877 7,625
----------- -----------
Total liabilities and equity $423,031 $229,676
=========== ===========
Net interest income before provision
for loan losses $19,157 $10,121
========= =========
Net interest rate spread(5) 6.14% 6.41%
Net interest margin(6) 6.61% 6.36%
Ratio of interest earning assets to
interest bearing liabilities 109% 99%
</TABLE>
__________________________________
(1) Average balances are measured on a month-end basis.
(2) Net of deferred loan origination fees, unamortized discounts, premiums and
allowance for estimated loan losses; includes loans held for sale and non-
performing loans.
(3) Net of allowance for estimated losses; includes non-performing loans.
(4) Net of unearned finance charges and allowance for estimated losses;
includes non-performing loans.
(5) Net interest rate spread represents the difference between the yield on
interest earning assets and the cost of interest bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest earning assets.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
GENERAL
Net income increased from $2.4 million for the three months ended September
30, 1997 to $4.7 million for the three months ended September 30, 1998. This
increase was due primarily to the expansion of the Company's mortgage, insurance
premium and auto finance businesses, all of which showed improved operating
results during 1997 and 1998. Also contributing to the favorable operating
results for the three months ended September 30, 1998 compared with the same
period in 1997 was an increase of $8.9 million in gain on sale of loans from the
Company's mortgage finance operations and $3.2 million in net interest income
offset by an increase in non-interest expense of $7.7 million and an increase in
provision for loan losses of $595,000. Net interest income also was favorably
impacted during the third quarter of 1998 by using the $63.4 million of net
proceeds from the Company's initial public offering of common stock to finance a
portion of its mortgage operations.
12
<PAGE>
As a result of the expansion of the Company's lending operations, mortgage
loan originations increased from $161.1 million for the three months ended
September 30, 1997 to $358.6 million for the three months ended September 30,
1998, while insurance premium finance originations increased from $31.9 million
to $35.4 million, respectively, and auto contracts purchased increased from
$12.4 million to $23.0 million, respectively. Sales of mortgage loans were
$347.9 million for the three months ended September 30, 1998 and $140.4 million
for the comparable period in 1997.
INTEREST INCOME
Interest income increased from $6.9 million for the three months ended
September 30, 1997 to $12.0 million for the three months ended September 30,
1998 due primarily to a $199.7 million increase in average interest earning
assets offset by a decline of 0.79% in the average yield on interest earning
assets. The largest components of growth in average interest earning assets were
mortgage loans, automobile installment contracts and investment securities,
which increased $143.7 million, $31.0 million and $20.0 million, respectively.
The increase in mortgage loan receivables was a result of an increase in loans
held for sale, which increased from $70.2 million at September 30, 1997 to
$167.1 million at September 30, 1998. Generally, these loans are originated for
sale or securitization in the secondary mortgage market. The increase in such
loans was primarily a result of growth in the Company's mortgage finance
business and the opening of 10 retail lending branches and one wholesale loan
center since September of 1997. The increase in auto contracts principally
resulted from the opening of five new branch offices since September of 1997 and
the purchasing of additional dealer contracts in existing and new markets. The
increase in investment securities was a result of an increase in the Company's
liquidity and short-term investment portfolio reflecting the overall growth in
the Company's total assets.
The decline in the average yield on interest earning assets was principally
due to an increase in non-accrual mortgage loans from $3.6 million at September
30, 1997 to $19.5 million at September 30, 1998. The Company ceases to accrue
interest on its mortgage loans when a borrower is delinquent two payments or
more. As a result of an increase in mortgage loans 60-89 days or more
delinquent and the repurchase of certain mortgage loans relating to first
payment defaults on loans originated prior to June 1998, the Company placed
$10.7 million of loans on non-accrual status during the quarter ended September
30, 1998.
INTEREST EXPENSE
Interest expense increased from $3.1 million for the three months ended
September 30, 1997 to $5.0 million for the three months ended September 30, 1998
due to a $124.1 million increase in average interest bearing liabilities and a
0.28% increase in the weighted average interest rate on interest bearing
liabilities. The largest component of growth in average interest bearing
liabilities was deposits of the Bank, which increased from an average balance of
$204.0 million during the quarter ended September 30, 1997 to $306.3 million
during the quarter ended September 30, 1998. The average cost of deposits
increased from 4.93% for the three months ended September 30, 1997 to 5.26% for
the comparable period in 1998 generally as a result of an increase in the Bank's
wholesale deposits.
The increase in deposits resulted from the use of retail and wholesale
certificates of deposit ("CDs") to finance the Company's lending growth, and the
increase in the average yield on the Bank's deposits reflects the repricing of
accounts to higher rates and overall growth in the deposit portfolio at interest
rates higher than those in previous quarters.
The second largest component of growth in average interest bearing
liabilities was from borrowings under the Bank's warehouse line of credit,
increasing to $38.0 million for the three months ended September 30, 1998. In
October 1997, the Bank entered into a master repurchase agreement under which it
may sell and repurchase, at a set price, mortgage loans pending the sale or
securitization of these loans. The weighted average interest rate on such
borrowings was 6.71% for the three months ended September 30, 1998. There were
no warehouse line of credit advances outstanding during the quarter ended
September 30, 1997.
13
<PAGE>
PROVISION FOR LOAN LOSSES
Provision for loan losses increased from $66,000 for the three months ended
September 30, 1997 to $661,000 for the three months ended September 30, 1998.
The increase in provision for losses reflects the Company's loan growth over the
past 12 months as well as an increase in specific loss allowances related to
non-performing mortgage loans. The total allowance for loan losses was $6.2
million at September 30, 1997 compared with $8.9 million at September 30, 1998,
representing 4.73% and 4.07% of loans held for investment at September 30, 1998
and 1997, respectively. In addition to its provision for losses, the Company's
allowance for loan losses is also increased by its allocation of acquisition
discounts related to the purchase of automobile installment contracts. The
Company allocates the estimated amount of its acquisition discounts attributable
to credit risk to the allowance for loan losses. Annualized net charge-offs to
average loans were 1.92% for the three months ended September 30, 1998 compared
with 1.04% for the comparable period in 1997.
A provision for loan losses is charged to operations based on the Company's
regular evaluation of its loans held for investment and the adequacy of its
allowance for loan losses. The Company reports its loans held for sale at the
lower of cost or market value, accordingly, loan loss provisions are not
established for this portfolio. While management believes it has adequately
provided for losses and does not expect any material loss on its loans in excess
of allowances already recorded, no assurance can be given that economic or real
estate market conditions or other circumstances will not result in increased
losses in the loan portfolio.
NON-INTEREST INCOME
Non-interest income increased $8.9 million, from $8.4 million for the three
months ended September 30, 1997 to $17.3 million for the three months ended
September 30, 1998. This increase resulted from cash gains on sales of mortgage
loans and is due primarily to a substantial increase in the volume of mortgage
loans sold by the Company. During the three months ended September 30, 1998,
the Company sold $347.9 million in mortgage loans on a whole loan primarily non-
recourse basis compared with $140.4 million in mortgage loans sold during the
comparable period in 1997. Net gains on sales of loans, as a percentage of loans
sold, were 4.91% for the three months ended September 30, 1998 compared with
5.83% for the three months ended September 30, 1997. The decline reflects
continued competitive pressure in the securitization and whole loan sale markets
resulting, in part, from higher industry-wide loan prepayment rates in the later
part of 1997 and 1998 as compared to the third quarter of 1997.
Other components of non-interest income include fees and charges for Bank
services and miscellaneous other income. The total of all of these items
increased $38,000, from $201,000 for the three months ended September 30, 1997
to $239,000 for the three months ended September 30, 1998.
NON-INTEREST EXPENSE
Non-interest expense increased $7.6 million, from $8.0 million for the
three months ended September 30, 1997 to $15.6 million for the three months
ended September 30, 1998. This increase primarily reflects an increase in
salaries, loan commissions, employee benefits and other personnel costs of $4.8
million associated with the expansion of the Company's mortgage and automobile
finance operations. In addition, occupancy expense increased $758,000,
reflecting an increase in the number of mortgage and automobile lending offices.
Marketing expense was $1.1 million for the three months ended September 30,
1998, compared with $434,000 for the three months ended September 30, 1997. This
increase is attributable to the Company's retail mortgage lending operations
which use extensive direct mail and telemarketing campaigns to target
prospective borrowers. Also, as a result of growth in the Company's mortgage
finance and automobile lending operations, other operating expense, including
stationery and supplies, data processing, insurance, telephone and postage,
increased $1.4 million during the three months ended September 30, 1998 compared
with the same period in 1997.
14
<PAGE>
During the last 12 months, the Company expanded significantly its mortgage
and automobile finance operations, resulting in an increase from 260 employees
in six offices and 54 employees in 11 offices, respectively, as of September 30,
1997, to 534 employees in 28 offices and 93 employees in 14 offices,
respectively, as of September 30, 1998.
INCOME TAXES
Income taxes increased $1.5 million, from $1.8 million for the three months
ended September 30, 1997 to $3.3 million for the three months ended September
30, 1998. This increase occurred as a result of a $3.8 million increase in
income before income taxes between the two periods offset by a decrease in the
effective tax rate from 42.0% for the three months ended September 30, 1997 to
41.6% for the three months ended September 30, 1998.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
GENERAL
Net income increased from $3.6 million for the nine months ended September
30, 1997 to $10.3 million for the nine months ended September 30, 1998. This
increase was due primarily to the expansion of the Company's mortgage, insurance
premium and auto finance businesses in the second half of 1997 and during 1998.
Also contributing to the favorable operating results for the nine months ended
September 30, 1998 compared with the same period in 1997 was an increase of
$29.0 million in gain on sale of loans from the Company's mortgage finance
operations and $9.0 million in net interest income offset by an increase in non-
interest expense of $25.1 million and an increase in provision for loan losses
of $1.3 million.
As a result of the expansion of the Company's lending operations, mortgage
loan originations increased from $336.9 million for the nine months ended
September 30, 1997 to $957.4 million for the nine months ended September 30,
1998, while insurance premium finance originations increased from $117.1 million
to $123.2 million, respectively, and auto contracts purchased increased from
$29.8 million to $60.7 million, respectively. Sales of mortgage loans were
$886.4 million for the nine months ended September 30, 1998 and $273.1 million
for the comparable period in 1997.
INTEREST INCOME
Interest income increased from $18.3 million for the nine months ended
September 30, 1997 to $33.6 million for the nine months ended September 30, 1998
due primarily to a $174.5 million increase in average interest earning assets
and a 0.08% increase in the yield on average earning assets. The largest
components of growth in average earning assets were mortgage loans, auto
contracts and investment securities, which increased $131.9 million, $26.3
million and $11.1 million, respectively. The increase in mortgage loan
receivables was a result of an increase in loans held for sale. These loans are
generally held for sale in the secondary mortgage market and the increase in
such loans was primarily a result of growth in the Company's mortgage finance
business and the opening of additional retail lending branches and wholesale
loan centers. The increase in auto contracts principally resulted from the
opening of new branch offices and the purchasing of additional dealer contracts
in these new markets. The increase in investment securities resulted from an
increase in the Company's liquidity and short-term investment portfolio
reflecting the overall growth in the Company's total assets. The increase in
the average yield on interest earning assets was attributable to an increase in
the origination or purchase of higher yielding loans principally related to the
expansion and growth of the mortgage, insurance premium and automobile finance
businesses.
15
<PAGE>
INTEREST EXPENSE
Interest expense increased from $8.2 million for the nine months ended
September 30, 1997 to $14.4 million for the nine months ended September 30, 1998
due to a $139.9 million increase in average interest bearing liabilities and a
0.35% increase in the weighted average interest rate on interest bearing
liabilities. The largest component of growth in interest bearing liabilities
was deposits of the Bank, which increased from an average balance of $183.1
million for the nine months ended September 30, 1997 to $283.8 million for the
nine months ended September 30, 1998. The average cost of deposits increased
from 4.89% for the nine months ended September 30, 1997 to 5.27% for the
comparable period in 1998.
The second largest component of growth in average interest bearing
liabilities was from borrowings under the Bank's warehouse line of credit.
During the nine months ended September 30, 1998, the average balance outstanding
under this warehouse line of credit was $43.5 million with an average interest
rate of 6.51%. There were no warehouse line of credit advances outstanding
during the nine months ended September 30, 1997. The increase in both deposits
and the warehouse line of credit were attributable to additional financing
requirements as a result of the growth in the Company's lending operations.
PROVISION FOR LOAN LOSSES
Provision for loan losses increased from $445,000 for the nine months ended
September 30, 1997 to $1.8 million for the nine months ended September 30, 1998.
The increase in provision for loan losses reflects management's decision to
increase general valuation allowances as a result of the increase in loans made
by the Company and an increase in specific loss allowances related to non-
performing loans. Annualized net charge-offs to average loans were 2.03% for
the nine months ended September 30, 1998 compared with 0.81% for the comparable
period in 1997.
A provision for loan losses is charged to operations based on the Company's
regular evaluation of its loan portfolio and the adequacy of its allowance for
loan losses. While management believes it has adequately provided for losses
and does not expect any material loss on its loans in excess of allowances
already recorded, no assurance can be given that economic or real estate market
conditions or other circumstances will not result in increased losses in the
loan portfolio.
NON-INTEREST INCOME
Non-interest income increased $29.2 million, from $15.7 million for the
nine months ended September 30, 1997 to $44.9 million for the nine months ended
September 30, 1998. This increase resulted from cash gains on sales of mortgage
loans and is due to a substantial increase in the volume of mortgage loans sold
by the Company. During the nine months ended September 30, 1998, the Company
sold $886.4 million in mortgage loans on a whole loan primarily non-recourse
basis compared with $273.1 million in mortgage loans sold during the comparable
period in 1997. Net gains on sales of loans, as a percentage of loans sold, were
4.99% for the nine months ended September 30, 1998 compared with 5.59% for the
nine months ended September 30, 1997. The decline reflects continued competitive
pressure in the securitization and whole loan sale markets resulting, in part,
from higher industry-wide loan prepayment rates in the later part of 1997 and
1998.
Other components of non-interest income include fees and charges for Bank
services and miscellaneous other income. The total of all of these items
increased $156,000, from $523,000 for the nine months ended September 30, 1997
to $679,000 for the nine months ended September 30, 1998.
NON-INTEREST EXPENSE
Non-interest expense increased $25.1 million, from $19.3 million for the
nine months ended September 30, 1997 to $44.4 million for the nine months ended
September 30, 1998. This increase reflects
16
<PAGE>
an increase in salaries, loan commissions, employee benefits and other personnel
costs of $16.5 million associated with the growth and expansion of the Company's
mortgage and automobile finance operations. Also, as a result of this growth,
occupancy expense increased from $1.8 million for the nine months ended
September 30, 1997 to $3.9 million for the nine months ended September 30, 1998.
Marketing expense was $2.8 million for the nine months ended September 30, 1998,
compared with $932,000 for the comparable period in 1997. This increase is
attributable to the Company's retail mortgage lending operations, which use
extensive direct mail and telemarketing campaigns to target prospective
borrowers. Other operating expense, including stationery and supplies, data
processing, insurance, telephone and postage, increased $4.6 million during the
nine months ended September 30, 1998 compared with the same period in 1997.
INCOME TAXES
Income taxes increased $5.0 million from $2.6 million for the nine months
ended September 30, 1997 to $7.6 million for the nine months ended September 30,
1998. This increase occurred as a result of a $11.7 million increase in income
before taxes between the two periods and an increase in the effective tax rate
from 41.8% for the nine months ended September 30, 1997 to 42.3% for the nine
months ended September 30, 1998.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Total assets increased $126.5 million, from $310.8 million at December 31,
1997 to $437.3 million at September 30, 1998. This increase occurred primarily
as a result of an $85.8 million increase in loans, from $268.5 million at
December 31, 1997 to $354.3 million as of September 30, 1998. The increase in
loans was comprised of a $64.6 million increase in subprime mortgage loans, a
$26.3 million increase (net of unearned finance charges) in auto contracts and a
$11.5 million increase in insurance premium finance loans, offset by a $15.1
million decrease in loans purchased from the RTC as a result of scheduled
principal amortization and prepayments.
Cash and cash equivalents increased $41.9 million, from $19.0 million at
December 31, 1997 to $60.9 million at September 30, 1998, primarily as a result
of an increase in the Company's liquidity and short-term investments portfolio.
Residual interests in securitizations were $8.2 million at December 31,
1997 which were entirely attributable to the Company's first securitization in
December 1997. In March 1998, the Company sold its residual interests from the
December securitization for $8.3 million in cash and recorded a gain on sale of
approximately $100,000. Accordingly, as of September 30, 1998, the Company had
no remaining residual interests in securitizations reflected on its balance
sheet.
Premises and equipment increased from $3.1 million at December 31, 1997 to
$4.7 million at September 30, 1998 as a result of purchases of furniture and
equipment for the Company's new branch offices and the continued growth in
lending operations.
Deposits increased $84.1 million, from $233.2 million at December 31, 1997
to $317.3 million at September 30, 1998, due primarily to an increase in CDs of
$77.0 million, from $197.1 million at December 31, 1997 to $274.1 million at
September 30, 1998. Included in deposits at September 30, 1998 and December 31,
1997 are $25.0 million in brokered CDs. The growth in deposits reflects the
continued financing of the Company's mortgage, insurance premium finance and
auto lending activities with retail and wholesale deposits through the Bank's
five-branch network.
Other interest bearing liabilities include the RTC notes payable which
remained unchanged at $10.9 million between the period ends, FHLB advances which
were $28.0 million as of December 31, 1997 at a weighted average interest rate
of 7.07%, notes payable to shareholders which were $2.0 million at December 31,
1997 and a warehouse line of credit which was $6.2 million at December 31,
1997. At
17
<PAGE>
September 30, 1998, there were no FHLB advances or warehouse line of credit
advances outstanding. In addition, the notes payable to shareholders were paid
off.
Net deferred tax assets were $2.9 million at September 30, 1998 due
principally to temporary differences in the recognition of gain on sale of loans
for federal and state income tax reporting and financial statement reporting
purposes. For income tax purposes, loans held for sale are marked-to-market as
compared to financial statement reporting where loans are recorded at the lower
of cost or market.
Shareholders' equity increased from $13.0 million at December 31, 1997 to
$86.7 million at September 30, 1998, solely as a result of the Company's net
income of $10.3 million during the nine months ended September 30, 1998 and the
net proceeds received of $63.4 million from the Company's initial public
offering completed in the second quarter of 1998.
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Company's interest rate risk management
program is to evaluate the interest rate risk inherent in the Company's business
activities, determine the level of appropriate risk given the Company's
operating environment, capital and liquidity requirements and performance
objectives and manage the risk consistent with guidelines approved by the Board
of Directors. Through such management, the Company seeks to reduce the exposure
of its operations to changes in interest rates. The Board of Directors reviews
on a quarterly basis the asset/liability position of the Company, including
simulation of the effect on capital of various interest rate scenarios.
The Company's profits depend, in part, on the difference, or "spread,"
between the effective rate of interest received on the loans it originates and
the interest rates paid on deposits and other financing facilities which can be
adversely affected by movements in interest rates. In addition, between the time
the Company originates loans and investors' sales commitments are received, the
Company may be exposed to interest rate risk to the extent that interest rates
move upward or downward during the time the loans are held for sale. The Company
mitigates these risks somewhat by purchasing or originating adjustable rate
mortgages that reprice frequently in an increasing or declining interest rate
environment. Also, the Company sells substantially all of its loans held for
sale on a regular basis, thereby reducing significantly the amount of time these
loans are held by the Company.
The Bank's interest rate sensitivity is monitored by the Board of Directors
and management through the use of a model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet instruments, and "NPV Ratio" is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The Company
reviews a market value model (the "OTS NPV model") prepared quarterly by the
Office of Thrift Supervision (the "OTS"), based on the Bank's quarterly Thrift
Financial Reports filed with the OTS. The OTS NPV model measures the Bank's
interest rate risk by approximating the Bank's NPV under various scenarios which
range from a 400 basis point increase to a 400 basis point decrease in market
interest rates. The OTS has incorporated an interest rate risk component into
its regulatory capital rule for thrifts. Under the rule, an institution whose
sensitivity measure, as defined by the OTS, in the event of a 200 basis point
increase or decrease in interest rates exceeds 20% would be required to deduct
an interest rate risk component in calculating its total capital for purposes of
the risk-based capital requirement.
At June 30, 1998, the most recent date for which the relevant OTS NPV model
is available, the Bank's sensitivity measure resulting from (i) a 200 basis
point decrease in interest rates was 79 basis points and would result in a $4.3
million increase in the NPV of the Bank and (ii) a 200 basis point increase in
interest rates was 75 basis points and would result in a $3.9 million decrease
in the NPV of the Bank. At June 30, 1998, the Bank's sensitivity measure was
below the threshold at which the Bank could be required to hold additional risk-
based capital under OTS regulations.
18
<PAGE>
Although the NPV measurement provides an indication of the Bank's interest
rate risk exposure at a particular point in time, such measurement is not
intended to and does not provide a precise forecast of the effect of changes in
market interest rates on the Bank's net interest income and will differ from
actual results. Management monitors the results of this modeling, which are
presented to the Board of Directors on a quarterly basis.
The following table shows the NPV and projected change in the NPV of the
Bank at June 30, 1998 assuming an instantaneous and sustained change in market
interest rates of 100, 200, 300 and 400 basis points ("bp"). This table is based
on data prepared by the OTS. The Company makes no representation as to the
accuracy of this data.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE
<TABLE>
<CAPTION>
NPV as % of Portfolio
Net Portfolio Value Value of Assets
------------------------------------------------- ------------------------------------
Change in Rates $ Amount $ Change % Change NPV Ratio % Change
--------------- ------------ ------------ ------------ -------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp $38,742 $(13,164) -25% 9.37% -269 bp
+300 bp 43,961 (7,945) -15% 10.48% -158 bp
+200 bp 48,016 (3,890) -7% 11.31% -75 bp
+100 bp 50,581 (1,325) -3% 11.82% -24 bp
0 bp 51,906 -- -- 12.06% --
- -100 bp 53,732 1,826 +4% 12.39% +33 bp
- -200 bp 56,202 4,296 +8% 12.85% +79 bp
- -300 bp 59,453 7,547 +15% 13.46% +140 bp
- -400 bp 63,451 11,545 +22% 14.20% +214 bp
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's primary sources of funds have been deposits at the Bank, FHLB
advances, financing under a secured warehouse line of credit, principal and
interest payments on loans, cash proceeds from the sale or securitization of
loans and, to a lesser extent, interest payments on short-term investments and
proceeds from the maturation of securities. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. However, the Company has continued to maintain the
required minimum levels of liquid assets as defined by OTS regulations. This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The required ratio is currently 4%, and the
Company has always met or exceeded this requirement. Management, through its
Asset and Liability Committee, which meets monthly or more frequently if
necessary, monitors rates and terms of competing sources of funds to use the
most cost-effective source of funds wherever possible.
Sales and securitizations of loans have been one of the primary sources of
funds for the Company. During the nine months ended September 30, 1998 and
1997, cash flows from sales of loans were $919.0 million, and $298.5 million,
respectively.
Another source of funds consists of deposits obtained through the Bank's
five retail branches in California. The Bank offers checking accounts, various
money market accounts, regular passbook accounts, fixed interest rate
certificates with varying maturities and retirement accounts. Deposit account
terms vary by interest rate, minimum balance requirements and the duration of
the account. Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank periodically based on
19
<PAGE>
liquidity and financing requirements, rates paid by competitors, growth goals
and federal regulations. At September 30, 1998, such retail deposits were
$234.2 million or 73.8% of total deposits.
The Bank uses wholesale and broker-originated deposits to supplement its
retail deposits and, at September 30, 1998, wholesale deposits were $58.1
million or 18.3% of total deposits while broker-originated deposits were $25.0
million or 7.9% of total deposits. The Bank solicits wholesale deposits by
posting its interest rates on a national on-line service which advertises the
Bank's wholesale products to investors. Generally, most of the wholesale
deposit account holders are institutional investors, commercial businesses or
public sector entities. Broker deposits are originated through major dealers
specializing in such products.
The following table sets forth the balances and rates paid on each category
of deposits for the dates indicated.
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
----------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Passbook accounts $ 32,745 3.96% $ 26,095 3.76% $ 17,054 2.84%
Checking accounts 10,481 1.41% 9,959 1.33% 10,642 1.32%
Certificates of deposit
Under $100,000 214,625 5.52% 144,926 5.56% 123,914 5.47%
$100,000 and over 59,491 5.75% 52,214 5.89% 7,451 5.89%
----------- ----------- -----------
Total $317,342 5.27% $233,194 5.25% $159,061 4.68%
=========== =========== ===========
</TABLE>
The following table sets forth the time remaining until maturity for all
CDs at September 30, 1998, December 31, 1997 and 1996.
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1998 1997 1996
------------------ ----------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Maturity within one year $246,005 $181,858 $103,369
Maturity within two years 27,998 14,984 26,819
Maturity within three years 113 298 1,177
------------------ ----------------- ------------------
Total certificates of deposit $274,116 $197,140 $131,365
================== ================= ==================
</TABLE>
Although the Bank has a significant amount of deposits maturing in less
than one year, the Company believes that the Bank's current pricing strategy
will enable it to retain a significant portion of these accounts at maturity and
that it will continue to have access to sufficient amounts of CDs which,
together with other funding sources, will provide the necessary level of
liquidity to finance its lending businesses. However, as a result of these
shorter-term deposits, the rates on these accounts may be more sensitive to
movements in market interest rates which may result in a higher cost of funds.
At September 30, 1998, the Bank exceeded all of its regulatory capital
requirements with (i) tangible capital of $33.6 million, or 7.73% of total
adjusted assets, which is above the required level of $6.5 million, or 1.50%;
(ii) core capital of $33.6 million, or 7.73% of total adjusted assets, which is
above the required level of $13.0 million, or 3.00%; and (iii) risk-based
capital of $37.3 million, or 12.50% of risk-weighted assets, which is above the
required level of $23.9 million, or 8.00%.
Under the Federal Deposit Insurance Corporation Act of 1991 ("FDICIA"), the
Bank is deemed to be "well capitalized" at September 30, 1998.
20
<PAGE>
The Company has other sources of liquidity, including FHLB advances, a
warehouse line of credit and its liquidity and short-term investments portfolio.
Through the Bank, the Company obtains advances from the FHLB, collateralized by
its portfolio of mortgage loans purchased from the RTC and the Bank's FHLB
stock. The FHLB functions as a central reserve bank providing credit for
thrifts and certain other member financial institutions. Advances are made
pursuant to several programs, each of which has its own interest rate and range
of maturities. Limitations on the amount of advances are based generally on a
fixed percentage of net worth or on the FHLB's assessment of an institution's
credit-worthiness. As of September 30, 1998, the Bank's available borrowing
capacity under this credit facility was $30.1 million.
The Bank has $300 million in master repurchase agreements under which it
may sell and repurchase at a set price mortgage loans pending the sale or
securitization of such loans. These agreements may be terminated at any time at
the option of either party. At September 30, 1998, there were no balances
outstanding under these warehouse lines of credit.
Other borrowings of the Company at September 30, 1998 consist of the RTC
Notes Payable (as defined below) which mature in 1999.
The following table sets forth certain information regarding the Company's
short-term borrowed funds (consisting of FHLB advances and its warehouse line of
credit) at or for the periods ended on the dates indicated.
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------------------
1998 1997 1996
---------------- ------------------ ------------------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances
Maximum month-end balance $34,500 $40,900 $4,000
Balance at end of period -- 28,000 4,000
Average balance for period 15,441 18,526 1,170
Weighted average interest rate on
Balance at end of period --% 7.07% 5.70%
Average balance for period 5.71% 5.95% 6.15%
Warehouse line of credit
Maximum month-end balance $95,000 $64,359 $ --
Balance at end of period -- 6,237 --
Average balance for period 43,498 8,914 --
Weighted average interest rate on
Balance at end of period --% 6.70% --%
Average balance for period 6.51% 6.10% --%
</TABLE>
The Company had no material contractual obligations or commitments for
capital expenditures at September 30, 1998. However, the Company is in the
process of expanding its mortgage and auto finance operations, which will entail
lease commitments and expenditures for leasehold improvements and furniture,
fixtures and equipment. At September 30, 1998, the Company had outstanding
commitments to originate loans of $41.1 million, compared to $9.6 million at
December 31, 1997. The Company anticipates that it will have sufficient funds
available to meet its current origination commitments.
21
<PAGE>
RTC NOTES PAYABLE
In connection with its acquisition of certain assets from the RTC, the Bank
obtained loans (the "RTC Notes Payable") from the RTC in the aggregate amount of
$10.9 million under the RTC's Minority Interim Capital Assistance Program
provided for in Section 21A(u) of the Federal Home Loan Bank Act, as amended
(the "FHLBA"). The FHLBA gives the RTC authority to provide interim capital
assistance to minority-owned institutions, defined in the FHLBA as more than
fifty percent (50%) owned or controlled by one or more minorities. The Bank,
PAFI and the RTC entered into an Interim Capital Assistance Agreement on April
29, 1994 with respect to a loan of $6,930,000 and a second Interim Capital
Assistance Agreement on September 9, 1994 with respect to a loan of $4,000,000
(together, the "RTC Agreements"). The RTC Agreements provide for repayment of
the entire principal amount, plus any accrued, previously unpaid interest
thereon, in a single lump sum installment on April 28, 1999 and September 8,
1999, respectively. The RTC Notes Payable may be prepaid at the option of the
Bank and must be prepaid in the event that PAFI obtains all or any material
portion of its permanent financing prior to maturity of the RTC Notes Payable.
The RTC is entitled to declare the entire principal amount of the RTC Notes
Payable, plus all interest accrued and unpaid thereon, immediately due and
payable upon the occurrence of certain events of default.
The rate at which interest accrues on the RTC Notes Payable is based on the
RTC's "Cost of Funds," defined in the RTC Agreements at the end of the calendar
quarter Monday auction yield price for 13 week United States Treasury Bills plus
12.5 basis points, and adjusts annually, in the case of the $6.9 million loan
due April 1999, and quarterly, in the case of the $4 million loan due September
1999. Interest accrues on any amount of principal or interest not paid when due
at the rate of the RTC's Cost of Funds plus 300 basis points, beginning on the
date such unpaid amount became due.
In connection with the RTC Agreements, PAFI and the RTC have entered into
Stock Pledge Agreements pursuant to which PAFI has pledged to the RTC all of the
issued and outstanding shares of the capital stock of the Bank as security for
the repayment of the RTC Notes Payable.
LENDING ACTIVITIES
To date, the Company has sold most of its loan originations to mortgage
companies and other investors through whole loan packages on a primarily non-
recourse, servicing released basis. As a result, upon sale, risks and rewards of
ownership transfer to the buyer. In December 1997, the Company completed its
first securitization of mortgage loans and in March 1998 sold its residual
interests in this securitization to a third-party.
Summary of Loan Portfolio. At September 30, 1998, the Company's loan
portfolio constituted $354.3 million, or 81.0% of the Company's total assets, of
which $187.2 million, or 52.8%, were held for investment and $167.1 million, or
47.2%, were held for sale. Loans held for investment are reported at cost, net
of unamortized discounts or premiums and allowance for losses. Loans held for
sale are reported at the lower of cost or market value.
22
<PAGE>
The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1998 1997 1996
----------------- ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
MORTGAGE LOANS
Mortgage loans (purchased primarily from RTC) $ 66,893 $ 81,995 $102,733
----------------- ----------------- ----------------
Subprime mortgage loans
Held for sale 167,070 120,002 20,766
Held for investment 22,949 5,375 1,294
----------------- ----------------- ----------------
Total subprime mortgage loans 190,019 125,377 22,060
----------------- ----------------- ----------------
Total mortgage loans 256,912 207,372 124,793
----------------- ----------------- ----------------
CONSUMER LOANS
Automobile installment contracts 72,483 40,877 10,830
Insurance premium financing 51,487 39,990 32,058
Other consumer loans 361 267 230
----------------- ----------------- ----------------
Total consumer loans 124,331 81,134 43,118
----------------- ----------------- ----------------
Total loans 381,243 288,506 167,911
Unearned discounts and premiums (2,237) (2,901) (3,697)
Unearned finance charges (15,881) (10,581) (3,271)
Allowance for loan losses (8,858) (6,487) (5,356)
----------------- ----------------- ----------------
Total loans, net $354,267 $268,537 $155,587
================= ================= ================
</TABLE>
Loan Maturities. The following table sets forth the dollar amount of loans
maturing in the Company's loan portfolio at September 30, 1998 based on
scheduled contractual amortization. Loan balances are reflected before unearned
discounts and premiums, unearned finance charges and allowance for losses.
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------------------------------------------------------
More Than 1 More Than 3 More Than 5 More Than 10
One Year or Year to Years to Years to Years to 20 More Than 20 Total
Less 3 Years 5 Years 10 Years Years Years Loans
------------ -------------- -------------- -------------- -------------- -------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans held
for investment $ 52 $ 1,046 $ 3,339 $11,294 $36,488 $ 37,623 $ 89,842
Mortgage loans held
for sale -- -- -- -- 9,682 157,388 167,070
Consumer loans 53,146 34,934 35,162 1,089 -- -- 124,331
------------ -------------- -------------- -------------- -------------- -------------- ------------
Total $53,198 $35,980 $38,501 $12,383 $46,170 $195,011 $381,243
============ ============== ============== ============== ============== ============== ============
</TABLE>
CLASSIFIED ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Company maintains an asset review and classification process for
purposes of assessing loan portfolio quality and the adequacy of its loan loss
allowances. The Company's Asset Review Committee reviews for classification all
problem and potential problem assets and reports the results of its review to
the Board of Directors quarterly. The Company has incorporated the OTS internal
asset classifications as a part of its credit monitoring systems and in order of
increasing weakness, these designations are "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that some loss will be sustained if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
condition and values, questionable and there is a high possibility of loss. Loss
assets are considered uncollectible and of such little value that continuance as
an asset is not warranted. Assets which do have weaknesses but do not currently
have sufficient risk to warrant classification in one of the categories
described above are designated as "special mention."
23
<PAGE>
At September 30, 1998, the Company had $1.5 million in assets classified as
special mention, $21.6 million of assets classified as substandard, $57,000 in
assets classified as doubtful and no assets classified as loss.
The following table sets forth the remaining balances of all loans (before
specific reserves for losses) that were more than 30 days delinquent at
September 30, 1998, December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Loan
- ---- September 30, % of Total December 31, % of Total December 31, % of Total
Delinquencies 1998 Loans 1997 Loans 1996 Loans
- ------------- ------------- ----------- ------------ ------------ ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $ 8,410 2.32% $ 356 0.1% $1,941 1.2%
60 to 89 days 3,959 1.09% 994 0.4% 109 0.1%
90+ days 15,726 4.33% 7,101 2.6% 6,430 3.9%
------------- ----------- ------------ ------------ ------------ -----------
Total $28,095 7.74% $8,451 3.1% $8,480 5.2%
============= =========== ============ ============ ============ ===========
</TABLE>
Nonaccrual and Past Due Loans. The Company's general policy is to
discontinue accrual of interest on a mortgage loan when it is two payments or
more delinquent, accordingly, loans are placed on non-accrual status generally
when they are 60-89 days delinquent. A non-mortgage loan is placed on nonaccrual
status when it is delinquent for 120 days or more. When a loan is reclassified
from accrual to nonaccrual status, all previously accrued interest is reversed.
Interest income on nonaccrual loans is subsequently recognized only to the
extent that cash payments are received or the borrower's ability to make
periodic interest and principal payments is in accordance with the loan terms,
at which time the loan is returned to accrual status. Accounts which are deemed
fully or partially uncollectible by management are generally fully reserved or
charged off for the amount that exceeds the estimated fair value (net of selling
costs) of the underlying collateral. The Company does not generally modify,
extend or rewrite loans and at September 30, 1998 had no troubled debt
restructured loans. The following table sets forth the aggregate amount of
nonaccrual loans (net of unearned discounts and premiums and unearned finance
charges) at September 30, 1998, December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------------------
1998 1997 1996
--------------- ----------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans
Single-family residential $18,901 $5,766 $5,504
Multi-family residential and commercial 604 605 605
Consumer and other loans 1,446 1,426 928
--------------- ----------------- ---------------
Total $20,951 $7,797 $7,037
=============== ================= ===============
Nonaccrual loans as a percentage of
Total loans held for investment 11.19% 5.25% 5.22%
Total assets 4.80% 2.51% 3.73%
Allowance for loan losses as a percentage of
Total loans held for investment 4.73% 4.37% 3.97%
Nonaccrual loans 42.28% 83.20% 76.11%
</TABLE>
Real Estate Owned. Real estate acquired through foreclosure or by deed in
lieu of foreclosure ("REO") is recorded at the lower of cost or fair value at
the time of foreclosure. Subsequently, an allowance for estimated losses is
established when the recorded value exceeds fair value less estimated selling
costs. Holding and maintenance costs related to real estate owned are recorded
as expenses in the period incurred. At September 30, 1998, December 31, 1997
and 1996, real estate owned was $1.2 million, $562,000 and $988,000,
respectively, and consisted entirely of one to four family residential
properties.
24
<PAGE>
Allowance for Loan Losses. The following is a summary of the changes in
the consolidated allowance for loan losses of the Company for the periods
indicated.
<TABLE>
<CAPTION>
At or For the
At or For the Nine Year Ended
Months Ended December 31,
September 30, -----------------------------------------
1998 1997 1996
--------------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 6,487 $ 5,356 $5,250
Provision for loan losses 1,784 507 194
Charge-offs
Mortgage loans held for investment (36) (373) (285)
Mortgage loans held for sale (959) -- --
Consumer loans (2,769) (2,101) (433)
--------------------- ---------------- -----------------
(3,764) (2,474) (718)
Recoveries
Mortgage loans held for investment 9 77 --
Mortgage loans held for sale 40 -- --
Consumer loans 1,060 1,068 274
--------------------- ---------------- -----------------
1,109 1,145 274
--------------------- ---------------- -----------------
Net charge-offs (2,655) (1,329) (444)
Acquisition discounts allocated to loss allowance 3,242 1,953 356
--------------------- ---------------- -----------------
Balance at end of period $ 8,858 $ 6,487 $5,356
===================== ================ =================
Annualized net charge-offs to average loans 2.03% 0.60% 0.30%
Ending allowance to period end loans, net 4.73% 4.37% 3.97%
</TABLE>
The Company's policy is to maintain an allowance for loan losses to absorb
future losses which may be realized on its loan portfolio. These allowances
include specific reserves for identifiable impairments of individual loans and
general valuation allowances for estimates of probable losses not specifically
identified. In addition, the Company's allowance for loan losses is also
increased by its allocation of acquisition discounts related to the purchase of
automobile installment contracts.
The determination of the adequacy of the allowance for loan losses is based
on a variety of factors, including an assessment of the credit risk inherent in
the portfolio, prior loss experience, the levels and trends of non-performing
loans, the concentration of credit, current and prospective economic conditions
and other factors.
The Company's management uses its best judgment in providing for possible
loan losses and establishing allowances for loan losses. However, the allowance
is an estimate which is inherently uncertain and depends on the outcome of
future events. In addition, regulatory agencies, as an integral part of their
examinations process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to increase the allowance based upon their
judgment of the information available to them at the time of their examination.
The Bank's current year examination by its regulatory agencies was recently
completed and no adjustments to the Bank's allowance for loan losses were
required.
CASH EQUIVALENTS AND SECURITIES PORTFOLIO
The Company's cash equivalents and securities portfolios are used primarily
for liquidity purposes and secondarily for investment income. Cash equivalents
and securities, which generally have maturities of less than 90 days, satisfy
regulatory requirements for liquidity.
25
<PAGE>
The following is a summary of the Company's cash equivalents and securities
portfolios as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at end of period
Overnight deposits $15,500 $4,000 $21,000
Commercial paper -- -- --
U.S. agency securities -- 1,002 --
------------------ ------------------ ------------------
Total $15,500 $5,002 $21,000
================== ================== ==================
Weighted average yield at end of period
Overnight deposits 5.38% 3.50% 5.02%
Commercial paper -- --
U.S. agency securities -- 6.54% --
Weighted average maturity at end of period --
Overnight deposits 1 day 1 day 1 day
Commercial paper -- -- --
U.S. agency securities -- 24 months --
</TABLE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
LIMITED OPERATING HISTORY
The Company purchased certain assets and assumed certain liabilities of Pan
American Federal Savings Bank from the RTC in 1994. In 1995, the Company
commenced its insurance premium finance business through a joint venture with
BPN, and in 1996 the Company commenced its subprime mortgage and automobile
finance businesses. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be based.
CREDIT-IMPAIRED BORROWERS
Loans made to borrowers who cannot obtain financing from traditional
lenders generally entail a higher risk of delinquency and default and higher
losses than loans made to borrowers with better credit. Substantially all of the
Company's mortgage and auto loans are made to individuals with impaired or
limited credit histories, limited documentation of income or higher debt-to-
income ratios than are permitted by traditional lenders. If the Company
experiences higher losses than anticipated, the Company's financial condition,
results of operations and business prospects would be materially and adversely
affected.
NEED FOR ADDITIONAL FINANCING
The Company's ability to maintain or expand its current level of lending
activity will depend on the availability and terms of its sources of financing.
The Company has funded its operations to date principally through deposits, FHLB
advances, a mortgage warehouse line of credit, loan securitizations, and whole
loan sales at the Bank. The Bank competes for deposits primarily on the basis
of interest rates and, accordingly, the Bank could experience difficulty in
attracting deposits if it does not continue to offer rates that are competitive
with other financial institutions. Federal regulations restrict the Bank's
ability to lend to affiliated companies and limit the amount of non-mortgage
consumer loans that may be held by the Bank. Accordingly, the growth of the
Company's mortgage, insurance premium and automobile finance businesses will
depend to a significant extent on the availability of additional sources of
financing. There can be no assurance that the Company will be able to develop
additional financing sources on acceptable terms or at all. To the extent the
Bank is unable to maintain its deposits and the Company is unable to develop
additional sources of financing, the Company will have to restrict its lending
activities which would materially and adversely affect the Company's financial
condition, results of operations and business prospects. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources."
26
<PAGE>
CONCENTRATION OF BUSINESS IN CALIFORNIA
The Company's lending activities are concentrated primarily in California
and are likely to remain so for the foreseeable future. The occurrence of
adverse economic conditions or natural disasters in California could have a
material adverse effect on the Company's financial condition, results of
operations and business prospects.
RELIANCE ON SYSTEMS AND CONTROLS
The Company depends heavily upon its systems and controls, some of which
have been designed specifically for a particular business, to support the
evaluation, acquisition, monitoring, collections and administration of that
business. There can be no assurance that these systems and controls, including
those specially designed and built for the Company, are adequate or will
continue to be adequate to support the Company's growth. A failure of the
Company's automated systems, including a failure of data integrity or accuracy,
could have a material adverse effect upon the Company's financial condition,
results of operations and business prospects.
RELIANCE ON KEY EMPLOYEES AND OTHERS
The Company is dependent upon the continued services of its key employees
as well as the key employees of BPN. The loss of the services of any key
employee, or the failure of the Company to attract and retain other qualified
personnel, could have a material adverse effect on the Company's financial
condition, results of operations and business prospects.
COMPETITION
Each of the Company's businesses is highly competitive. Competition in the
Company's markets can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and terms of
the loan, loan origination fees and interest rates. Many of the Company's
competitors are substantially larger and have considerably greater financial,
technical and marketing resources than the Company. The Company's competitors in
subprime mortgage finance include other consumer finance companies. The Company
competes in the insurance premium finance business with other specialty finance
companies, independent insurance agents who offer premium finance services,
captive premium finance affiliates of insurance companies and direct bill plans
established by insurance companies. The Company competes in the subprime
automobile finance industry with commercial banks, the captive finance
affiliates of automobile manufacturers, savings associations and companies
specializing in subprime automobile finance, many of which have established
relationships with automobile dealerships and may offer dealerships or their
customers other forms of financing, including dealer floor plan financing and
lending, which are not offered by the Company. In attracting deposits, the Bank
competes primarily with other savings institutions, commercial banks, brokerage
firms, mutual funds, credit unions and other types of investment companies.
CHANGES IN INTEREST RATES
The Company's results of operations depend to a large extent upon its net
interest income, which is the difference between interest income on interest-
earning assets, such as loans and investments, and interest expense on interest-
bearing liabilities, such as deposits and other borrowings. When interest-
bearing liabilities mature or reprice more quickly than interest-bearing assets
in a given period, a significant increase in market rates of interest could have
a material adverse effect on the Company's net income. Further, a significant
increase in market rates of interest could adversely affect demand for the
Company's financial products and services. Interest rates are highly sensitive
to many factors, including governmental monetary policies and domestic and
international economic and political conditions, which are beyond the Company's
control. The Company's liabilities generally have shorter terms and are more
interest rate
27
<PAGE>
sensitive than its assets. Accordingly, changes in interest rates could have a
material adverse effect on the profitability of the Company's lending
activities.
MANAGEMENT OF GROWTH
The Company has experienced rapid growth in each of its businesses and
intends to pursue growth for the foreseeable future, particularly in its
mortgage and automobile finance businesses. In addition, the Company intends to
broaden its product offerings to include additional types of consumer or, in the
case of IPF, commercial loans. Further, the Company may enter other specialty
finance businesses. This growth strategy will require additional capital,
systems development and human resources. The failure of the Company to implement
its planned growth strategy would have a material adverse effect on the
Company's financial condition, results of operations and business prospects.
DEPENDENCE ON LOAN SALE AND SECURITIZATION MARKETS
The Company generates substantial revenues from whole loan sales or
securitizations. There can be no assurance that whole loan purchasers will
continue to purchase the Company's loans or that they will continue to purchase
loans at present prices, and failure to do so could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects. Further, adverse conditions in the asset-backed securitization market
could adversely affect the Company's ability to sell or securitize loans at
present prices.
SECURITIZATIONS
The Company completed its first securitization of mortgage loans in
December 1997 and expects to sell or securitize mortgage loans on a periodic
basis in the future. The Company will, in the future, consider the
securitization of other financial assets. In March 1998, the Company sold its
residual interests in this securitization for cash in the amount of $8.3 million
which exceeded the carrying value of approximately $8.2 million at the date of
sale. The Company believes that the gain on sale from such securitizations could
represent a significant portion of the Company's future revenues and net income.
The Company's ability to complete securitizations will depend on a number of
factors, including conditions in the securities markets generally, conditions in
the asset-backed securities market specifically, the performance of the
Company's portfolio of securitized loans and the Company's ability to obtain
credit enhancement for its securitized loans. If securitizations represented a
significant portion of the Company's revenues and net income and the Company
were unable to securitize profitably a sufficient number of loans in a
particular quarter, then the Company's revenues for the quarter could decline,
which could result in lower earnings or a loss reported for the quarter. In
addition, delays in closing a securitization could require the Company to seek
additional alternative funding under current and future credit facilities in
order to finance additional loan originations and purchases and could increase
the Company's interest rate risk by increasing the period during which newly
originated loans are held prior to sale and could increase the Company's
interest expense.
The Company may rely on credit enhancements to guarantee or otherwise
support senior certificates issued in securitizations. If the Company is unable
to obtain credit enhancement in connection with the senior certificates, the
Company might be unable to securitize its loans, which could have a material
adverse effect on the Company's results of operations, financial condition and
business prospects. Although alternative structures to securitizations may be
available, there can be no assurance that the Company will be able to use these
structures or that these structures will be economically viable for the Company.
The Company's ability to obtain credit enhancement for its securitizations also
may be adversely affected by poor performance of the Company's securitizations
or the securitizations of others. The inability of the Company to complete
securitizations for any reason could have a material adverse effect on the
Company's results of operations, financial condition and business prospects.
28
<PAGE>
CHANGE IN GENERAL ECONOMIC CONDITIONS
Each of the Company's businesses is affected directly by changes in general
economic conditions, including changes in employment rates, prevailing interest
rates and real wages. During periods of economic slowdown or recession, the
Company may experience a decrease in demand for its financial products and
services, an increase in its servicing costs, a decline in collateral values and
an increase in delinquencies and defaults. A decline in collateral values and an
increase in delinquencies and defaults increase the possibility and severity of
losses. Although the Company believes that its underwriting criteria and
collection methods enable it to manage the higher risks inherent in loans made
to such borrowers, no assurance can be given that such criteria or methods will
afford adequate protection against such risks. Any sustained period of increased
delinquencies, defaults or losses would materially and adversely affect the
Company's financial condition, results of operations and business prospects.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and notes thereto presented herein have been
prepared in accordance with Generally Accepted Accounting Principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
----------------------------------------------------------
See "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations Management of Interest Rate Risk; and Factors That May
Affect Future Results Dependence on Loan Sale and Securitization Markets"
29
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-----------------
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
-----------------------------------------
Use of proceeds -- As discussed in Note 5 to Unaudited Notes to
Consolidated Financial Statements under "Item 1. Financial Information" of
this Quarterly Report, the Company completed an initial public offering of
common stock. in connection therewith:
1. The effective date of the Company's Registration Statement on
Form S-1, as amended (File No. 333-39941) ("Registration
Statement"), was April 23, 1998.
2. The offering commenced on April 23, 1998 and was terminated on
May 28, 1998 with the sale of all of the registered securities at
a price to the public of $11.00 per share.
3. NationsBanc Montgomery Securities LLC and Piper Jaffray Inc.
acted as managing underwriters for the Company.
4. The class of securities registered pursuant to the Registration
Statement was common stock, no par value per share. The aggregate
amount of such securities registered and sold was 6,325,000
shares for an aggregate dollar amount of $69.6 million. There
were no selling shareholders.
5. Expenses incurred by the Company in connection with the sale of
the shares of common stock, none of which were paid directly or
indirectly to directors or officers of the Company or their
associates, included the following (dollars in thousands):
<TABLE>
<S> <C>
Underwriting discounts and commissions $4,870
Finders' fees --
Expenses paid to or for underwriters --
Other expenses 1,394
------
$6,264
======
</TABLE>
6. The net offering proceeds to the Company after deduction of the
above expenses were approximately $63.3 million and were used for
general corporate purposes, including financing the growth of the
Company's mortgage and automobile finance operations, and to
repay $2.0 million in indebtedness to certain shareholders. Such
use of proceeds did not represent a material change in the use of
proceeds described in the Company's Registration Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
Not applicable
30
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION.
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits
(b) 10.87 Assignment, Assumption and Recognition Agreement dated
August 14, 1998, between Countrywide Home Loans, Inc.,
Associates Home Equity Services, Inc. and Pan American Bank,
FSB.
10.88 Assignment, Assumption and Recognition Agreement dated
August 14, 1998, between Countrywide Home Loans, Inc.,
Fidelity Federal Bank, FSB and Pan American Bank, FSB.
10.89 Assignment, Assumption and Recognition Agreement dated
September 15, 1998 between Countrywide Home Loans, Inc.,
Southern Mortgage Acquisitions, Inc. and Pan American Bank,
FSB.
10.90 Assignment, Assumption and Recognition Agreement dated
September 30, 1998, between Countrywide Home Loans, Inc.,
Fidelity Federal Bank, FSB and Pan American Bank, FSB.
10.91 Employment Agreement dated July 6, 1998, between United
PanAm Mortgage Corporation and Edward Pollard.
27.1 Financial Data Schedule
(c) Reports on Form 8-K
None
31
<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 THEREUNTO DULY AUTHORIZED.
UNITED PANAM FINANCIAL CORP.
DATE: November 6, 1998 By: /s/ Lawrence J. Grill
-------------------------------------
Lawrence J. Grill
President and Chief Executive Officer
(Principal Executive Officer)
November 6, 1998 By: /s/ Carol M. Bucci
-------------------------------------
Carol M. Bucci
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 10.87
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This Assignment, Assumption and Recognition Agreement (the
"Agreement") is made and entered into on August 14, 1998, by Countrywide Home
Loans, Inc., a New York corporation, having an address at 4500 Park Granada
Boulevard, Calabasas, California 91302 (the "Seller"), Associates Home Equity
Services, Inc., having an address at 250 Carpenter Freeway, Building 6 Decker,
Irving, Texas 75062 (the "Purchaser") and Pan American Bank, FSB, having an
address at 625 The City Drive, Orange, California 92868 (the "Company").
In consideration of the mutual promises and agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Assignment and Assumption. Except as expressly provided for
-------------------------
herein, the Seller hereby grants, transfers and assigns to the Purchaser (a) all
of its right, title and interest as "Purchaser" in, to and under that certain
Mortgage Loan Purchase and Interim Servicing Agreement dated as of August 14,
1998, and duly executed by the Company and the Seller (attached hereto as
Exhibit A, the "Purchase Agreement"), with respect to the Mortgage Loans (as
- ---------
defined herein), (b) all of its right, title and interest in and to each of the
mortgage loans identified in Exhibit B hereto (the "Mortgage Loans"), and (c)
---------
all servicing rights relating to the Mortgage Loans. Except for the provisions
pertaining to the payment of the purchase price, the Purchaser hereby assumes
all of the Seller's obligations as "Purchaser" under the Purchase Agreement with
respect to the Mortgage Loans from and after the date hereof, and the Seller
shall be relieved and released by the Company of all of its obligations under
the Purchase Agreement from and after the date hereof, with respect to the
Mortgage Loans. Except as is otherwise expressly provided herein, the Seller
makes no representations, warranties or covenants to the Purchaser and the
Purchaser acknowledges that the Seller has no obligations to the Purchaser under
the terms of the Purchase Agreement or otherwise relating to the transaction
contemplated herein (including but not limited to any obligation to repurchase
any of the Mortgage Loans or to indemnify the Purchaser).
2. Consideration. In consideration for the transfers and
-------------
assignments set forth in paragraph 1 of this Agreement, the Purchaser agrees to
pay to the Seller the amounts referenced in that certain Funding Schedule dated
as of August 14, 1998 (the "Funding Schedule") and duly executed by the Seller
and the Purchaser (the "Purchase Price"). The purchaser agrees to wire the
agreed upon Purchase Price to the Seller to the account designated below:
Bank of New York
ABA - 021000018
Countrywide Home Loans
ACCT - 8900038632
REF - Stuart Levitt
3. Recognition of the Purchaser by the Company. From and after the
-------------------------------------------
date hereof, the Company shall recognize the Purchaser as the owner of the
Mortgage Loans and the "Purchaser" under the Purchase Agreement with respect to
such Mortgage Loans.
4. Servicing of the Mortgage Loans. From and after the date hereof,
-------------------------------
the Company shall interim service the Mortgage Loans for the Purchaser in
accordance with the terms and conditions of the Purchase Agreement, as if the
Purchaser and Company had entered into the Purchase Agreement. The address of
the Purchaser set forth in Section 6.1 of the Purchase Agreement shall be
changed to read as follows:
<PAGE>
Associates Home Equity Services, Inc.
250 Carpenter Freeway
Building 6 Decker
Irving, Texas 75062
Attn: Ms. Marilyn Mocilnikar
5. Status of Purchase Agreement. The Company and the Seller
----------------------------
represent and warrant that with respect to each of the Mortgage Loans (a) the
Purchase Agreement is in full force and effect as of the date hereof, (b) the
Purchase Agreement has not been amended or modified in any respect, and (c)
there has been no waiver or any agreement to waive any provision, nor has any
notice of termination been given, under the Purchase Agreement.
6. No Claims. The Company represents and warrants that it has no
---------
offsets, counterclaims or other defenses available to it with respect to the
Purchase Agreement.
7. Covenants, Representations and Warranties of the Seller. The
-------------------------------------------------------
Seller represents and warrants to, and covenants with, the Purchaser that:
a. The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate power and
authority to acquire, own and sell the Mortgage Loans;
b. The Seller has full corporate power and authority to execute,
deliver and perform under this Agreement, and to consummate
the transactions set forth herein. The execution, delivery and
performance of the Seller of this Agreement, and the
consummation by it of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action of
the Seller. This Agreement has been fully executed and
delivered by the Seller and constitutes the valid and legally
binding obligation of the Seller enforceable against the
Seller in accordance with its respective terms;
c. No material consent, approval, order or authorization of, or
declaration, filing or registration with, any governmental
entity is required to be obtained or made by the Seller in
connection with the execution, delivery or performance by the
Seller of this Agreement, or the consummation by it of the
transaction contemplated hereby;
d. There is no action, suit, proceeding, investigation or
litigation pending or, to the Seller's knowledge, threatened,
which either in any instance or in the aggregate, if
determined adversely to the Seller, would adversely affect the
sale of the Mortgage Loans to the Purchaser, the execution,
delivery or enforceability of this Agreement, or the Seller's
ability to perform its obligations under this Agreement; and
e. Immediately prior to payment of the purchase price for the
Mortgage Loans, the Seller is the lawful owner of the Mortgage
Loans with the full right to transfer the Mortgage Loans free
from any and all claims and encumbrances whatsoever.
2
<PAGE>
8. Covenants, Representations and Warranties of Purchaser. The
------------------------------------------------------
Purchaser represents and warrants to, and covenants with, the Seller and the
Company that except for the provisions pertaining to the payment of the purchase
price thereunder, the Purchaser agrees to be bound as "Purchaser" by all of the
terms, covenants and conditions of the Purchase Agreement, and from and after
the date hereof, the Purchaser assumes for the benefit of the Seller and the
Company all of the Seller's obligations as "Purchaser" thereunder.
9. Governing Law. This Agreement shall be construed in accordance
-------------
with the laws of the State of California and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with the
laws of the State of California, except to the extent preempted by federal law.
10. Confidentiality. The Seller and the Purchaser hereby acknowledge
---------------
and agree that this Agreement shall be kept confidential and its contents will
not be divulged to any party without the other party's consent except to the
extent that it is appropriate for the Seller or the Purchaser to do so in
working with legal counsel, auditors, taxing authorities or other governmental
agencies.
11. Conflict with Purchase Agreement. To the extent there is any
--------------------------------
conflict between the terms of the Purchase Agreement and this Agreement, the
latter shall be controlling, notwithstanding anything to the contrary contained
in the Purchase Agreement.
12. Capitalized Terms. All capitalized terms used herein and not
-----------------
otherwise defined herein shall have the meanings assigned to such terms in the
Purchase Agreement.
13. Counterparts. This Agreement may be executed 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.
14. Additional Mortgage Loans. The parties acknowledge that the
-------------------------
Mortgage Loans being transferred and assigned by the Seller to the Purchaser
pursuant to this Agreement are not all of the mortgage loans which were
purchased by the Seller from the Company under the Purchase Agreement. The
remaining mortgage loans are identified in Exhibit C hereto (the "Additional
---------
Mortgage Loans"). The Seller and the Purchaser shall consummate the purchase
and sale of the Additional Mortgage Loans on or before August 19, 1998;
provided, however, the Mortgage Loans in Exhibit C are not thirty (30) or more
---------
days contractually delinquent and such sale and purchase will be pursuant to all
of the terms and conditions set forth in the Purchase Agreement and this
Agreement provided, further, however, that the purchase price relating to such
additional Mortgage Loans shall be as set forth in a separate funding agreement
to be executed by the parties on the date hereof.
[Signature page follows]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
COUNTRYWIDE HOME LOANS, INC.,
the Seller
/s/ Michael W. Schloessmann
By _________________________________
Michael W. Schloessmann
Vice President
ASSOCIATES HOME EQUITY SERVICES,
INC.,
the Purchaser
/s/ [Signature Illegible]
By ________________________________
Name:
Title:
PAN AMERICAN BANK, FSB
the Company
/s/ Blair F. Kenny
By _________________________________
Name: Blair F. Kenny
Title: Senior Vice President
4
<PAGE>
EXHIBIT A
MORTGAGE LOAN
PURCHASE AND INTERIM SERVICING
AGREEMENT
(attached)
5
<PAGE>
MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT
------------------------------------------------------
This Mortgage Loan Purchase and Interim Servicing Agreement is dated
and effective as of August 14, 1998 (the "Agreement"), between Pan American
Bank, FSB, having an address at 625 The City Drive, Orange, California 92868
(the "Seller"), and Countrywide Home Loans, Inc., having an address at 4500 Park
Granada, Calabasas, California 91302 (the "Purchaser").
R E C I T A L S
- - - - - - - -
The Seller desires to sell and transfer to the Purchaser, and the
Purchaser desires to purchase from the Seller, those certain mortgage loans
identified on Exhibit A hereto, including all servicing rights relating thereto
---------
(the "Mortgage Loans") upon such terms as are set forth below.
In consideration of the promises and the mutual agreements and
undertakings set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
Definitions
-----------
Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
ACCRUED INTEREST: Accrued interest owing to the Seller on the Stated
----------------
Principal Balance of each Mortgage Loan at a rate equal to the Mortgage Interest
Rate of each such Mortgage Loan, from the date through which interest has last
been paid (as of Cut-off Date) through the day prior to the Closing Date,
inclusive; provided, however, with respect to those Mortgage Loans for which
interest has been paid through a date beyond the Cut-off Date, such accrued
interest owing to Seller shall be reduced by the amount of interest accruing on
the Stated Principal Balance of each such Mortgage Loan at a rate equal to the
Mortgage Interest Rate of such Mortgage Loan, from the Closing Date to the day
prior to the interest paid through date for such Mortgage Loan, inclusive.
AGENCIES: Both FNMA or FHLMC.
--------
AGREEMENT: This Mortgage Loan Purchase and Interim Servicing
---------
Agreement, including all exhibits and supplements hereto, and all amendments
hereof.
APPRAISED VALUE: With respect to any Mortgage Loan, the value of the
---------------
related Mortgaged Property based upon the lesser of (i) the appraisal made for
the originator at the time of origination of the Mortgage Loan or (ii) the
purchase price of the Mortgaged Property at the time of origination of the
Mortgage Loan, provided, however, that in the case of a refinanced Mortgage
Loan, such value is based solely upon the appraisal made at the time of
origination of such refinanced Mortgage Loan and in the case of a Mortgage Loan
originated under the streamlined documentation program, such value shall be
based on an appraisal obtained at the time the original loan was originated.
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
the sale of the Mortgage to the Purchaser.
1
<PAGE>
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a
------------
day on which banking and savings and loan institutions in the State of
California, are authorized or obligated by law or executive order to be closed.
CLOSING DATE: August 14, 1998, or such other date as may be mutually
------------
agreed upon by the Seller and the Purchaser.
CUT-OFF DATE: August 7, 1998.
------------
DUE DATE: The day of the month on which a Monthly Payment is due on a
--------
Mortgage Loan, exclusive of any days of grace.
ESCROW ACCOUNT: An account or accounts maintained by the Seller, or
--------------
the Seller's predecessor in interest, maintained for the deposit of Escrow
Payments received in respect of one or more Mortgage Loans.
ESCROW PAYMENTS: The amounts held in Escrow Accounts which include
---------------
amounts being held for payment of taxes, assessments, water rates, mortgage
insurance premiums, fire and hazard insurance premiums and other payments
required to be escrowed by the Mortgagor pursuant to any Mortgage Loan.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
-----
thereto.
FNMA: The Federal National Mortgage Association or any successor
----
thereto.
GROSS MARGIN: The fixed percentage amount set forth in the related
------------
Mortgage Note which amount is added to the Index in accordance with the terms of
the related Mortgage Note to determine the Mortgage Interest Rate for such
Mortgage Loan.
HMDA: The Home Mortgage Disclosure Act, as amended.
----
HUD: The Department of Housing and Urban Development or any successor
---
thereto.
INDEX: On each Interest Adjustment Date, the Index shall mean the
-----
rate per annum equal to the average of interbank offered rates for six-month
U.S. dollar denominated deposits in the London market (LIBOR), as published in
the Wall Street Journal as of the first Business Day of the month immediately
preceding the month in which such Interest Adjustment Date occurs.
INTEREST ADJUSTMENT DATE: With respect to each Mortgage Loan, the
------------------------
date on which an adjustment to the Mortgage Interest Rate on a Mortgage Note
becomes effective.
INTERIM SERVICING PERIOD: The period commencing with the Closing Date
------------------------
and ending with the Servicing Transfer Date.
LIFETIME MORTGAGE INTEREST RATE CAP: The absolute maximum Mortgage
-----------------------------------
Interest Rate payable for a Mortgage Loan, above which the Mortgage Interest
Rate shall not be adjusted, as provided in the Mortgage Loan Schedule.
LOAN-TO-VALUE RATIO OR LTV: With respect to any Mortgage Loan, the
--------------------------
ratio of the original outstanding principal amount to the Appraised Value of the
Mortgage Loan.
2
<PAGE>
MONTHLY PAYMENT: The scheduled monthly payment of principal and
---------------
interest on a Mortgage Loan.
MORTGAGE: The mortgage, deed of trust or other such instrument
--------
securing a Mortgage Note, which creates a first lien on an unsubordinated estate
in fee simple in real property securing the Mortgage Note or a first lien, upon
a leasehold estate of Mortgagor, as the case may be.
MORTGAGE FILE: The file containing the Mortgage Loan Documents, all
-------------
other documents in connection with the origination of a particular Mortgage Loan
and all documents, files and other information reasonably necessary to service
the Mortgage Loans, including, but not limited to, good faith estimate, HUD 1
Settlement Statement, Truth in Lending Disclosure Statement, and Truth in
Lending Notice of Right to Cancel (if required by law).
MORTGAGE INTEREST RATE: The annual rate at which interest accrues on
----------------------
any Mortgage Loan, exclusive of any primary mortgage insurance, as adjusted from
time to time in accordance with the provisions of the related Mortgage Note, if
applicable.
MORTGAGE LOAN: A mortgage loan identified in the Mortgage Loan
-------------
Schedule which is sold pursuant to this Agreement, which Mortgage Loan includes
without limitation the Mortgage File, the Monthly Payments, Principal
Prepayments and all other rights, benefits, proceeds and obligations arising
from or in connection with such Mortgage Loan.
MORTGAGE LOAN DOCUMENTS: The following documents pertaining to any
-----------------------
Mortgage Loan:
(a) The original Mortgage Note bearing all intervening endorsements,
endorsed "Pay to the order of _________ " and signed in the name
of the Seller by an authorized officer;
(b) The original Assignment of Mortgage for each Mortgage Loan in
blank;
(c) The original Mortgage with evidence of recording thereon;
(d) The originals of all intervening assignments of mortgage with
evidence of recording thereon; and
(e) The original mortgagee title insurance policy.
MORTGAGE LOAN SCHEDULE: The schedule of Mortgage Loans set forth on
----------------------
Exhibit A hereto.
- ---------
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.
MORTGAGOR: The obligor on a Mortgage Note.
---------
3
<PAGE>
NET ESCROW PAYMENTS: Escrow Payment balances remaining after advances
-------------------
by the Seller for taxes and insurance to the extent documented under a detailed
statement provided to the Purchaser.
PERIODIC MORTGAGE INTEREST RATE CAP: The provision of a Mortgage Note
-----------------------------------
which provides for an absolute maximum amount by which the Mortgage Interest
Rate therein may increase or decrease on an Interest Adjustment Date above the
Mortgage Interest Rate previously in effect, equal to the rate set forth in the
Mortgage Loan Schedule, if applicable.
PRIMARY MORTGAGE INSURANCE POLICY: A policy of primary mortgage
---------------------------------
guaranty insurance issued by a Qualified Insurer, providing coverage at least
equal to the level of coverage required by the Agencies at the time the related
Mortgage Loan was originated if such Mortgage Loan was to be eligible for sale
to, and securitization by, either FNMA or FHLMC.
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 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 purchase price to be paid by the Purchaser for
--------------
the Mortgage Loans (including the Servicing Rights relating thereto) which shall
equal the product of (a) the Purchase Price Percentage, times (b) the Stated
Principal Balance of the Mortgage Loans.
PURCHASE PRICE PERCENTAGE: The purchase price percentage set forth in
-------------------------
the a separate funding schedule.
PURCHASE PROCEEDS: The aggregate of the Purchase Price and the
-----------------
Accrued Interest.
PURCHASER: Any entity which purchases the Mortgage Loans pursuant to
---------
this Agreement or its successor in interest or any successor or assign to the
Purchaser under this Agreement as herein provided. Unless the context requires
otherwise, all references to "Purchaser" in this Agreement shall be deemed to
include such Purchaser's successors in interest, assignees or designees.
QUALIFIED INSURER: An insurance company duly qualified as such under
-----------------
the laws of the states in which the Mortgaged Properties are located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, approved as an insurer by the
Agencies and whose claims paying ability is rated in the two highest rating
categories by the Standard & Poor's Ratings Group or Moody's Investors Service
with respect to primary mortgage insurance and in the two highest rating
categories by Best's with respect to hazard and flood insurance.
REPURCHASE PRICE: With respect to any Mortgage Loan, a price equal to
----------------
the sum of (a) the product of (i) the unpaid principal balance of the Mortgage
Loan at the time of repurchase, and (ii) the greater of par or the Purchase
Price Percentage, and (b) interest on such unpaid principal balance at the
Mortgage Interest Rate from the last date through which interest has been paid
and distributed to the Purchaser to the date of repurchase.
SEGMENT(S): One or more segments of Mortgage Loans (each, a
----------
"Segment") comprising the Segment A Mortgage Loans, and the Segment B Mortgage
Loans, whether individually or in the aggregate, as applicable. Each such
Segment and the Mortgage Loans relating thereto are identified on Exhibit A and
---------
may hereafter be referred to as Segments A and B, respectively.
4
<PAGE>
SEGMENT A MORTGAGE LOANS: The Mortgage Loans identified under Segment
------------------------
A of the Mortgage Loan Schedule.
SEGMENT B MORTGAGE LOANS: The Mortgage Loans identified under Segment
------------------------
B of the Mortgage Loan Schedule.
SERVICING RIGHTS: With respect to each Mortgage Loan, any and all of
----------------
the following: (a) all rights to service the Mortgage Loans; (b) any payments or
monies payable or received for servicing the Mortgage Loans; (c) any late fees,
assumption fees, penalties or similar payments with respect to the Mortgage
Loans; (d) all agreements or documents creating, defining or evidencing any such
Servicing Rights and all rights of the Seller thereunder, including, but not
limited to, any clean-up calls and termination options; (e) Escrow Payments or
other similar payments with respect to the Mortgage Loans and any amounts
actually collected with respect thereto; (f) all accounts and other rights to
payments related to any of the property described in this paragraph; (g)
possession and use of any and all Mortgage Files pertaining to the Mortgage
Loans or pertaining to the past, present, or prospective servicing of the
Mortgage Loans; and (h) all rights, powers and, privileges incident to any of
the foregoing.
SERVICING TRANSFER DATE: September 21, 1998, or such other date the
-----------------------
Purchaser may select upon reasonable notice to the Seller.
STATED PRINCIPAL BALANCE: The unpaid principal balance of the
------------------------
Mortgage Loans at the Cut-off Date.
ARTICLE II
SALE OF THE MORTGAGE LOANS
--------------------------
SECTION 2.1 AGREEMENT OF SALE. The Seller does hereby agree to sell,
-----------------
convey, transfer and assign to the Purchaser on the Closing Date all right,
title and interest in and to the Mortgage Loans, the Servicing Rights, the
Mortgage Loan Documents, the Mortgage Files and the Escrow Accounts relating to
the Mortgage Loans, all in accordance with the terms and conditions set forth
herein.
SECTION 2.2 PAYMENT OF THE PURCHASE PROCEEDS. No later than 1:00
--------------------------------
p.m. (Pacific time) on the Closing Date, the Purchaser shall pay to the Seller
the Purchase Proceeds, by wire transfer in immediately available funds to the
account designated by the Seller. Upon completion of the wire transfer to the
Seller's designated account, the Purchaser shall own the Mortgage Loans and the
Servicing Rights, free and clear of any lien or encumbrance whatsoever.
SECTION 2.3 ENTITLEMENT TO PAYMENT ON THE MORTGAGE LOANS. The
--------------------------------------------
Purchaser shall be entitled to all collections and recoveries of principal and
interest received or applied to any Mortgagor's account after the Cut-off rate.
All payments and remittances on the Mortgage Loans received by the Seller after
the Closing Date and payable to the Purchaser shall be paid promptly to the
Purchaser in accordance to the terms set forth in Article IV or Article V, as
applicable.
SECTION 2.4 EXAMINATION OF MORTGAGE LOAN DOCUMENTS BY THE
---------------------------------------------
PURCHASER. Prior to the Closing Date, the Purchaser shall have the right to
review the Mortgage File and, based on its review, decline to purchase any
Mortgage Loan which the Purchaser, in its sole discretion, determines not to be
in compliance with each of the representations and warranties contemplated
hereby or which is otherwise unsatisfactory to the Purchaser in its reasonable
discretion. The Seller agrees to deliver
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<PAGE>
or make available to the Purchaser a complete Mortgage File for each Mortgage
Loan on or before such date as may be reasonably requested by the Purchaser. The
fact that the Purchaser has conducted or has failed to conduct any partial or
complete examination of the Mortgage Files shall not affect the Purchaser's
right to demand repurchase or to avail itself of any other remedy available
hereunder. Notwithstanding anything contained herein to the contrary, should
there be a material adverse change in the characteristics of the Mortgage Loans
remaining after the exclusion or rejection of one or more Mortgage Loans by the
Purchaser as contemplated above, the Purchaser may, in its sole discretion,
elect not to purchase the remaining Mortgage Loans and the Purchaser shall have
no liability therefor.
SECTION 2.5 DELIVERY OF MORTGAGE LOAN DOCUMENTS. At least two (2)
-----------------------------------
Business Days prior to the Closing Date, the Seller shall deliver the Mortgage
Loan Documents with respect to each Mortgage Loan to the Purchaser or a bonded
third party custodian (the "Custodian") and, in the case of the latter, shall
cause the Custodian to deliver to the Purchaser a custodian's certification
pursuant to which the Custodian certifies to the Purchaser that (i) with respect
to each Mortgage Loan, it has in its possession originals of each of the
Mortgage Loan Documents, (ii) all of the Mortgage Loan Documents appear on their
face to be genuine originals or copies, as applicable, and (iii) upon the
Purchaser's wiring of the Purchase Proceeds to the Seller, that the Custodian
shall hold the Mortgage Loan Documents with respect to each Mortgage Loan in
trust for the Purchaser and will, subsequent thereto, act only in a manner
consistent with the Purchaser's instructions with respect thereto. In the event
that any of the Mortgage Loan Documents set forth in clauses (c) through (e) of
the definition of Mortgage Loan Documents in Article I have not been delivered
to the Purchaser in the time specified above (the "Missing Documents") either
-----------------
because such Missing Documents have not been returned by the applicable public
recording office with respect to items (c) and (d), or because the final
original title policy has not yet been issued by the title company with respect
to item (e), then the Seller shall deliver to the Purchaser certified true and
correct copies of the same and shall further deliver the originals of any such
Missing Documents promptly upon its receipt thereof, but in no event later than
one hundred and twenty (120) days from the Closing Date. If the Seller fails to
deliver any of the Missing Documents relating to a Mortgage Loan within the time
specified above, the Seller shall, upon written request from the Purchaser,
repurchase such Mortgage Loan in accordance with Section 3.3.
-----------
SECTION 2.6 CONDITIONS TO CLOSING. The Purchaser's obligations
---------------------
hereunder are subject to the fulfillment of the following conditions precedent.
In the event that any of the conditions set forth below are not satisfied in all
material respects, the Purchaser shall not have any obligation to purchase any
of the Mortgage Loans or to pay the Purchase Proceeds as contemplated hereunder
and shall instead be entitled, in its sole discretion, to terminate this
Agreement in its entirety.
(a) Each of the representations and warranties made by the Seller
hereunder shall be true and correct in all material respects 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 Seller shall have delivered to the Purchaser all of the
Mortgage Loan Documents in accordance with Section 2.5 and a
-----------
complete Mortgage File with respect to each Mortgage Loan.
(c) Each of the terms and conditions set forth herein which are
required to be satisfied on or before the Closing Date shall have
been satisfied unless waived by the prejudiced party(ies).
6
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(d) The Seller shall have delivered to the Purchaser on or before the
Closing Date the following documents:
(1) a fully executed Agreement;
(2) the Mortgage Loan Schedule, which shall include, without
limitation, the Stated Principal Balance of each Mortgage
Loan;
(3) an executed Funding Schedule, in the form of Exhibit B
---------
hereto;
(4) an Officer's Certificate, in the form of Exhibit C hereto;
---------
and
(5) such other documents related to the purchase and sale of the
Mortgage Loans and the Servicing Rights as the Purchaser may
reasonably request.
SECTION 2.7 RECORD TITLE. Record title to each Mortgage and the
------------
related Mortgage Note shall be transferred by the Seller to the Purchaser. The
Seller shall, at the option of the Purchaser, either (i) prepare and cause to be
recorded the Assignment of Mortgage for each Mortgage Loan and shall, promptly
upon its receipt of each original recorded Assignment of Mortgage from the
applicable recording office, deliver the same to the Purchaser, or (ii) prepare
and deliver to the Purchaser an original Assignment of Mortgage in blank, in
each case, within the time and in the manner specified in Section 2.5.
-----------
The Seller shall bear the cost and expense related to (i) providing all
Assignments of Mortgages and endorsements of Mortgage Notes for any transfer of
record title required hereunder with respect to the obligations of the Mortgage
Notes and the underlying security interest related to each Mortgage Loan and
(ii) recording title of the Mortgage Loans including, but not limited to,
recording fees and fees for title policy endorsements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 3.1 REPRESENTATIONS AND WARRANTIES RESPECTING THE SELLER.
----------------------------------------------------
The Seller represents, warrants and covenants to the Purchaser that, as of the
Closing Date:
(a) The Seller is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
and is qualified to transact business in and is in good standing
under the laws of each state where a Mortgaged Property is located
or is otherwise exempt under applicable law from such
qualification or is otherwise not required under applicable law to
effect such qualification and no demand for such qualification has
been made upon the Seller by any state having jurisdiction and in
any event the Seller is or will be in compliance with the laws of
any such state to the extent necessary to insure the
enforceability of each Mortgage Note and the sale of the Mortgage
Loans and Servicing Rights as contemplated by this Agreement;
(b) The Seller has the full power and authority to perform, and to
enter into and consummate, all transactions contemplated by this
Agreement. As of the Closing Date, the Seller has the full power
and authority to hold each Mortgage Loan and to sell each Mortgage
Loan and the Servicing Rights;
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(c) Neither the acquisition or origination of the Mortgage Loans by
the Seller, the sale of the Mortgage Loans or the Servicing Rights
to the Purchaser, the consummation of the transactions
contemplated hereby, nor the fulfillment of or compliance with the
terms and conditions of this Agreement, will conflict with or
result in a breach of any of the terms, conditions or provisions
of the Seller's certificate of incorporation or bylaws or result
in a material breach of any legal restriction or any agreement or
instrument to which the Seller is now a party or by which it is
bound, or constitute a material default or result in an
acceleration under any of the foregoing, or result in the
violation of any law, rule, regulation, order, judgment or decree
to which the Seller or its property is subject;
(d) The Seller is an approved seller/servicer for the Agencies, in
good standing with each such agency, and is a mortgagee approved
by the Secretary of HUD. No event has occurred, including but not
limited to, a change in insurance coverage, which would make the
Seller unable to comply with FNMA, FHLMC or HUD eligibility
requirements or which would require notification to the Agencies
or HUD;
(e) 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;
(f) There is no action, suit, proceeding, investigation or litigation
pending or, to the best of the Seller's knowledge, threatened,
which either in any one instance or in the aggregate, if
determined adversely to the Seller, would adversely affect the
sale of the Mortgage Loans or the Servicing Rights to the
Purchaser, or the Seller's ability to perform its obligations
under this Agreement;
(g) 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 terms of the Mortgage Loans, the
delivery of the Mortgage Files to the Purchaser, the sale of the
Mortgage Loans and the Servicing Rights to the Purchaser or the
consummation of the transactions contemplated by this Agreement,
or if required, such consent, approval, authorization or order has
been obtained prior to the Closing Date; and
(h) 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,
the Mortgages and/or the Servicing Rights by the Seller pursuant
to this Agreement are not subject to the bulk transfer or any
similar statutory provisions in effect and applicable to this
transaction.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES REGARDING INDIVIDUAL
---------------------------------------------------
MORTGAGE LOANS. With respect to each Mortgage Loan, the Seller represents and
- --------------
warrants to the Purchaser that as of the Closing Date:
(a) The information set forth in the Mortgage Loan Schedule and in
each Mortgage File is complete, true and correct;
(b) All payments required under the terms of the Mortgage Note to be
made on or prior to the Closing Date have been made; the Seller
has not advanced funds, or induced, solicited or knowingly
received any advance of funds from a party
8
<PAGE>
other than the owner of the Mortgaged Property subject to the
Mortgage, directly or indirectly, for the payment of any amount
required under the Mortgage Loan; and there has been no
delinquency of thirty (30) days or more in any payment by the
Mortgagor thereunder during the last twelve (12) months. No
Mortgage Loan is subject to any pending foreclosure, bankruptcy,
insolvency, or reorganization proceeding. Nothing contained in
this Section 3.2(b) shall in any way limit any other rights of the
--------------
Purchaser as provided hereunder;
(c) There are no delinquent taxes, water charges, sewer rents,
assessments, insurance premiums, leasehold payments, including
assessments currently due and owing in future installments, or
other outstanding charges affecting the related Mortgaged
Property;
(d) The terms of the Mortgage Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by
written instruments which are in the Mortgage File and have been
or will be recorded, if necessary to protect the interests of the
Purchaser, and which have been delivered to the Purchaser, all in
accordance with this Agreement. The substance of any such waiver,
alteration or modification has been approved by the primary
mortgage guaranty insurer, if any, and by the title insurer, to
the extent required by the related policy, and its terms are
reflected on the Mortgage Loan Schedule. No Mortgagor has been
released, in whole or in part, except in connection with an
assumption agreement approved by the primary mortgage insurer, if
any, and title insurer, to the extent required by the policy, and
which assumption agreement is part of the Mortgage File and the
terms of which are reflected in the Mortgage Loan Schedule, if
executed prior to the Closing Date;
(e) 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 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;
(f) All buildings upon, or comprising part of, the Mortgaged Property
are insured by an insurer acceptable to the Agencies against loss
by fire, hazards of extended coverage and such other hazards as
are customary in the area where the Mortgaged Property is located,
and such insurer is licensed to do business in the state where the
Mortgaged Property is located. All such insurance policies
(collectively, the "hazard insurance policy") contain a standard
mortgagee clause naming the Seller, its successors and assigns as
mortgagee and all premiums thereon have been paid. If upon
origination of the Mortgage Loan, the Mortgaged Property was, or
was subsequently deemed to be, in an area identified in the
Federal Register by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance has been
made available), which require under applicable law that a flood
insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration (or any
successor thereto) be obtained, such flood insurance policy is in
effect which policy conforms to the requirements of the Agencies.
The Mortgage obligates the Mortgagor thereunder to maintain
9
<PAGE>
all such insurance at 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 obtain reimbursement therefor from the Mortgagor.
Each Mortgage Loan has in place a fully-paid life of loan flood
certification from a FNMA or FHLMC-approved vendor, assigned in
care of the Purchaser, which provides for notification to the
Purchaser of changes in designated flood areas which would affect
such Mortgage Loan;
(g) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real
estate settlement procedures including, without limitation, the
Real Estate Settlement Procedures Act of 1974, as amended,
consumer credit protection, equal credit opportunity or disclosure
laws applicable to the Mortgage Loan have been complied with in
all material respects;
(h) 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
release, cancellation, subordination or rescission;
(i) The Mortgage is a valid, existing and enforceable first lien on
the Mortgaged Property, including all improvements on the
Mortgaged Property, if any, 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 (as defined in clause (i) of such definition) 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. The Seller has full right to sell and assign
the Mortgage to the Purchaser;
(j) 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 the
enforceability thereof may be limited by bankruptcy, insolvency or
reorganization;
(k) All parties to the Mortgage Note and the Mortgage had the legal
capacity to enter into the Mortgage Loan transaction 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;
(l) The proceeds of the Mortgage Loan have been fully disbursed and
there is no requirement for future advances 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 were paid, and the Mortgagor is not entitled to any
refund of any amounts paid or due under the Mortgage Note or
Mortgage;
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<PAGE>
(m) The Seller is the sole owner and holder of the Mortgage Loan and
the related Servicing Rights and is the custodian of the related
Escrow Account, if applicable. The Mortgage Loan has neither been
assigned nor pledged, and the Seller has good and marketable title
thereto, and has full right to transfer and sell the Mortgage Loan
and the related Servicing Rights to the Purchaser free and clear
of any encumbrance, equity, lien, pledge, charge, claim 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 each Mortgage Loan and the related Servicing
Rights to the Purchaser pursuant to the terms of this Agreement;
(n) 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) (a)
in compliance with any and all applicable licensing requirements
of the laws of the state wherein the Mortgaged Property is
located, and (b) (i) organized under the laws of such state, or
(ii) qualified to do business in such state, or (iii) a federal
savings and loan association or national bank, or (iv) not deemed
to be doing business in such state under applicable law;
(o) The Mortgage Loan is covered by an ALTA lender's title insurance
policy acceptable to the Agencies, issued by a title insurer
acceptable to the Agencies and qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring
(subject to the exceptions contained in (i)(a) and (b) above) the
Seller, 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 Note and/or Mortgage providing for adjustment in the
Mortgage Interest Rate and Monthly Payment. Additionally, such
lender's title insurance policy affirmatively insures ingress and
egress, and against encroachments by or upon the Mortgaged
Property or any interest therein. The Seller is the sole insured
of 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;
(p) There is no default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event
which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and the Seller has nor waived
any default, breach, violation or event of acceleration;
(q) 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
with, the lien of the related Mortgage;
(r) All improvements which were considered in determining the
Appraised Value (as defined in clause (i) of said definition) of
the related Mortgaged Property
11
<PAGE>
lay wholly within the boundaries and building restriction lines of
the Mortgaged Property, and no improvements on adjoining
properties encroach upon the Mortgaged Property;
(s) The Mortgage Loan was originated by the Seller or by a FNMA-
approved or FHLMC-approved mortgage banker (which mortgage banker
is a mortgagee approved by HUD), or savings and loan association,
a savings bank, a commercial bank or similar banking institution
which is supervised and examined by a federal or state authority,
or by another mortgagee approved by the Secretary of HUD;
(t) The origination, servicing and collection practices with respect
to each Mortgage Note and Mortgage including, without limitation,
the establishment, maintenance and servicing of the Escrow
Accounts and Escrow Payments, if any, since origination, have been
conducted in all respects in accordance with the terms of Mortgage
Note and in compliance with all applicable laws and regulations
and, unless otherwise required by law or FNMA/FHLMC standard, in
accordance with the proper, prudent and customary practices in the
mortgage origination and servicing business. With respect to the
Escrow Accounts and Escrow Payments, if any, all such payments are
in the possession or under the control of the Seller and there
exists 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. All Mortgage Interest Rate adjustments have been
made in strict compliance with state and federal law and the terms
of the related Mortgage Note. Any interest required to be paid
pursuant to state and local law has been properly paid and
credited;
(u) The Mortgaged Property is free of material damage and waste and
there is no proceeding pending for the total or partial
condemnation thereof;
(v) The Mortgage contains customary and enforceable provisions to
render the rights and remedies of the holder thereof adequate for
the realization against the Mortgaged Property of the benefits of
the security intended to be 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. There is no 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;
(w) The Mortgage Note is not and has not been secured by any
collateral except the lien of the applicable Mortgage;
(x) The Mortgage File contains an appraisal of the related Mortgaged
Property signed prior to the approval of the Mortgage Loan
application by an appraiser who meets the minimum requisite
qualifications of the Agencies for appraisers, duly appointed by
the originator, who had no interest, direct or indirect, in the
Mortgaged Property or in any loan made on the security thereof,
and whose compensation is not affected by the approval or
disapproval of the Mortgage
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<PAGE>
Loan; the appraisal is in a form acceptable to the Agencies,
with such riders as are acceptable to the Agencies;
(y) 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;
(z) No Mortgage Loan contains a permanent or temporary "buydown"
provision;
(aa) The Mortgagor has executed one or more statements to the effect
that the Mortgagor has received all disclosure materials
required by applicable law with respect to the making of the
Mortgage Loan. The Seller shall maintain all such statements in
the Mortgage File;
(bb) 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;
(cc) [Intentionally left blank];
(dd) To the best of Seller's knowledge, the Mortgaged Property is
lawfully occupied under applicable law and 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;
(ee) [Intentionally left blank];
(ff) 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;
(gg) Any future advances made to the Mortgagor prior to the Closing
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 to the Agencies. The
consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan;
(hh) If the Mortgaged Property is a condominium unit or a planned
unit development, such condominium or planned unit development
project meets the eligibility requirements of the Agencies;
(ii) The Mortgage Note and Mortgage are on forms acceptable to either
of the Agencies;
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<PAGE>
(jj) The Mortgaged Property is located in the state indicated on the
Mortgage Loan Schedule, and consist of a single parcel of real
property with a detached single family residence erected
thereon, or an individual condominium unit, or a 2-4 family
dwelling or an individual unit in a planned unit development as
defined by FNMA, none of which is a mobile home or manufactured
dwelling;
(kk) There are no circumstances or conditions with respect to the
Mortgage, the Mortgage Property, the Mortgagor, the Mortgage
File or the Mortgagor's credit standing that can reasonably be
expected to cause private institutional investors to regard the
Mortgage Loan as an unacceptable investment, cause the Mortgage
Loan to become delinquent, or adversely affect the value or
marketability of the Mortgage Loan;
(ll) 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;
(mm) The Seller has no knowledge of any circumstances existing that
could reasonably be expected to adversely affect the value or
the marketability of any Mortgaged Property or Mortgage Loan or
to cause the Mortgage Loans to prepay during any period
materially faster or slower than the mortgage loans of similar
characteristics originated by the Seller generally;
(nn) Each Mortgage Loan is covered by a valid and transferable tax
service contract with First American, or such other vendor as
may be reasonably acceptable to the Purchaser;
(oo) Each Mortgage Loan is an adjustable rate mortgage loan requiring
monthly payments sufficient to amortize the original principal
balance over the original term set forth in the Mortgage Loan
Schedule. No Mortgage Loan has negatively amortized nor shall
any Mortgage Loan have any negative amortization after the
Closing Date. The Mortgage Interest Rate adjusts semi-annually
in accordance with the related Mortgage Note, provided, however,
with respect to Segment B, the Mortgage Interest Rate shall be
fixed for an initial period of two (2) years. On each Interest
Adjustment Date, the Mortgage Interest Rate shall be adjusted to
equal the Index plus the Gross Margin (rounded up or down to the
nearest 0.125%), subject to the Periodic Mortgage Interest Rate
Cap and the Lifetime Mortgage Interest Rate Cap as set forth in
the respective Mortgage Note and the Mortgage Loan Schedule.
None of the Mortgage Loans contain a provision allowing the
Mortgagor to convert the Mortgage Note from an adjustable rate
mortgage loan to a fixed rate mortgage loan;
(pp) Each Mortgage Loan at the time of origination was underwritten
in accordance with the credit underwriting guidelines of the
Seller attached hereto as Exhibit D and, to the extent not
---------
inconsistent therewith, generally accepted sub-prime credit
underwriting guidelines;
(qq) As of the Closing Date, the Seller shall have received neither
actual nor constructive notice that either a Mortgage Loan will
be paid in full (whether by virtue of a demand statement or
otherwise) or that any Mortgagor has elected
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<PAGE>
to convert the related Mortgage Loan into a fixed-rate mortgage
loan in accordance with the terms of the related Mortgage Note;
(rr) The Mortgage Note is not and has not been secured by any
collateral except the lien of corresponding Mortgage on the
Mortgaged Property;
(ss) 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;
(tt) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Mortgage Loan has taken
place on the part of the Seller, or, to the best of Seller's
knowledge, on the part of any other 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; and
(uu) Notwithstanding anything to the contrary contained in this
Agreement, none of the Mortgage Loans have Escrow Accounts as of
the Closing Date.
SECTION 3.3 REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES.
-----------------------------------------------------
The representations and warranties set forth in Sections 3.1 and 3.2 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
failure to examine any Mortgage File. Furthermore, the absence of the Seller in
either the chain of title or endorsement shall in no way limit the Purchaser's
recourse against the Seller as provided in this Section 3.3 for a breach of one
-----------
or more of the Seller's representations and warranties made herein. 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 one or more of the Mortgage Loans or the Purchaser's interest
therein, the party discovering such breach shall give prompt written notice to
the other. Without in any way limiting the generality of the foregoing, if the
first payment due to the Purchaser under the Mortgage Note is not received by
the Purchaser, whether from the Mortgagor directly or forwarded by the Seller if
the Mortgagor has submitted the payment to the Seller, by the last day of the
month in which it is due, the Seller shall, at the Purchaser's option and not
later than five (5) Business Days after receipt of notice of such breach from
the Purchaser, repurchase such Mortgage Loan at the Repurchase Price.
The Seller shall have a period of sixty (60) days from the earlier of
the discovery of a breach or the receipt by the Purchaser of notice of a breach
within which to correct or cure such breach. If any such breach cannot be
corrected or cured within such sixty (60) day period, the Seller shall, at the
Purchaser's option and not later than sixty (60) days after its discovery or its
receipt of notice of such breach, repurchase such Mortgage Loan at the
Repurchase Price. In the event that a breach shall involve any representation
or warranty set forth in Section 3.1 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. Any repurchase of a Mortgage
Loan(s) pursuant to the foregoing provisions of this Section 3.3 shall be
-----------
accomplished by wire transfer of immediately available funds on the repurchase
date to an account designated by the Purchaser.
15
<PAGE>
At the time of repurchase, the Purchaser and the Seller shall arrange
for the reassignment of the repurchased Mortgage Loan to the Seller and the
delivery to the Seller of any documents held by the Purchaser or its custodian
relating to such Mortgage Loan. The Seller shall, simultaneously with such
reassignment, give written notice to the Purchaser that such repurchase has
taken place.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Sections 3.1 or 3.2
-------------------
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,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.
SECTION 3.4 INDEMNIFICATION OF THE PURCHASER. In addition to the
--------------------------------
repurchase obligations set forth in Section 3.3, the Seller shall indemnify the
-----------
Purchaser and hold it harmless against any losses, damages, penalties, fines,
forfeitures, judgments and any related costs including, without limitation,
reasonable and necessary legal fees, resulting from any claim, demand, defense
or a material omission on the part of the Seller in receiving, processing,
funding or servicing any Mortgage Loan, or from any assertion based on, grounded
upon or resulting from a breach of any of the Seller's representations and
warranties contained in this Article Ill. In addition to the obligations of the
Seller set forth in this Article 111, the Purchaser may pursue any and all
remedies otherwise available at law or in equity, including, but not limited to,
the right to seek damages. Notwithstanding the foregoing, Seller shall not be
liable for any special, consequential or punitive damages.
SECTION 3.5 PREPAYMENT AND CONVERSION PROTECTION. In the event that
------------------------------------
any of the Mortgage Loans are (i) paid in full by the related Mortgagor or (ii)
converted to a fixed-rate mortgage loan, in either case, on or prior to the
Servicing Transfer Date, or (iii) subject to a breach of the representation set
forth in Section 3.2(qq), the Seller shall, with respect to each such Mortgage
---------------
Loan, pay to the Purchaser, in addition to the unpaid principal balance plus
accrued interest at the time of such payoff or conversion, the product of (a)
the positive difference, if any, between the Purchase Price Percentage and 100%,
times (b) the unpaid principal balance of such Mortgage Loan at the time such
Mortgage Loan is paid in full or converted, as applicable.
ARTICLE IV
INTERIM SERVICING OF THE MORTGAGE LOANS
---------------------------------------
SECTION 4.1 GENERAL. The Mortgage Loans will be purchased by the
-------
Purchaser and sold by the Seller on a servicing-released basis and the purchase
of the Mortgage Loans by the Purchaser shall, for all purposes, include all
Servicing Rights relating thereto. From the Closing Date to the Servicing
Transfer Date, the Seller shall interim service the Mortgage Loans in strict
accordance with the terms of this Agreement and, to the extent not inconsistent
herewith, the servicing standards of the Agencies. Without limiting the
generality of the foregoing, the Seller shall not take, or fail to take, any
action which would result in the Purchaser's interest in the Mortgage Loans
being adversely affected. It is expressly understood by the Seller that, during
the Interim Servicing Period, the Purchaser intends to market the Mortgage Loans
for sale to a whole loan investor and, as such, the Seller agrees to comply with
all reasonable requests of the Purchaser made prior to the Servicing Transfer
Date in order to effectuate the foregoing including, without limitation, any
request for information or documentation in connection with any Mortgage Loan
which the Purchaser deems is necessary to carry out the foregoing.
16
<PAGE>
SECTION 4.2 REPORTING AND REMITTANCE. Within five (5) Business Days
------------------------
following the conclusion of each calendar month reporting and remittance cycle
occurring during the Interim Servicing Period (each, a "Reporting Cycle"), if
any, the Seller shall forward to the Purchaser with respect to the Mortgage
Loans a full set of tapes or other computer or like records and a trial balance
as of the end of each such Reporting Cycle, which tapes or computer records and
trial balance shall include information relating to all payment and other
activity on the Mortgage Loans. With respect to any payments of principal or
interest (including all prepayments) received, or applied to any Mortgagor's
account, by the Seller during the Interim Servicing Period (or prior to the
Closing Date, if any such payments were not reflected in the calculation of the
Purchaser Proceeds), the Seller shall remit to the Purchaser all such payments
of principal and interest on the Mortgage Loans no later than the fifth (51/th/)
day of the month following the conclusion of each Reporting Cycle and, with
respect to the month in which the Servicing Transfer Date occurs, no later than
the fifth (5/th/) Business Day thereafter. With respect to each Mortgage Loan
for which an Escrow Account has been established for the payment of taxes,
insurance and other similar payments, the Seller shall effect the termination of
such Escrow Account on or prior to the Servicing Transfer Date and refund any
positive balance therein to the related Mortgagor(s).
ARTICLE V
TRANSFER OF SERVICING RIGHTS
----------------------------
SECTION 5.1 TRANSFER OF SERVICING. The Seller agrees to act
---------------------
reasonably, in good faith and in accordance with all applicable laws and
regulations and to do all things necessary to effect the transfer of the
Servicing Rights to the Purchaser on the Servicing Transfer Date including,
without limitation, complying with all reasonable instructions provided by the
Purchaser relating to the transfer of the Servicing Rights.
SECTION 5.2 OBLIGATIONS OF THE SELLER PRIOR TO THE SERVICING TRANSFER
---------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
- ---- -----------
cause to be taken, the following actions with respect to the Mortgage Loans
prior to the Servicing Transfer Date (or within such time as may otherwise be
specified below) in order to effect the transfer of the Servicing Rights to the
Purchaser on the Servicing Transfer Date:
(a) Preliminary Test Tape. On or prior to the Closing Date, the
---------------------
Seller shall forward to the Purchaser a preliminary test tape or
other computer or like records (including master file, escrow
file, payee file, ARM master file, ARM history, all HMDA data
required by the Agencies, etc.) containing all of the Mortgage
Loans as of a date mutually agreed upon by the Seller and the
Purchaser. The preliminary test tape or computer records shall
include all field descriptions and record layouts;
(b) Notice to Hazard Insurers. The Seller shall inform by written
-------------------------
notice all hazard insurance companies and/or their agents of the
transfer and request a change in the loss payee mortgage
endorsement clause to the Purchaser's name. The Seller shall
provide the Purchaser with a form of the notification letter and
an officer's certification that all hazard insurance companies
have been notified by an identical letter;
(c) Notice to Mortgage Insurance Companies. The Seller shall inform
--------------------------------------
by written notice all mortgage insurance companies providing any
Primary Mortgage Insurance Policy of the change in insured's name
on each such policy to the
17
<PAGE>
Purchaser's name. The Seller shall provide the Purchaser with a
form of the notification letter and an officer's written
certification that all such mortgage insurance companies have been
notified by an identical letter;
(d) Tax Service Contracts. The Seller shall have obtained a life of
---------------------
loan, transferable real estate tax service contract with a tax
service company reasonably acceptable to the Purchaser on all of
the Mortgage Loans and shall assign all such contracts to the
Purchaser or, in the alternative, the Seller shall notify the
--
Purchaser as to any Mortgage Loans for which it has not procured
the requisite contract and shall pay to the Purchaser a fee of
twenty-five dollars ($25.00) for each such Mortgage Loan;
(e) Flood Certifications. The Seller shall have obtained a life of
--------------------
loan, transferable flood certification contract for each Mortgage
Loan and shall assign all such contracts to the Purchaser or, in
--
the alternative, the Seller shall notify the Purchaser as to any
Mortgage Loans for which it has not procured the flood
certification referenced above and shall pay to the Purchaser a
fee of fifteen dollars ($15.00) for each such Mortgage Loan;
(f) Notice to Mortgagors. The Seller shall, no later than fifteen
--------------------
(15) days prior to the Servicing Transfer Date, inform in writing
all Mortgagors of the change in servicer from the Seller to the
Purchaser, all in accordance with applicable law. The Seller shall
obtain the Purchaser's approval of the form of such notifications
prior to their mailing. The Seller acknowledges that the
Purchaser's review of this notice shall not be a review for
statutory or regulatory compliance purposes, and that the Seller
shall have the sole responsibility for such compliance. The Seller
shall provide the Purchaser with a form of the notification letter
and an officer's written certification that all Mortgagors have
been notified by an identical letter;
(g) Payment of Real Estate Taxes. The Seller shall make or cause to
----------------------------
be made all payments of all real estate taxes on the Mortgage
Loans which (i) will be delinquent on or prior to the Servicing
Transfer Date, (ii) are required to be paid within thirty (30)
days after the Closing Date to receive a discount, or (iii) will
be delinquent within thirty (30) days after the Closing Date. If
tax bills have not been received by the Seller by the Servicing
Transfer Date on any Mortgage Loans subject to this subsection,
the Seller shall obtain and pay all tax bills subsequent to the
Servicing Transfer Date and the Purchaser will promptly reimburse
the Seller upon receipt from the Seller of documentation
evidencing such payment. On non-impounded accounts, the Seller
shall ensure that all taxes which would otherwise be delinquent by
the Servicing Transfer Date, if not paid by such date, have been
paid. With respect to each of the Mortgage Loans which do not have
an impound or escrow account maintained for the payment of taxes
and insurance, the Seller shall hold harmless and indemnify the
Purchaser against any and all costs, expenses, penalties, fines,
damages and judgments of whatever kind arising from the Seller's
failure to pay, or cause to be paid, any delinquent taxes or tax
penalties outstanding as of the Servicing Transfer Date;
(h) Payment of Insurance Premiums. The Seller shall pay all hazard and
-----------------------------
flood insurance and Primary Mortgage Insurance Policy premiums
required to be
18
<PAGE>
paid prior to the Servicing Transfer Date or within thirty (30)
days after the Closing Date on all impounded accounts relating to
the Mortgage Loans and shall ensure that all premiums required to
be paid prior to the Servicing Transfer Date by the Mortgagors on
non-impounded accounts have been paid. With respect to each of the
Mortgage Loans which do not have an impound or escrow account
maintained for the payment of taxes and insurance, the Seller
shall hold harmless and indemnify the Purchaser against any and
all costs, expenses, penalties, fines, damages and judgments of
whatever kind arising from the Seller's failure to ensure that the
related Mortgagor is maintaining adequate insurance coverage on
the Mortgaged Property at all times prior to the Servicing
Transfer Date in accordance with the terms of the any document
contained in the Mortgage File or any applicable law or regulation
including, without limitation, adequate flood insurance coverage
for all Mortgaged Properties located within an "A" or N" flood
hazard area; and
(i) ARM Adjustments. With respect to each adjustable rate Mortgage
---------------
Loan whose index value for any Interest Adjustment Date is
available on or prior to the Servicing Transfer Date, the Seller
shall make all such adjustments and shall inform the related
Mortgagors of such adjustments.
SECTION 5.3 OBLIGATIONS OF THE SELLER AFTER THE SERVICING TRANSFER
------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
- ---- -----------
cause to be taken, the following actions with respect to the Mortgage Loans
within three 3) Business Days following the Servicing Transfer Date (or within
such time as may otherwise be specified below):
(a) Tape. The Seller shall furnish to the Purchaser all available
----
computer or like records requested by the Purchaser reflecting the
status of payments, balances and other pertinent information with
respect to the Mortgage Loans as of the Servicing Transfer Date
(including, without limitation, (i) master file, (ii) escrow file,
(iii) payee file, which includes comprehensive tax and insurance
information identifying payee, payee address, next payment due
date, next amount payable and policy number/parcel number, and
(iv) ARM master file). Such records shall include magnetic tapes
reflecting all computer files maintained on the Mortgage Loans and
shall include hard copy trial balance reports as specifically
requested by the Purchaser;
(b) Mortgage File. If the Seller has not already done so, the Seller
-------------
shall have forwarded a complete Mortgage File with respect to each
Mortgage Loan;
(c) Accounting Reports. The Seller shall furnish to the Purchaser
------------------
copies of all accounting reports relating to the Mortgage Loans as
of the Servicing Transfer Date including, without limitation, a
trial balance and reports of collections, delinquencies, prepaids,
curtailments, escrow payments, escrow balances, partial payments,
partial payment balances and other like information with respect
to the Mortgage Loans;
(d) Other Documentation. The Seller shall provide the Purchaser any
-------------------
and all further documents reasonably required by the Purchaser in
order to fully transfer to the Purchaser possession of all
tangible evidence of the Servicing Rights and escrow, impound and
trust funds transferred hereunder;.
19
<PAGE>
(e) Transfer of Escrow Funds and Other Proceeds. The Seller shall
-------------------------------------------
transfer to the Purchaser, by wire transfer to the account
designated by the Purchaser, an amount equal to the sum of (i) the
Net Escrow Payments, (ii) all undistributed insurance loss draft
funds, (iii) all unapplied funds received by the Seller, (iv) all
unapplied interest an escrow balances accrued through the
Servicing Transfer Date, (v) all buydown funds held by the Seller
as of the Servicing Transfer Date, and (vi) all other amounts held
by the Seller with respect to the Mortgage Loans as of the
Servicing Transfer Date for which the Seller is not entitled to
retain (collectively, the 'Escrow Proceeds'). Within five (5)
Business Days following the Purchaser's receipt of the Escrow
Proceeds, the Seller and the Purchaser shall resolve any
discrepancies between the Seller's accounting statement and the
Purchaser's Reconciliation with respect thereto. No later than ten
(10) Business Days following the Servicing Transfer Date, the
Seller or the Purchaser, as the case may be, shall transfer to the
other, by wire transfer to the designated account, any amounts to
which the other party is entitled; and
(f) Mortgage Payments Received After Servicing Transfer Date. The
--------------------------------------------------------
Seller shall promptly forward to the Purchaser any payment
received by it after the Servicing Transfer Date with respect to
any of the Mortgage Loans, whether such payment is in the form of
principal, interest, taxes, insurance, loss drafts, insurance
refunds, etc., in the original form received, unless such payment
has been received in cash or by the Seller's lock box facility, in
which case the Seller shall forward such payment in a form
acceptable to the Purchaser. The Seller shall notify the Purchaser
of the particulars of the payment, which notification shall set
forth sufficient information to permit timely and appropriate
processing of the payment by the Purchaser.
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.1 NOTICES. All demands, notices and communications
-------
required to be provided hereunder shall be in writing and shall be deemed to
have been duly given if mailed by registered or certified mail, postage prepaid,
and return receipt requested, or, if by other means, when received by the other
party at the address as follows:
(i) if to the Seller:
United PanAm Mortgage
625 The City Drive
Orange, CA 92868
Attn: Mr. Blair Kenney
(ii) if to the Purchaser:
As provided by Purchaser in writing.
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
20
<PAGE>
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 6.2 INTENTION OF THE PARTIES. Pursuant to this Agreement,
------------------------
the Purchaser is purchasing, and the Seller is selling the Mortgage Loans and
not a debt instrument of the Seller or any other security. Accordingly, the
Seller and the Purchaser shall each treat the transaction for federal income tax
purposes as a sale by the Seller, and a purchase by the Purchaser, of the
Mortgage Loans and the Servicing Rights. The 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 Servicing Rights and the
Seller shall cooperate with all reasonable requests made by the Purchaser in the
course of such review.
SECTION 6.3 EXHIBITS. The exhibits to this Agreement are hereby
--------
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 6.4 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 "Sections," "Subsections," "Paragraphs," and
other Subdivisions without reference to a document are to
designated 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.
SECTION 6.5 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 6.6 FURTHER AGREEMENTS. The Seller shall execute and deliver
------------------
to the Purchaser and the Purchaser shall execute and deliver to the Seller such
reasonable and appropriate
21
<PAGE>
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Agreement.
SECTION 6.7 EXECUTION OF AGREEMENT. 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. This Agreement shall be deemed binding when executed by both the
Purchaser and the Seller. Telecopy signatures shall be deemed valid and binding
to the same extent as the original.
SECTION 6.8 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 permitted successors and assigns of the Seller and the successors
and assigns of the Purchaser. This Agreement shall not be assigned, pledged or
hypothecated by the Seller without the consent of the Purchaser. This Agreement
may be assigned, pledged or hypothecated or otherwise transferred or encumbered
by the Purchaser, in whole or part, without the consent of the Seller. If the
Purchaser assigns all of its rights as the Purchaser hereunder relating to some
or all of the Mortgage Loans, the assignee of the Purchaser, upon notification
to the Seller, will become the "Purchaser" hereunder with respect to such
Mortgage Loans assigned hereby.
SECTION 6.9 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
relevant 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
or renders void or unenforceable any provision hereof.
SECTION 6.10 COSTS. The Purchaser shall pay any commissions due its
-----
salesmen and the legal fees and expenses of its attorneys and expenses of its
custodian. All other costs and expenses incurred in connection with the
transfer and delivery of the Mortgage Loans, including recording fees, fees for
title policy endorsements and continuations and the Seller's attorney's fees,
shall be paid by the Seller.
SECTION 6.11 ATTORNEYS' FEES. If any claim, legal action or any
---------------
arbitration or other proceeding is brought for the enforcement of this Agreement
or because of a dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that claim, action or proceeding, in addition to any other relief to which
such party may be entitled.
SECTION 6.12 GOVERNING LAW. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of California applicable to
agreements entered into and wholly performed within said jurisdiction.
SECTION 6.13 SURVIVAL. All covenants, agreements, representations
--------
and warranties made herein shall survive the execution and delivery of this
Agreement.
SECTION 6.14 ENTIRE AGREEMENT. This Agreement the entire
----------------
understanding between the parties hereto and supersedes any and all prior or
contemporaneous oral or written communications with respect to the subject
matter hereof, all of which communications are merged
22
<PAGE>
herein. It is expressly understood and agreed that no employee, agent or other
representative of the Seller or the Purchaser has any authority to bind such
party with regard to any statement, representation, warranty or other expression
unless said statement, representation, warranty or other expression is
specifically included within the express terms of this Agreement. This Agreement
shall not be modified, amended or in any way altered except by an instrument in
writing signed by both the parties hereto.
SECTION 6.15 CONFIDENTIALITY. The Seller and the Purchaser hereby
---------------
acknowledge and agree that this Agreement shall be kept confidential and its
contents will not be divulged to any party without the other party's consent
except to the extent that it is appropriate for the Seller or the Purchaser to
do so in working with legal counsel, auditors, taxing authorities or other
governmental agencies.
SECTION 6.16 NO SOLICITATION. From and after the Closing Date, the
---------------
Seller agrees that for a period of five (5) years, it will not take any action
or cause any action to be taken by any of its employees, agents or affiliates,
or by any independent contractors acting on the Seller's behalf, to solicit in
any manner whatsoever any Mortgagor to prepay, or refinance a Mortgage Loan. It
is understood and agreed by the Seller and the Purchaser that all rights and
benefits relating to the solicitation of any Mortgagors to refinance any
Mortgage Loans shall be transferred to the Purchaser pursuant hereto on the
Closing Date and the Seller shall take no action to undermine these rights and
benefits. The Seller shall use its best efforts to prevent the sale of the name
of any Mortgagor to any person or entity. It is understood that promotions
undertaken by the Seller or Seller's affiliate(s) which are directed to the
general public at large (i.e., newspaper advertisements, radio or T.V. ads,
etc.) and not specifically directed to any Mortgagor or any borrower identified
in any Mortgage Loan shall not constitute a breach of the obligations set forth
in this Section 6.16.
SECTION 6.17 NON-CIRCUMVENTION. The Seller and the Purchaser
-----------------
understand and agree that the Purchaser may introduce prospective buyers of the
Mortgage Loans to the Seller, that, such buyers are customers of the Purchaser
and that relationships of the Purchaser to such buyers are confidential. The
Seller agrees with respect to a particular buyer of the Mortgage Loans, the
Seller will not, for the purpose of buying and selling other mortgage loans
communicate with or sell such other mortgage loans to such buyer unless such
buyer is or has been independently introduced to the Seller or the Seller has
had previous dealings (other than any transactions involving the Purchaser) with
such buyer.
[SIGNATURE PAGE FOLLOWS]
23
<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 first above written.
COUNTRYWIDE HOME LOANS, INC.,
the Seller
/s/ Michael W. Schloessmann
By _________________________________
Michael W. Schloessmann
Vice President
PAN AMERICAN BANK, FSB
as Seller
/s/ Blair F. Kenney
By ________________________________
Name: Blair F. Kenney
Title: Senior Vice President
24
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
(attached)
25
<PAGE>
EXHIBIT 10.88
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This Assignment, Assumption and Recognition Agreement (the
"Agreement") is made and entered into on August 14, 1998, by Countrywide Home
Loans, Inc., a New York corporation, having an address at 4500 Park Granada
Boulevard, Calabasas, California 91302 (the "Seller"), Fidelity Federal Bank,
FSB, having an address at 4565 Colorado Boulevard, Los Angeles, California 90039
(the "Purchaser") and Pan American Bank, FSB, having an address at 625 The City
Drive, Orange, California 92868 (the "Company").
In consideration of the mutual promises and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Assignment and Assumption. Except as expressly provided for herein, the
-------------------------
Seller hereby grants, transfers and assigns to the Purchaser (a) all of its
right, title and interest as "Purchaser" in, to and under that certain
Mortgage Loan Purchase and Interim Servicing Agreement dated as of August
14, 1998, and duly executed by the Company and the Seller (attached hereto
as Exhibit A, the "Purchase Agreement"), (b) all of its right, title and
---------
interest in and to the each of the mortgage loans identified in Exhibit B
---------
hereto (the "Mortgage Loans"), and (c) all servicing rights relating to the
Mortgage Loans. Except for the provisions pertaining to the payment of the
purchase price, the Purchaser hereby assumes all of the Seller's
obligations as "Purchaser" under the Purchase Agreement from and after the
date hereof, and the Seller shall be relieved and released by the Company
of all of its obligations under the Purchase Agreement from and after the
date hereof. Except as is otherwise expressly provided herein, the Seller
Makes no representations, warranties or covenants to the Purchaser and the
Purchaser acknowledges that the Seller has no obligations to the Purchaser
under the terms of the Purchase Agreement or otherwise relating to the
transaction contemplated herein (including but not limited to any
obligation to repurchase any of the Mortgage Loans or to indemnify the
Purchaser).
2. Consideration. In consideration for the transfers and assignments set
-------------
forth in paragraph 1 of this Agreement, the Purchaser agrees to pay to the
Seller the amounts referenced in that certain Funding Schedule dated as of
August 14, 1998 (the "Funding Schedule") and duly executed by the Seller
and the Purchaser (the "Purchase Price"). The Purchaser agrees to wire the
agreed upon Purchase Price to the Seller to the account designated below:
Bank of New York
ABA - 021000018
Countrywide Home Loans
ACCT - 8900038632
REF - Stuart Levitt
3. Recognition of the Purchaser by the Company. From and after the date
-------------------------------------------
hereof, the Company shall recognize the Purchaser as the owner of the
Mortgage Loans and the "Purchaser" under the Purchase Agreement.
4. Servicing of the Mortgage Loans. From and after the date hereof, the
-------------------------------
Company shall interim service the Mortgage Loans for the Purchaser in
accordance with the terms and conditions of the Purchase Agreement, as if
the Purchaser and Company had entered into the Purchase Agreement. The
address of the Purchaser set forth in Section 6.1 of the Purchase Agreement
shall be changed to read as follows:
Fidelity Federal Bank, FSB
4565 Colorado Boulevard
Los Angeles, California 90039
Attn: Mark Mason, Executive Vice President
<PAGE>
5. Status of Purchase Agreement. The Company and the Seller represent and
----------------------------
warrant that (a) the Purchase Agreement is in full force and effect as of
the date hereof, (b) the Purchase Agreement has not been amended or
modified in any respect, and (c) there has been no waiver or any agreement
to waive any provision, nor has any notice of termination been given, under
the Purchase Agreement.
6. No Claims. The Company represents and warrants that it has no offsets,
---------
counterclaims or other defenses available to it with respect to the
Purchase Agreement.
7. Covenants, Representations and Warranties of the Seller. The Seller
-------------------------------------------------------
represents and warrants to, and covenants with, the Purchaser that:
a. The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation,
and has all requisite corporate power and authority to acquire, own and
sell the Mortgage Loans;
b. The Seller has full corporate power and authority to execute, deliver
and perform under this Agreement, and to consummate the transactions
set forth herein. The execution, delivery and performance of the Seller
of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary
corporate action of the Seller. This Agreement has been fully executed
and delivered by the Seller and constitutes the valid and legally
binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms;
c. No material consent, approval, order or authorization of, or
declaration, filing or registration with, any governmental entity is
required to be obtained or made by the Seller in connection with the
execution, delivery or performance by the Seller of this Agreement, or
the consummation by it of the transaction contemplated hereby;
d. There is no action, suit, proceeding, investigation or litigation
pending or, to the Seller's knowledge, threatened, which either in any
instance or in the aggregate, if determined adversely to the Seller,
would adversely affect the sale of the Mortgage Loans to the Purchaser,
the execution, delivery or enforceability of this Agreement, or the
Seller's ability to perform its obligations under this Agreement; and
e. Immediately prior to payment of the purchase price for the Mortgage
Loans, the Seller is the lawful owner of the Mortgage Loans with the
full right to transfer the Mortgage Loans free from any and all claims
and encumbrances whatsoever.
8. Covenants, Representations and Warranties of Purchaser. The Purchaser
------------------------------------------------------
represents and warrants to, and covenants with, the Seller and the Company
that except for the provisions pertaining to the payment of the purchase
price thereunder, the Purchaser agrees to be bound as "Purchaser" by all of
the terms, covenants and conditions of the Purchase Agreement, and from and
after the date hereof, the Purchaser assumes for the benefit of the Seller
and the Company all of the Seller's obligations as "Purchaser" thereunder.
9. Governing Law. This Agreement shall be construed in accordance with the
-------------
laws of the State of California and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with the laws of
the State of California, except to the extent preempted by federal law.
10. Confidentiality. The Seller and the Purchaser hereby acknowledge and agree
---------------
that this Agreement shall be kept confidential and its contents will not be
divulged to any party without the other party's consent except to the
extent that it is appropriate for the Seller or the Purchaser to do so in
working with legal counsel, auditors, taxing authorities or other
governmental agencies.
2
<PAGE>
11. Conflict with Purchase Agreement. To the extent there is any conflict
--------------------------------
between the terms of the Purchase Agreement and this Agreement, the latter
shall be controlling, notwithstanding anything to the contrary contained in
the Purchase Agreement.
12. Capitalized Terms. All capitalized terms used herein and not otherwise
-----------------
defined herein shall have the meanings assigned to such terms in the
Purchase Agreement.
13. Counterparts. This Agreement may be executed 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.
[Signature page follows]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
COUNTRYWIDE HOME LOANS, INC.,
the Seller
By /s/ Michael W. Schloessmann
--------------------------------------
Michael W. Schloessmann
Vice President
FIDELITY FEDERAL BANK, FSB,
the Purchaser
By /s/ Mark Mason
--------------------------------------
Mark Mason
Executive Vice President
PAN AMERICAN BANK, FSB
the Company
By /s/ Blair Kenny
--------------------------------------
Name: Blair Kenny
Title: Senior Vice President
4
<PAGE>
EXHIBIT A
MORTGAGE LOAN
PURCHASE AND INTERIM SERVICING
AGREEMENT
(attached)
5
<PAGE>
MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT
------------------------------------------------------
This Mortgage Loan Purchase and Interim Servicing Agreement is dated
and effective as of August 14, 1998 (the "Agreement"), between Pan American
Bank, FSB, having an address at 625 The City Drive, Orange, California 92868
(the "Seller"), and Countrywide Home Loans, Inc., having an address at 4500 Park
Granada, Calabasas, California 91302 (the "Purchaser").
R E C I T A L S
- - - - - - - -
The Seller desires to sell and transfer to the Purchaser, and the
Purchaser desires to purchase from the Seller, those certain mortgage loans
identified on Exhibit A hereto, including all servicing rights relating thereto
(the "Mortgage Loans") upon such terms as are set forth below.
In consideration of the promises and the mutual agreements and
undertakings set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
Definitions
-----------
Whenever used herein, the following words and phrases, unless the
context Otherwise requires, shall have the following meanings:
ACCRUED INTEREST: Accrued interest owing to the Seller on the Stated
----------------
Principal Balance of each Mortgage Loan at a rate equal to the Mortgage Interest
Rate of each such Mortgage Loan, from the date through which interest has last
been paid (as of Cut-off Date) through the day prior to the Closing Date,
inclusive; provided, however, with respect to those Mortgage Loans for which
interest has been paid through a date beyond the Cut-off Date, such accrued
interest owing to Seller shall be reduced by the amount of interest accruing on
the Stated Principal Balance of each such Mortgage Loan at a rate equal to the
Mortgage Interest Rate of such Mortgage Loan, from the Closing Date to the day
prior to the interest paid through date for such Mortgage Loan, inclusive.
AGENCIES: Both FNMA or FHLMC.
--------
AGREEMENT: This Mortgage Loan Purchase and Interim Servicing
---------
Agreement, including all exhibits and supplements hereto, and all amendments
hereof.
APPRAISED VALUE: With respect to any Mortgage Loan, the value of the
---------------
related Mortgaged Property based upon the lesser of (i) the original, signed
appraisal made by a Qualified Appraiser for the originator at the time of
origination of the Mortgage Loan or (ii) the purchase price of the Mortgaged
Property at the time of origination of the Mortgage Loan, provided, however,
that in the case of a refinanced Mortgage Loan, such value is based solely upon
the appraisal made at the time of origination, of such refinanced Mortgage Loan
and in the case of a Mortgage Loan originated under the streamlined
documentation program, such value shall be based on an appraisal obtained at the
time the original loan was originated.
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
the sale of the Mortgage to the Purchaser.
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a
------------
day on which banking and savings and loan institutions in the State of
California, are authorized or obligated by law or executive order to be closed.
1
<PAGE>
CLOSING DATE: August 14, 1998, or such other date as may be mutually
------------
agreed upon by the Seller and the Purchaser.
CUT-OFF DATE: August 7, 1998.
------------
DUE DATE: The day of the month on which a Monthly Payment is due on a
--------
Mortgage Loan, exclusive of any days of grace.
ESCROW ACCOUNT: An account or accounts maintained by the Seller, or
--------------
the Seller's predecessor in interest, maintained for the deposit of Escrow
Payments received in respect of one or more Mortgage Loans.
ESCROW PAYMENTS: The amounts held in Escrow Accounts which include
---------------
amounts being held for payment of ground rents, property taxes, assessments,
water rates, sewer rents, municipal charges, mortgage insurance premiums, fire
and hazard insurance premiums, condo charges and other payments required to be
escrowed by the Mortgagor pursuant to any Mortgage Loan.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
-----
thereto.
FNMA: The Federal National Mortgage Association or any successor
----
thereto.
GROSS MARGIN: The fixed percentage amount set forth in the related
------------
Mortgage Note which amount is added to the Index in accordance with the terms of
the related Mortgage Note to determine the Mortgage Interest Rate for such
Mortgage Loan.
HMDA: The Home Mortgage Disclosure Act, as amended.
----
HUD: The Department of Housing and Urban Development or any successor
---
thereto.
INDEX: On each Interest Adjustment Date, the Index shall mean the
-----
rate per annum equal to the average of interbank offered rates for six-month
U.S. dollar denominated deposits in the London market (LIBOR), as published in
the Wall Street Journal as of the first Business Day of the month immediately
preceding the month in which such Interest Adjustment Date occurs.
INTEREST ADJUSTMENT DATE: With respect to each Mortgage Loan, the
------------------------
date on which an adjustment to the Mortgage Interest Rate on a Mortgage Note
becomes effective.
INTERIM SERVICING PERIOD: The period commencing with the Cut-off Date
------------------------
and ending with the Servicing Transfer Date.
INTEREST PAID TO DATE: As of the Cut-off Date, the date for each
---------------------
Mortgage Loan through which the Mortgagor has paid interest to the holder of the
Note and which is listed on the Mortgage Loan Schedule.
LIFETIME MORTGAGE INTEREST RATE CAP: The absolute maximum Mortgage
-----------------------------------
Interest Rate payable for a Mortgage Loan, above which the Mortgage Interest
Rate shall not be adjusted, as provided in the Mortgage Loan Schedule.
LOAN-TO-VALUE RATIO OR LTV: With respect to any Mortgage Loan, the
------------------- ---
ratio of the original outstanding principal amount to the Appraised Value of the
Mortgage Loan.
MONTHLY PAYMENT: The scheduled monthly payment of principal and
---------------
interest on a Mortgage Loan.
2
<PAGE>
MORTGAGE: The mortgage, deed of trust or other such instrument
--------
securing a Mortgage Note, which creates a first lien on an unsubordinated estate
in fee simple in real property securing the Mortgage Note.
MORTGAGE FILE: The file containing the Mortgage Loan Documents, all
-------------
other documents in connection with the origination of a particular Mortgage Loan
and all documents, files and other information reasonably necessary to service
the Mortgage Loans, including, but not limited to, good faith estimate, HUD 1
Settlement Statement, Truth in Lending Disclosure Statement, and Truth in
Lending Notice of Right to Cancel (if required by law).
MORTGAGE INTEREST RATE: The annual rate at which interest accrues on
----------------------
any Mortgage Loan, exclusive of any primary mortgage insurance, as adjusted from
time to time in accordance with the provisions of the related Mortgage Note, if
applicable.
MORTGAGE LOAN: A mortgage loan identified in the Mortgage Loan
-------------
Schedule which is sold pursuant to this Agreement, which Mortgage Loan includes
without limitation the Mortgage File, the Monthly Payments, Principal
Prepayments and all other rights, benefits, proceeds and obligations arising
from or in connection with such Mortgage Loan.
MORTGAGE LOAN DOCUMENTS: The following documents pertaining to any
-----------------------
Mortgage Loan:
(a) The original Mortgage Note bearing all intervening endorsements,
endorsed "Pay to the order of _______________" and signed in the name of the
Seller by an authorized officer;
(b) The original Assignment of Mortgage for each Mortgage Loan in
blank;
(c) The original Mortgage with evidence of recording thereon;
(d) The originals of all intervening assignments of mortgage with
evidence of recording thereon;
(e) The original mortgagee title insurance policy; and
(f) The originals of any modification agreement.
MORTGAGE LOAN SCHEDULE: The schedule of Mortgage Loans set forth on
----------------------
Exhibit A hereto.
- ---------
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.
MORTGAGOR: The obligor on a Mortgage Note.
---------
NET ESCROW PAYMENTS: Escrow Payment balances remaining after advances
-------------------
by the Seller for taxes and insurance to the extent documented under a detailed
statement provided to the Purchaser.
NEXT DUE DATE: As of the Cut-off Date, the date upon which a
-------------
Mortgagor is required to make its next Monthly Payment, as set out on the
Mortgage Loan Schedule.
PERIODIC MORTGAGE INTEREST RATE CAP: The provision of a Mortgage Note
-----------------------------------
which provides for an absolute maximum amount by which the Mortgage Interest
Rate therein may increase or decrease
3
<PAGE>
on an Interest Adjustment Date above the Mortgage Interest Rate previously in
effect, equal to the rate set forth in the Mortgage Loan Schedule, if
applicable.
PRIMARY MORTGAGE LNSURANCE POLICY: A policy of primary mortgage
---------------------------------
guaranty insurance issued by a Qualified Insurer, providing coverage at least
equal to the level of coverage required by the Agencies at the time the related
Mortgage Loan was originated if such Mortgage Loan was to be eligible for sale
to, and securitization by, either FNMA or FHLMC.
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 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 purchase price to be paid by the Purchaser for
--------------
the Mortgage Loans (including the Servicing Rights relating thereto) which shall
equal the product of (a) the Purchase Price Percentage, times (b) the Stated
Principal Balance of the Mortgage Loans.
PURCHASE PRICE PERCENTAGE: The purchase price percentage set forth in
-------------------------
the Funding Schedule.
PURCHASE PROCEEDS: The aggregate of the Purchase Price and the
-----------------
Accrued Interest.
PURCHASER: Any entity which purchases the Mortgage Loans pursuant to
---------
this Agreement or its successor in interest or any successor or assign to the
Purchaser under this Agreement as herein provided. Unless the context requires
otherwise, all references to "Purchaser" in this Agreement shall be deemed to
include such Purchaser's successors in interest, assignees or designees.
QUALIFIED APPRAISER: An appraiser who (i) is licensed in the state
-------------------
where the Mortgaged Property is located, (ii) has no interest, direct or
indirect, in the Mortgaged Property or in any Mortgage Loan or the security
therefore, (iii) complies with the Uniform Standards or Professional Appraisal
Practice and the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), and (iv) does not receive compensation that is affected by the
approval or disapproval of the Mortgage Loan or by the amount of the appraisal."
QUALIFIED INSURER: An insurance company duly qualified as such under
-----------------
the laws of the states in which the Mortgaged Properties are located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, approved as an insurer by the
Agencies and whose claims paying ability is rated in the two highest rating
categories by the Standard & Poor's Ratings Group or Moody's Investors Service
with respect to primary mortgage insurance and in the two highest rating
categories by Best's with respect to hazard and flood insurance.
REPURCHASE PRICE: With respect to any Mortgage Loan, a price equal to
----------------
the sum of (a) the product of (i) the unpaid principal balance of the Mortgage
Loan at the time of repurchase, and (ii) the greater of par or the Purchase
Price Percentage, and (b) interest on such unpaid principal balance at the
Mortgage Interest Rate from the last date through which interest has been paid
and distributed to the Purchaser to the date of repurchase.
SEGMENT(S): One or more segments of Mortgage Loans (each, a
----------
"Segment") comprising the Segment A Mortgage Loans and the Segment B Mortgage
Loans, whether individually or in the aggregate, as applicable. Each such
Segment and the Mortgage Loans relating thereto are identified on Exhibit A and
---------
may hereafter be referred to as Segments A and B, respectively.
SEGMENT A MORTGAGE LOANS: The Mortgage Loans identified under Segment
------------------------
A of the Mortgage Loan Schedule.
4
<PAGE>
SEGMENT B MORTGAGE LOANS: The Mortgage Loans identified under Segment
------------------------
B of the Mortgage Loan Schedule.
SERVICING RIGHTS: With respect to each Mortgage Loan, any and all of
----------------
the following: (a) all rights to service the Mortgage Loans; (b) any payments or
monies payable or received for servicing the Mortgage Loans; (c) any late fees,
assumption fees, penalties or similar payments with respect to the Mortgage
Loans; (d) all agreements or documents creating, defining or evidencing any such
Servicing Rights and all rights of the Seller thereunder, including, but not
limited to, any clean-up calls and termination options; (e) Escrow Payments or
other similar payments with respect to the Mortgage Loans and any amounts
actually collected with respect thereto; (f) all accounts and other rights to
payments related to any of the property described in this paragraph; (g)
possession and use of any and all Mortgage Files pertaining to the Mortgage
Loans or pertaining to the past, present, or prospective servicing of the
Mortgage Loans; and (h) all rights, powers and privileges incident to any of the
foregoing.
SERVICING TRANSFER DATE: September 21, 1998, or such other date the
-----------------------
Purchaser may select upon reasonable notice to the Seller.
STATED PRINCIPAL BALANCE: The unpaid principal balance of the
------------------------
Mortgage Loans at the Cut-off Date.
ARTICLE II
SALE OF THE MORTGAGE LOANS
--------------------------
SECTION 2.1 AGREEMENT OF SALE. The Seller does hereby agree to sell,
-----------------
convey, transfer and assign to the Purchaser on the Closing Date all right,
title and interest in and to the Mortgage Loans, the Servicing Rights, the
Mortgage Loan Documents, the Mortgage Files and the Escrow Accounts relating to
the Mortgage Loans, all in accordance with the terms and conditions set forth
herein.
SECTION 2.2 PAYMENT OF THE PURCHASE PROCEEDS. No later than 1:00
--------------------------------
p.m. (Pacific time) on the Closing Date, the Purchaser shall pay to the Seller
the Purchase Proceeds, by wire transfer in immediately available funds to the
account designated by the Seller. Upon completion of the wire transfer to the
Seller's designated account, the Purchaser shall own the Mortgage Loans and the
Servicing Rights, free and clear of any lien or encumbrance whatsoever.
SECTION 2.3 ENTITLEMENT TO PAYMENT ON THE MORTGAGE LOANS. The
--------------------------------------------
Purchaser shall be entitled to all collections and recoveries of principal and
interest received or applied to any Mortgagor's account after the Cut-off Date.
All payments and remittances on the Mortgage Loans received by the Seller after
the Cut-off Date and payable to the Purchaser shall be paid promptly to the
Purchaser in accordance to the terms set forth in Article IV or Article V, as
---------- ---------
applicable.
SECTION 2.4 EXAMINATION OF MORTGAGE LOAN DOCUMENTS BY THE PURCHASER.
-------------------------------------------------------
Prior to the Closing Date, the Purchaser shall have the right to review the
Mortgage File and, based on its review, decline to purchase any Mortgage Loan
which the Purchaser, in its sole discretion, determines not to be in compliance
with each of the representations and warranties contemplated hereby or which is
otherwise unsatisfactory to the Purchaser in its reasonable discretion. The
Seller agrees to deliver or make available to the Purchaser a complete Mortgage
File for each Mortgage Loan on or before such date as may be reasonably
requested by the Purchaser. The fact that the Purchaser has conducted or has
failed to conduct any partial or complete examination of the Mortgage Files
shall not affect the Purchaser's right to demand repurchase or to avail itself
of any other remedy available hereunder. Notwithstanding anything contained
herein to the contrary, should there be a material adverse change in the
characteristics of the Mortgage Loans remaining after the exclusion or rejection
of one or more Mortgage Loans by the Purchaser as contemplated above, the
Purchaser may, in its sole discretion, elect not to purchase the remaining
Mortgage Loans and the Purchaser shall have no liability therefor.
5
<PAGE>
SECTION 2.5 DELIVERY OF MORTGAGE LOAN DOCUMENTS. At least two (2)
-----------------------------------
Business Days prior to the Closing Date, the Seller shall deliver the Mortgage
Loan Documents with respect to each Mortgage Loan to the Purchaser or a bonded
third party custodian (the "Custodian") and, in the case of the latter, shall
cause the Custodian to deliver to the Purchaser a custodian's certification
pursuant to which the Custodian certifies to the Purchaser that (i) with respect
to each Mortgage Loan, it has in its Possession originals of each of the
Mortgage Loan Documents, (ii) all of the Mortgage Loan Documents appear on their
face to be genuine originals or copies, as applicable, and (iii) upon the
Purchaser's wiring of the Purchase Proceeds to the Seller, that the Custodian
shall hold the Mortgage Loan Documents with respect to each Mortgage Loan in
trust for the Purchaser and will, subsequent thereto, act only in a manner
consistent with the Purchaser's instructions with respect thereto. In the event
that any of the Mortgage Loan Documents set forth in clauses (c) through (e) of
the definition of Mortgage Loan Documents in Article I have not been delivered
---------
to the Purchaser in the time specified above (the "Missing Documents") either
-----------------
because such Missing Documents have not been returned by the applicable public
recording office with respect to items (c) and (d), or because the final
original title policy has not yet been issued by the title company with respect
to item (e), then the Seller shall deliver to the Purchaser certified true and
correct copies of the same and shall further deliver the originals of any such
Missing Documents within fifteen (15) days of its receipt thereof, but in no
event later than one hundred and twenty (120) days from the Closing Date. If the
Seller fails to deliver any of the Missing Documents relating to a Mortgage Loan
within the time specified above, the Seller shall, upon written request from the
Purchaser, repurchase such Mortgage Loan in accordance with Section 3.3.
-----------
SECTION 2.6 CONDITIONS TO CLOSING. The Purchaser's obligations
---------------------
hereunder are subject to the fulfillment of the following conditions precedent.
In the event that any of the conditions set forth below are not satisfied in all
material respects, the Purchaser shall not have any obligation to purchase any
of the Mortgage Loans or to pay the Purchase Proceeds as contemplated hereunder
and shall instead be entitled, in its sole discretion, to terminate this
Agreement in its entirety.
(a) Each of the representations and warranties made by the Seller
hereunder shall be true and correct in all material respects 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 Seller shall have delivered to the Purchaser all of the
Mortgage Loan Documents in accordance with Section 2.5 and a complete Mortgage
-----------
File with respect to each Mortgage Loan.
(c) Each of the terms and conditions set forth herein which are
required to be satisfied on or before the Closing Date shall have been satisfied
unless waived by the prejudiced party(ies).
(d) The Seller shall have delivered to the Purchaser on or before the
Closing Date the following documents:
(1) a fully executed Agreement;
(2) the Mortgage Loan Schedule, which shall include, without
limitation, the Stated Principal Balance of each Mortgage
Loan;
(3) an executed Funding Schedule, in the form of Exhibit 8
---------
hereto;
(4) an Officer's Certificate, in the form of Exhibit C hereto;
---------
(5) State Licenses of the Seller;
(6) Opinion of Counsel, substantially in the form of Exhibit E
hereto;
(7) Certificate of Good Standing of the Seller; and
6
<PAGE>
(8) such other documents related to the purchase and sale of
the Mortgage Loans and the Servicing Rights as the
Purchaser may reasonably request.
SECTION 2.7 RECORD TITLE. Record title to each Mortgage and the
------------
related Mortgage Note shall be transferred by the Seller to the Purchaser. The
Seller shall, at the option of the Purchaser, either (i) prepare and ca use to
be recorded the Assignment of Mortgage for each Mortgage Loan and shall,
promptly upon its receipt of each original recorded Assignment of Mortgage from
the applicable recording office, deliver the same to the Purchaser, or (ii)
prepare and deliver to the Purchaser an original Assignment of Mortgage in
blank, in each case, within the time and in the manner specified in Section 2.5.
-----------
The Seller shall bear the cost and expense related to (i) providing all
Assignments of Mortgages and endorsements of Mortgage Notes for any transfer of
record title required hereunder with respect to the obligations of the Mortgage
Notes and the underlying security interest related to each Mortgage Loan and
(ii) recording title of the Mortgage Loans including, but not limited to,
recording fees and fees for title policy endorsements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 3.1 REPRESENTATIONS AND WARRANTIES RESPECTING THE SELLER.
----------------------------------------------------
The Seller represents, warrants and covenants to the Purchaser that, as of the
Closing Date:
(a) The Seller is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is
qualified to transact business in and is in good standing under the laws of each
state where a Mortgaged Property is located or is otherwise exempt under
applicable law from such qualification or is otherwise not required under
applicable law to effect such qualification and no demand for such qualification
has been made upon the Seller by any state having jurisdiction and in any event
the Seller is or will be in compliance with the laws of any such state to the
extent necessary to insure the enforceability of each Mortgage Note and the sale
of the Mortgage Loans and Servicing Rights as contemplated by this Agreement;
(b) The Seller has the full power and authority to perform, and to
enter into and consummate, all transactions contemplated by this Agreement. As
of the Closing Date, the Seller has the full power and authority to hold each
Mortgage Loan and to sell each Mortgage Loan and the Servicing Rights;
(c) Neither the acquisition or origination of the Mortgage Loans by
the Seller, the sale of the Mortgage Loans or the Servicing Rights to the
Purchaser, the consummation of the transactions contemplated hereby, nor the
fulfillment of or compliance with the terms and conditions of this Agreement,
will conflict with or result in a breach of any of the terms, conditions or
provisions of the Seller's certificate of incorporation or bylaws or result in a
material breach of any legal restriction or any agreement or instrument to which
the Seller is now a party or by which it is bound, or constitute a material
default or result in an acceleration under any of the foregoing, or result in
the violation of any law, rule, regulation, order, judgment or decree to which
the Seller or its property is subject;
(d) The Seller is an approved seller/servicer for the Agencies, in
good standing with each such agency, and is a mortgagee approved by the
Secretary of HUD. No event has occurred, including but not limited to, a change
in insurance coverage, which would make the Seller unable to comply with FNMA-,
FHLMC- or HUD-eligibility requirements or which would require notification to
the Agencies or HUD;
(e) 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;
7
<PAGE>
(f) There is no action, suit, proceeding, investigation or litigation
pending or, to the best of the Seller's knowledge, threatened, which either in
any one instance or in the aggregate, if determined adversely to the Seller,
would adversely affect the sale of the Mortgage Loans or the Servicing Rights to
the Purchaser, or the Seller's ability to perform its obligations under this
Agreement;
(g) 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 terms of the Mortgage Loans, the delivery of the Mortgage Files to the
Purchaser, the sale of the Mortgage Loans and the Servicing Rights to the
Purchaser or the consummation of the transactions contemplated by this
Agreement, or if required, such consent, approval, authorization or order has
been obtained prior to the Closing Date; and
(h) 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, the Mortgages and/or
the Servicing Rights by the Seller pursuant to this Agreement are not subject to
the bulk transfer or any similar statutory provisions in effect and applicable
to this transaction.
(i) Seller has previously furnished Purchaser with Seller's most
recent audited financial statements, together with the respective reports
thereon of the Seller's independent public accountant, and Seller's most recent
unaudited financial statements, each of which has been prepared in accordance
with generally accepted accounting principles. Each of the balance sheets
included in the financial statements sets for the Seller's financial condition
as of the date thereof, and there have been no material adverse changes in
Seller's business or financial conditions since that date.
(j) Neither this Agreement, nor any statement, report, or other
document furnished or to be furnished pursuant to this Agreement or in
connection with the transaction contemplated hereby, contains any untrue
statement of fact by Seller, or omits to state a fact necessary to make the
statements of Seller contained therein not misleading.
(k) Upon request, Seller will deliver to Purchaser a true and correct
copy of Seller's fidelity bond and Seller's errors and omissions policy, and/or
certificates evidencing the same as currently in effect, the amounts and
coverages of both of which will be acceptable to Purchaser. Seller shall, at
its own expense, maintain a fidelity bond and an errors and omissions policy, in
amounts at least as great as, and with the coverages at least as broad as, those
currently in effect. Seller shall, upon request, furnish proof of such coverage
at or before the first Purchase and, upon request, annually thereafter.
(l) The Mortgage Loans were not intentionally selected in a manner
intended to adversely affect the interest of the Purchaser.
(m) Seller has not dealt with any broker or Agent or other Person who
might be entitled to a fee, commission or compensation in connection with this
transaction other than the Purchaser except as Seller has previously disclosed
to Purchaser in writing.
(n) The consideration received by Seller upon the sale of the Mortgage
Loans under this Agreement constitutes fair consideration and reasonably
equivalent value for the Mortgage Loans.
(o) Seller has determined that the disposition of the Mortgage Loans
pursuant to this Agreement will be afforded sale treatment for accounting and
tax purposes.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES REGARDING INDIVIDUAL MORTGAGE
------------------------------------------------------------
LOANS. With respect to each Mortgage Loan, the Seller represents and warrants
- -----
to the Purchaser that as of the Closing Date:
(a) The information set forth in the Mortgage Loan Schedule and in
each Mortgage File is complete, true and correct;
8
<PAGE>
(b) All payments required under the terms of the Mortgage Note to be
made on or prior to the Closing Date 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 Mortgaged Property subject to the Mortgage,
directly or indirectly, for the payment of any amount required under the
Mortgage Loan; and there has been no delinquency of thirty (30) days or more in
any payment by the Mortgagor thereunder during the last twelve (12) months.
Each Mortgagor has made or shall make, as the case may be, the first Monthly
Payment with respect to the related Mortgage Loan on its Due Date or in no event
later than twenty-nine (29) days thereafter. No Mortgage Loan is subject to any
pending foreclosure, bankruptcy, insolvency, or reorganization proceeding.
Nothing contained in this Section 3.2(b) shall in any way limit any other rights
--------------
of the Purchaser as provided hereunder;
(c) There are no delinquent taxes, water charges, sewer rents,
assessments, insurance premiums, leasehold payments, including assessments
currently due and owing in future installments or other outstanding charges
affecting the related Mortgaged Property;
(d) The terms of the Mortgage Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments which are in the Mortgage File and have been or will be recorded, if
necessary to protect the interests of the Purchaser, and which have been
delivered to the Purchaser, all in accordance with this Agreement. The
substance of any such waiver, alteration or modification has been approved by
the primary mortgage guaranty insurer, if any, and by the title insurer, to the
extent required by the related policy, and its terms are reflected on the
Mortgage Loan Schedule. No Mortgagor has been released, in whole or in part,
except in connection with an assumption agreement approved by the primary
mortgage insurer, if any, and title insurer, to the extent required by the
policy, and which assumption agreement is part of the Mortgage File and the
terms of which are reflected in the Mortgage Loan Schedule, if executed prior to
the Closing Date;
(e) 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 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;
(f) All buildings upon, or comprising part of, the Mortgaged Property
are insured by an insurer acceptable to the Agencies against loss by fire,
hazards of extended coverage and such other hazards as are customary in the area
where the Mortgaged Property is located, and such insurer is licensed to do
business in the state where the Mortgaged Property is located. All such
insurance policies (collectively, the "hazard insurance policy") contain a
standard mortgagee clause naming the Seller, its successors and assigns as
mortgagee and all premiums thereon have been paid. If upon origination of the
Mortgage Loan, the Mortgaged Property was, or was subsequently deemed to be, in
an area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), which require under applicable law that a flood insurance policy
meeting the requirements of the current guidelines of the Federal Insurance
Administration (or any successor thereto) be obtained, such flood insurance
policy is in effect which policy conforms to the requirements of the Agencies.
The Mortgage obligates the Mortgagor thereunder to maintain all such insurance
at 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 obtain reimbursement therefor from the Mortgagor. Each
Mortgage Loan has in place a fully-paid life of loan flood certification from a
FNMA- or FHLMC-approved vendor, assigned in care of the Purchaser, which
provides for notification to the Purchaser of changes in designated flood areas
which would affect such Mortgage Loan;
(g) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures including, without limitation, the Real Estate Settlement Procedures
Act of 1974, as amended, consumer credit protection, equal credit
9
<PAGE>
opportunity or disclosure laws applicable to the Mortgage Loan have been
complied with in all material respects;
(h) 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 release, cancellation, subordination or
rescission;
(i) The Mortgage is a valid, existing and enforceable first lien on
the Mortgaged Property, including all improvements on the Mortgaged Property, if
any, 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 (as defined in clause (i) of such definition) 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. The Seller has full right to sell and assign the Mortgage
to the Purchaser;
(j) 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 the enforceability thereof may be limited
by bankruptcy, insolvency or reorganization.
(k) All parties to the Mortgage Note and the Mortgage had the legal
capacity to enter into the Mortgage Loan transaction 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;
(l) The proceeds of the Mortgage Loan have been fully disbursed and
there is no requirement for future advances 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 were paid, and the Mortgagor is not entitled to any
refund of any amounts paid or due under the Mortgage Note or Mortgage;
(m) The Seller is the sole owner and holder of the Mortgage Loan and
the related Servicing Rights and is the custodian of the related Escrow Account,
if applicable. The Mortgage Loan has neither been assigned nor pledged, and the
Seller has good and marketable title thereto, and has full right to transfer and
sell the Mortgage Loan and the related Servicing Rights to the Purchaser free
and clear of any encumbrance, equity, lien, pledge, charge, claim 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 each
Mortgage Loan and the related Servicing Rights to the Purchaser pursuant to the
terms of this Agreement;
(n) 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 (a) in compliance with any
and all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located, and (b) (i) organized under the laws of such
state, or (ii) qualified to do business in such state, or (iii) a federal
savings and loan association or national bank, or (iv) not deemed to be doing
business in such state under applicable law;
(o) The Mortgage Loan is covered by an ALTA lender's title insurance
policy acceptable to the Agencies, issued by a title insurer acceptable to the
Agencies and qualified to do business in the jurisdiction where the Mortgaged
Property is located, insuring (subject to the exceptions contained in (i)(a) and
(b) above) the Seller, 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 Note and/or Mortgage
10
<PAGE>
providing for adjustment in the Mortgage Interest Rate and Monthly Payment.
Additionally, such lender's title insurance policy affirmatively insures ingress
and egress, and against encroachments by or upon the Mortgaged Property or any
interest therein. The Seller is the sole insured of 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;
(p) There is no default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event which, with the
passage of time or with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of acceleration, and the
Seller has not waived any default, breach, violation or event of acceleration;
(q) 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 with, the lien of the related Mortgage;
(r) All improvements which were considered in determining the
Appraised Value (as defined in clause (i) of said definition) 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;
(s) The Mortgage Loan was originated by the Seller or by a FNMA-
approved or FHLMC-approved mortgage banker (which mortgage banker is a mortgagee
approved by HUD), or savings and loan association, a savings bank, a commercial
bank or similar banking institution which is supervised and examined by a
federal or state authority, or by another mortgagee approved by the Secretary of
HUD;
(t) The origination, servicing and collection practices with respect
to each Mortgage Note and Mortgage including, without limitation, the
establishment, maintenance and servicing of the Escrow Accounts and Escrow
Payments, if any, since origination, have been conducted in all respects in
accordance with the terms of Mortgage Note and in compliance with all applicable
laws and regulations and, unless otherwise required by law or FNMA/FHLMC
standard, in accordance with the proper, prudent and customary practices in the
mortgage origination and servicing business. With respect to the Escrow
Accounts and Escrow Payments, if any, all such payments are in the possession or
under the control of the Seller and there exists 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. All Mortgage Interest Rate adjustments have been made in strict
compliance with state and federal law and the terms of the related Mortgage
Note. Any interest required to be paid pursuant to state and local law has been
properly paid and credited;
(u) The Mortgaged Property is free of material damage and waste and
there is no proceeding pending for the total or partial condemnation thereof;
(v) The Mortgage contains customary and enforceable provisions to
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
intended to be 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. There is no 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;
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<PAGE>
(w) The Mortgage Note is not and has not been secured by any
collateral except the lien of the applicable Mortgage;
(x) The Mortgage File contains an original appraisal of the related
Mortgaged Property signed prior to the approval of the Mortgage Loan application
by a Qualified Appraiser duly appointed by the originator; the signature
appearing on such appraisal is the genuine signature of such Qualified
Appraiser; the appraisal is in a form acceptable to the Agencies, with such
riders as are acceptable to the Agencies;
(y) 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;
(z) No Mortgage Loan contains a permanent or temporary "buydown"
provision;
(aa) The Mortgagor has executed one or more statements to the effect
that the Mortgagor has received all disclosure materials required by applicable
law with respect to the making of the Mortgage Loan. The Seller shall maintain
all such statements in the Mortgage File;
(bb) 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;
(cc) [Intentionally left blank];
(dd) To the best of Seller's knowledge, the Mortgaged Property is
lawfully occupied under applicable law and 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;
(ee) [Intentionally left blank];
(ff) 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;
(gg) Any future advances made to the Mortgagor prior to the Closing
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 to the
Agencies. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan;
(hh) If the Mortgaged Property is a condominium unit or a planned unit
development, such condominium or planned unit development project meets the
eligibility requirements of the Agencies;
(ii) The Mortgage Note and Mortgage are on forms acceptable to either
of the Agencies;
(jj) The Mortgaged Property is located in the state indicated on the
Mortgage Loan Schedule, and consists of a single parcel of real property with a
detached single family residence erected thereon or an individual condominium
unit, or a 2-4 family dwelling or an individual unit in a planned unit
development as defined by FNMA, none of which is a mobile home or manufactured
dwelling;
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(kk) There are no circumstances or conditions with respect to the
Mortgage, the Mortgage Property, the Mortgagor, the Mortgage File or the
Mortgagor's credit standing that can reasonably be expected to cause private
institutional investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent, or adversely affect
the value or marketability of the Mortgage Loan;
(ll) 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;
(mm) The Seller has no knowledge of any circumstances existing that
could reasonably be expected to adversely affect the value or the marketability
of any Mortgaged Property or Mortgage Loan or to cause the Mortgage Loans to
prepay during any period materially faster or slower than the mortgage loans of
similar characteristics originated by the Seller generally;
(nn) Each Mortgage Loan is covered by a valid and transferable tax
service contract with First American, or such other vendor as may be reasonably
acceptable to the Purchaser;
(oo) Each Mortgage Loan is an adjustable rate mortgage loan requiring
monthly payments sufficient to amortize the original principal balance over the
original term set forth in the Mortgage Loan Schedule. No Mortgage Loan has
negatively amortized nor shall any Mortgage Loan have any negative amortization
after the Closing Date. The Mortgage Interest Rate adjusts semi-annually in
accordance with the related Mortgage Note, provided, however, with respect to
Segments A and B, the Mortgage Interest Rate shall be fixed for an initial
period of two (2) and three (3) years, respectively. On each Interest Adjustment
Date, the Mortgage Interest Rate shall be adjusted to equal the Index plus the
Gross Margin (rounded up or down to the nearest 0.125%), subject to the Periodic
Mortgage Interest Rate Cap and the Lifetime Mortgage Interest Rate Cap as set
forth in the respective Mortgage Note and the Mortgage Loan Schedule. None of
the Mortgage Loans contain a provision allowing the Mortgagor to convert the
Mortgage Note from an adjustable rate mortgage loan to a fixed rate mortgage
loan;
(pp) Each Mortgage Loan at the time of origination was underwritten in
accordance with the credit underwriting guidelines of the Seller attached hereto
as Exhibit D and, to the extent not inconsistent therewith, generally accepted
---------
sub-prime credit underwriting guidelines;
(qq) As of the Closing Date, the Seller shall have received neither
actual nor constructive notice that either a Mortgage Loan will be paid in full
(whether by virtue of a demand statement or otherwise) or that any Mortgagor has
elected to convert the related Mortgage Loan into a fixed-rate mortgage loan in
accordance with the terms of the related Mortgage Note;
(rr) The Mortgage Note is not and has not been secured by any
collateral except the lien of corresponding Mortgage on the Mortgaged Property;
(ss) 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; and
(tt) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Mortgage Loan has taken place on the part
of the Seller, or, to the best of Seller's knowledge, on the part of any other
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.
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<PAGE>
(uu) There is no homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage subject to applicable
federal and state laws and judicial precedent with respect to bankruptcy and
right of redemption.
(vv) There exists no violation of any local, state or federal
environmental law, rule or regulation in respect of the Mortgaged Property which
violation has or could have a material adverse effect on the market value of
such Mortgaged Property. There exists no pending action or proceeding directly
or indirectly involving the related Mortgaged Property in which compliance with
any environmental law, rule or regulation is in issue; and, to the best of
Seller's knowledge, nothing further remains to be done to satisfy in full all
requirements of each such law, rule or regulation constituting a prerequisite to
the use and enjoyment of such Mortgaged Property. There has been no release in
or on the Mortgaged Property of any hazardous substances, hazardous wastes or
solid wastes, as such terms are defined in the Comprehensive Environmental
Response Compensation and Liability Act, the Resource Conservation and Recovery
Act of 1976, or other federal, state and local environmental laws and the
Mortgage Property is not and has not been used for the storage or transportation
of any such hazardous substances, hazardous wastes or solid wastes. There are
no underground storage tanks on the Mortgaged Property.
(ww) Except as disclosed on the Mortgage Loan Schedule, none of the
Mortgage Loans are classified as "high cost" Mortgage Loans under Section 32 of
the Home Ownership and Equity Protection Act of 1994.
(xx) None of the Mortgaged Properties are located in the State of
Alabama.
(yy) If during the origination or acquisition of a Mortgage Loan a
yield spread premium or other origination fee was paid to any agent or affiliate
of Seller, Seller represents that such fees were disclosed on the settlement
statement provided to the related Mortgagor that evidences such Mortgagor's
acknowledgment of such fees and such disclosure will be included in the related
Mortgage File.
SECTION 3.3 REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES.
-----------------------------------------------------
The representations and warranties set forth in Sections 3.1 and 3.2 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
failure to examine any Mortgage File. Furthermore, the absence of the Seller in
either the chain of title or endorsement shall in no way limit the Purchaser's
recourse against the Seller as provided in this Section 3.3 for a breach of one
-----------
or more of the Seller's representations and warranties made herein. 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 one or more of the Mortgage Loans or the Purchaser's interest
therein, the party discovering such breach shall give written notice within
thirty (30) days of such discovery to the other.
The Seller shall have a period of thirty (30) days from the earlier of
the discovery of a breach or the receipt by the Purchaser of notice of a breach
within which to correct or cure such breach. If any such breach cannot be
corrected or cured within such thirty (30) day period, the Seller shall, at the
Purchaser's option and not later than thirty (30) days after its discovery or
its receipt of notice of such breach, repurchase such Mortgage Loan at the
Repurchase Price. In the event that a breach shall involve any representation
or warranty set forth in Section 3.1 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. Any repurchase of a Mortgage
Loan(s) pursuant to the foregoing provisions of this Section 3.3 shall be
-----------
accomplished by wire transfer of immediately available funds on the repurchase
date to an account designated by the Purchaser.
At the time of repurchase, the Purchaser and the Seller shall arrange
for the reassignment of the repurchased Mortgage Loan to the Seller and the
delivery to the Seller of any documents held by the Purchaser or its custodian
relating to such Mortgage Loan. The Seller shall, simultaneously with such
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<PAGE>
reassignment, give written notice to the Purchaser that such repurchase has
taken place. All out of pocket costs incurred by the Purchaser in connection
with the reassignment shall be paid by the Seller.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Sections 3.1 or 3.2
-------------------
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,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.
Purchaser has the right to perform a field review of all appraisals of
the Mortgage Properties related to the Mortgage Loans on or before September 14,
1998, provided that Seller shall have delivered to the Purchaser, on or before
the Closing Date, copies of appraisals relating to certain Mortgaged Properties
(a list of which shall be provided by Purchaser to Seller prior to the Closing
Date) and the addresses of each of the Mortgagor. If during such review
Purchaser determines using a third party appraisal service, that the Appraised
Value of any Mortgage Property varies by more than (i) ten percent (10%) for
Mortgage Loans disclosed on a Mortgage Loan Schedule with a Loan-To-Value Ratio
of less than or equal to 75% or (ii) five percent (5%) for Mortgage Loans
disclosed on a Mortgage Loan Schedule with a Loan-To-Value Ratio of greater than
75% then Purchaser will notify Seller of such variance.
Within five (5) Business Days of receipt of such notification by
Purchaser, Seller, at its own expense, may request an additional independent
appraisal and/or a drive-by appraisal completed on FNMA form 2055 using an
appraisal service approved by Purchaser (such approval not to be unreasonably
withheld). If such additional appraisal indicates that the variance is less
than 10% or 5%, as applicable, Purchaser will not pursue a repurchase; provided,
--------
however, if such additional appraisal indicates a variance of more than 10% or
- -------
5%, as applicable, Seller must repurchase such Mortgage Loan by depositing in an
account specified by Purchaser the amount of the Repurchase Price within five
(5) Business Days. When the Repurchase Price is wire transferred to the
specified account, Seller shall, simultaneously with such deposit, give written
notice to Purchaser that such deposit has taken Place.
SECTION 3.4 INDEMNIFICATION OF THE PURCHASER. (a) In addition to
--------------------------------
the repurchase obligations set forth in Section 3.3, the Seller shall indemnify
--------------
the Purchaser and hold it harmless against any losses, damages, penalties,
fines, forfeitures, judgments and any related costs including, without
limitation, reasonable and necessary legal fees, resulting from any claim,
demand, defense or a material omission on the part of the Seller in receiving,
processing, funding or servicing any Mortgage Loan, or from any assertion based
on, grounded upon or resulting from a breach of any of the Seller's
representations and warranties contained in this Article III, or failure to
-----------
perform any warranty/agreements contained in this Agreement. Notwithstanding
the foregoing, Seller shall not be liable for any damages resulting from a
material omission on the part of the Purchaser in servicing any Mortgage Loan
after the Servicing Transfer Date. In addition to the obligations of the Seller
set forth in this Article III, the Purchaser may pursue any and all remedies
-----------
otherwise available at law or in equity, including, but not limited to, the
right to seek damages. Notwithstanding the foregoing, Seller shall not be
liable for any special, consequential or punitive damages. This section shall
survive the transfer of the Mortgage Loans under this Agreement and the term of
this Agreement.
(b) Within ten (10) Business Days after a receipt by a party of a third
party claim, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Agreement, deliver a claim notice
to the indemnifying party; provided, however, that the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that the indemnifying party may have to the indemnified party otherwise than
under this subsection, unless the indemnifying party is materially prejudiced
thereby. In the event that any third party claim is made against the
indemnified party and the indemnified party notifies the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to the indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), which consent shall not be unreasonably withheld. The indemnified party
shall have the right to employ separate counsel in any
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<PAGE>
action or claim and to participate in the defense thereof at the expense of the
indemnifying party, if the retention of such counsel has been specifically
authorized by the indemnifying party, if such counsel is retained because the
indemnifying party does not notify the indemnified party within fifteen (15)
Business Days after receipt of a claim notice that it elects to undertake the
defense thereof, or if there is a reasonable basis on which the indemnified
party's interest may differ from those of the indemnifying party.
The indemnifying party shall remit payment for the amount of a valid and
substantiated claim for indemnification hereunder within fifteen (15) Business
Days of the receipt of a claim notice therefor. Upon the payment in full of any
claim hereunder, the indemnifying party shall be subrogated to the rights of the
indemnified party against any person with respect to the subject matter of such
claim. In the event of a dispute, the parties shall proceed in good faith to
negotiate a resolution of such dispute.
The indemnified party shall have the right to reject any settlement
approved by the indemnifying party if the indemnified party waives its right to
indemnification hereunder. The indemnified party shall have the right to settle
any third party claim over the objection of the indemnifying party; provided,
--------
however, that if the indemnifying party is contesting such claim in good faith
- -------
and has assumed the defense of such claim from the indemnified party, the
indemnified party waives any right to indemnity therefor.
In the event that the indemnifying party reimburses the indemnified party
with respect to any third party claim and the indemnified party subsequently
receives reimbursement from another person with respect to that third party
claim, then the indemnified party shall remit such reimbursement from such other
person to the indemnifying party within thirty (30) days of receipt thereof.
SECTION 3.5 PREPAYMENT AND CONVERSION PROTECTION. In the event that
------------------------------------
any of the Mortgage Loans are (i) paid in full by the related Mortgagor or (ii)
converted to a fixed rate mortgage loan, in either case, on or prior to the
Servicing Transfer Date, or (iii) subject to a breach of the representation set
forth in Section 3.2(qq), the Seller shall, with respect to each such Mortgage
-------
Loan, pay to the Purchaser, in addition to the unpaid principal balance plus
accrued interest at the time of such payoff or conversion, the product of (a)
the positive difference, if any, between the Purchase Price Percentage and 100%,
times (b) the unpaid principal balance of such Mortgage Loan at the time such
Mortgage Loan is paid in full or converted, as applicable.
ARTICLE IV
INTERIM SERVICING OF THE MORTGAGE LOANS
---------------------------------------
SECTION 4.1 GENERAL. The Mortgage Loans will be purchased by the
-------
Purchaser and sold by the Seller on a servicing-released basis and the purchase
of the Mortgage Loans by the Purchaser shall, for all purposes, include all
Servicing Rights relating thereto. From the Closing Date to the Servicing
Transfer Date, the Seller shall interim service the Mortgage Loans in strict
accordance with the terms of this Agreement, applicable law, and, to the extent
not inconsistent herewith, the servicing standards of the Agencies. Without
limiting the generality of the foregoing, the Seller shall not take, or fail to
take, any action which would result in the Purchaser's interest in the Mortgage
Loans being adversely affected. It is expressly understood by the Seller that,
during the Interim Servicing Period, the Purchaser intends to market the
Mortgage Loans for sale to a whole loan investor and, as such, the Seller agrees
to comply with all reasonable requests of the Purchaser made prior to the
Servicing Transfer Date in order to effectuate the foregoing including, without
limitation, any request for information or documentation in connection with any
Mortgage Loan which the Purchaser deems is necessary to carry out the foregoing.
With respect to each Mortgage Loan for which an Escrow Account has been
established for the payment of taxes, insurance and other similar payments, the
Seller shall, upon notice from the Purchaser, effect the termination of such
Escrow Account on or prior to the Servicing Transfer Date, and refund any
positive balance therein to the related Mortgagor(s).
SECTION 4.2 REPORTING AND REMITTANCE. Within five (5) Business Days
------------------------
following the conclusion of each calendar month reporting and remittance cycle
occurring during the Interim Servicing Period (each, a "Reporting Cycle"), if
any, the Seller shall forward to the Purchaser with respect to the
16
<PAGE>
Mortgage Loans a full set of tapes or other computer or like records and a trial
balance as of the end of each such Reporting Cycle, which tapes or computer
records and trial balance shall include information relating to all payment and
other activity on the Mortgage Loans. With respect to any payments of principal
or interest (including all prepayments) received, or applied to any Mortgagor's
account, by the Seller during the Interim Servicing Period (or prior to the
Closing Date, if any such payments were not reflected in the calculation of the
Purchaser Proceeds), the Seller shall remit to the Purchaser all such payments
of principal and interest on the Mortgage Loans no later than the fifth (5/th/)
day of the month following the conclusion of each Reporting Cycle and, with
respect to the month in which the Servicing Transfer Date occurs, no later than
the fifth (5/th/) Business Day thereafter.
ARTICLE V
TRANSFER OF SERVICING RIGHTS
----------------------------
SECTION 5.1 TRANSFER OF SERVICING. The Seller agrees to act
---------------------
reasonably, in good faith and in accordance with all applicable laws and
regulations and to do all things necessary to effect the transfer of the
Servicing Rights to the Purchaser on the Servicing Transfer Date including,
without limitation, complying with all reasonable instructions provided by the
Purchaser relating to the transfer of the Servicing Rights.
SECTION 5.2 OBLIGATIONS OF THE SELLER PRIOR TO THE SERVICING TRANSFER
---------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
- ----
cause to be taken, the following actions with respect to the Mortgage Loans
prior to the Servicing Transfer Date (or within such time as may otherwise be
specified below) in order to effect the transfer of the Servicing Rights to the
Purchaser on the Servicing Transfer Date:
(a) Preliminary Test Tape. On or prior to the Closing Date, the
---------------------
Seller shall forward to the Purchaser a preliminary test tape or other computer
or like records (including master file, escrow file, payee file, ARM master
file, ARM history, all HMDA data required by the Agencies, etc.) containing all
of the Mortgage Loans as of a date mutually agreed upon by the Seller and the
Purchaser. The preliminary test tape or computer records shall include all
field descriptions and record layouts;
(b) Notice to Hazard Insurers. The Seller shall inform by written
-------------------------
notice all hazard insurance companies and/or their agents of the transfer and
request a change in the loss payee mortgage endorsement clause to the
Purchaser's name. The Seller shall provide the Purchaser with a form of the
notification letter and an officer's certification that all hazard insurance
companies have been notified by an identical letter;
(c) Notice to Mortgage Insurance Companies. The Seller shall inform
--------------------------------------
by written notice all mortgage insurance companies providing any Primary
Mortgage Insurance Policy of the change in insured's name on each such policy to
the Purchaser's name. The Seller shall provide the Purchaser with a form of the
notification letter and an officer's written certification that all such
mortgage insurance companies have been notified by an identical letter;
(d) Tax Service Contracts. The Seller shall have obtained a life of
---------------------
loan, transferable real estate tax service contract with a tax service company
reasonably acceptable to the Purchaser on all of the Mortgage Loans and shall
assign all such contracts to the Purchaser or, in the alternative, the Seller,
--
shall notify the Purchaser as to any Mortgage Loans for which it has not
procured the requisite contract and shall pay to the Purchaser a fee of twenty-
five dollars ($25.00) for each such Mortgage Loan;
(e) Flood Certifications. The Seller shall have obtained a life of
--------------------
loan, transferable flood certification contract for each Mortgage Loan and shall
assign all such contracts to the Purchaser or, in the alternative, the Seller
--
shall notify the Purchaser as to any Mortgage Loans for which it has not
procured the flood certification referenced above and shall pay to the Purchaser
a fee of fifteen dollars ($15.00) for each such Mortgage Loan;
17
<PAGE>
(f) Notice to Mortgagors. The Seller shall, no later than fifteen
--------------------
(15) days prior to the Servicing Transfer Date, inform in writing all Mortgagors
of the change in servicer from the Seller to the Purchaser, all in accordance
with applicable law. The Seller shall obtain the Purchaser's approval of the
form of such notifications prior to their mailing. The Seller acknowledges that
the Purchaser's review of this notice shall not be a review for statutory or
regulatory compliance purposes, and that the Seller shall have the sole
responsibility for such compliance. The Seller shall provide the Purchaser with
a form of the notification letter and an officer's written certification that
all Mortgagors have been notified by an identical letter;
(g) Payment of Real Estate Taxes. The Seller shall make or cause to
----------------------
be made all payments of all real estate taxes on the Mortgage Loans which (i)
will be delinquent on or prior to the Servicing Transfer Date, (ii) are required
to be paid within thirty (30) days after the Closing Date to receive a discount,
or (iii) will be delinquent within thirty (30) days after the Closing Date. If
tax bills have not been received by the Seller by the Servicing Transfer Date on
any Mortgage Loans subject to this subsection, the Seller shall obtain and pay
all tax bills subsequent to the Servicing Transfer Date and the Purchaser will
promptly reimburse the Seller upon receipt from the Seller of documentation
evidencing such payment. On non-impounded accounts, the Seller shall ensure
that all taxes which would otherwise be delinquent by the Servicing Transfer
Date, if not paid by such date, have been paid. With respect to each of the
Mortgage Loans which do not have an impound or escrow account maintained for the
payment of taxes and insurance, the Seller shall hold harmless and indemnify the
Purchaser against any and all costs, expenses, penalties, fines, damages and
judgments of whatever kind arising from the Seller's failure to pay, or cause to
be paid, any delinquent taxes or tax penalties outstanding as of the Servicing
Transfer Date;
(h) Payment of Insurance Premiums, The Seller shall pay all hazard
and flood insurance and Primary Mortgage Insurance Policy premiums required to
be paid prior to the Servicing Transfer Date or within thirty (30) days after
the Closing Date on all impounded accounts relating to the Mortgage Loans and
shall ensure that all premiums required to be paid prior to the Servicing
Transfer Date by the Mortgagors on non-impounded accounts have been paid. With
respect to each of the Mortgage Loans which do not have an impound or escrow
account maintained for the payment of taxes and insurance, the Seller shall hold
harmless and indemnify the Purchaser against any and all costs, expenses,
penalties, fines, damages and judgments of whatever kind arising from the
Seller's failure to ensure that the related Mortgagor is maintaining adequate
insurance coverage on the Mortgaged Property at all times prior to the Servicing
Transfer Date in accordance with the terms of the any document contained in the
Mortgage File or any applicable law or regulation including, without limitation,
adequate flood insurance coverage for all Mortgaged Properties located within an
"A" or "V" flood hazard area; and
(i) ARM Adjustments. With respect to each adjustable rate Mortgage
---------------
Loan whose index value for any Interest Adjustment Date is available on or prior
to the Servicing Transfer Date, the Seller shall make all such adjustments and
shall inform the related Mortgagors of such adjustments.
SECTION 5.3 OBLIGATIONS OF THE SELLER AFTER THE SERVICING TRANSFER
------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
- ---- -----------
cause to be taken, the following actions with respect to the Mortgage Loans
within three (3) Business Days following the Servicing Transfer Date (or within
such time as may otherwise be specified below):
(a) Tape. The Seller shall furnish to the Purchaser all available
----
computer or like records requested by the Purchaser reflecting the status of
payments, balances and other pertinent information with respect to the Mortgage
Loans as of the Servicing Transfer Date (including, without limitation, (I)
master file, (ii) escrow file, (iii) payee file, which includes comprehensive
tax and insurance information identifying payee, payee address, next payment due
date, next amount payable and policy number/parcel number, and (iv) ARM master
file). Such records shall include magnetic tapes reflecting all computer files
maintained on the Mortgage-Loans and shall include hard copy trial balance
reports as specifically requested by the Purchaser;
18
<PAGE>
(b) Mortgage File. If the Seller has not already done so, the Seller
-------------
shall have forwarded a complete Mortgage File with respect to each Mortgage
Loan;
(c) Accounting Reports. The Seller shall furnish to the Purchaser
------------------
copies of all accounting reports relating to the Mortgage Loans as of the
Servicing Transfer Date including, without limitation, a trial balance and
reports of collections, delinquencies, prepaids, curtailments, escrow payments,
escrow balances, partial payments, partial payment balances and other like
information with respect to the Mortgage Loans;
(d) Other Documentation. The Seller shall provide the Purchaser any
-------------------
and all further documents reasonably required by the Purchaser in order to fully
transfer to the Purchaser possession of all tangible evidence of the Servicing
Rights and escrow, impound and trust funds transferred hereunder;
(e) Transfer of Escrow Funds and Other Proceeds. The Seller shall
-------------------------------------------
transfer to the Purchaser, by wire transfer to the account designated by the
Purchaser, an amount equal to the sum of (i) the Net Escrow Payments, (ii) all
undistributed insurance loss draft funds, (iii) all unapplied funds received by
the Seller, (iv) all unapplied interest on escrow balances accrued through the
Servicing Transfer Date, (v) all buydown funds held by the Seller as of the
Servicing Transfer Date, and (vi) all other amounts held by the Seller with
respect to the Mortgage Loans as of the Servicing Transfer Date for which the
Seller is not entitled to retain (collectively, the "Escrow Proceeds"). Within
five (5) Business Days following the Purchaser's receipt of the Escrow Proceeds,
the Seller and the Purchaser shall resolve any discrepancies between the
Seller's accounting statement and the Purchaser's reconciliation with respect
thereto. No later than ten (10) Business Days following the Servicing Transfer
Date, the Seller or the Purchaser, as the case may be, shall transfer to the
other, by wire transfer to the designated account, any amounts to which the
other party is entitled; and
(f) Mortgage Payments Received After Servicing Transfer Date. The
--------------------------------------------------------
Seller shall, within two (2) Business Days of receipt, forward to the Purchaser
any payment received by it after the Servicing Transfer Date with respect to any
of the Mortgage Loans, whether such payment is in the form of principal,
interest, taxes, insurance, loss drafts, insurance refunds, etc., in the
original form received, unless such payment has been received in cash or by the
Seller's lock box facility, in which case the Seller shall forward such payment
in a form acceptable to the Purchaser. The Seller shall notify the Purchaser of
the particulars of the payment, which notification shall set forth sufficient
information to permit timely and appropriate processing of the payment by the
Purchaser.
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.1 NOTICES. All demands, notices and communications
-------
required to be provided hereunder shall be in writing and shall be deemed to
have been duly given if mailed, by registered or certified mail, postage
prepaid, and return receipt requested, or, if by other means, when received by
the other party at the address as follows:
(i) if to the Seller:
United PanAm Mortgage
625 The City Drive
Orange, CA 92868
Attn: Mr. Blair Kenny
(ii) if to the Purchaser:
As provided by Purchaser in writing.
19
<PAGE>
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 6.2 INTENTION OF THE PARTIES. Pursuant to this Agreement,
------------------------
the Purchaser is purchasing, and the Seller is selling the Mortgage Loans and
not a debt instrument of the Seller or any other security. Accordingly, the
Seller and the Purchaser shall each treat the transaction for federal income tax
purposes as a sale by the Seller, and a purchase by the Purchaser, of the
Mortgage Loans and the Servicing Rights. The 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 Servicing Rights and the
Seller shall cooperate with all reasonable requests made by the Purchaser in the
course of such review.
SECTION 6.3 EXHIBITS. The exhibits to this Agreement are hereby
--------
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 6.4 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 "Sections," "Subsections," "Paragraphs," and
other Subdivisions without reference to a document are to designated 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," "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 6.5 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 6.6 FURTHER AGREEMENTS. The Seller shall execute and deliver
------------------
to the Purchaser and the Purchaser shall execute and deliver to the Seller such
reasonable and appropriate additional documents, instruments or agreements as
may be necessary or appropriate to effectuate the purposes of this Agreement.
20
<PAGE>
SECTION 6.7 EXECUTION OF AGREEMENT. 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. This Agreement shall be deemed binding when executed by both the
Purchaser and the Seller. Telecopy signatures shall be deemed valid and binding
to the same extent as the original.
SECTION 6.8 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 permitted successors and assigns of the Seller and the successors
and assigns of the Purchaser. This Agreement shall not be assigned, pledged or
hypothecated by the Seller without the consent of the Purchaser. This Agreement
may be assigned, pledged or hypothecated or otherwise transferred or encumbered
by the Purchaser, in whole or part, without the consent of the Seller. If the
Purchaser assigns all of its rights as the Purchaser hereunder relating to some
or all of the Mortgage Loans, the assignee of the Purchaser, upon notification
to the Seller, will become the "Purchaser" hereunder with respect to such
Mortgage Loans assigned hereby.
SECTION 6.9 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
relevant 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
or renders void or unenforceable any provision hereof.
SECTION 6.10 COSTS. The Purchaser shall pay any commissions due its
-----
salesmen and the legal fees and expenses of its attorneys and expenses of its
custodian. All other costs and expenses incurred in connection with the
transfer and delivery of the Mortgage Loans, including recording fees, fees for
title policy endorsements and continuations and the Seller's attorney's fees,
shall be paid by the Seller.
SECTION 6.11 ATTORNEYS' FEES. If any claim, legal action or any
---------------
arbitration or other proceeding is brought for the enforcement of this Agreement
or because of a dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that claim, action or proceeding, in addition to any other relief to which
such party may be entitled.
SECTION 6.12 GOVERNING LAW. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of California applicable to
agreements entered into and wholly performed within said jurisdiction.
SECTION 6.13 SURVIVAL. All covenants, agreements, representations
--------
and warranties made herein shall survive the execution and delivery of this
Agreement.
SECTION 6.14 ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
understanding between the parties hereto and supersedes any and all prior or
contemporaneous oral or written communications with respect to the subject
matter hereof, all of which communications are merged herein. It is expressly
understood and agreed that no employee, agent or other representative of the
Seller or the Purchaser has any authority to bind such party with regard to any
statement, representation, warranty or other expression unless said statement,
representation, warranty or other expression is specifically included within the
express terms of this Agreement. This Agreement shall not be modified, amended
or in any way altered except by an instrument in writing signed by both the
parties hereto.
SECTION 6.15 CONFIDENTIALITY. The Seller and the Purchaser hereby
---------------
acknowledge and agree that this Agreement shall be kept confidential and its
contents will not be divulged to any party
21
<PAGE>
without the other party's consent except to the extent that it is appropriate
for the Seller or the Purchaser to do so in working with legal counsel,
auditors, taxing authorities or other governmental agencies. Neither Seller nor
any of its affiliates or agents shall issue any press release or public
announcement concerning the contemplated transaction, the existence of this
Agreement, or the terms, conditions, and provisions of this Agreement (i)
without the prior written consent of Purchaser or (ii) except as required by
law, in which event Seller shall consult with Purchaser to the extent
practicable before making such disclosure.
SECTION 6.16 NO SOLICITATION. From and after the Closing Date, the
---------------
Seller agrees that for a period of five (5) years, it will not take any action
or cause any action to be taken by any of its employees, agents or affiliates,
or by any independent contractors acting on the Seller's behalf, to solicit in
any manner whatsoever any Mortgagor to prepay or refinance a Mortgage Loan. It
is understood and agreed by the Seller and the Purchaser that all rights and
benefits relating to the solicitation of any Mortgagors to refinance any
Mortgage Loans shall be transferred to the Purchaser pursuant hereto on the
Closing Date and the Seller shall take no action to undermine these rights and
benefits. The Seller shall use its best efforts to prevent the sale of the name
of any Mortgagor to any person or entity. It is understood that promotions
undertaken by the Seller or Seller's affiliate(s) which are directed to the
general public at large (i.e., newspaper advertisements, radio or T.V. ads,
etc.) and not specifically directed to any Mortgagor or any borrower identified
in any Mortgage Loan shall not constitute a breach of the obligations set forth
in this Section 6.16.
SECTION 6.17 NON-CIRCUMVENTION. The Seller and the Purchaser
------------------
understand and agree that the Purchaser may introduce prospective buyers of the
Mortgage Loans to the Seller, that such buyers are customers of the Purchaser
and that relationships of the Purchaser to such buyers are confidential. The
Seller agrees with respect to a particular buyer of the Mortgage Loans, the
Seller will not, for the purpose of buying and selling other mortgage loans, and
for a period of nine (9) months from the Closing Date, communicate with or sell
such other mortgage loans to such buyer unless such buyer is or has been
independently introduced to the Seller or the Seller has had previous dealings
(other than any transactions involving the Purchaser) with such buyer.
[SIGNATURE PAGE FOLLOWS]
22
<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 e date first above written.
COUNTRYWIDE HOME LOANS, INC.,
as Purchaser
By: /s/ Michael W. Schloessmann
--------------------------------
Michael W. Schloessmann
Vice President
PAN AMERICAN BANK, FSB,
as Seller
By: /s/ Blair Kenny
--------------------------------
Name: Blair Kenny
Title: Senior Vice President
23
<PAGE>
EXHIBIT 10.89
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This Assignment, Assumption and Recognition Agreement (the
"Agreement") is made and entered into on September 15, 1998, by Countrywide Home
Loans, Inc., a New York corporation, having an address at 4500 Park Granada
Boulevard, Calabasas, California 91302 (the "Seller"), Southern Mortgage
Acquisition, Inc., d/b/a U.C. Acquisition, Inc., having an address at 4041 Essen
Lane, Baton Rouge, Louisiana (the "Buyer") and Pan American Bank, FSB, having an
address at 625 The City Drive, Orange, California 92868 (the "Company").
In consideration of the mutual promises and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Assignment and Assumption. The Seller hereby grants, transfers
-------------------------
and assigns to the Buyer (a) all of its right, title and interest as "Buyer" in,
to and under that certain Mortgage Loan Sale Agreement dated as of September 15,
1998, and duly executed by the Company and the Seller, a true, complete and
accurate copy of which is attached hereto as Exhibit A, the "Sale Agreement"),
---------
(b) all of its right, title and interest in and to the each of the mortgage
loans identified in Exhibit B hereto (the "Mortgage Loans"), and (c) all
---------
servicing rights relating to the Mortgage Loans. Except for the provisions
pertaining to the payment of the purchase price, the Buyer hereby assumes all of
the Seller's obligations as "Buyer" under the Sale Agreement from and after the
date hereof, and the Seller shall be relieved and released by the Company of all
of its obligations under the Sale Agreement from and after the date hereof.
Except as is otherwise expressly provided herein, (i) the Seller makes no
representations, warranties or covenants to the Buyer and (ii) the Buyer
acknowledges that the Seller has no obligations to the Buyer under the terms of
the Sale Agreement or otherwise relating to the transaction contemplated herein
(including but not limited to any obligation to repurchase any of the Mortgage
Loans or to indemnify the Buyer).
2. Consideration. In consideration for the transfers and
-------------
assignments set forth in Section 1 of this Agreement, the Buyer agrees to pay to
the Seller the amounts referenced in that certain funding schedule (the "Funding
Schedule") dated as of September 15, 1998 (the "Purchase Price") and duly
executed by the Seller and the Buyer (for purposes hereof, the purchase price
percentage referenced in the Funding Schedule in excess of 100%, the "Assigned
Premium Percentage"). The Buyer agrees to wire the agreed upon Purchase Price
to the Seller to the account designated below:
Bank of New York
ABA - 021000018
Countrywide Home Loans
ACCT - 8900038632
REF - Stuart Levitt - U.C. Acquisition
3. Recognition of the Buyer by the Company. From and after the date
---------------------------------------
hereof, the Company shall recognize the Buyer as the owner of the Mortgage Loans
and the "Buyer" under the Sale Agreement.
4. Servicing of the Mortgage Loans. From and after the date hereof,
-------------------------------
the Company shall interim service the Mortgage Loans for the Buyer in accordance
with the terms and conditions of the Sale Agreement, as if the Buyer and the
Company had entered into the Sale Agreement. The address of the Buyer set forth
in Article IX of the Sale Agreement shall be changed to read as follows:
<PAGE>
Southern Mortgage Acquisition, Inc.
d/b/a U.C. Acquisition, Inc.
4041 Essen Lane
Baton Rouge, Louisiana 70809
Attention: Ashley Lawson
Facsimile: (504) 922-4241
5. Status of Sale Agreement. The Company and the Seller represent
------------------------
and warrant to the Buyer that (a) the Sale Agreement is in full force and effect
as of the date hereof, (b) the Sale Agreement has not been amended or modified
in any respect, and (c) there has been no waiver or any agreement to waive any
provision, nor has any notice of termination been given, under the Sale
Agreement.
6. Repurchase of Mortgage Loans. In the event the Company is
----------------------------
required to repurchase a Mortgage Loan pursuant to the Sale Agreement, the
Seller shall pay to the Buyer, at the time of repurchase, an amount equal to the
product of (i) the unpaid principal balance of the Mortgage Loan at the time the
repurchase obligation occurs, and (ii) the difference between the Premium Rebate
Percentage (as calculated below) and the Premium Percentage (as defined in the
Sale Agreement), if any. For the purpose of determining the additional amount
that the Seller has to pay to the Buyer, if any, in connection with a repurchase
of a Mortgage Loan by the Company, the Premium Rebate Percentage shall be
determined as follows:
<TABLE>
<S> <C>
If the repurchase obligation occurs during Premium Rebate Percentage will be:
the indicated month following Closing Date:
Month: 0-6, inclusive 100% of the Assigned Premium Percentage
7-12, inclusive 75% of the Assigned Premium Percentage
13-18, inclusive 50% of the Assigned Premium Percentage
19-24, inclusive 25% of the Assigned Premium Percentage
25 and thereafter 0% of the Assigned Premium Percentage
</TABLE>
7. No Claims. The Company represents and warrants that it has no
---------
offsets, counterclaims or other defenses available to it with respect to the
Sale Agreement.
8. Covenants, Representations and Warranties of the Seller. The
-------------------------------------------------------
Seller represents and warrants to, and covenants with, the Buyer that:
a. The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate power and
authority to acquire, own and sell the Mortgage Loans;
b. The Seller has full corporate power and authority to execute,
deliver and perform under this Agreement, and to consummate
the transactions set forth herein. The execution, delivery and
performance of the Seller of this Agreement, and the
consummation by it of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action of
the Seller. This Agreement has been fully executed and
delivered by the Seller and constitutes the valid and legally
binding obligation of the Seller enforceable against the
Seller in accordance with its respective terms;
c. No material consent, approval, order or authorization of, or
declaration, filing or registration with, any governmental
entity is required to be
2
<PAGE>
obtained or made by the Seller in connection with the
execution, delivery or performance by the Seller of this
Agreement, or the consummation by it of the transaction
contemplated hereby;
d. There is no action, suit, proceeding, investigation or
litigation pending or, to the Seller's knowledge, threatened,
which either in any instance or in the aggregate, if
determined adversely to the Seller, would adversely affect the
sale of the Mortgage Loans to the Buyer, the execution,
delivery or enforceability of this Agreement, or the Seller's
ability to perform its obligations under this Agreement;
e. Immediately prior to payment of the purchase price for the
Mortgage Loans, the Seller is the lawful owner of the Mortgage
Loans with the full right to transfer the Mortgage Loans free
from any and all claims and encumbrances whatsoever; and
f. The Seller is not in violation of, and the execution and
delivery of this Agreement and the Sale Agreement by the
Seller and its performance and compliance with the terms of
this Agreement and the Sale 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
adversely affect the condition (financial or otherwise) or the
operation of the seller or its assets or might have
consequences that would adversely affect the performance of
its obligations and duties thereunder.
9. Covenants, Representations and Warranties of Buyer. The Buyer
--------------------------------------------------
represents and warrants to, and covenants with, the Seller and the Company that
except for the provisions pertaining to the payment of the purchase price
thereunder, the Buyer agrees to be bound as "Buyer" by all of the terms,
covenants and conditions of the Sale Agreement, and from and after the date
hereof, the Buyer assumes for the benefit of the Seller and the Company all of
the Seller's obligations as "Buyer" thereunder.
10. Governing Law. This Agreement shall be construed in accordance
-------------
with the laws of the State of California and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with the
laws of the State of California, except to the extent preempted by federal law.
11. Confidentiality. The Seller and the Buyer hereby acknowledge and
---------------
agree that this Agreement shall be kept confidential and its contents will not
be divulged to any party without the other party's consent except to the extent
that it is appropriate for the Seller or the Buyer to do so in working with
legal counsel, auditors, taxing authorities or other governmental agencies, or
to enforce their rights hereunder or under the Sale Agreement.
12. Nonsolicitation. Subject to the provisions set forth in this
---------------
Section 1.2, and in connection with this transaction specifically between the
Seller and the Buyer, from and after the date hereof, neither Seller nor any of
its affiliates shall specifically target and solicit, by means of direct mail or
telephonic or personal solicitation or by any other means, the Mortgagors to
prepay such Mortgage Loans. Notwithstanding the foregoing, the following
solicitations, if undertaken by Seller or any affiliate of Seller, shall not be
prohibited under this Section 12: (i) solicitations that are directed to the
general public at large, including, without limitation, mass mailings based on
commercially acquired mailing lists and newspaper, radio, television and other
mass media advertisements; (ii) solicitations made in response to an inquiry
from a Mortgagor on his or her own initiative relating to a payoff or
information pertaining to a mortgage loan product; and (iii) solicitations made
as a part of a campaign directed to all mortgagors with mortgage loans
3
<PAGE>
meeting certain defined parameters (other than parameters relating to the
Mortgagors or Mortgage Loans specifically).
13. Conflict with Sales Agreement. To the extent there is any
-----------------------------
conflict between the terms of the Sales Agreement and this Agreement, the latter
shall be controlling, notwithstanding anything to the contrary contained in the
Sale Agreement.
14. Capitalized Terms. All capitalized terms used herein and not
-----------------
otherwise defined herein shall have the meanings assigned to such terms in the
Sale Agreement.
15. Counterparts. This Agreement may be executed 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.
16. Survival. The representations, warranties and covenants of the
--------
parties hereto as set forth herein shall survive the execution and delivery of
this Agreement.
17. 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.
18. Successors and Assigns. This Agreement shall be binding on and
----------------------
inure to the benefit of and be enforceable by the Seller, the Company and the
Buyer and their respective successors and assigns.
19. Notices. All communications to be provided hereunder to any
-------
party shall be provided to such party in writing or facsimile at the address
specified below or such other address as such party may provide to the other
parties hereto and shall be effective upon receipt by the party to be notified:
(i) if to the Company
Pan American Bank, FSB
625 The City Drive, Suite 490
Orange, California 92868
Attn: Blair Kenney
Facsimile: (714) 621-1131
(ii) if to the Seller
Countrywide Home Loans, Inc.
4500 Park Granada
Calabasas, California 91302
Attn: David Sambol
Facsimile: (818) 225-4011
4
<PAGE>
(iii) if to the Buyer
Southern Mortgage Acquisition, Inc.
4041 Essen Lane
Baton Rouge, Louisiana 70809
Attn: Ashley Lawson
Facsimile: (504) 922-4241
20. Severability. 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 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.
[Signature page follows]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
COUNTRYWIDE HOME LOANS, INC.,
the Seller
By /s/ Michael W. Schloessmann
---------------------------------
Michael W. Schloessmann
Vice President
SOUTHERN MORTGAGE ACQUISITION,
INC., D/B/A U.C. ACQUISITION, INC.,
the Buyer
By: ________________________________
Name:
Title:
PAN AMERICAN BANK, FSB,
the Company
By: /s/ Blair F. Kenny
---------------------------------
Name: Blair F. Kenny
Title: Senior Vice President
6
<PAGE>
EXHIBIT A
MORTGAGE LOAN SALE AGREEMENT
(attached)
7
<PAGE>
MORTGAGE LOAN SALE AGREEMENT
----------------------------
THIS MORTGAGE LOAN SALE AGREEMENT is made and entered into as of and
effective on the 15th day of September, 1998, by and between COUNTRYWIDE HOME
LOANS, INC., a New York corporation (the "Buyer"), having its principal office
at 4500 Park Granada Boulevard, Calabasas, California 91302, and PAN AMERICAN
BANK, FSB (the "Seller"), a federally chartered savings bank, having its
principal office for purposes hereof at 625 The City Drive, Suite 490, Orange,
CA 92868.
W I T N E S S E T H:
--------------------
WHEREAS, the Seller is the legal, beneficial and record owner of
certain Mortgage Loans, as defined in this Agreement, and desires to sell such
Mortgage Loans to the Buyer in accordance with the terms of this Agreement; and
WHEREAS, the Buyer desires to purchase such Mortgage Loans, in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein set
forth and other valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the Seller and the Buyer agree as follows:
ARTICLE I
---------
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings indicated:
"Agreement" means this Mortgage Loan Sale Agreement, including all
---------
Addenda, Exhibits and Schedules attached hereto, and all supplements,
modifications and amendments, if any, thereto.
"Bill of Sale" means the document to be executed and delivered by the
------------
Seller to the Buyer or its designee to be effective on the Closing Date, in the
form attached hereto as Exhibit A, together with a Final Mortgage Loan Schedule
---------
in accordance with Article II.
----------
"Book Value" means the unpaid principal balance of each Mortgage Loan
----------
as of the Cut-Off Date.
"Business Day" means any day on which the Buyer is open for business
------------
other than a Saturday, a Sunday or a federal or State of Louisiana holiday.
"Closing" means the payment of the Mortgage Loan Purchase Price and
-------
the execution and/or delivery of the Closing Documents.
<PAGE>
"Closing Date" means September 15, 1998, or such other date as the
------------
Buyer and the Seller may mutually agree.
"Closing Documents" means the Bill of Sale, the Final Mortgage Loan
-----------------
Schedule, the documents described in Paragraph A(vi) and (vii) of Article IV,
---------------------------------------
and the documents identified in Paragraph B of Article V which are to be
----------- ---------
contained in the Mortgage File pertaining to each Mortgage Loan included on the
Final Mortgage Loan Schedule.
"Credit File" means all documents, if any, other than the Mortgage
-----------
File, in the possession or under the control of the Seller or its servicer(s),
agent(s), or custodians pertaining to each Mortgage Loan included on the Final
Mortgage Loan Schedule and relating to the origination and/or servicing of such
Mortgage Loan, including without limitation appraisals, payment histories,
primary mortgage guarantee insurance certificates, signed loan applications,
disclosure statements, credit records, and hazard, flood or other policies of
insurance.
"Current Loan-to-Value Ratio" means the Book Value divided by (a) if
---------------------------
no appraisal has been performed on the Mortgage Property subsequent to the
appraisal made in connection with the origination of the Mortgage Loan, the
lesser of (i) the original appraised value, or (ii) the price at which the
Mortgaged Property was purchased by Mortgagor or (b) the most recent appraised
value of the Mortgaged Property based upon any appraisal subsequent to the
origination of the Mortgage Loan which is contained in the Credit File.
"Cut-Off Date" means the date that shall be used to calculate the
------------
Mortgage Loan Purchase Price, which shall be September 1, 1998, unless the
Seller and the Buyer mutually agree on another date.
"Disclosure Data" means the information provided by the Seller to the
---------------
Buyer relating to the Mortgage Loans.
"Final Mortgage Loan Schedule" means the mortgage loan schedule to be
----------------------------
attached to the Bill of Sale in accordance with Article II.
----------
"HOEPA" means the Home Ownership Equity Protection Act and the
-----
regulations promulgated thereunder.
"Insurer" means the Federal Housing Administration, the Veterans
-------
Administration or any private mortgage insurer that insures or guarantees any of
the Mortgage Loans, as well as any provider of life, hazard, disability or other
insurance with respect to any Mortgage Loan or Mortgaged Property.
"Mortgage" means the mortgage, deed of trust or other instrument
--------
creating a first lien on residential real property securing a Mortgage Note, as
further identified in the Mortgage Loan Schedule or Final Mortgage Loan
Schedule.
<PAGE>
"Mortgage File" means, with respect to each Mortgage Loan included on
-------------
the Final Mortgage Loan Schedule, the items referred to in Paragraph B of
-----------
Article V.
- ---------
"Mortgaged Property" means the property securing a Mortgage Note.
------------------
"Mortgage Loan" means any loan, evidenced by a Mortgage Note and
-------------
secured by a Mortgage on one-to-four family residential real property, described
on the Mortgage Loan Schedule and thereby made subject to this Agreement.
"Mortgage Loan Percentage Amount" means the percentage set forth in
-------------------------------
the funding schedule between the Buyer and the Seller dated September 15, 1998
(the percentage thereof in excess of 100%, the "Premium Percentage"); provided,
however, for purposes of computing the Mortgage Loan Repurchase Price, the
Mortgage Loan Percentage Amount shall be determined as follows:
<TABLE>
<S> <C>
If Repurchase Occurs During Mortgage Loan Percentage
the Indicated Month After the Amount will be the sum of 100%
Closing Date plus the following:
Month: 0-6, inclusive 100% of the Premium Percentage
7-12, inclusive 75% of the Premium Percentage
13-18, inclusive 50% of the Premium Percentage
19-24, inclusive 25% of the Premium Percentage
25 and thereafter 0%
</TABLE>
"Mortgage Loan Purchase Price" means the sum of (i) the Book Value of
----------------------------
the Mortgage Loans to be purchased by the Buyer as set forth on the Final
Mortgage Loan Schedule, multiplied by the Mortgage Loan Percentage Amount and
(ii) interest on the Book Value of each Mortgage Loan accrued at the interest
rate borne by such Mortgage Loan from the Cut-Off Date to but not including the
Closing Date.
"Mortgage Loan Repurchase Price" shall have the meaning given in
------------------------------
Paragraph F(ii)(a) of Article IV hereof.
- ------------------ ----------
"Mortgage Loan Schedule" means the mortgage loan schedule, attached as
----------------------
Exhibit B hereto, setting forth the following information concerning each
- ---------
Mortgage Loan: street address of the Mortgaged Property (including state and
zip code), name of the Mortgagor(s), unpaid principal balance as of close of
business on the Cut-Off Date, last payment due date preceding the Cut-Off Date
in respect of which a payment of principal and interest was made, status as a
first lien, original loan amount, loan number, maturity date, mortgage interest
rate as of the Cut-Off Date, required monthly payment of principal and interest
as of the Cut-Off Date, Current Loan-to-Value Ratio, property type, occupancy
status, appraised value, the Pool of which such Mortgage Loan forms a part, and
whether the Mortgage Loan is subject to HOEPA.
"Mortgage Note" means the original executed note evidencing the
-------------
indebtedness of a Mortgagor(s) under a Mortgage Loan.
<PAGE>
"Mortgagor" means the current and unreleased obligor(s) on a Mortgage
---------
Note.
"Paying Party" shall have the meaning given in Paragraph E of Article
------------ ----------- -------
II hereof.
- --
"Pool" means one pool of Mortgage Loans which are to be purchased and
----
sold hereunder, such pools being designated as A.
"Servicing Documents" means, to the extent not already included in the
-------------------
Credit File or the Mortgage File, any credit and closing packages, custodial
documents, servicing documents, escrow documents, Mortgage documents, and all
other files, records, documents and computer data and tapes necessary to service
a Mortgage Loan.
"Servicing Transfer Date" means October 2, 1998, or such other date as
-----------------------
the Buyer and the Seller may mutually agree in writing.
"Substitute Mortgage Loan" shall have the meaning given in Paragraph F
------------------------ -----------
of Article IV hereof.
----------
"Substitution Date" shall have the meaning given in Paragraph F of
----------------- -----------
Article V hereof.
- ---------
ARTICLE II
----------
PURCHASE AND SALE OF THE MORTGAGE LOANS
A. Agreement to Sell and Purchase Mortgage Loans. On the Closing Date,
---------------------------------------------
the Seller agrees to sell, and the Buyer agrees to purchase, those Mortgage
Loans described in the Mortgage Loan Schedule which are included on the Final
Mortgage Loan Schedule. The Mortgage Loans shall be sold pursuant to the
representations, warranties and covenants of the Seller and the Buyer set forth
in this Agreement.
B. Bill of Sale. On the Closing Date, the Seller shall deliver to the
------------
Buyer a Bill of Sale, in the form of Exhibit A hereto, executed by an authorized
---------
representative of the Seller as evidenced by certified resolution(s) of the
Board of Directors of the Seller (if the Seller is a corporation) and by
certified authorizing documents for the Seller (if the Seller is not a
corporation), in form and substance satisfactory to the Buyer, to be delivered
at the Closing, which Bill of Sale shall sell, transfer, assign, set-over and
convey to the Buyer or its designee each of the Mortgage Loans, to which shall
be attached as an exhibit the Final Mortgage Loan Schedule identifying the
Mortgage Loans conveyed to the Buyer, and setting forth the Mortgage Loan
Purchase Price for such Mortgage Loans.
C. Mortgage Loan Schedule. Attached hereto is a Mortgage Loan Schedule
----------------------
setting forth all of the Mortgage Loans which are the subject of this Agreement.
On or prior to the Closing Date, the Buyer shall advise the Seller the Mortgage
Loans that do not qualify for sale under this Agreement and the Seller shall
delete such Mortgage Loans from, and provide to the Buyer a copy of, the Final
Mortgage Loan Schedule. The Final Mortgage Loan Schedule shall list
<PAGE>
the Mortgage Loans described in the Mortgage Loan Schedule, except for those
Mortgage Loans which have been removed from the Mortgage Loan Schedule by the
Seller or the Buyer for lack of conformity to the representations and warranties
of the Seller set forth in this Agreement or have been removed by mutual
agreement of the Buyer and the Seller. Only the Mortgage Loans described in the
Final Mortgage Loan Schedule shall be conveyed to the Buyer, and the Mortgage
Loan Purchase Price shall be calculated only with respect to such Mortgage
Loans.
D. Payment for Mortgage Loans. The Buyer shall pay to the Seller, on the
--------------------------
Closing Date, by wire transfer in immediately available funds, to an account
specified in writing by and for the credit of the Seller, the Mortgage Loan
Purchase Price. The Seller agrees that payment as aforesaid shall constitute
payment to it of the Mortgage Loan Purchase Price and shall acknowledge receipt
thereof in writing on the Closing Date. In computing the Mortgage Loan Purchase
Price, for the purpose of determining the Book Value of any Mortgage Loan as of
the Cut-Off Date: (i) principal payments due and payable on or before the Cut-
Off Date shall be applied only if received on or before the Cut-Off Date; and
(ii) principal payments which are due and payable after the Cut-Off Date shall
not be applied to the related Mortgage Loan until after the Cut-Off Date
notwithstanding the date of receipt. The Seller shall hold any principal
payments to be applied after the Cut-Off Date for the account of the Buyer and
shall immediately deliver such payments to the Buyer. All payments by
Mortgagors of interest accrued, whether paid or unpaid, before the Cut-Off Date
and all payments of interest by Mortgagors due on and after the Cut-Off Date
shall belong to the Buyer and the Seller shall immediately deliver any payments
thereof received by it. Except as provided below with respect to Defective
Mortgage Loans, all other payments made by Mortgagors shall belong to the Buyer.
E. Adjustments to Mortgage Loan Purchase Price. Upon written notice
-------------------------------------------
given by either party to the other no later than thirty (30) days following the
date on which such servicing is transferred to the Buyer, the Mortgage Loan
Purchase Price shall be adjusted to reflect changes resulting from
miscalculations of interest and principal or other accounting errors reflected
in the Mortgage Loan Purchase Price. The party benefitting from such errors
(the "Paying Party") shall pay an amount sufficient to correct and reconcile the
Mortgage Loan Purchase Price and shall provide such documentation as is
reasonable and necessary to satisfy the other party that the Mortgage Loan
Purchase Price has been corrected and reconciled. Such payment shall be made by
the Paying Party within thirty (30) days following the date on which the written
notice required herein was first received by the Paying Party.
F. Examination of the Mortgage Files. Prior to the Closing Date, the
---------------------------------
Buyer or its designee may examine the Mortgage Files under the supervision of
the Seller or its designee; provided however, that (a) each date on which such
----------------
examination shall occur shall be a Business Day, and (b) such examination shall
take place during the normal business hours of the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
<PAGE>
A. Authority. The Buyer represents that it is a corporation duly and
---------
validly existing under the laws of the State of New York, and is duly and
legally authorized to enter into this Agreement, and that its undersigned
representative is authorized to act on behalf of and bind the Buyer to the terms
of this Agreement.
B. Enforceability. The Buyer represents and warrants that, assuming due
--------------
authorization, execution and delivery by each other party hereto, this Agreement
and all of the obligations of the Buyer hereunder are the legal, valid and
binding obligations of the Buyer, enforceable in accordance with the terms of
this Agreement, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
C. Other Representations.
---------------------
a. The Buyer changed its corporate name from Countrywide Funding
Corporation to Countrywide Home Loans, Inc., effective on March 11, 1996.
b. The Buyer has conducted its business under the fictitious or
assumed name America's Wholesale Leader and, in connection therewith, has filed
or caused to be filed all necessary documents and certificates to properly,
validly and legally authorize the transaction of business by the Seller under
the name America's Wholesale Lender.
ARTICLE IV
-----------
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE SELLER
A. General Representations, Warranties and Covenants. The Seller hereby
-------------------------------------------------
represents and warrants that:
(1) The Seller is a federally chartered savings bank duly organized,
validly existing and in good standing under the laws of the United States. The
Seller has full power and authority (corporate, partnership and trust, as the
case may be, and regulatory) to own its properties and conduct its business, as
presently conducted by it, and to enter into and perform its obligation under
this Agreement and the Servicing Transfer Addendum, if any (together, the
"Agreements"). The Seller holds all licenses and permits necessary to carry on
its business as now being conducted, and is licensed in, qualified to transact
business in, in good standing under, and in compliance with, the laws of each
state where necessary in order to own and service the Mortgage Loans and perform
its obligations under the Agreements.
(2) The Seller has taken all necessary action to authorize its
execution, delivery and performance of the Agreements and has the power and
authority to execute, deliver and perform the Agreements and all the
transactions contemplated hereby, including, but not limited to, the authority
to sell, assign and transfer the Mortgage Loans in accordance with this
Agreement and to perform its obligations under this Agreement; and assuming due
authorization,
<PAGE>
execution and delivery by each other party thereto, the Agreements and all the
obligations of the Seller thereunder are the legal, valid and binding
obligations of the Seller, enforceable against the Seller in accordance with the
terms of the Agreements, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law); and
(3) The execution and delivery of the Agreements and the performance
of its obligations thereunder by the Seller will not conflict with any provision
of any law or regulation to which the Seller is subject or conflict with or
result in a breach of or constitute a default under any of the terms, conditions
or provisions of the Seller's organizational and governing documents or any
agreement or instrument to which the Seller is a party or by which the Seller is
a party or by which it is bound or any order or decree applicable to the Seller
or result in the creation or imposition of any lien on any of its assets or
property which would adversely affect the ability of the Seller to carry out the
terms of this Agreement; and the Seller has obtained any consent, approval,
authorization or order of any court or governmental agency or body required for
the execution, delivery and performance by the Seller of the Agreements.
(4) The Seller hereby further represents and warrants that there is no
action, suit or proceeding pending against the Seller in any court or by or
before any other governmental agency or instrumentality which seeks to prohibit
the Seller from entering into this Agreement or which would adversely affect the
ability of the Seller to carry out the transactions contemplated by this
Agreement or would materially and adversely affect the condition (financial or
otherwise) or operations of the Seller.
(5) The Seller is the beneficial owner of the Mortgage Loans
identified on the Mortgage Loan Schedule, free and clear of any encumbrance of
any kind, and no other person claims an ownership interest in, security interest
in, or right to acquire any of the Mortgage Loans. Upon recordation of all
assignments previously sent by the Seller for recordation, the record title of
no Mortgage Loan will be in an entity other than the Seller.
(6) The Seller shall, pursuant to Paragraph B of Article V, endorse in
----------- ---------
blank and deliver to the Buyer or its designee at the Closing each of the
Mortgage Notes, and shall execute in favor of the Buyer or its designee and
deliver to the Buyer or its designee at the Closing an individual assignment in
blank of each of the Mortgage Notes and related Mortgages in recordable form;
provided, however, where record title to a Mortgage Loan is in an assumed
- -------- -------
fictitious name of the Seller, the Seller, acting pursuant to duly authorized
officers, shall execute and deliver such endorsements and assignments to
properly reflect such assumed or fictitious name and to make such endorsements
and assignments legal, valid and enforceable.
(7) The Seller shall also provide the Buyer at the Closing with (i)
certified copies of its federal charter and by-laws and all amendments thereto
(or certified copies of its organizational and other governing documents if the
Seller is not a corporation); (ii) a certificate of good standing of a recent
date issued by Office of Thrift Supervision; (iii) an opinion of counsel to the
Seller in form and content satisfactory to the Buyer; (vi) certified extracts of
resolutions of its Board of Directors or other authorizing documents, as the
case may be, authorizing this
<PAGE>
Agreement and any other related documents or agreements relating to the
transaction contemplated herein (including appropriate authorizing documents for
officers of record owners of the Mortgage Loans if different from the Seller),
in each case in form and content satisfactory to the Buyer; and (v) a
certificate of incumbency and authority for its officers or other
representatives executing this Agreement, the Bill of Sale and any related
assignments and endorsements.
(8) The Seller is an approved Federal Housing Administration lender.
(9) The Seller has not retained the services of a broker and has not
agreed to pay any broker's fee upon the Closing of this Agreement. The Seller
agrees to defend and hold the Buyer harmless and indemnify the Buyer from any
claim, demand, cause of action or judgment which may arise as a result of any
broker retained by or asserting claims by or through the Seller. The indemnity
and hold harmless by the Seller hereunder shall include all costs and expenses
that may be incurred by the Buyer, including without limitation its attorneys'
fees.
(10) The Seller expressly understands and agrees that the Buyer is
relying on the representations, warranties and covenants of the Seller, and not
on the Buyer's limited examination, investigation and review of the Mortgage
Files, in entering into this Agreement and consummating the purchase of the
Mortgage Loans contemplated hereby, and no information or documents known or
available to the Buyer shall modify or diminish the Seller's representations,
warranties and covenant's set forth in this Agreement or affect the Buyer's
rights or the Seller's obligations as a result of an inaccuracy in any
representation or warranty or breach of any covenant of the Seller.
(11) No certificate of an officer, statement furnished in writing,
report or electronic tape delivered pursuant to the terms hereof by the Seller
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make the certificate,
statement or report not misleading.
(12) Upon the receipt of each Mortgage Loan on the Closing Date, the
Buyer will have good title (beneficial and record) to such Mortgage Loan, free
and clear of any lien (other than liens which will be simultaneously released).
(13) The origination and servicing practices used by the Seller and,
with respect to servicing practices, any of its subservicers, with respect to
the Mortgage Loans have been, in all material respects, legal, proper, prudent
and customary in residential lending and servicing business.
(14) The transactions contemplated by this Agreement are in the
ordinary course of business of the Seller.
(15) Completion by the Buyer or its designee of the in blank
endorsements and assignments of the Mortgage Notes and Mortgages, respectively,
is expressly authorized hereby and such completion after the Closing will not
render such endorsements ineffective, invalid, illegal or unenforceable.
<PAGE>
B. Representations and Warranties as to Each Mortgage Loan. The Seller
-------------------------------------------------------
hereby represents and warrants, as to each Mortgage Loan sold hereunder, as of
the date hereinbelow specified or, if no such date is specified, then as of the
Closing Date (or, with respect to any Substitute Mortgage Loan, as of the
Substitution Date) that:
(1) All Disclosure Data has been disclosed to the Buyer before the
execution of this Agreement, and all such Disclosure Data, as well as the
information with respect to each Mortgage Loan set forth on the Mortgage Loan
Schedule(s), is true and correct to the best of the Seller's knowledge as of the
date thereof;
(2) (a) Prior to the transfer and assignment of each Mortgage Loan
to the Buyer or its designee, the Seller held good and indefeasible title to,
and was the sole owner and holder of such Mortgage Loan subject to no liens,
charges, mortgages, encumbrances or rights of others other than liens which will
be or were, as the case may be, released simultaneously with such transfer and
assignment; and immediately upon the transfer and assignment herein
contemplated, the Buyer will hold good and indefeasible title to, and will be
the sole owner of, each Mortgage Loan subject to no liens, charges, mortgages,
encumbrances or rights of others other than liens which will be released
simultaneously with such transfer and assignment; and the Seller has full
authority, right and power to sell and assign such Mortgage Loan to the Buyer;
(b) The balance on such Mortgage Loan is free from arithmetic
error;
(c) There exists no defense to the enforceability of the Mortgage
Loan's obligations; and there is no offset, right of rescission, defense or
counterclaim to any Mortgage Note or Mortgage, including the defense of usury;
(d) Such Mortgage Loan complies with, or is exempt from,
applicable state or federal laws, regulations and other requirements pertaining
to usury; and any and all other requirements of any federal, state or local law,
including, without limitation, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to such Mortgage Loan (including all notices required by HOEPA),
have been complied with;
(e) The related Mortgage Note, related Mortgage and other
agreements executed in connection therewith 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 bankruptcy,
insolvency, reorganization or other similar law affecting the enforcement of
creditors' rights generally and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law), and
all parties to each Mortgage Loan had full legal capacity to execute all
documents relating to such Mortgage Loan and to convey the estate therein
purported to be conveyed and each Mortgage and Mortgage Note have been duly and
properly executed by such parties;
(f) The Seller is transferring such Mortgage Loan free and clear
of any and all liens, pledges, charges or security interests of any nature
encumbering such Mortgage
<PAGE>
Loan and free and clear of any right to repurchase such Mortgage Loan by such
Seller or any other party;
(g) The related Mortgage is a valid, perfected and enforceable
first lien on the related Mortgaged Property, which Mortgaged Property is free
and clear of all encumbrances and liens having priority over the first lien of
the Mortgage except for (i) liens for real estate taxes and special assessments
not yet due and payable, (ii) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date of recording of
such Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally or specifically reflected in the appraisal made
in connection with the origination of the related Mortgage Loan, and (iii) other
matters to which like properties are commonly subject which do not, individually
or in the aggregate, materially interfere with the benefits of the security
intended to be provided by such Mortgage; and each original Mortgage was
recorded, and all subsequent assignments of the original Mortgage have been
recorded or sent for recording in the appropriate jurisdictions;
(h) Except as evidenced by an appropriate written amendment or
modification that has been executed and recorded and a certified copy of which
is contained in the related Mortgage File, neither the Seller nor any prior
holder of the Mortgage Loan has impaired, altered or modified the related
Mortgage or Mortgage Note in any respect; and the substance of any such
alteration or modification is reflected on the Mortgage Loan Schedule;
(i) The related Mortgage or Mortgage Note has not been satisfied,
canceled or subordinated in whole or in part; and no portion of the Mortgaged
Property has been released from the lien of the Mortgage;
(j) Neither the Seller nor any prior holder of the Mortgage Loan
has advanced funds or received any advance of funds by a party other than the
Mortgagor(s) directly or indirectly, for the payment of any amount required by
the related Mortgage Note or the related Mortgage, except for interest accruing
from the date of the Mortgage Note or date of disbursement of the Mortgage Loan
proceeds, whichever is later, to the date which precedes by thirty (30) days the
first due date under the related Mortgage Note;
(k) The proceeds of the Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder; all costs, fees and
expenses incurred in making or closing or recording such Mortgage Loan were
paid;
(l) Such Mortgage Loan is covered by an American Land Title
Association mortgagee title insurance policy or other generally acceptable form
of title insurance policy issued by, and is the valid and binding obligation of,
a solvent title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, insuring the Seller, its successors and
assigns, as to the first priority lien of the Mortgage in the original principal
amount of the Mortgage Loan, as increased by deferred and capitalized interest,
if applicable. Any such title policy was effective on the date of the
origination of the Mortgage Loan and is assignable to or endorsable in favor of
the Buyer or its designee without the consent of or notice to the insurer. On
the date of the transfer and assignment of the Mortgage Loan to the Buyer or
<PAGE>
its designee, such title insurance policy is valid and in full force and effect,
with all premiums thereon having been paid, and immediately following the
transfer and assignment of such Mortgage Loan to the Buyer or-its designee, such
title insurance policy will inure to the benefit of the Buyer or its designee.
Neither the Seller nor any prior holder of the Mortgage has made any claim under
such title insurance policy, and no act or omission has occurred that would
impair or extinguish the coverage provided by such policy. The name of the
Mortgagor on each such policy matches the name of the Mortgagor on the related
Mortgage;
(m) The related Mortgage Note is payable in substantially level
and equal monthly installments, so as to result in complete amortization of the
Mortgage Loan over the stated term, which stated term does not exceed 360
months;
(n) Such Mortgage Loan is secured by a Mortgage on a single
family residential real property or other type of residential property as set
forth on the Mortgage Loan Schedule;
(o) Each Mortgage Note is in a form that is acceptable to prudent
mortgage lenders which make mortgage loans comparable to the Mortgage Loans;
(p) As of the Closing Date, no payment required under any
Mortgage Loan was past due more than twenty-nine (29) days;
(q) There is no pending or, to the best knowledge of the Seller,
threatened suit, action, litigation or claim of any kind by the Mortgagor(s)
relating to the Mortgage Loan;
(r) Any security agreement, chattel mortgage or equivalent
document related to such Mortgage Loan establishes in the Seller a valid first
lien on the property described therein and the Seller has full right to sell and
assign the same hereunder;
(s) To the best knowledge of the Seller, all taxes, governmental
assessments, insurance premiums, and water, sewer and municipal charges which
previously became due and owing in respect of the related Mortgaged Property
have been paid, or an escrow of funds in an amount sufficient to cover such
payments has been established;
(t) There is no proceeding pending or, to the best knowledge of
the Seller, threatened for the total or partial condemnation of the related
Mortgaged Property and the Mortgaged Property is in good repair and is undamaged
by waste, fire, earthquake, earth movement, windstorm (including a hurricane),
flood, tornado or other casualty;
(u) The related Mortgaged Property is free and clear of all
mechanics' and materialmen's liens or liens in the nature thereof, and no rights
are outstanding that under law could give rise to any such liens, any of which
liens are or may be prior to, or equal with the lien of the Mortgage;
<PAGE>
(v) To the best knowledge of the Seller, all of the improvements
which were included for the purpose of determining the appraised value of the
related Mortgaged Property at the time of the origination of the Mortgage Loan
lie wholly within the boundaries and building restriction lines of such
property, and no improvements on adjoining properties encroach upon such
Mortgaged Property;
(w) To the best knowledge of the Seller, no improvement located
on or forming part of the related Mortgaged Property is in violation of any
applicable zoning and subdivision laws and ordinances; to the best of the
Seller's knowledge, all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of each Mortgaged Property
and, with respect to the use and occupancy of the same, have been made or
obtained from the appropriate authorities and such Mortgaged Property is
lawfully occupied under the applicable law;
(x) To the best of the Seller's knowledge, to the extent required
under applicable taw, each originator and subsequent mortgagee was authorized to
transact and do business in the jurisdiction in which the related Mortgaged
Property is located at all times when it held the Mortgage Loan;
(y) If upon origination of the Mortgage Loan, the Mortgaged
Property was in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards (and the flood
insurance described below has been made available), a flood insurance policy
meeting the requirements of the current guidelines of the Federal Insurance
Administrator is in effect with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (A) the unpaid principal
balance of the Mortgage Loan, (B) the full insurable value of the Mortgaged
Property or (C) the maximum amount of insurance which was available under the
Flood Disaster Protection Act of 1973;
(z) Such Mortgage Loan obligates the Mortgagor thereunder, at his
cost and expense, to maintain a hazard insurance policy with a standard
mortgagee clause and, if it was in place at origination of the Mortgage Loan,
flood insurance, at the Mortgagor's cost and expense. At the Closing Date, the
improvements upon each Mortgaged Property are covered by a valid and existing
hazard insurance policy with a carrier licensed in the state in which the
Mortgaged Property is located that provides for fire and extended coverage
representing coverage not less than the least of (A) the outstanding principal
balance of the related Mortgage Loan, and (B) the minimum amount required to
compensate for loss or damage on a replacement cost basis, or (C) the full
insurable value of the Mortgaged Property. All individual insurance policies are
the valid and binding obligation of the insurer and contain a standard mortgage
clause naming the Seller, its successors and assigns, as mortgagee. All premiums
then due thereon have been paid;
(aa) Except for payments past due less than thirty (30) days as
permitted by clause (p) above, there is no default, breach, violation or event
of acceleration existing under the related Mortgage or the related Mortgage Note
and no event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration; and neither the servicer nor the Seller has waived any
default, breach, violation or event of acceleration; except that the servicer or
the Seller may have
<PAGE>
heretofore waived late payments or granted extensions of payments (none of which
extensions are material);
(bb) The related Mortgage Note or the related Mortgage contains
customary and enforceable provisions such as to render the rights and remedies
of the holder thereof adequate for the realization against the Mortgaged
Property of the benefits of the security, including realization by judicial or,
if applicable, trustee's sale or non-judicial foreclosure, and any homestead or
other exemption available to the Mortgagor which would interfere with such right
to foreclose or sell has been effectively waived;
(cc) There are no "white outs" on any Mortgage Note or Mortgage
and all corrections thereon, or any other documents in the Mortgage File or on
any other document required by law referred to in clause (d) above, if any, have
been properly approved in writing by the Mortgager.
(dd) Each Mortgage Loan is being serviced by the Seller pursuant
to a sub-servicing agreement between it and Ocwen Federal Bank, FSB, which sub-
servicing agreement permits the transfer of servicing of the Mortgage Loans in
accordance with this Agreement at no cost to the Buyer.
(ee) No Mortgage Loan had more than one delinquency during the
12-month period immediately preceding the Cut-Off Date and any such delinquency
extended for no more than 59 days;
(ff) The Seller has caused and will cause to be performed any and
all acts required to be performed to preserve the rights and remedies of the
Buyer or its designee in any hazard, title or flood insurance policies
applicable to any of the Mortgage Loans delivered by the Seller to the Buyer
including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of co-insured,
joint loss payee and mortgagee rights in favor of the Buyer;
(gg) To the best knowledge of the Seller, no Mortgage Loan was
originated under a buydown plan;
(hh) No Mortgage Loan has a shared appreciation feature, or other
contingent interest feature;
(ii) Each Mortgage contains a provision for the acceleration of
the payment of the unpaid principal balance of the related Mortgage Loan in the
event the related Mortgaged Property is sold without the prior consent of the
mortgagee thereunder and such provision is enforceable to the extent permitted
by applicable law;
(jj) Any advances made after the date of origination of a Mortgage
Loan but prior to the Cut-Off Date have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term
reflected on the Mortgage Loan Schedule. The
<PAGE>
consolidated principal amount does not exceed the original principal amount
of the related Mortgage Loan. No Mortgage Note permits or obligates the servicer
to make future advances to the related Mortgagor at the option of the Mortgagor;
(kk) 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 Buyer to the trustee under
the deed of trust, except in connection with a trustee's sale after default by
the related Mortgagor;
(ll) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released, in whole
or in part;
(mm) The Credit File contains an appraisal of the related
Mortgaged Property signed prior to the approval of the Mortgage Loan application
by an appraiser duly appointed by the Seller (i) who meets the minimum requisite
qualifications of Federal National Mortgage Association for appraisers, (ii)
that had no interest, direct or indirect, in the Mortgaged Property, and (iii)
whose compensation is not affected by the approval or disapproval of the
Mortgage Loan; and such appraisal and appraiser comply substantially with the
requirements set forth in the Seller's underwriting guidelines;
(nn) Each Mortgage Loan was underwritten substantially in
accordance with the Seller's underwriting guidelines and other requirements set
forth in the Seller's Manual dated June 1, 1998, a complete copy of which has
been provided to the Buyer.
(oo) As of the Closing Date, the Seller has no actual knowledge
that there exists on any Mortgaged Property any hazardous substances, hazardous
wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation. For purposes of this Clause (oo), actual knowledge of the Seller
means actual knowledge of an officer of the Seller involved in the servicing of
the related Mortgage Loan. Actual knowledge of the Seller does not include
knowledge imputable by virtue of the availability of or accessibility to
information relating to environmental or hazardous waste sites or the locations
thereof;
(pp) All parties which have had any interest in any Mortgage Loan
prior to their sale on the Closing Date, whether as mortgagee, assignee, pledgee
or otherwise, are (or, during the period in which they held and disposed of such
interest, were) (1) in compliance with any and all applicable licensing
requirements of the laws of the state wherein the Mortgaged Property is located,
and (2) (A) organized under the laws of such state, or (B) qualified to do
business in such state, or (C) federal savings and loan associations or national
banks having principal offices in such state, or (D) not doing business in such
state so as to require qualification or licensing;
<PAGE>
(qq) Any Mortgage Loan which is secured by a leasehold estate
conforms to the requirements of Federal National Mortgage Association for
mortgage loans secured by leasehold estates; and no Mortgagor under any Mortgage
Loan is an Illinois land trust;
(rr) As of the Cut-Off-Date, no Mortgage Loan is a bankruptcy
loan in which the Mortgagor is subject to bankruptcy proceedings;
(ss) Each Credit File contains an appraisal and no appraisal for
a Mortgage Loan was based solely upon a cost approach analysis;
(tt) Reserved;
(uu) No fraud was committed, nor was any material
misrepresentation made, by the Seller, by any employee, agent or representative
of the Seller, or to the-best knowledge of the Seller, by any other person,
including without limitation the related Mortgagor, in connection with the
origination of the Mortgage Loan.
C. Additional Representations and Warranties. The Seller hereby makes,
-----------------------------------------
with respect to each Mortgage Loan sold hereunder, each additional
representation and warranty, if any, set forth in Addendum A attached hereto.
----------
D. Reserved.
E. Remedy to Insure Accuracy of Real Estate Appraisals. Buyer may, at
---------------------------------------------------
its own expense, in order to verify the accuracy of real property appraisals
prepared for Seller, order a reappraisal of the property secured by a Mortgage.
If the reappraisal obtained by Buyer indicates a fair market value which is more
than fifteen (15%) percent less than the original appraisal value, then no later
than October 30, 1998, upon receipt by Seller from Buyer of a signed copy of the
reappraisal, Seller shall repurchase the Mortgage Loan at the Mortgage Loan
Repurchase Price and reimburse Buyer for the cost of the appraisal subject to
the following: If Seller disputes the validity of the reappraisal prepared by
Buyer's appraiser, Seller may, at its own expense, request Buyer to obtain a
third appraisal, and only if such third appraisal is also more than fifteen
(15%) percent less than the original appraisal value shall the Seller be
required to repurchase the Loan at the Mortgage Loan Repurchase Price. Buyer
shall choose the appraiser for the third appraisal with Seller's approval, which
shall not be unreasonably withheld, but such appraiser must possess the minimum
qualifications specified in Buyer's Underwriting Guidelines. The appraisal must
be performed in accordance with industry standards for the appraising industry
in the area in which the property is located, and the appraiser must be
independent with respect to both parties unless otherwise agreed to by the
parties. In determining the appropriate appraisal value, the review appraiser
must determine the appraised value as of the original appraisal date using
comparable sales that were available as of the date of the original appraisal.
However, anything to the contrary notwithstanding, the Buyer reserves
the sole right not to request the Seller to repurchase the Mortgage Loan should
the reappraisal cause the combined loan-to-value not to exceed the maximum
allowable combined loan-to-value of the loan class under which the loan was
purchased.
<PAGE>
F. Remedies Upon Breach.
--------------------
(1) Upon discovery by the Buyer or the Seller of an inaccuracy or a
breach of (I) any of the Seller's representations and warranties set forth in
Paragraph A(xv) or Paragraph B(ii)(c), (e) or (f) of this Article IV, or (II)
- --------------- ------------------------------ ----------
any of the Seller's other representations and warranties set forth in this
Article IV which materially and adversely affects the value of any Mortgage Loan
- ----------
owned by the Buyer or the interests of the Buyer, the party discovering such
breach shall give prompt written notice of such breach to the other party.
(2) Within 55 days of its discovery or its receipt of notice of any
such inaccuracy or a breach, the Seller, at its election, shall (I) cure such
inaccuracy or breach in all material respects, or shall either (II) repurchase
the affected Mortgage Loan pursuant to Subparagraph (a) below, or (III)
----------------
substitute a Substitute Mortgage Loan for the affected Mortgage Loan pursuant to
Subparagraph (b) below:
- ----------------
(a) If the Seller elects to repurchase an affected Mortgage Loan, the
Seller shall repurchase such affected Mortgage Loan, on a whole loan, servicing
released basis, at a price (the "Mortgage Loan Repurchase Price") equal to the
principal balance of such Mortgage Loan multiplied by the Mortgage Loan
Percentage Amount, plus accrued interest on such principal balance at the
interest rate borne by such Mortgage Loan through the date of repurchase. The
Seller shall pay such price on the repurchase date to the Buyer in immediately
available funds to the account designated by the Buyer. In connection with any
repurchase of a Mortgage Loan hereunder by the Seller and as a condition to the
payment of the Mortgage Loan Repurchase Price, the Buyer shall tender to the
Seller all portions of the Mortgage File and Credit File with respect to such
Mortgage Loan previously delivered to the Buyer, and each document that
constitutes a part of the Mortgage File and the Credit File, and which was
endorsed or assigned to the Buyer as required by Article V, shall be endorsed
---------
and assigned to the Seller without recourse and without any representations or
warranties whatsoever, express or implied, except as set forth in the last
sentence of this Subparagraph (a). Additionally, the Buyer shall cause to be
----------------
re-assigned and turned over to the Seller all escrow and impound accounts
relating to the re-assigned Mortgage Loan(s). With respect to any Mortgage Loan
repurchased by the Seller from the Buyer as aforesaid, the Buyer warrants on the
date of such repurchase that the Mortgage Loan is free and clear of any and all
claims to the title thereof or encumbrances created by the Buyer or any assignee
of the Buyer and has not been assigned on such date by the Buyer to any other
person.
(b) The Seller may elect to substitute for an affected Mortgage Loan a
different mortgage loan (a "Substitute Mortgage Loan"), maturing no later than
and not more than one year earlier than the Mortgage Loan being substituted for
and having a principal balance equal to or less than, an interest rate equal to
or greater than, that of such affected Mortgage Loan and otherwise having such
characteristics that the representations and warranties of the Seller would not
have been incurred had such Substitute Mortgage Loan originally been a Mortgage
Loan. In the event that the principal balance of such Substitute Mortgage Loan
is less than the principal balance of the affected Mortgage Loan, the Seller, no
later than the date on which it delivers the related Mortgage File to the Buyer
(the "Substitution Date"), shall pay to the Buyer the amount by which the
principal balance of the affected Mortgage Loan exceeds the
<PAGE>
principal balance of the Substitute Mortgage Loan, in both cases as of the
Substitution Date, multiplied by the Mortgage Loan Percentage Amount. Payments
of principal and interest made in respect of the month of substitution with
respect to such affected Mortgage Loan will be the property of the Seller and
payments of principal and interest made in respect of the month of substitution
with respect to such Substitute Mortgage Loan will be the property of the Buyer.
In connection with the substitution of a Substitute Mortgage Loan hereunder, the
Seller shall tender to the Buyer the Mortgage File and Credit File relating to
such Substitute Mortgage Loan in the form and in the manner required by Article
-------
V hereof. In addition, and as a condition to the Seller's tender of the
- -
Mortgage File and Credit File relating to the Substitute Mortgage Loan, the
Buyer shall tender to the Seller all portions of the Mortgage File and Credit
File with respect to the Mortgage Loan previously delivered to the Buyer, and
each document that constitutes a part of the Mortgage File and the Credit File,
and which was endorsed or assigned to the Buyer as required by Article V hereof,
---------
shall be endorsed and assigned to the Seller without recourse and without any
representations or warranties whatsoever, express or implied, except as set
forth in the last sentence of Paragraph F(ii)(a) of this Article IV.
------------------ ----------
(c) Notwithstanding anything contained herein to the contrary, the
Seller agrees at its sole cost to cure in a manner satisfactory to the Buyer the
exceptions set forth on Exhibit C hereto with respect to the Mortgage Loans
---------
identified thereon no later than October 2, 1998. In the event that the Seller
fails to cure the exception(s) relating to a Mortgage Loan on or before October
2, 1998, then, upon the request of the Buyer, the Seller agrees to repurchase
any such Mortgage Loan at the Mortgage Loan Repurchase Price in the manner
provided in Paragraph F(ii)(a) of this Article IV. The Seller acknowledges that
------------------ ----------
the original documents relating to Mortgage Loans identified on Exhibit C which
---------
may be transmitted by or on behalf of the Buyer to the Seller in order for the
Seller to undertake the curative work required by this Paragraph F(ii)(c), shall
------------------
be held by the Seller in trust exclusively for the benefit of the Buyer, and the
Seller shall note in its records that the related Mortgage Loans are owned by
the Buyer and segregate such original documents from its other files and
records, and return all such original documents to the Buyer upon its request.
The curative work to be undertaken by the Seller shall include, without
limitation or exclusion, recordation in the appropriate public filing offices of
the necessary amendatory documents.
(3) The Seller shall defend and indemnify the Buyer, its designee, its
successor servicer, and their representatives, officers, directors, employees,
agents shareholders and affiliates against, and hold each of them harmless from,
any and all losses, liabilities, expenses, claims, demands, costs or judgments
of any type (including without limitation reasonable attorneys' fees) arising
out of the breach of any of the Seller's representations, warranties or
covenants set forth in this Agreement that materially and adversely affects the
value of any one or more Mortgage Loans. The foregoing indemnity shall not be
applicable to claims resulting from the failure of the Buyer or its servicer to
properly service the Mortgage Loans after the Servicing Transfer Date.
G. Non-Solicitation. The Seller agrees that for the time period of 36
----------------
months beginning from the Closing Date, not to take any action to solicit the
Mortgagors individually in order to effect the refinancing of any Mortgage Loans
previously purchased by the Buyer from the Seller. Not by way of limitation or
exclusion, the Seller shall not during such 36 month period
<PAGE>
provide inducements to its brokers to specifically target the Mortgagors for
solicitation, provide a list of such Mortgagors to its brokers or other third
parties or implement any special programs intended to encourage the refinancing
of any such Mortgage Loans. Notwithstanding the foregoing, the provisions of
this Paragraph G shall not restrict the general advertising or marketing
-----------
programs of the Seller which are directed to the pubic at large, nor shall they
restrict Seller from soliciting any Mortgagor of a Mortgage Loan whose name
Seller acquires from a non-affiliated third party that is not prohibited from
selling or disclosing such name to Seller.
ARTICLE V
---------
CLOSING
A. Payment. Payment for the Mortgage Loans shall be made on the Closing
-------
Date no later than 1:00 p.m., C.S.T., in accordance with Paragraph D of Article
----------- -------
II. Conveyance of the Mortgage Files and delivery of the other Closing
- --
Documents required to be delivered by the Seller shall be made against delivery
of the Mortgage Loan Purchase Price. The Closing shall, upon mutual agreement
between the Seller and the Buyer, be either by telephone, confirmed by letter or
wire or conducted in person at the place designated by the Seller and approved
by the Buyer. If no such mutual agreement can be reached, the Closing shall be
conducted in person at the place designated by the Buyer.
B. Assignment and Delivery of Mortgage Files. On or prior to the Closing
-----------------------------------------
Date, the Seller shall deliver to the Buyer the following documents or
instruments with respect to each Mortgage Loan conveyed to the Buyer:
(1) the original Mortgage Note, endorsed by the Seller in blank and,
with respect to Mortgage Loans secured by Mortgaged Property located in the
State of Louisiana, if any, paraphed for identification with the related
assignment by the notary public before whom such assignment was executed;
(2) an assignment, in notarial form acceptable to the Buyer, of the
Mortgage Note and the Mortgage executed by the Seller in blank in recordable
form;
(3) originals or certified copies of all intervening assignments, in
proper form and content, with the recording information indicated thereon;
(4) originals or certified copies of all assumption, modification and
substitution agreements, in proper form and content, with recording information
indicated thereon in those instances where the terms or provisions of the
Mortgage or the Mortgage Note have been modified or the Mortgage or the Mortgage
Note has been assumed;
(5) the original or a certified copy of the Mortgage, including all
Mortgage riders relating to the Mortgage Loan, with the recording information
indicated thereon; and
(6) a mortgagee's title insurance policy issued on the date of the
origination of such Mortgage Loan (with all applicable endorsements) or, in the
event such policy has not yet
<PAGE>
been issued, an unconditional commitment therefor, which policies or commitments
shall meet the requirements of this Agreement and are valid and remain in full
force and effect;
With respect to item (iii), the Seller may deliver, on or prior to the
----------
Closing Date, a certified copy of such document if the original is unavailable
by reason of having been delivered for recording; provided, however, that such
-----------------
recorded document shall be delivered by the Seller to the Buyer or its designee
promptly when and if available to the Seller. With respect to item (v), the
--------
Seller may deliver, on or before the Closing Date, a certified copy of such
document if the original is unavailable by reason of having been recorded;
provided, however, that each such recorded document shall be delivered by the
- -----------------
Seller to the Buyer or its designee promptly when and if available to the
Seller; and in any event the recorded documents required by items (iii) and (v)
shall be delivered by the Seller to the Buyer or its designee within six (6)
months following the Closing Date (such six (6) month period to be extended at
the written request of the Seller, up to but not in excess of an additional six
(6) months in the event of delays caused by the public recording office in
returning such documents to the Seller). The mortgagee title insurance policy
(with all applicable endorsements) required by item (vi) shall be delivered by
the Seller to the Buyer or its designee within ninety (90) days of the Closing
Date. Conveyance of the Mortgage Files to the Buyer or its designee shall be
deemed to occur at such time as the Seller has received payment of the Mortgage
Loan Purchase Price in accordance with Paragraph D of Article II.
----------- ----------
The Buyer shall be solely responsible for the costs of recording the
assignment to the Buyer or its designee from the Seller of any Mortgage Note and
related Mortgage. The Seller shall be solely responsible for recording all
intervening assignments and all assumption, modification and substitution
agreements at their own expense.
C. Delivery of Credit Files. The Buyer (or such agent as the Buyer may
------------------------
designate to the Seller, which agent may be an attorney, escrow agent, delivery
or courier service or any other person or entity) shall take delivery of the
Credit Files on or prior to the Servicing Transfer Date at the place or places
designated by the Seller and approved by the Buyer.
ARTICLE VI
----------
ASSIGNMENT OF RIGHTS TO THIRD PARTIES
With respect to any Mortgage Loan, the Buyer and any subsequent holder
shall have the right, at any time after the Closing, to assign its rights under
this Agreement to any subsequent transferee of such Mortgage Loan.
ARTICLE VII
-----------
SERVICING OF THE MORTGAGE LOANS
A. Release of Servicing. The Mortgage Loans shall be sold and conveyed
--------------------
to the Buyer on a servicing released basis, and, as of the Servicing Transfer
Date, all rights and responsibilities with respect to the servicing of the
Mortgage Loans shall pass to the Buyer, its designee or the successor servicer
designated by it; provided, however, the Seller agrees to timely
-----------------
<PAGE>
prepare and forward to each Mortgagor a Form 1098 and an escrow statement for
the current calendar year to and including the Closing Date.
B. Interim Sub-Servicing by the Seller and Transfer of Servicing to the
--------------------------------------------------------------------
Buyer.
- -----
a. In order to provide for the orderly transition of servicing to
the Buyer, the parties have agreed on the servicing transfer procedures set
forth herein.
b. The transfer of servicing shall occur on October 2, 1998. In
accordance with RESPA Guidelines, the Seller shall mail to each Mortgagor a
notice of assignment, sale or transfer of servicing rights pursuant to the Real
Estate Settlement Procedures Act. On October 3, 1998, the Seller shall transfer
data relating to the Mortgage Loans to the Buyer's servicer pursuant to
procedures previously utilized by the Seller and such servicer in prior whole
loan sales transactions.
c. In connection with the transfer of servicing, all unremitted
payments of principal and interest, and all escrows and impounds, held by the
Seller and pertaining to the Mortgage Loans shall be transferred and turned over
to the Buyer or the Buyer's servicer on or prior to the Servicing Transfer Date.
Such transfer and turn over shall be performed in accordance with the laws of
the state in which the collateral for the related Mortgage Loan is located.
d. The Seller shall cooperate fully with the Buyer or its designee
and shall use reasonable efforts to enable the Buyer or its designee to convert
the Mortgage Loans to the Buyer's or its successor servicer's own servicing
system as soon as possible, and, in any event, before the Servicing Transfer
Date. Without limiting the scope of the foregoing, the Seller shall provide the
following reasonable assistance at the Buyer's or its designee's request:
(1) space at the Seller's processing facilities during normal
business hours to accommodate the reasonable needs of the
Buyer's or its successor servicer's personnel in overseeing
the conversion of the Mortgage Loans;
(2) assistance to the Buyer or its successor servicer in
reviewing and analyzing the Seller and the Service Bureau's
books and records to enable the Buyer or its designee or its
successor servicer to take over the servicing; and
(3) all other assistance reasonably necessary to enable the Buyer
or its successor servicer to take over the servicing.
e. The Seller shall notify the Buyer or its successor servicer of
any questions, complaints, legal notices, or other communications relating to
the foreclosure or material default of a Mortgage Loan that are received by the
Seller.
<PAGE>
f. The Seller shall cooperate fully with the Buyer or its designee
in the physical transfer of the Servicing Documents to the Buyer or its
successor servicer. The Seller, at its own expense, shall make the Servicing
Documents available for transfer to the Buyer or its successor servicer on the
Servicing Transfer Date at the Buyer's offices in Baton Rouge, Louisiana, or at
another location mutually agreeable to the Seller and the Buyer. The Seller
shall make the Servicing Documents available for transfer in an orderly fashion
and in good condition. On the Servicing Transfer Date, the Buyer or its designee
(or such agent as the Buyer or its designee may designate, which agent may be an
attorney, escrow agent, delivery or courier service or any other person or
entity) shall take delivery, at the Buyer's or its designee's expense, of the
Servicing Documents at the Seller's said offices or such other location as is
mutually agreeable to said Seller and the Buyer.
g. Prior to the Servicing Transfer Date, the Seller shall promptly
notify the Buyer or its successor servicer of any Mortgage Loan as to which
litigation is instituted and the status of the litigation related to such
Mortgage Loan and shall provide to the Buyer or its successor servicer copies of
all pertinent information related to such litigation, including, without
limitation, copies of related Servicing Documents, in the Seller's possession.
h. The Seller and the Buyer shall submit for each other's approval
and acceptance any and all documentation, including, without limitation, any
notifications to Mortgagors, which may be required to effectuate the transfer of
servicing with respect to the Mortgage Loans, such approvals and acceptances not
to be unreasonably withheld.
i. Unremitted principal and interest, escrow funds another amounts
or balances related to the Mortgage Loans which are held or controlled by a
Seller on the Servicing Transfer Date shall be transferred by the Seller to the
Buyer or its successor servicer on October 2, 1998. All such funds shall be
reconciled and adjusted within thirty (30) days after the Servicing Transfer
Date. The Seller shall transfer such funds, amounts or balances to such
account(s) at such financial institution(s) designated to the Seller by notice
from the Buyer. The Seller shall have no further dominion or control over such
deposits after they are so transferred.
j. All bills which are in a Seller's possession, which are due and
payable on or prior to the Servicing Transfer Date and which normally would be
paid prior to the Servicing Transfer Date by a servicer shall be paid by said
Seller. All other bills, and all bills which are received after the Servicing
Transfer Date, together with transmittal lists and any other information used to
pay such bills, shall be immediately forwarded by said Seller to the Buyer or
its successor servicer. All penalties and interest due on any Mortgage Loan
resulting from said Seller's failure to pay bills in its possession which are
required to be paid by the Seller pursuant to the preceding sentence, or as a
result of the Seller's failure to forward bill information to the Buyer, shall
be borne by the Seller.
k. The Seller shall provide to the Buyer or its successor servicer
promptly after the Servicing Transfer Date the following information, in each
case as of the Servicing Transfer Date: (a) a ledger accounting as of the
Servicing Transfer Date, which itemizes the dates and amounts of all payments
made, received or applied by the Seller with regard to each Mortgage Loan,
itemizing principal and interest payments, tax payments, special assessments,
<PAGE>
hazard insurance, mortgage insurance premiums, ground rents and other payments;
and (b) a current trial balance. The Seller shall provide to the Buyer or its
successor servicer on the Servicing Transfer Date current master record data on
magnetic tape.
l. The Seller shall promptly endorse and send to the Buyer or its
successor servicer via overnight mail or delivery service any checks or other
funds in respect of any Mortgage Loan which are received by the Seller on and
after October 2, 1998, until sixty (60) calendar days after the Servicing
Transfer Date. Any checks or other funds in respect of any Mortgage Loan which
are received after such 60-day period shall be endorsed promptly by the Seller
to the Buyer or its designee and sent by U.S. Mail to the Buyer or its designee
on a weekly basis.
m. The Seller shall promptly forward to the Buyer or its designee
all Mortgagor correspondence, insurance notices, tax bills or any other
correspondence or documentation related to the Mortage Loans which is received
by the Seller after the Servicing Transfer Date.
n. The Seller shall, where notification is required by the terms of
the applicable policy, certificate or agreement, within thirty (30) calendar
days after the Closing Date, provide written notice of the sale of the Mortgage
Loans to any Insurer and shall send duplicates of such notices to the Buyer or
its designee; provided, however, that said Seller may give aggregate notice
-----------------
whenever possible. Where required by the terms of the applicable insurance
policy insuring one or more Mortgage Loans, the Seller shall use its best
efforts prior to the Servicing Transfer Date to obtain from such Insurer
permission for the transfer of the Servicing to the Buyer or its designee. In
addition, the Seller shall notify tax services and taxing authorities of the
sale of the Mortgage Loans.
o. Except as set forth in Article IV, Paragraph G above, the Seller
---------- -----------
hereby agrees that it will not take any action or cause any action to be taken
by any of its agents or affiliates, or independent contractors working on its
behalf, to personally, by telephone or mail, solicit the prepayment of any
Mortgage Loan by any Mortgagor, in whole or in part, without the prior written
consent of the Buyer.
p. From time to time prior to or after the Servicing Transfer Date,
the Seller shall furnish the Buyer such information and file such reports
supplementary to the information contained in the documents and schedules
delivered pursuant hereto as the Buyer may reasonably request.
q. The Seller shall credit to the account of Mortgagors all interest
required to be paid on any escrow account until the Servicing Transfer Date.
r. All records relating to the Mortgage Loans, including but not
limited to Mortgage Files and Credit Files, as well as any reproductions or
copies of such records furnished for the purposes of performing Services, from
the Closing Date are and shall continue at all times to be the sole and
exclusive property of the Buyer or its designee.
<PAGE>
s. The Seller shall defend and indemnify the Buyer, its designee,
its successor servicer, and their representatives, officers, directors,
employees, agents, shareholders and affiliates against, and hold each of them
harmless from, any and all losses, liabilities, expenses, claims, demands,
costs, or judgments of any type (including without limitation reasonable
attorney's fees) arising out of an actual or alleged negligent or willful
failure of the Seller, any service bureau or any person hired by the Seller to
properly perform any servicing of the Mortgage Loans prior to the Servicing
Transfer Date. The Buyer shall defend and indemnify the Seller, its designee,
its successor servicer, and their representatives, officers, directors,
employees, agents, shareholders an affiliates against, and hold each of them
harmless from, any and all losses, liabilities, expenses, claims, demands,
costs, or judgments of any type (including without limitation reasonable
attorney's fees) arising out of an actual or alleged negligent or willful
failure of the Buyer, any service bureau or any person hired by the Buyer to
properly perform any servicing of the Mortgage Loans after the Servicing
Transfer Date.
t. The Seller agrees to cause its subservicer to comply with all of
the Seller's obligations set forth in Paragraph B of this Article VII and shall
be responsible for any failure to comply or breach by its subservicer.
u. From the Closing Date to the Servicing Transfer Date, the Seller
shall continue to service the Mortgage Loans, as sub-servicer on behalf of the
Buyer or its designee, and shall do all things necessary to perform such
servicing, including without limitation:
(1) preparing and maintaining such books and records as are
appropriate, customary, and necessary with respect to the
servicing;
(2) receiving, processing, and accounting for payments and
credits on the Mortgage Loans, including, without limitation,
administration of, accounting for, and provision of required
notices with respect to, interest rate adjustments, payment
adjustments and conversions of the Mortgage Loans;
(3) making all escrow disbursements in its own name;
(4) responding as appropriate in writing or by telephone to
Mortgagor inquiries, requests, or billing error notices and
making appropriate adjustments with the concurrence of the
Buyer;
(5) collecting past-due Mortgage Loan payments;
(6) providing and handling any guarantor or insurer delinquency
notices in its own name;
(7) providing supplies, telecommunications, and data transmission
and processing equipment and programs as needed to permit the
proper administration and operation of all Mortgage Loans;
and
<PAGE>
(8) prepare and timely deliver an escrow account statement.
v. The contents of each related Credit File and other Servicing
Documents required to be retained by the Seller to service the Mortgage Loans on
an interim basis pursuant to this Agreement and thus not delivered to the Buyer
are and shall be held in trust by the Seller for the benefit of the Buyer as the
owner thereof. The Seller's possession of any portion of each such Credit File
and other Servicing Documents is at the will of the Buyer for the sole purpose
of facilitating servicing on an interim basis 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 Credit File, and the other
Servicing Documents is vested in the Buyer 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 Buyer and shall
be retained maintained, in trust, by the Seller at the will of the Buyer in such
custodial capacity only.
The Seller shall, or shall cause the Seller's subservicer to, perform all
the foregoing services in a prompt, efficient and competent manner; the Seller,
or the Seller's subservicer's, degree of care shall not be less than that which
is standard in the industry with respect to the servicing of first and second
lien, residential Mortgage loans. In addition, the Seller or the Seller's
subservicer shall at all times perform such services in accordance with all
applicable federal, state and local statutes and regulations, including, without
limitation, any statute or regulation relating to unfair credit collection
practices.
ARTICLE VII
-----------
SUBSEQUENT DOCUMENTATION
At any time, and from time to time hereafter, upon the reasonable request
of the Buyer, and without payment of further consideration to the Seller, other
than reimbursement for the Seller's reasonable out-of-pocket expenses, the
Seller covenants to do, execute, acknowledge and deliver, and cause to be done,
executed, acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be required in
order to better assign, transfer, grant, convey, assure and confirm to the Buyer
or its designee, or to collect and reduce to possession, any or all of the
Mortgage Loans as provided for herein.
ARTICLE IX
----------
NOTICES
Unless otherwise provided for herein, all notices and other communications
required or permitted hereunder shall be in writing (including a writing
delivered by facsimile transmission) and shall be deemed to have been duly given
(a) when delivered, if sent by registered or certified mail (return receipt
requested), (b) when delivered, if delivered personally or by facsimile or (c)
on the second following Business Day, if sent by overnight mail or overnight
courier, in each case to the parties at the following addresses (or at such
other addresses as shall be specified by like notice):
<PAGE>
If to the Buyer: Countrywide Home Loans, Inc.
4500 Park Granada Boulevard
Calabasas, CA 91302
Attention: David Sambol
Telephone No.: (800) 669-6091
Facsimile No.: (818) 225-4011
If to the Seller: Pan American Bank, FSB
625 The City Drive
Suite 490
Orange, CA 92868
Attention: Blair Kenny
Telephone No: (714) 705-1201
Facsimile No: (714) 621-1131
ARTICLE X
----------
MISCELLANEOUS PROVISIONS
A. Severability. Each part of this Agreement is intended to be
------------
severable. If any term, covenant, condition or provision hereof is unlawful,
invalid, or unenforceable for any reason whatsoever, and such illegality,
invalidity, or unenforceability does not affect the remaining parts of this
Agreement, then all such remaining parts hereof shall be valid and enforceable
and have full force and effect as if the invalid or unenforceable part had not
been included.
B. Rights Cumulative; Waivers. The rights of each of the parties under
--------------------------
this Agreement are cumulative and may be exercised as often as any party
considers appropriate. The rights of each of the parties hereunder shall not be
capable of being waived or varied otherwise than by an express waiver or
variation that is in writing and signed by the parties. Any failure to exercise
or any delay in exercising any of such rights shall not operate as a waiver or
variation of that or any other such right. Any defective or partial exercise of
any of such rights shall not preclude any other or further exercise of that or
any other such right. No act or course of conduct or negotiation on the part of
any party shall in any way preclude such party from exercising any such right or
constitute a suspension or any variation of any such right.
C. Headings. The headings of the Articles and Paragraphs contained in
--------
this Agreement are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or any provision thereof.
D. Construction. Unless the context otherwise requires, singular nouns
------------
and pronouns, when used herein, shall be deemed to include the plural of such
noun or pronoun and pronouns of one gender shall be deemed to include the
equivalent pronoun of the other gender.
E. Assignment. This Agreement and the terms, covenants, conditions,
----------
provisions, obligations, undertakings, rights and benefits hereof, including the
Addenda, Exhibits and
<PAGE>
Schedules hereto, shall be binding upon, and shall inure to the benefit of, the
undersigned parties and their respective successors and assigns.
F. Prior Understandings. This Agreement supersedes any and all prior
--------------------
discussions and agreements between the Seller and the Buyer with respect to the
purchase and sale of the Mortgage Loans and other matters contained herein, and
this Agreement contains the sole and entire understanding between the parties
hereto with respect to the transactions contemplated herein.
G. Integrated Agreement. This Agreement and all Addenda, Exhibits and
--------------------
Schedules hereto constitute the final complete expression of the intent and
understanding of the Buyer and the Seller. This Agreement shall not be altered
or modified except by a subsequent writing signed by the Buyer and the Seller.
H. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing any such counterpart.
I. Survival. Each and every covenant, representation and warranty
--------
hereinabove made by the Buyer or the Seller shall survive the Closing and shall
not merge into the Closing Documents, but instead shall be independently
enforceable.
J. Governing Law. This Agreement shall be construed, and the rights and
-------------
obligations of the Seller and the Buyer hereunder determined, in accordance with
the laws of the State of California without regard to the conflicts of laws and
rules thereof.
K. Consent to Identify the Seller. The Seller acknowledges that the
------------------------------
Buyer may include the Mortgage Loans in a publicly offered mortgage-backed
securitization transaction, and, in such event, the Seller consents to the use
of its name in the disclosure documents relating to such transaction in order to
identify the Seller as the originator of the Mortgage Loans.
<PAGE>
IN TESTIMONY WHEREOF, the parties hereto have executed this Agreement in
multiple originals to be effective as of the date fixed set forth hereof.
BUYER:
COUNTRY HOME LOANS, INC.
By: /s/ Michael Schloessmann
----------------------------
Michael Schloessmann
Vice-President
Date: September 15, 1998
SELLER:
PAN AMERICAN BANK, FSB
By: /s/ Blair F. Kenny
------------------------------
Name: Blair F. Kenny
----------------------
Title: Senior Vice President
---------------------
Date: September 15, 1998
<PAGE>
EXHIBITS
- --------
A - Form of Bill of Sale
B - Mortgage Loan Schedule
C - Exceptions to Be Cured by Seller
ADDENDA
A - Additional Representations and Warranties
<PAGE>
EXHIBIT A
---------
BILL OF SALE
On this 15th day of September, 1998, for and in consideration of the sum of
$____________, the receipt and adequacy of which is hereby acknowledged by PAN
AMERICAN BANK, FSB (the "Seller"), the Seller hereby absolutely sells,
transfers, assigns, sets-over and conveys to COUNTRYWIDE HOME LOANS, INC., a
corporation organized under the laws of the State of New York (the "Buyer"):
(a) Each of the mortgage loans identified in the Final Mortgage Loan
Schedule attached hereto as Exhibit B (the "Mortgage Loans");
---------
(b) All principal, interest or other proceeds of any kind with respect to
the Mortgage Loans (including but not limited to proceeds derived from
the conversion, voluntary or involuntary, of any of the Mortgage Loans
into cash or other liquidated property, including, without limitation,
insurance proceeds and condemnation awards); and
(c) All collateral security of any kind relating to the Mortgage Loans.
This Bill of Sale shall be governed by the laws of the State of California
without regard to the conflicts of laws and rules thereof.
This Bill of Sale may be executed in any number of counterparts, each of
which shall constitute one and the same instrument, and either party hereto may
execute this Bill of Sale by signing any such counterpart.
SELLER:
PAN AMERICAN BANK, FSB
By:
-----------------------------------
Name:
----------------------------
Title:
---------------------------
Date: September 15, 1998
BUYER:
COUNTRYWIDE HOME LOANS, INC.
By:
-----------------------------------
Michael Schloessmann
Vice-President
Date: September 15, 1998
<PAGE>
EXHIBIT B
---------
FINAL MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT 10.90
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
------------------------------------------------
This Assignment, Assumption and Recognition Agreement (the
"Agreement") is made and entered into on September 30, 1998, by Countrywide Home
Loans, Inc., a New York corporation, having an address at 4500 Park Granada
Boulevard, Calabasas, California 91302 (the "Seller"), Fidelity Federal Bank,
FSB, having an address at 4565 Colorado Boulevard, Los Angeles, California 90039
(the "Purchaser") and Pan American Bank, FSB, having an address at 625 The City
Drive, Orange, California 92868 (the "Company").
In consideration of the mutual promises and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Assignment and Assumption. Except as expressly provided for herein, the
-------------------------
Seller hereby grants, transfers and assigns to the Purchaser (a) all of its
right, title and interest as "Purchaser" in, to and under that certain
Mortgage Loan Purchase and Interim Servicing Agreement dated as of
September 30, 1998, and duly executed by the Company and the Seller
(attached hereto as Exhibit A, the "Purchase Agreement"), (b) all of its
---------
right, title and interest in and to the each of the mortgage loans
identified in Exhibit B hereto (the "Mortgage Loans"), and (c) all
---------
servicing rights relating to the Mortgage Loans. Except for the provisions
pertaining to the payment of the purchase price, the Purchaser hereby
assumes all of the Seller's obligations as "Purchaser" under the Purchase
Agreement from and after the date hereof, and the Seller shall be relieved
and released by the Company of all of its obligations under the Purchase
Agreement from and after the date hereof. Except as is otherwise expressly
provided herein, the Seller makes no representations, warranties or
covenants to the Purchaser and the Purchaser acknowledges that the Seller
has no obligations to the Purchaser under the terms of the Purchase
Agreement or otherwise relating to the transaction contemplated herein
(including but not limited to any obligation to repurchase any of the
Mortgage Loans or to indemnify the Purchaser).
2. Consideration. In consideration for the transfers and assignments set
-------------
forth in paragraph 1 of this Agreement, the Purchaser agrees to pay to the
Seller the amounts referenced in that certain Funding Schedule dated as of
September 30, 1998 (the "Funding Schedule") and duly executed by the Seller
and the Purchaser (the "Purchase Price"). The Purchaser agrees to wire the
agreed upon Purchase Price to the Seller to the account designated below:
Bank of New York
ABA - 021000018
Countrywide Home Loans
ACCT - 8900038632
REF - Stuart Levitt
3. Recognition of the Purchaser by the Company. From and after the date
-------------------------------------------
hereof, the Company shall recognize the Purchaser as the owner of the
Mortgage Loans and the "Purchaser" under the Purchase Agreement.
4. Servicing of the Mortgage Loans. From and after the date hereof, the
-------------------------------
Company shall interim service the Mortgage Loans for the Purchaser in
accordance with the terms and conditions of the Purchase Agreement, as if
the Purchaser and Company had entered into the Purchase Agreement. The
address of the Purchaser set forth in Section 6.1 of the Purchase Agreement
shall be changed to read as follows:
<PAGE>
Fidelity Federal Bank, FSB
4565 Colorado Boulevard
Los Angeles, California 90039
Attn: Mark Mason, Executive Vice President
5. Status of Purchase Agreement. The Company and the Seller represent and
----------------------------
warrant that (a) the Purchase Agreement is in full force and effect as of
the date hereof, (b) the Purchase Agreement has not been amended or
modified in any respect, and (c) there has been no waiver or any agreement
to waive any provision, nor has any notice of termination been given, under
the Purchase Agreement.
6. No Claims. The Company represents and warrants that it has no offsets,
---------
counterclaims or other defenses available to it with respect to the
Purchase Agreement.
7. Covenants, Representations and Warranties of the Seller. The Seller
-------------------------------------------------------
represents and warrants to, and covenants with, the Purchaser that:
a. The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation,
and has all requisite corporate power and authority to acquire, own
and sell the Mortgage Loans;
b. The Seller has full corporate power and authority to execute, deliver
and perform under this Agreement, and to consummate the transactions
set forth herein. The execution, delivery and performance of the
Seller of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by all
necessary corporate action of the Seller. This Agreement has been
fully executed and delivered by the Seller and constitutes the valid
and legally binding obligation of the Seller enforceable against the
Seller in accordance with its respective terms;
c. No material consent, approval, order or authorization of, or
declaration, filing or registration with, any governmental entity is
required to be obtained or made by the Seller in connection with the
execution, delivery or performance by the Seller of this Agreement, or
the consummation by it of the transaction contemplated hereby;
d. There is no action, suit, proceeding, investigation or litigation
pending or, to the Seller's knowledge, threatened, which either in any
instance or in the aggregate, if determined adversely to the Seller,
would adversely affect the sale of the Mortgage Loans to the
Purchaser, the execution, delivery or enforceability of this
Agreement, or the Seller's ability to perform its obligations under
this Agreement; and
e. Immediately prior to payment of the purchase price for the Mortgage
Loans, the Seller is the lawful owner of the Mortgage Loans with the
full right to transfer the Mortgage Loans free from any and all claims
and encumbrances whatsoever.
8. Covenants, Representations and Warranties of Purchaser. The Purchaser
------------------------------------------------------
represents and warrants to, and covenants with, the Seller and the Company
that except for the provisions pertaining to the payment of the purchase
price thereunder, the Purchaser agrees to be bound as "Purchaser" by all of
the terms, covenants and conditions of the Purchase Agreement, and from and
after the date hereof, the Purchaser assumes for the
2
<PAGE>
benefit of the Seller and the Company all of the Seller's obligations as
"Purchaser" thereunder.
9. Governing Law. This Agreement shall be construed in accordance with the
-------------
laws of the State of California and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with the laws of
the State of California, except to the extent preempted by federal law.
10. Confidentiality. The Seller and the Purchaser hereby acknowledge and agree
---------------
that this Agreement shall be kept confidential and its contents will not be
divulged to any party without the other party's consent except to the
extent that it is appropriate for the Seller or the Purchaser to do so in
working with legal counsel, auditors, taxing authorities or other
governmental agencies.
11. Conflict with Purchase Agreement. To the extent there is any conflict
--------------------------------
between the terms of the Purchase Agreement and this Agreement, the latter
shall be controlling, notwithstanding anything to the contrary contained in
the Purchase Agreement.
12. Capitalized Terms. All capitalized terms used herein and not otherwise
-----------------
defined herein shall have the meanings assigned to such terms in the
Purchase Agreement.
13. Counterparts. This Agreement may be executed 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.
[Signature page follows]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
COUNTRYWIDE HOME LOANS, INC.,
the Seller
/s/ Michael W. Schloessmann
By -------------------------------
Michael W. Schloessmann
Vice President
FIDELITY FEDERAL BANK, FSB,
the Purchaser
By _______________________________
Mark Mason
Executive Vice President
PAN AMERICAN BANK, FSB
the Company
/s/ Blair F. Kenny
By -------------------------------
Name: Blair F. Kenny
Title: Senior Vice President
4
<PAGE>
EXHIBIT A
MORTGAGE LOAN
PURCHASE AND INTERIM SERVICING
AGREEMENT
(attached)
5
<PAGE>
MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT
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This Mortgage Loan Purchase and Interim Servicing Agreement is dated
and effective as of September 30, 1998 (the "Agreement"), between Pan American
Bank, FSB, having an address at 625 The City Drive, Orange, California 92868
(the "Seller"), and Countrywide Home Loans, Inc., having an address at 4500 Park
Granada, Calabasas, California 91302 (the "Purchaser").
R E C I T A L S
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The Seller desires to sell and transfer to the Purchaser, and the
Purchaser desires to purchase from the Seller, those certain mortgage loans
identified on Exhibit A hereto, including all servicing rights relating thereto
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(the "Mortgage Loans") upon such terms as are set forth below.
In consideration of the promises and the mutual agreements and
undertakings set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
Definitions
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Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
ACCRUED INTEREST: Accrued interest owing to the Seller on the Stated
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Principal Balance of each Mortgage Loan at a rate equal to the Mortgage Interest
Rate of each such Mortgage Loan, from the date through which interest has last
been paid (as of Cut-Off Date) through the day prior to the Closing Date,
inclusive; provided, however, with respect to those Mortgage Loans for which
interest has been paid through a date beyond the Cut-Off Date, such accrued
interest owing to Seller shall be reduced by the amount of interest accruing on
the Stated Principal Balance of each such Mortgage Loan at a rate equal to the
Mortgage Interest Rate of such Mortgage Loan, from the Closing Date to the day
prior to the interest paid through date for such Mortgage Loan, inclusive.
AGENCIES: Both FNMA or FHLMC.
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AGREEMENT: This Mortgage Loan Purchase and Interim Servicing
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Agreement, including all exhibits and supplements hereto, and all amendments
hereof.
APPRAISED VALUE: With respect to any Mortgage Loan, the value of the
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related Mortgaged Property based upon the lesser of (i) the original, signed
appraisal made by a Qualified Appraiser for the originator at the time of
origination of the Mortgage Loan or (ii) the purchase price of the Mortgaged
Property at the time of origination of the Mortgage Loan, provided, however,
that in the case of a refinanced Mortgage Loan, such value is based solely upon
the appraisal made at the time of origination of such refinanced Mortgage Loan
and in the case of a Mortgage Loan originated under the streamlined
documentation program, such value shall be based on an appraisal obtained at the
time the original loan was originated.
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ASSIGNMENT OF MORTGAGE: An assignment of the Mortgage, notice of
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transfer or equivalent instrument in recordable form, sufficient under the laws
of the jurisdiction wherein the related Mortgaged Property is located to reflect
the sale of the Mortgage to the Purchaser.
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a
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day on which banking and savings and loan institutions in the State of
California are authorized or obligated by law or executive order to be closed.
CLOSING DATE: September 30, 1998, or such other date as may be
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mutually agreed upon by the Seller and the Purchaser.
CUT-OFF DATE: September 28, 1998.
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DUE DATE: The day of the month on which a Monthly Payment is due on a
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Mortgage Loan, exclusive of any days of grace.
ESCROW ACCOUNT: An account or accounts maintained by the Seller, or
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the Seller's predecessor in interest, maintained for the deposit of Escrow
Payments received in respect of one or more Mortgage Loans.
ESCROW PAYMENTS: The amounts held in Escrow Accounts which include
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amounts being held for payment of ground rents, property taxes, assessments,
water rates, sewer rents, municipal charges, mortgage insurance premiums, fire
and hazard insurance premiums, condo charges and other payments required to be
escrowed by the Mortgagor pursuant to any Mortgage Loan.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
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thereto.
FNMA: The Federal National Mortgage Association or any successor
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thereto.
GROSS MARGIN: The fixed percentage amount set forth in the related
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Mortgage Note which amount is added to the Index in accordance with the terms of
the related Mortgage Note to determine the Mortgage Interest Rate for such
Mortgage Loan.
HMDA: The Home Mortgage Disclosure Act, as amended.
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HUD: The Department of Housing and Urban Development or any successor
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thereto.
INDEX: On each Interest Adjustment Date, the Index shall mean the
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rate per annum equal to the average of interbank offered rates for six-month
U.S. dollar denominated deposits in the London market (LIBOR), as published in
the Wall Street Journal as of the first Business Day of the month immediately
preceding the month in which such Interest Adjustment Date occurs.
INTEREST ADJUSTMENT DATE: With respect to each Mortgage Loan, the
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date on which an adjustment to the Mortgage Interest Rate on a Mortgage Note
becomes effective.
INTERIM SERVICING PERIOD: The period commencing with the Cut-Off Date
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and ending with the Servicing Transfer Date.
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INTEREST PAID TO DATE: As of the Cut-Off Date, the date for each
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Mortgage Loan through which the Mortgagor has paid interest to the holder of the
Note and which is listed on the Mortgage Loan Schedule.
LIFETIME MORTGAGE INTEREST RATE CAP: The absolute maximum Mortgage
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Interest Rate payable for a Mortgage Loan, above which the Mortgage Interest
Rate shall not be adjusted, as provided in the Mortgage Loan Schedule.
LOAN-TO-VALUE RATIO or LTV: With respect to any Mortgage Loan, the
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ratio of the original outstanding principal amount to the Appraised Value of the
Mortgage Loan.
MONTHLY PAYMENT: The scheduled monthly payment of principal and
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interest on a Mortgage Loan.
MORTGAGE: The mortgage, deed of trust or other such instrument
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securing a Mortgage Note, which creates a first lien on an unsubordinated estate
in fee simple in real property securing the Mortgage Note.
MORTGAGE FILE: The file containing the Mortgage Loan Documents, all
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other documents in connection with the origination of a particular Mortgage Loan
and all documents, files and other information reasonably necessary to service
the Mortgage Loans, including, but not limited to, good faith estimate, HUD 1
Settlement Statement, Truth in Lending Disclosure Statement, and Truth in
Lending Notice of Right to Cancel (if required by law).
MORTGAGE INTEREST RATE: The annual rate at which interest accrues on
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any Mortgage Loan, exclusive of any primary mortgage insurance, as adjusted from
time to time in accordance with the provisions of the related Mortgage Note, if
applicable.
MORTGAGE LOAN: A mortgage loan identified in the Mortgage Loan
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Schedule which is sold pursuant to this Agreement, which Mortgage Loan includes
without limitation the Mortgage File, the Monthly Payments, Principal
Prepayments and all other rights, benefits, proceeds and obligations arising
from or in connection with such Mortgage Loan.
MORTGAGE LOAN DOCUMENTS: The following documents pertaining to any
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Mortgage Loan:
(a) The original Mortgage Note bearing all intervening endorsements,
endorsed "Pay to the order of ______________________" and signed in the name of
the Seller by an authorized officer;
(b) The original Assignment of Mortgage for each Mortgage Loan in
blank;
(c) The original Mortgage with evidence of recording thereon;
(d) The originals of all intervening assignments of mortgage with
evidence of recording thereon;
(e) The original mortgagee title insurance policy; and
(f) The originals of any modication agreement.
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MORTGAGE LOAN SCHEDULE: The schedule of Mortgage Loans set forth on
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Exhibit A hereto.
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MORTGAGE NOTE: The note or other evidence of the indebtedness of a
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Mortgagor secured by a Mortgage.
MORTGAGED PROPERTY: The real property securing repayment of the debt
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evidenced by a Mortgage Note.
MORTGAGOR: The obligor on a Mortgage Note.
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NET ESCROW PAYMENTS: Escrow Payment balances remaining after advances
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by the Seller for taxes and insurance to the extent documented under a detailed
statement provided to the Purchaser.
NEXT DUE DATE: As of the Cut-Off Date, the date upon which a
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Mortgagor is required to make its next Monthly Payment, as set out on the
Mortgage Loan Schedule.
PERIODIC MORTGAGE INTEREST RATE CAP: The provision of a Mortgage Note
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which provides for an absolute maximum amount by which the Mortgage Interest
Rate therein may increase or decrease on an Interest Adjustment Date above the
Mortgage Interest Rate previously in effect, equal to the rate set forth in the
Mortgage Loan Schedule, if applicable.
PRIMARY MORTGAGE INSURANCE POLICY: A policy of primary mortgage
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guaranty insurance issued by a Qualified Insurer, providing coverage at least
equal to the level of coverage required by the Agencies at the time the related
Mortgage Loan was originated if such Mortgage Loan was to be eligible for sale
to, and securitization by, either FNMA or FHLMC.
PRINCIPAL PREPAYMENT: Any payment or other recovery of principal on a
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Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon, 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 purchase price to be paid by the Purchaser for
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the Mortgage Loans (including the Servicing Rights relating thereto) which shall
equal the product of (a) the Purchase Price Percentage, times (b) the Stated
Principal Balance of the Mortgage Loans.
PURCHASE PRICE PERCENTAGE: The purchase price percentage set forth in
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the Trade Confirmation.
PURCHASE PROCEEDS: The aggregate of the Purchase Price and the
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Accrued Interest.
PURCHASER: Any entity which purchases the Mortgage Loans pursuant to
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this Agreement or its successor in interest or any successor or assign to the
Purchaser under this Agreement as herein provided. Unless the context requires
otherwise, all references to "Purchaser" in this Agreement shall be deemed to
include such Purchaser's successors in interest, assignees or designees.
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QUALIFIED APPRAISER: An appraiser who (i) is licensed in the state
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where the Mortgaged Property is located, (ii) has no interest, direct or
indirect, in the Mortgaged Property or in any Mortgage Loan or the security
therefore, (iii) complies with the Uniform Standards or Professional Appraisal
Practice and the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), and (iv) does not receive compensation that is affected by the
approval or disapproval of the Mortgage Loan or by the amount of the appraisal.
QUALIFIED INSURER: An insurance company duly qualified as such under
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the laws of the states in which the Mortgaged Properties are located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, approved as an insurer by the
Agencies and whose claims paying ability is rated in the two highest rating
categories by the Standard & Poor's Ratings Group or Moody's Investors Service
with respect to primary mortgage insurance and in the two highest rating
categories by Best's with respect to hazard and flood insurance.
REPURCHASE PRICE: With respect to any Mortgage Loan, a price equal to
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the sum of (a) the product of (i) the unpaid principal balance of the Mortgage
Loan at the time of repurchase, and (ii) the greater of par or the Purchase
Price Percentage (subject to any buyup or buydown adjustments as contemplated in
the Trade Confirmation), and (b) interest on such unpaid principal balance at
the Mortgage Interest Rate from the last date through which interest has been
paid and distributed to the Purchaser to the date of repurchase.
SEGMENT(S): One or more segments of Mortgage Loans (each, a
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"Segment") comprising the Segment A Mortgage Loans, the Segment B Mortgage
Loans, and the Segment C Mortgage Loans, whether individually or in the
aggregate, as applicable. Each such Segment and the Mortgage Loans relating
thereto are identified on Exhibit A and may hereafter be referred to as Segments
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A, B, and C, respectively.
SEGMENT A MORTGAGE LOANS: The Mortgage Loans identified under Segment
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A of the Mortgage Loan Schedule.
SEGMENT B MORTGAGE LOANS: The Mortgage Loans identified under Segment
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B of the Mortgage Loan Schedule.
SEGMENT C MORTGAGE LOANS: The Mortgage Loans identified under Segment
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C of the Mortgage Loan Schedule.
SERVICING RIGHTS: With respect to each Mortgage Loan, any and all of
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the following: (a) all rights to service the Mortgage Loans; (b) any payments
or monies payable or received for servicing the Mortgage Loans; (c) any late
fees, assumption fees, penalties or similar payments with respect to the
Mortgage Loans; (d) all agreements or documents creating, defining or evidencing
any such Servicing Rights and all rights of the Seller thereunder, including,
but not limited to, any clean-up calls and termination options; (e) Escrow
Payments or other similar payments with respect to the Mortgage Loans and any
amounts actually collected with respect thereto; (f) all accounts and other
rights to payments related to any of the property described in this paragraph;
(g) possession and use of any and all Mortgage Files pertaining to the Mortgage
Loans or pertaining to the past, present, or prospective servicing of the
Mortgage Loans; and (h) all rights, powers and privileges incident to any of the
foregoing.
SERVICING TRANSFER DATE: October 15, 1998, or such other date the
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Purchaser may select upon reasonable notice to the Seller.
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STATED PRINCIPAL BALANCE: The unpaid principal balance of the
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Mortgage Loans at the Cut-Off Date.
TRADE CONFIRMATION: That certain letter agreement dated September 11,
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1998, between the Seller and the Purchaser setting forth the general terms and
conditions of the transaction contemplated herein and identifying certain of the
loan characteristics of the Mortgage Loans to be purchased hereunder.
ARTICLE II
SALE OF THE MORTGAGE LOANS
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SECTION 2.1 AGREEMENT OF SALE. The Seller does hereby agree to
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sell, convey, transfer and assign to the Purchaser on the Closing Date all
right, title and interest in and to the Mortgage Loans, the Servicing Rights,
the Mortgage Loan Documents, the Mortgage Files and the Escrow Accounts relating
to the Mortgage Loans, all in accordance with the terms and conditions set forth
herein.
SECTION 2.2 PAYMENT OF THE PURCHASE PROCEEDS. No later than 1:00
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p.m. (Pacific time) on the Closing Date, the Purchaser shall pay to the Seller
the Purchase Proceeds, by wire transfer in immediately available funds to the
account designated by the Seller. Upon completion of the wire transfer to the
Seller's designated account, the Purchaser shall own the Mortgage Loans and the
Servicing Rights, free and clear of any lien or encumbrance whatsoever.
SECTION 2.3 ENTITLEMENT TO PAYMENT ON THE MORTGAGE LOANS. The
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Purchaser shall be entitled to all collections and recoveries of principal and
interest received or applied to any Mortgagor's account after the Cut-Off Date.
All payments and remittances on the Mortgage Loans received by the Seller after
the Cut-Off Date and payable to the Purchaser shall be paid promptly to the
Purchaser in accordance to the terms set forth in Article IV or Article V, as
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applicable.
SECTION 2.4 EXAMINATION OF MORTGAGE LOAN DOCUMENTS BY THE
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PURCHASER. Prior to the Closing Date, the Purchaser shall have the right to
review the Mortgage File and, based on its review, decline to purchase any
Mortgage Loan which the Purchaser, in its sole discretion, determines not to be
in compliance with each of the representations and warranties contemplated
hereby or which is otherwise unsatisfactory to the Purchaser in its reasonable
discretion. The Seller agrees to deliver or make available to the Purchaser a
complete Mortgage File for each Mortgage Loan on or before such date as may be
reasonably requested by the Purchaser. The fact that the Purchaser has
conducted or has failed to conduct any partial or complete examination of the
Mortgage Files shall not affect the Purchaser's right to demand repurchase or to
avail itself of any other remedy available hereunder. Notwithstanding anything
contained herein to the contrary, should there be a material adverse change in
the characteristics of the Mortgage Loans remaining after the exclusion or
rejection of one or more Mortgage Loans by the Purchaser as contemplated above,
the Purchaser may, in its sole discretion, elect not to purchase the remaining
Mortgage Loans and the Purchaser shall have no liability therefor.
SECTION 2.5 DELIVERY OF MORTGAGE LOAN DOCUMENTS. At least two (2)
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Business Days prior to the Closing Date, the Seller shall deliver the Mortgage
Loan Documents with respect to each Mortgage Loan to the Purchaser or a bonded
third party custodian (the
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"Custodian") and, in the case of the latter, shall cause the Custodian to
deliver to the Purchaser a custodian's certification pursuant to which the
Custodian certifies to the Purchaser that (i) with respect to each Mortgage
Loan, it has in its possession originals of each of the Mortgage Loan Documents,
(ii) all of the Mortgage Loan Documents appear on their face to be genuine
originals or copies, as applicable, and (iii) upon the Purchaser's wiring of the
Purchase Proceeds to the Seller, that the Custodian shall hold the Mortgage Loan
Documents with respect to each Mortgage Loan in trust for the Purchaser and
will, subsequent thereto, act only in a manner consistent with the Purchaser's
instructions with respect thereto. In the event that any of the Mortgage Loan
Documents set forth in clauses (c) through (e) of the definition of Mortgage
Loan Documents in Article I have not been delivered to the Purchaser in the time
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specified above (the "Missing Documents") either because such Missing Documents
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have not been returned by the applicable public recording office with respect to
items (c) and (d), or because the final original title policy has not yet been
issued by the title company with respect to item (e), then the Seller shall
deliver to the Purchaser certified true and correct copies of the same and shall
further deliver the originals of any such Missing Documents within fifteen (15)
days of its receipt thereof, but in no event later than one hundred and twenty
(120) days from the Closing Date. If the Seller fails to deliver any of the
Missing Documents relating to a Mortgage Loan within the time specified above,
the Seller shall, upon written request from the Purchaser, repurchase such
Mortgage Loan in accordance with Section 3.3.
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SECTION 2.6 CONDITIONS TO CLOSING. The Purchaser's obligations
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hereunder are subject to the fulfillment of the following conditions precedent.
In the event that any of the conditions set forth below are not satisfied in all
material respects, the Purchaser shall not have any obligation to purchase any
of the Mortgage Loans or to pay the Purchase Proceeds as contemplated hereunder
and shall instead be entitled, in its sole discretion, to terminate this
Agreement in its entirety.
(a) Each of the representations and warranties made by the Seller
hereunder shall be true and correct in all material respects 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 Seller shall have delivered to the Purchaser all of the
Mortgage Loan Documents in accordance with Section 2.5 and a complete Mortgage
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File with respect to each Mortgage Loan.
(c) Each of the terms and conditions set forth herein which are
required to be satisfied on or before the Closing Date shall have been satisfied
unless waived by the prejudiced party(ies).
(d) The Seller shall have delivered to the Purchaser on or before the
Closing Date the following documents:
(1) a fully executed Agreement;
(2) the Mortgage Loan Schedule, which shall include, without
limitation, the Stated Principal Balance of each Mortgage
Loan;
(3) an executed Funding Schedule, in the form of Exhibit B
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hereto;
(4) an Officer's Certificate, in the form of Exhibit C hereto;
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(5) State Licenses of the Seller, if applicable;
(6) Opinion of Counsel, substantially in the form of Exhibit E
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hereto;
(7) Certificate of Good Standing of the Seller; and
(8) such other documents related to the purchase and sale of the
Mortgage Loans and the Servicing Rights as the Purchaser may
reasonably request.
SECTION 2.7 RECORD TITLE. Record title to each Mortgage and the
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related Mortgage Note shall be transferred by the Seller to the Purchaser. The
Seller shall, at the option of the Purchaser, either (i) prepare and cause to be
recorded the Assignment of Mortgage for each Mortgage Loan and shall, promptly
upon its receipt of each original recorded Assignment of Mortgage from the
applicable recording office, deliver the same to the Purchaser, or (ii) prepare
and deliver to the Purchaser an original Assignment of Mortgage in blank, in
each case, within the time and in the manner specified in Section 2.5. The
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Seller shall bear the cost and expense related to (i) providing all Assignments
of Mortgages and endorsements of Mortgage Notes for any transfer of record title
required hereunder with respect to the obligations of the Mortgage Notes and the
underlying security interest related to each Mortgage Loan and (ii) recording
title of the Mortgage Loans including, but not limited to, recording fees and
fees for title policy endorsements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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SECTION 3.1 REPRESENTATIONS AND WARRANTIES RESPECTING THE SELLER.
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The Seller represents, warrants and covenants to the Purchaser that, as of the
Closing Date:
(a) The Seller is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is
qualified to transact business in and is in good standing under the laws of each
state where a Mortgaged Property is located or is otherwise exempt under
applicable law from such qualification or is otherwise not required under
applicable law to effect such qualification and no demand for such qualification
has been made upon the Seller by any state having jurisdiction and in any event
the Seller is or will be in compliance with the laws of any such state to the
extent necessary to insure the enforceability of each Mortgage Note and the sale
of the Mortgage Loans and Servicing Rights as contemplated by this Agreement;
(b) The Seller has the full power and authority to perform, and to
enter into and consummate, all transactions contemplated by this Agreement. As
of the Closing Date, the Seller has the full power and authority to hold each
Mortgage Loan and to sell each Mortgage Loan and the Servicing Rights;
(c) Neither the acquisition or origination of the Mortgage Loans by
the Seller, the sale of the Mortgage Loans or the Servicing Rights to the
Purchaser, the consummation of the transactions contemplated hereby, nor the
fulfillment of or compliance with the terms and conditions of this Agreement,
will conflict with or result in a breach of any of the terms, conditions or
provisions of the Seller's certificate of incorporation or bylaws or result in a
material breach of any legal restriction or any agreement or instrument to which
the Seller is now a party or by
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which it is bound, or constitute a material default or result in an acceleration
under any of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Seller or its property is
subject;
(d) The Seller is an approved seller/servicer for the Agencies, in
good standing with each such agency, and is a mortgagee approved by the
Secretary of HUD. No event has occurred, including, but not limited to, a
change in insurance coverage, which would make the Seller unable to comply with
FNMA-, FHLMC- or HUD- eligibility requirements or which would require
notification to the Agencies or HUD;
(e) 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;
(f) There is no action, suit, proceeding, investigation or litigation
pending or, to the best of the Seller's knowledge, threatened, which either in
any one instance or in the aggregate, if determined adversely to the Seller,
would adversely affect the sale of the Mortgage Loans or the Servicing Rights to
the Purchaser, or the Seller's ability to perform its obligations under this
Agreement;
(g) 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 terms of the Mortgage Loans, the delivery of the Mortgage Files to the
Purchaser, the sale of the Mortgage Loans and the Servicing Rights to the
Purchaser or the consummation of the transactions contemplated by this
Agreement, or, if required, such consent, approval, authorization or order has
been obtained prior to the Closing Date; and
(h) 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, the Mortgages and/or
the Servicing Rights by the Seller pursuant to this Agreement are not subject to
the bulk transfer or any similar statutory provisions in effect and applicable
to this transaction.
(i) Seller has previously furnished Purchaser with Seller's most
recent audited financial statements, together with the respective reports
thereon of the Seller's independent public accountant, and Seller's most recent
unaudited financial statements, each of which has been prepared in accordance
with generally accepted accounting principles. Each of the balance sheets
included in the financial statements sets for the Seller's financial condition
as of the date thereof, and there have been no material adverse changes in
Seller's business or financial conditions since that date.
(j) Neither this Agreement, nor any statement, report, or other
document furnished or to be furnished pursuant to this Agreement or in
connection with the transaction contemplated hereby, contains any untrue
statement of fact by Seller, or omits to state a fact necessary to make the
statements of Seller contained therein not misleading.
(k) Upon request, Seller will deliver to Purchaser a true and correct
copy of Seller's fidelity bond and Seller's errors and omissions policy, and/or
certificates evidencing the same as currently in effect, the amounts and
coverages of both of which will be acceptable to Purchaser. Seller shall, at
its own expense, maintain a fidelity bond and an errors and omissions policy, in
amounts at least as great as, and with the coverages at least as broad as,
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those currently in effect. Seller shall, upon request, furnish proof of such
coverage at or before the first Purchase and, upon request, annually thereafter.
(l) The Mortgage Loans were not intentionally selected in a manner
intended to adversely affect the interest of the Purchaser.
(m) Seller has not dealt with any broker or Agent or other Person who
might be entitled to a fee, commission or compensation in connection with this
transaction other than the Purchaser except as Seller has previously disclosed
to Purchaser in writing.
(n) The consideration received by Seller upon the sale of the Mortgage
Loans under this Agreement constitutes fair consideration and reasonably
equivalent value for the Mortgage Loans.
(o) Seller has determined that the disposition of the Mortgage Loans
pursuant to this Agreement will be afforded sale treatment for accounting and
tax purposes.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES REGARDING INDIVIDUAL
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MORTGAGE LOANS. With respect to each Mortgage Loan, the Seller represents and
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warrants to the Purchaser that as of the Closing Date:
(a) The information set forth in the Mortgage Loan Schedule and in
each Mortgage File is complete, true and correct;
(b) All payments required under the terms of the Mortgage Note to be
made on or prior to the Closing Date 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 Mortgaged Property subject to the Mortgage,
directly or indirectly, for the payment of any amount required under the
Mortgage Loan; and there has been no delinquency of thirty (30) days or more in
any payment by the Mortgagor thereunder during the last twelve (12) months.
Each Mortgagor has made or shall make, as the case may be, the first Monthly
Payment with respect to the related Mortgage Loan on its Due Date or in no event
later than twenty-nine (29) days thereafter. No Mortgage Loan is subject to any
pending foreclosure, bankruptcy, insolvency, or reorganization proceeding.
Nothing contained in this Section 3.2(b) shall in any way limit any other rights
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of the Purchaser as provided hereunder;
(c) There are no delinquent taxes, water charges, sewer rents,
assessments, insurance premiums, leasehold payments, including assessments
currently due and owing in future installments, or other outstanding charges
affecting the related Mortgaged Property;
(d) The terms of the Mortgage Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments which are in the Mortgage File and have been or will be recorded, if
necessary to protect the interests of the Purchaser, and which have been
delivered to the Purchaser, all in accordance with this Agreement. The
substance of any such waiver, alteration or modification has been approved by
the primary mortgage guaranty insurer, if any, and by the title insurer, to the
extent required by the related policy, and its terms are reflected on the
Mortgage Loan Schedule. No Mortgagor has been released, in whole or in part,
except in connection with an assumption agreement approved by the primary
mortgage insurer, if any, and title insurer, to the extent required by the
policy, and which assumption agreement is part of the Mortgage File and the
terms of which are reflected in the Mortgage Loan Schedule, if executed prior to
the Closing Date;
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(e) 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 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;
(f) All buildings upon, or comprising part of, the Mortgaged Property
are insured by an insurer acceptable to the Agencies against loss by fire,
hazards of extended coverage and such other hazards as are customary in the area
where the Mortgaged Property is located, and such insurer is licensed to do
business in the state where the Mortgaged Property is located. All such
insurance policies (collectively, the "hazard insurance policy") contain a
standard mortgagee clause naming the Seller, its successors and assigns as
mortgagee and all premiums thereon have been paid. If upon origination of the
Mortgage Loan, the Mortgaged Property was, or was subsequently deemed to be, in
an area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), which require under applicable law that a flood insurance policy
meeting the requirements of the current guidelines of the Federal Insurance
Administration (or any successor thereto) be obtained, such flood insurance
policy is in effect which policy conforms to the requirements of the Agencies.
The Mortgage obligates the Mortgagor thereunder to maintain all such insurance
at 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 obtain reimbursement therefor from the Mortgagor. Each
Mortgage Loan has in place a fully-paid life of loan flood certification from a
FNMA- or FHLMC-approved vendor, assigned in care of the Purchaser, which
provides for notification to the Purchaser of changes in designated flood areas
which would affect such Mortgage Loan;
(g) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures including, without limitation, the Real Estate Settlement Procedures
Act of 1974, as amended, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loan have been complied with in all
material respects;
(h) 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 release, cancellation, subordination or
rescission;
(i) The Mortgage is a valid, existing and enforceable first lien on
the Mortgaged Property, including all improvements on the Mortgaged Property, if
any, 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 (as defined in clause (i) of such definition) 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. The Seller has full right to sell and assign the Mortgage
to the Purchaser;
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(j) 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 the enforceability thereof may be limited
by bankruptcy, insolvency or reorganization;
(k) All parties to the Mortgage Note and the Mortgage had the legal
capacity to enter into the Mortgage Loan transaction 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;
(l) The proceeds of the Mortgage Loan have been fully disbursed and
there is no requirement for future advances 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 were paid, and the Mortgagor is not entitled to any
refund of any amounts paid or due under the Mortgage Note or Mortgage;
(m) The Seller is the sole owner and holder of the Mortgage Loan and
the related Servicing Rights and is the custodian of the related Escrow Account,
if applicable. The Mortgage Loan has neither been assigned nor pledged, and the
Seller has good and marketable title thereto, and has full right to transfer and
sell the Mortgage Loan and the related Servicing Rights to the Purchaser free
and clear of any encumbrance, equity, lien, pledge, charge, claim 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 each
Mortgage Loan and the related Servicing Rights to the Purchaser pursuant to the
terms of this Agreement;
(n) 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) (a) in compliance with any
and all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located, and (b) (i) organized under the laws of such
state, or (ii) qualified to do business in such state, or (iii) a federal
savings and loan association or national bank, or (iv) not deemed to be doing
business in such state under applicable law;
(o) The Mortgage Loan is covered by an ALTA lender's title insurance
policy acceptable to the Agencies, issued by a title insurer acceptable to the
Agencies and qualified to do business in the jurisdiction where the Mortgaged
Property is located, insuring (subject to the exceptions contained in (i)(a) and
(b) above) the Seller, 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 Note and/or Mortgage providing for
adjustment in the Mortgage Interest Rate and Monthly Payment. Additionally,
such lender's title insurance policy affirmatively insures ingress and egress,
and against encroachments by or upon the Mortgaged Property or any interest
therein. The Seller is the sole insured of 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;
(p) 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,
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violation or event of acceleration, and the Seller has not waived any default,
breach, violation or event of acceleration;
(q) 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 with, the lien of the related Mortgage;
(r) All improvements which were considered in determining the
Appraised Value (as defined in clause (i) of said definition) 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;
(s) The Mortgage Loan was originated by the Seller or by a FNMA-
approved or FHLMC-approved mortgage banker (which mortgage banker is a mortgagee
approved by HUD), or savings and loan association, a savings bank, a commercial
bank or similar banking institution which is supervised and examined by a
federal or state authority, or by another mortgagee approved by the Secretary of
HUD;
(t) The origination, servicing and collection practices with respect
to each Mortgage Note and Mortgage including, without limitation, the
establishment, maintenance and servicing of the Escrow Accounts and Escrow
Payments, if any, since origination, have been conducted in all respects in
accordance with the terms of Mortgage Note and in compliance with all applicable
laws and regulations and, unless otherwise required by law or FNMA/FHLMC
standard, in accordance with the proper, prudent and customary practices in the
mortgage origination and servicing business. With respect to the Escrow
Accounts and Escrow Payments, if any, all such payments are in the possession or
under the control of the Seller and there exists 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. All Mortgage Interest Rate adjustments have been made in strict
compliance with state and federal law and the terms of the related Mortgage
Note. Any interest required to be paid pursuant to state and local law has been
properly paid and credited;
(u) The Mortgaged Property is free of material damage and waste, has
not been damaged in any material respect by fire, flood, wind, earthquake, or
arson, or suffered any other natural or human-caused casualty loss (whether or
not covered by insurance), except to the extent that the loss has been fully
repaired or replaced as of the Closing Date, and there is no proceeding pending
for the total or partial condemnation thereof;
(v) The Mortgage contains customary and enforceable provisions to
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
intended to be 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. There is no 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;
(w) The Mortgage Note is not and has not been secured by any
collateral except the lien of the applicable Mortgage;
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<PAGE>
(x) The Mortgage File contains an original appraisal of the related
Mortgaged Property signed prior to the approval of the Mortgage Loan application
by a Qualified Appraiser duly appointed by the originator; the signature
appearing on such appraisal is the genuine signature of such Qualified
Appraiser; the appraisal is in a form acceptable to the Agencies, with such
riders as are acceptable to the Agencies;
(y) 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;
(z) No Mortgage Loan contains a permanent or temporary "buydown"
provision;
(aa) The Mortgagor has executed one or more statements to the effect
that the Mortgagor has received all disclosure materials required by applicable
law with respect to the making of the Mortgage Loan. The Seller shall maintain
all such statements in the Mortgage File;
(bb) 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;
(cc) [Intentionally left blank];
(dd) To the best of Seller's knowledge, the Mortgaged Property is
lawfully occupied under applicable law and 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;
(ee) [Intentionally left blank];
(ff) 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;
(gg) Any future advances made to the Mortgagor prior to the Closing
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 to the
Agencies. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan;
(hh) If the Mortgaged Property is a condominium unit or a planned unit
development, such condominium or planned unit development project meets the
eligibility requirements of the Agencies;
(ii) The Mortgage Note and Mortgage are on forms acceptable to either
of the Agencies;
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(jj) The Mortgaged Property is located in the state indicated on the
Mortgage Loan Schedule, and consists of a single parcel of real property with a
detached single family residence erected thereon, or an individual condominium
unit, or a 2-4 family dwelling or an individual unit in a planned unit
development as defined by FNMA, none of which is a mobile home or manufactured
dwelling;
(kk) There are no circumstances or conditions with respect to the
Mortgage, the Mortgage Property, the Mortgagor, the Mortgage File or the
Mortgagor's credit standing that can reasonably be expected to cause private
institutional investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent, or adversely affect
the value or marketability of the Mortgage Loan;
(ll) 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;
(mm) The Seller has no knowledge of any circumstances existing that
could reasonably be expected to adversely affect the value or the marketability
of any Mortgaged Property or Mortgage Loan or to cause the Mortgage Loans to
prepay during any period materially faster or slower than the mortgage loans of
similar characteristics originated by the Seller generally;
(nn) Each Mortgage Loan is covered by a valid and transferable tax
service contract with First American, or such other vendor as may be reasonably
acceptable to the Purchaser;
(oo) Each Mortgage Loan is an adjustable rate mortgage loan requiring
monthly payments sufficient to amortize the original principal balance over the
original term set forth in the Mortgage Loan Schedule. No Mortgage Loan has
negatively amortized nor shall any Mortgage Loan have any negative amortization
after the Closing Date. The Mortgage Interest Rate adjusts semi-annually in
accordance with the related Mortgage Note, provided, however, with respect to
Segments B and C, the Mortgage Interest Rate shall be fixed for an initial
period of two (2) and three (3) years, respectively. On each Interest
Adjustment Date, the Mortgage Interest Rate shall be adjusted to equal the Index
plus the Gross Margin (rounded up or down to the nearest 0.125%), subject to the
Periodic Mortgage Interest Rate Cap and the Lifetime Mortgage Interest Rate Cap
as set forth in the respective Mortgage Note and the Mortgage Loan Schedule.
None of the Mortgage Loans contain a provision allowing the Mortgagor to convert
the Mortgage Note from an adjustable rate mortgage loan to a fixed rate mortgage
loan;
(pp) Each Mortgage Loan at the time of origination was underwritten in
accordance with the credit underwriting guidelines of the Seller attached hereto
as Exhibit D and, to the extent not inconsistent therewith, generally accepted
---------
sub-prime credit underwriting guidelines;
(qq) As of the Closing Date, the Seller shall have received neither
actual nor constructive notice that either a Mortgage Loan will be paid in full
(whether by virtue of a demand statement or otherwise) or that any Mortgagor has
elected to convert the related Mortgage Loan into a fixed-rate mortgage loan in
accordance with the terms of the related Mortgage Note;
(rr) The Mortgage Note is not and has not been secured by any
collateral except the lien of corresponding Mortgage on the Mortgaged Property;
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(ss) 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; and
(tt) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Mortgage Loan has taken place on the part
of the Seller, or, to the best of Seller's knowledge, on the part of any other
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.
(uu) There is no homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage subject to applicable
federal and state laws and judicial precedent with respect to bankruptcy and
right of redemption.
(vv) There exists no violation of any local, state or federal
environmental law, rule or regulation in respect of the Mortgaged Property which
violation has or could have a material adverse effect on the market value of
such Mortgaged Property. There exists no pending action or proceeding directly
or indirectly involving the related Mortgaged Property in which compliance with
any environmental law, rule or regulation is in issue; and, to the best of
Seller's knowledge, nothing further remains to be done to satisfy in full all
requirements of each such law, rule or regulation constituting a prerequisite to
the use and enjoyment of such Mortgaged Property. There has been no release in
or on the Mortgaged Property of any hazardous substances, hazardous wastes or
solid wastes, as such terms are defined in the Comprehensive Environmental
Response Compensation and Liability Act, the Resource Conservation and Recovery
Act of 1976, or other federal, state and local environmental laws and the
Mortgage Property is not and has not been used for the storage or transportation
of any such hazardous substances, hazardous wastes or solid wastes. There are
no underground storage tanks on the Mortgaged Property.
(ww) Except as disclosed on the Mortgage Loan Schedule, none of the
Mortgage Loans are classified as "high cost" Mortgage Loans under Section 32 of
the Home Ownership and Equity Protection Act of 1994.
(xx) None of the Mortgaged Properties are located in the State of
Alabama.
(yy) If during the origination or acquisition of a Mortgage Loan a
yield spread premium or other origination fee was paid to any agent or affiliate
of Seller, Seller represents that such fees were disclosed on the settlement
statement provided to the related Mortgagor that evidences such Mortgagor's
acknowledgment of such fees and such disclosure will be included in the related
Mortgage File.
SECTION 3.3 REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES.
-----------------------------------------------------
The representations and warranties set forth in Sections 3.1 and 3.2 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
failure to examine any Mortgage File. Furthermore, the absence of the Seller in
either the chain of title or endorsement shall in no way limit the Purchaser's
recourse against the Seller as provided in this Section 3.3 for a breach of one
-----------
or more of the
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Seller's representations and warranties made herein. 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 one or more
of the Mortgage Loans or the Purchaser's interest therein, the party discovering
such breach shall give written notice within thirty (30) days of such discovery
to the other.
The Seller shall have a period of thirty (30) days from the earlier of
the discovery of a breach or the receipt by the Purchaser of notice of a breach
within which to correct or cure such breach. If any such breach cannot be
corrected or cured within such thirty (30) day period, the Seller shall, at the
Purchaser's option and not later than thirty (30) days after its discovery or
its receipt of notice of such breach, repurchase such Mortgage Loan at the
Repurchase Price. In the event that a breach shall involve any representation
or warranty set forth in Section 3.1 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. Any repurchase of a Mortgage
Loan(s) pursuant to the foregoing provisions of this Section 3.3 shall be
-----------
accomplished by wire transfer of immediately available funds on the repurchase
date to an account designated by the Purchaser.
At the time of repurchase, the Purchaser and the Seller shall arrange
for the reassignment of the repurchased Mortgage Loan to the Seller and the
delivery to the Seller of any documents held by the Purchaser or its custodian
relating to such Mortgage Loan. The Seller shall, simultaneously with such
reassignment, give written notice to the Purchaser that such repurchase has
taken place. All out-of-pocket costs incurred by the Purchaser in connection
with the reassignment shall be paid by the Seller.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Sections 3.1 or 3.2
-------------------
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,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.
Purchaser has the right to perform a field review of all appraisals of
the Mortgage Properties related to the Mortgage Loans within thirty (30) days of
the Closing Date, provided that Seller shall have delivered to the Purchaser, on
or before the Closing Date, copies of appraisals relating to certain Mortgaged
Properties (a list of which shall be provided by Purchaser to Seller prior to
the Closing Date) and the addresses of each of the Mortgagors. If during such
review Purchaser determines using a third party appraisal service, that the
Appraised Value of any Mortgage Property varies by more than (i) ten percent
(10%) for Mortgage Loans disclosed on a Mortgage Loan Schedule with a Loan-to-
Value Ratio of less than or equal to 75% or (ii) five percent (5%) for Mortgage
Loans disclosed on a Mortgage Loan Schedule with a Loan-to-Value Ratio of
greater than 75% then Purchaser will notify Seller of such variance.
Within five (5) Business Days of receipt of such notification by
Purchaser, Seller, at its own expense, may request an additional independent
appraisal and/or a drive-by appraisal completed on FNMA form 2055 using an
appraisal service approved by Purchaser (such approval not to be unreasonably
withheld). If such additional appraisal indicates that the variance is less
than 10% or 5%, as applicable, Purchaser will not pursue a repurchase; provided,
--------
however, if such additional appraisal indicates a variance of more than 10% or
- -------
5%, as applicable, Seller must repurchase such Mortgage Loan by depositing in an
account specified by Purchaser the amount of the Repurchase Price within five
(5) Business Days. When the
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<PAGE>
Repurchase Price is wire transferred to the specified account, Seller shall,
simultaneously with such deposit, give written notice to Purchaser that such
deposit has taken place.
SECTION 3.4 INDEMNIFICATION OF THE PURCHASER. (a) In addition to
--------------------------------
the repurchase obligations set forth in Section 3.3, the Seller shall indemnify
-----------
the Purchaser and hold it harmless against any losses, damages, penalties,
fines, forfeitures, judgments and any related costs including, without
limitation, reasonable and necessary legal fees, resulting from any claim,
demand, defense or a material omission on the part of the Seller in receiving,
processing, funding or servicing any Mortgage Loan, or from any assertion based
on, grounded upon or resulting from a breach of any of the Seller's
representations and warranties contained in this Article III, or failure to
-----------
perform any warranty/agreements contained in this Agreement. Notwithstanding the
foregoing, Seller shall not be liable for any damages resulting from a material
omission on the part of the Purchaser in servicing any Mortgage Loan after the
Servicing Transfer Date. In addition to the obligations of the Seller set forth
in this Article III, the Purchaser may pursue any and all remedies otherwise
-----------
available at law or in equity, including, but not limited to, the right to seek
damages. Notwithstanding the foregoing, Seller shall not be liable for any
special, consequential or punitive damages. This section shall survive the
transfer of the Mortgage Loans under this Agreement and the term of this
Agreement.
(b) Within ten (10) Business Days after a receipt by a party of a
third party claim, the indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under this Agreement, deliver a claim
notice to the indemnifying party; provided, however, that the omission so to
notify the indemnifying party shall not relieve the indemnifying party from any
liability that the indemnifying party may have to the indemnified party
otherwise than under this subsection, unless the indemnifying party is
materially prejudiced thereby. In the event that any third party claim is made
against the indemnified party and the indemnified party notifies the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, to assume
the defense thereof, with counsel satisfactory to the indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), which consent shall not be unreasonably withheld. The
indemnified party shall have the right to employ separate counsel in any action
or claim and to participate in the defense thereof at the expense of the
indemnifying party, if the retention of such counsel has been specifically
authorized by the indemnifying party, if such counsel is retained because the
indemnifying party does not notify the indemnified party within fifteen (15)
Business Days after receipt of a claim notice that it elects to undertake the
defense thereof, or if there is a reasonable basis on which the indemnified
party's interest may differ from those of the indemnifying party.
The indemnifying party shall remit payment for the amount of a valid and
substantiated claim for indemnification hereunder within fifteen (15) Business
Days of the receipt of a claim notice therefor. Upon the payment in full of any
claim hereunder, the indemnifying party shall be subrogated to the rights of the
indemnified party against any person with respect to the subject matter of such
claim. In the event of a dispute, the parties shall proceed in good faith to
negotiate a resolution of such dispute.
The indemnified party shall have the right to reject any settlement
approved by the indemnifying party if the indemnified party waives its right to
indemnification hereunder. The indemnified party shall have the right to settle
any third party claim over the objection of the indemnifying party (such
settlement to include a complete release of the indemnifying party); provided,
--------
however, that if the indemnifying party is contesting such claim in good faith
- -------
and has assumed the defense of such claim from the indemnified party, the
indemnified party waives any right to indemnity therefor.
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<PAGE>
In the event that the indemnifying party reimburses the indemnified party
with respect to any third party claim and the indemnified party subsequently
receives reimbursement from another person with respect to that third party
claim, then the indemnified party shall remit such reimbursement from such other
person to the indemnifying party within thirty (30) days of receipt thereof.
SECTION 3.5 PREPAYMENT AND CONVERSION PROTECTION. In the event
------------------------------------
that any of the Mortgage Loans are (i) paid in full by the related Mortgagor or
(ii) converted to a fixed-rate mortgage loan, in either case, on or prior to the
Servicing Transfer Date, or (iii) subject to a breach of the representation set
forth in Section 3.2(qq), the Seller shall, with respect to each such Mortgage
--------------
Loan, pay to the Purchaser, in addition to the unpaid principal balance plus
accrued interest at the time of such payoff or conversion, the product of (a)
the positive difference, if any, between the Purchase Price Percentage (subject
to any buyup or buydown adjustments as contemplated in the Trade Confirmation)
and 100%, times (b) the unpaid principal balance of such Mortgage Loan at the
time such Mortgage Loan is paid in full or converted, as applicable.
ARTICLE IV
INTERIM SERVICING OF THE MORTGAGE LOANS
---------------------------------------
SECTION 4.1 GENERAL. The Mortgage Loans will be purchased by the
-------
Purchaser and sold by the Seller on a servicing-released basis and the purchase
of the Mortgage Loans by the Purchaser shall, for all purposes, include all
Servicing Rights relating thereto. From the Closing Date to the Servicing
Transfer Date, the Seller shall interim service the Mortgage Loans in strict
accordance with the terms of this Agreement, applicable law, and, to the extent
not inconsistent herewith, the servicing standards of the Agencies. Without
limiting the generality of the foregoing, the Seller shall not take, or fail to
take, any action which would result in the Purchaser's interest in the Mortgage
Loans being adversely affected. It is expressly understood by the Seller that,
during the Interim Servicing Period, the Purchaser intends to market the
Mortgage Loans for sale to a whole loan investor and, as such, the Seller agrees
to comply with all reasonable requests of the Purchaser made prior to the
Servicing Transfer Date in order to effectuate the foregoing including, without
limitation, any request for information or documentation in connection with any
Mortgage Loan which the Purchaser deems is necessary to carry out the foregoing.
With respect to each Mortgage Loan for which an Escrow Account has been
established for the payment of taxes, insurance and other similar payments, the
Seller shall, upon notice from the Purchaser, effect the termination of such
Escrow Account on or prior to the Servicing Transfer Date, and refund any
positive balance therein to the related Mortgagor(s).
SECTION 4.2 REPORTING AND REMITTANCE. Within five (5) Business
------------------------
Days following the conclusion of each calendar month reporting and remittance
cycle occurring during the Interim Servicing Period (each, a "Reporting Cycle"),
if any, the Seller shall forward to the Purchaser with respect to the Mortgage
Loans a full set of tapes or other computer or like records and a trial balance
as of the end of each such Reporting Cycle, which tapes or computer records and
trial balance shall include information relating to all payment and other
activity on the Mortgage Loans. With respect to any payments of principal or
interest (including all prepayments) received, or applied to any Mortgagor's
account, by the Seller during the Interim Servicing Period (or prior to the
Closing Date, if any such payments were not reflected in the calculation of the
Purchaser Proceeds), the Seller shall remit to the Purchaser all such payments
of principal and interest on the Mortgage Loans no later than the fifth (5/th/)
day of the month
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following the conclusion of each Reporting Cycle and, with respect to the month
in which the Servicing Transfer Date occurs, no later than the fifth (5/th/)
Business Day thereafter.
ARTICLE V
TRANSFER OF SERVICING RIGHTS
----------------------------
SECTION 5.1 TRANSFER OF SERVICING. The Seller agrees to act
---------------------
reasonably, in good faith and in accordance with all applicable laws and
regulations and to do all things necessary to effect the transfer of the
Servicing Rights to the Purchaser on the Servicing Transfer Date including,
without limitation, complying with all reasonable instructions provided by the
Purchaser relating to the transfer of the Servicing Rights.
SECTION 5.2 OBLIGATIONS OF THE SELLER PRIOR TO THE SERVICING DATE.
-----------------------------------------------------
Without limiting the generality of Section 5.1, the Seller shall take, or cause
-----------
to be taken, the following actions with respect to the Mortgage Loans prior to
the Servicing Transfer Date (or within such time as may otherwise be specified
below) in order to effect the transfer of the Servicing Rights to the Purchaser
on the Servicing Transfer Date:
(a) Preliminary Test Tape. On or prior to the Closing Date, the
---------------------
Seller shall forward to the Purchaser a preliminary test tape or other computer
or like records (including master file, escrow file, payee file, ARM master
file, ARM history, all HMDA data required by the Agencies, etc.) containing all
of the Mortgage Loans as of a date mutually agreed upon by the Seller and the
Purchaser. The preliminary test tape or computer records shall include all
field descriptions and record layouts;
(b) Notice to Hazard Insurers. The Seller shall inform by written
-------------------------
notice all hazard insurance companies and/or their agents of the transfer and
request a change in the loss payee mortgage endorsement clause to the
Purchaser's name. The Seller shall provide the Purchaser with a form of the
notification letter and an officer's certification that all hazard insurance
companies have been notified by an identical letter;
(c) Notice to Mortgage Insurance Companies. The Seller shall inform
--------------------------------------
by written notice all mortgage insurance companies providing any Primary
Mortgage Insurance Policy of the change in insured's name on each such policy to
the Purchaser's name. The Seller shall provide the Purchaser with a form of the
notification letter and an officer's written certification that all such
mortgage insurance companies have been notified by an identical letter;
(d) Tax Service Contracts. The Seller shall have obtained a life of
---------------------
loan, transferable real estate tax service contract with a tax service company
reasonably acceptable to the Purchaser on all of the Mortgage Loans and shall
assign all such contracts to the Purchaser or, in the alternative, the Seller
--
shall notify the Purchaser as to any Mortgage Loans for which it has not
procured the requisite contract and shall pay to the Purchaser a fee of ten
dollars ($10.00) for each such Mortgage Loan;
(e) Flood Certifications. The Seller shall have obtained a life of
--------------------
loan, transferable flood certification contract for each Mortgage Loan and shall
assign all such contracts to the Purchaser or, in the alternative, the Seller
--
shall notify the Purchaser as to any Mortgage Loans for which it has not
procured the flood certification referenced above and shall pay to the Purchaser
a fee of fifteen dollars ($15.00) for each such Mortgage Loan;
20
<PAGE>
(f) Notice to Mortgagors. The Seller shall, no later than fifteen
--------------------
(15) days prior to the Servicing Transfer Date, inform in writing all Mortgagors
of the change in servicer from the Seller to the Purchaser, all in accordance
with applicable law. The Seller shall obtain the Purchaser's approval of the
form of such notifications prior to their mailing. The Seller acknowledges that
the Purchaser's review of this notice shall not be a review for statutory or
regulatory compliance purposes, and that the Seller shall have the sole
responsibility for such compliance. The Seller shall provide the Purchaser with
a form of the notification letter and an officer's written certification that
all Mortgagors have been notified by an identical letter;
(g) Payment of Real Estate Taxes. The Seller shall make or cause to
----------------------------
be made all payments of all real estate taxes on the Mortgage Loans which (i)
will be delinquent on or prior to the Servicing Transfer Date, (ii) are required
to be paid within thirty (30) days after the Closing Date to receive a discount,
or (iii) will be delinquent within thirty (30) days after the Closing Date. If
tax bills have not been received by the Seller by the Servicing Transfer Date on
any Mortgage Loans subject to this subsection, the Seller shall obtain and pay
all tax bills subsequent to the Servicing Transfer Date and the Purchaser will
promptly reimburse the Seller upon receipt from the Seller of documentation
evidencing such payment. On non-impounded accounts, the Seller shall ensure
that all taxes which would otherwise be delinquent by the Servicing Transfer
Date, if not paid by such date, have been paid. With respect to each of the
Mortgage Loans which do not have an impound or escrow account maintained for the
payment of taxes and insurance, the Seller shall hold harmless and indemnify the
Purchaser against any and all costs, expenses, penalties, fines, damages and
judgments of whatever kind arising from the Seller's failure to pay, or cause to
be paid, any delinquent taxes or tax penalties outstanding as of the Servicing
Transfer Date;
(h) Payment of Insurance Premiums. The Seller shall pay all hazard and
-----------------------------
flood insurance and Primary Mortgage Insurance Policy premiums required to be
paid prior to the Servicing Transfer Date or within thirty (30) days after the
Closing Date on all impounded accounts relating to the Mortgage Loans and shall
ensure that all premiums required to be paid prior to the Servicing Transfer
Date by the Mortgagors on non-impounded accounts have been paid. With respect
to each of the Mortgage Loans which do not have an impound or escrow account
maintained for the payment of taxes and insurance, the Seller shall hold
harmless and indemnify the Purchaser against any and all costs, expenses,
penalties, fines, damages and judgments of whatever kind arising from the
Seller's failure to ensure that the related Mortgagor is maintaining adequate
insurance coverage on the Mortgaged Property at all times prior to the Servicing
Transfer Date in accordance with the terms of the any document contained in the
Mortgage File or any applicable law or regulation including, without limitation,
adequate flood insurance coverage for all Mortgaged Properties located within an
"A" or "V" flood hazard area; and
(i) ARM Adjustments. With respect to each adjustable rate Mortgage
---------------
Loan whose index value for any Interest Adjustment Date is available on or prior
to the Servicing Transfer Date, the Seller shall make all such adjustments and
shall inform the related Mortgagors of such adjustments.
SECTION 5.3 OBLIGATIONS OF THE SELLER AFTER THE SERVICING TRANSFER
------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
- ---- -----------
cause to be taken, the following actions with respect to the Mortgage Loans
within three (3) Business Days following the Servicing Transfer Date (or within
such time as may otherwise be specified below):
(a) Tape. The Seller shall furnish to the Purchaser all available
----
computer or like records requested by the Purchaser reflecting the status of
payments, balances and other
21
<PAGE>
pertinent information with respect to the Mortgage Loans as of the Servicing
Transfer Date (including, without limitation, (i) master file, (ii) escrow file,
(iii) payee file, which includes comprehensive tax and insurance information
identifying payee, payee address, next payment due date, next amount payable and
policy number/parcel number, and (iv) ARM master file). Such records shall
include magnetic tapes reflecting all computer files maintained on the Mortgage
Loans and shall include hard copy trial balance reports as specifically
requested by the Purchaser;
(b) Mortgage File. If the Seller has not already done so, the Seller
-------------
shall have forwarded a complete Mortgage File with respect to each Mortgage
Loan;
(c) Accounting Reports. The Seller shall furnish to the Purchaser
------------------
copies of all accounting reports relating to the Mortgage Loans as of the
Servicing Transfer Date including, without limitation, a trial balance and
reports of collections, delinquencies, prepaids, curtailments, escrow payments,
escrow balances, partial payments, partial payment balances and other like
information with respect to the Mortgage Loans;
(d) Other Documentation. The Seller shall provide the Purchaser any
-------------------
and all further documents reasonably required by the Purchaser in order to fully
transfer to the Purchaser possession of all tangible evidence of the Servicing
Rights and escrow, impound and trust funds transferred hereunder;
(e) Transfer of Escrow Funds and Other Proceeds. The Seller shall
-------------------------------------------
transfer to the Purchaser, by wire transfer to the account designated by the
Purchaser, an amount equal to the sum of (i) the Net Escrow Payments, (ii) all
undistributed insurance loss draft funds, (iii) all unapplied funds received by
the Seller, (iv) all unapplied interest on escrow balances accrued through the
Servicing Transfer Date, (v) all buydown funds held by the Seller as of the
Servicing Transfer Date, and (vi) all other amounts held by the Seller with
respect to the Mortgage Loans as of the Servicing Transfer Date for which the
Seller is not entitled to retain (collectively, the "Escrow Proceeds"). Within
five (5) Business Days following the Purchaser's receipt of the Escrow Proceeds,
the Seller and the Purchaser shall resolve any discrepancies between the
Seller's accounting statement and the Purchaser's reconciliation with respect
thereto. No later than ten (10) Business Days following the Servicing Transfer
Date, the Seller or the Purchaser, as the case may be, shall transfer to the
other, by wire transfer to the designated account, any amounts to which the
other party is entitled; and
(f) Mortgage Payments Received After Servicing Transfer Date. The
--------------------------------------------------------
Seller shall, within two (2) Business Days of receipt, forward to the Purchaser
any payment received by it after the Servicing Transfer Date with respect to any
of the Mortgage Loans, whether such payment is in the form of principal,
interest, taxes, insurance, loss drafts, insurance refunds, etc., in the
original form received, unless such payment has been received in cash or by the
Seller's lock box facility, in which case the Seller shall forward such payment
in a form acceptable to the Purchaser. The Seller shall notify the Purchaser of
the particulars of the payment, which notification shall set forth sufficient
information to permit timely and appropriate processing of the payment by the
Purchaser.
22
<PAGE>
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.1 NOTICES. All demands, notices and communications
-------
required to be provided hereunder shall be in writing and shall be deemed to
have been duly given if mailed, by registered or certified mail, postage
prepaid, and return receipt requested, or, if by other means, when received by
the other party at the address as follows:
(i) if to the Seller:
United PanAm Mortgage
625 The City Drive
Orange, CA 92868
Attn: Mr. Blair Kenny
(ii) if to the Purchaser:
As provided by Purchaser in writing.
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 6.2 INTENTION OF THE PARTIES. Pursuant to this Agreement,
------------------------
the Purchaser is purchasing, and the Seller is selling the Mortgage Loans and
not a debt instrument of the Seller or any other security. Accordingly, the
Seller and the Purchaser shall each treat the transaction for federal income tax
purposes as a sale by the Seller, and a purchase by the Purchaser, of the
Mortgage Loans and the Servicing Rights. The 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 Servicing Rights and the
Seller shall cooperate with all reasonable requests made by the Purchaser in the
course of such review.
SECTION 6.3 EXHIBITS. The exhibits to this Agreement are hereby
--------
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 6.4 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 "Sections," "Subsections," "Paragraphs," and
other Subdivisions without reference to a document are to designated Sections,
Subsections, Paragraphs and other subdivisions of this Agreement;
23
<PAGE>
(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.
SECTION 6.5 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 6.6 FURTHER AGREEMENTS. The Seller shall execute and
------------------
deliver to the Purchaser and the Purchaser shall execute and deliver to the
Seller such reasonable and appropriate additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this
Agreement.
SECTION 6.7 EXECUTION OF AGREEMENT. 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. This Agreement shall be deemed binding when executed by both the
Purchaser and the Seller. Telecopy signatures shall be deemed valid and binding
to the same extent as the original.
SECTION 6.8 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 permitted successors and assigns of the Seller and the successors
and assigns of the Purchaser. This Agreement shall not be assigned, pledged or
hypothecated by the Seller without the consent of the Purchaser. This Agreement
may be assigned, pledged or hypothecated or otherwise transferred or encumbered
by the Purchaser, in whole or part, without the consent of the Seller. If the
Purchaser assigns all of its rights as the Purchaser hereunder relating to some
or all of the Mortgage Loans, the assignee of the Purchaser, upon notification
to the Seller, will become the "Purchaser" hereunder with respect to such
Mortgage Loans assigned hereby.
SECTION 6.9 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
relevant 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,
24
<PAGE>
the parties hereto waive any provision of law which prohibits or renders void or
unenforceable any provision hereof.
SECTION 6.10 COSTS. The Purchaser shall pay any commissions due its
-----
salesmen and the legal fees and expenses of its attorneys and expenses of its
custodian. All other costs and expenses incurred in connection with the
transfer and delivery of the Mortgage Loans, including recording fees, fees for
title policy endorsements and continuations and the Seller's attorney's fees,
shall be paid by the Seller.
SECTION 6.11 ATTORNEYS' FEES. If any claim, legal action or any
---------------
arbitration or other proceeding is brought for the enforcement of this Agreement
or because of a dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that claim, action or proceeding, in addition to any other relief to which
such party may be entitled.
SECTION 6.12 GOVERNING LAW. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of California applicable to
agreements entered into and wholly performed within said jurisdiction.
SECTION 6.13 SURVIVAL. All covenants, agreements, representations
--------
and warranties made herein shall survive the execution and delivery of this
Agreement.
SECTION 6.14 ENTIRE AGREEMENT. This Agreement constitutes the
----------------
entire understanding between the parties hereto and supersedes any and all prior
or contemporaneous oral or written communications with respect to the subject
matter hereof, all of which communications are merged herein, except for the
Trade Confirmation which shall remain in full force and effect, but only to the
extent not inconsistent herewith. It is expressly understood and agreed that no
employee, agent or other representative of the Seller or the Purchaser has any
authority to bind such party with regard to any statement, representation,
warranty or other expression unless said statement, representation, warranty or
other expression is specifically included within the express terms of this
Agreement or the Trade Confirmation. This Agreement shall not be modified,
amended or in any way altered except by an instrument in writing signed by both
the parties hereto.
SECTION 6.15 CONFIDENTIALITY. The Seller and the Purchaser hereby
---------------
acknowledge and agree that this Agreement shall be kept confidential and its
contents will not be divulged to any party without the other party's consent
except to the extent that it is appropriate for the Seller or the Purchaser to
do so in working with legal counsel, auditors, taxing authorities or other
governmental agencies. Neither Seller nor any of its affiliates or agents shall
issue any press release or public announcement concerning the contemplated
transaction, the existence of this Agreement, or the terms, conditions, and
provisions of this Agreement (i) without the prior written consent of Purchaser
or (ii) except as required by law, in which event Seller shall consult with
Purchaser to the extent practicable before making such disclosure.
SECTION 6.16 NO SOLICITATION. From and after the Closing Date, the
---------------
Seller agrees that for a period of forty two (42) months, it will not take any
action or cause any action to be taken by any of its employees, agents or
affiliates, or by any independent contractors acting on the Seller's behalf, to
solicit in any manner whatsoever any Mortgagor to prepay or refinance a Mortgage
Loan. It is understood and agreed by the Seller and the Purchaser that all
rights and benefits relating to the solicitation of any Mortgagors to refinance
any Mortgage Loans shall be
25
<PAGE>
transferred to the Purchaser pursuant hereto on the Closing Date and the Seller
shall take no action to undermine these rights and benefits. The Seller shall
use its best efforts to prevent the sale of the name of any Mortgagor to any
person or entity. It is understood that promotions undertaken by the Seller or
Seller's affiliate(s) which are directed to the general public at large (i.e.,
newspaper advertisements, radio or T.V. ads, etc.) and not specifically directed
to any Mortgagor or any borrower identified in any Mortgage Loan shall not
constitute a breach of the obligations set forth in this Section 6.16.
SECTION 6.17 NON-CIRCUMVENTION. The Seller and the Purchaser
-----------------
understand and agree that the Purchaser may introduce prospective buyers of the
Mortgage Loans to the Seller, that such buyers are customers of the Purchaser
and that relationships of the Purchaser to such buyers are confidential. The
Seller agrees with respect to a particular buyer of the Mortgage Loans, the
Seller will not, for the purpose of buying and selling other mortgage loans, and
for a period of nine (9) months from August 14, 1998, communicate with or sell
such other mortgage loans to such buyer unless such buyer is or has been
independently introduced to the Seller or the Seller has had previous dealings
(other than any transactions involving the Purchaser) with such buyer.
[SIGNATURE PAGE FOLLOWS]
26
<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.
COUNTRYWIDE HOME LOANS, INC.,
as Purchaser
/s/ Michael W. Schloessmann
By: -----------------------------
Michael W. Schloessmann
Vice President
PAN AMERICAN BANK, FSB,
the Seller
/s/ Blair F. Kenny
By: ------------------------------
Name: Blair F. Kenny
Title: Senior Vice President
27
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
(attached)
28
<PAGE>
EXHIBIT 10.91
UPAM
UNITED PANAM MORTGAGE
A DIVISION OF PAN AMERICAN BANK, FSB
July 6, 1998
Mr. Edward L. Pollard
304 Marigold Avenue
Corona del Mar, CA 92625
Dear Ed:
This letter sets forth the basic terms and conditions of your employment with
UNITED PANAM MORTGAGE CORPORATION ("UPAM"). By signing this letter, you will be
agreeing to these terms.
1. UPAM agrees to employ and Employee agrees to serve UPAM as President in
accordance with the terms of this Agreement and for a term of three years,
subject to Paragraph 7.
2. Duties. Employee will serve UPAM as President and shall have such corporate
------
authority as shall be reasonably required to enable Employee to discharge his
duties. Employee, if requested, shall serve, without any additional
compensation, as Division President of Pan American Bank, FSB ("PAB") to the
extent some or all mortgage operations are operated as a division of PAB.
Employee agrees to observe and comply with the rules and regulations of UPAM
as adopted by UPAM or PAB Boards of Directors and to carry out and perform
orders, directives and policies of such Boards as they may from time to time
direct. Employee shall report to the Chairman of the Board of UPAM and with
respect to any duties to PAB or United PanAm Financial Corp. ("UPFC") to the
President and Chief Executive Officer.
3. Compensation.
------------
a) Base Salary. You will be paid a base monthly salary of $15,000 (payable
-----------
as $7,500 semimonthly), which covers all hours worked. Generally, your
salary will be reviewed by the Board of UPAM at least annually or at the
time of any promotion.
<PAGE>
b) Bonuses. At least annually, the UPAM Board will review your performance
-------
and based on such review, and on such other factors as the Board may deem
to be relevant pursuant to the annual Bonus Plan in effect for the year
ending December 31, 1998, shall pay Employee a prorated bonus of up to 75%
of Employee's Base Salary at the discretion of the Board taking into
consideration Employee's contribution to UPAM's attainment of operating
goals which have been established by the Board relating to pre-tax net
income, return on shareholders' equity and other similar factors, provided
however, a minimum bonus only for the year ended December 31, 1998 of
$50,000 will be paid by February 15, 1999. For the years 1999 and
thereafter a business plan, which Employee will direct the preparation
thereof and that will be approved by the UPAM Board of Directors, which
will project pre-tax income for each year, the attainment of which will
become the primary goal for bonus compensation payment.
c) Additional Benefits. During the Term hereof, Employee shall participate
-------------------
in any bonus, pension, 401(k), profit, incentive compensation, medical,
life insurance, disability or similar plan, and shall receive all
perquisites, available to executives of UPAM (or United PanAm Financial
Corp. ("UPFC") to the extent it provides umbrella plans to cover
executives of all subsidiaries) at or below Employee's level of
responsibility to the extent Employee meets the eligibility requirements.
As additional benefits, UPAM will reimburse Employee for the cost of an
additional $250,000 of term life insurance each year during the term
hereof, and will attempt to obtain a waiver of the eligibility waiting
period for medical insurance and, if not able to do so, reimburse Employee
for the COBRA cost while waiting. Employee shall also be entitled to
receive the benefits specified on Exhibit I to this Agreement ("Additional
Benefits").
d) Vacation. Employee shall be entitled to twenty (20) days of paid vacation
--------
each twelve month period, which shall accrue on a pro rata basis from the
--------
date of this employment agreement.
4. Services. Employee shall devote his full business time, energy and ability
--------
exclusively to the business affairs and interest of UPAM and PAB.
5. Trade Secret and Confidential Information. During the term of this
-----------------------------------------
Agreement, you will have access to "Confidential Information", which
includes, but is not limited to, (i) financial and other sensitive
information that UPAM receives from its customers; (ii) confidential
business, trade secret and financial information provided you by UPAM; (iii)
personnel information (including without limitation employee compensation);
and (iv) other confidential business information. You understand that
information concerning UPAM's business and the business of its customers is a
valuable, special and unique asset and must be held in the strictest
confidence. You agree that you will not disclose information concerning UPAM
business or the business of its customers; except as required by UPAM or by
law. All Confidential Information shall be the sole property of UPAM, and
where applicable, its customers. You agree that upon termination of your
employment for any reason, or upon request, you will deliver to UPAM all
Confidential Information as well as all documents,
<PAGE>
data, records and communications, and all drawings, models, prototypes or
similar visual or conceptual presentation of any type, and all copies or
duplicates, provided to you or obtained by you during your employment.
6. Nonsolicitation. During your employment and for a period of two years
---------------
immediately following your employment, you shall not, directly or indirectly,
engage or participate in the solicitation or attempt to solicit fellow
employees to work for any business that is in competition in any manner
whatsoever with the business of UPAM, including such business as conducted
through PAB as a division thereof
7. Termination. UPAM may terminate this Agreement of Employment at any time for
-----------
cause without further obligation or liability to Employee. The term "for
cause" shall include the grounds specified in the Office of Thrift
Supervision Rules and Regulations and Federal Deposit Insurance Corporation.
UPAM may, notwithstanding any other provision of this agreement, terminate
Employee's employment at will for any reason without any liability or
obligation to Employee, except for the following termination payments:
i) During the three year term of this agreement after the commencement of
employment an amount equal to one year base salary, or
ii) If in the event of a change of control (more than a 50% change in
ownership or sale of substantially all the assets) where you are not
offered substantially the same position, an amount equal to one year
base salary.
8. Employment. You and UPAM acknowledge and agree that you were previously
----------
employed by one or more other financial institutions in capacities similar to
the capacities proposed herein. In connection with any such prior
employment, you hereby represent and warrant to UPAM as follows:
. No Breach of Prior Agreement. Your execution and delivery of this
Agreement and your performance of the obligations contemplated hereunder
will not result in a breach of any prior employment agreement, whether
written or oral, that you may have entered into with any former employer
or other third party.
. No use of Confidential or Proprietary Information. While in the employ of
UPAM, whether pursuant to this Agreement or otherwise, you will not make
use of any information, manuals, document, files, reports, studies or
other materials that may have been used and/or developed while you were in
the employ of any prior employer(s), which information and/or materials
are or may be deemed of a confidential or proprietary nature by such other
prior employer(s).
<PAGE>
. You further acknowledge and agree that any violation by you of this
Section shall constitute grounds for termination of your employment
hereunder and that you may be held liable by UPAM for any losses or
damages suffered by UPAM as a result of any such violation.
9. Integrated Agreement. This Agreement supersedes any prior agreements,
--------------------
representations or promises of any kind, whether written, oral, express or
implied between the parties hereto with respect to the subject matters
herein. It constitutes the full, complete and exclusive agreement between
you and UPAM, PAB and UPFC with respect to the subject matters herein.
We look forward to your joining UPAM and helping us achieve even greater levels
of success. In order to confirm your agreement with and acceptance of these
terms, please sign one copy of this letter and return in to me.
Very truly yours,
/s/ John T. French
John T. French
Chairman
United PanAm Mortgage Corporation
______________________________________________________________________________
I agree to the terms of employment set forth in this Agreement.
/s/ Edward L. Pollard July 8, 1998
_____________________________________________________________________
Associate Date
<PAGE>
EXHIBIT I
---------
ADDITIONAL BENEFITS
SIGN-ON BONUS
- -------------
Employee will receive a $50,000 one-time bonus upon the commencement of
employment.
GRANT OF OPTIONS
- ----------------
Approximately upon the date Employee signs this Agreement, Employee shall
receive a grant of options covering 70,000 shares of United PanAm Financial
Corp. ("UPFC") exercisable at a price based on the closing market price on such
date. Such options shall vest over a three year period. The options, and all
rights thereto, shall be governed solely by the UPFC Plan and administration by
the UPFC Board or a Committee thereof. In the event of a change of control, as
defined in Paragraph 7 of the Agreement, all such options shall vest
immediately.
GUARANTEE OF EXCHANGE VALUE
- ---------------------------
Employee presently has existing grants of stock options from his former
employer, certain of which are unvested. A schedule setting forth the
approximate total value based on an agreed market price of $21 per share, of
such unvested Options over their total exercise price (the ("gain") is attached
as Exhibit I(a), which Employee represents and affirms, is accurate.
Concurrently with the commencement of employment, Employee shall receive an
Option grant for 70,000 of UPFC shares as set forth above. It is the intention
of the parties to assure Employee that he will obtain, in realized value of UPFC
Options and/or cash, the approximate "gain" on the unexercised options with his
former employer.
UPAM will collectively guarantee that Employee will realize $362,000 of
equivalent "gain" by the dates and as computed hereinafter. Accordingly, on the
dates set forth below, Employee shall be entitled to receive additional cash
compensation, if any, as follows:
1. On August 31, 2001, an amount equal to the excess, if any, of $362,000 over
the Value as defined below, of Employee's UPFC options which are then vested,
or
2. On the date your employment shall be terminated, other than for cause, and
including the result of a change of control, the measurement, the date, and
the payment amount referred to in (1) above shall be accelerated to a date
that precedes Employee's termination of employment by five business days.
For the purpose hereof, the term "Value" shall mean the average closing price of
UPFC stock for fifteen trading days proceeding the dates referred to in (1) and
(2) above, less the exercise price of the relevant vested UPFC options as of
such date, multiplied by the number of shares covered by such relevant vested
options.
In the event employment is terminated voluntarily by Employee before the full
term of the Agreement or by the Company for cause, then no excess over the Value
of the vested UPFC option shall be due and owing and Employee will be allowed to
exercise his vested options as provided by the terms of the Option Plan.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 45,436,000 15,026,000
<INT-BEARING-DEPOSITS> 15,500,000 4,000,000
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 354,267,000 268,537,000
<ALLOWANCE> 8,858,000 6,487,000
<TOTAL-ASSETS> 437,276,000 310,842,000
<DEPOSITS> 317,342,000 233,194,000
<SHORT-TERM> 10,930,000 34,237,000
<LIABILITIES-OTHER> 22,285,000 17,472,000
<LONG-TERM> 0 12,930,000
0 0
0 0
<COMMON> 173,000 110,000
<OTHER-SE> 86,546,000 12,899,000
<TOTAL-LIABILITIES-AND-EQUITY> 437,276,000 310,842,000
<INTEREST-LOAN> 32,786,000 25,872,000
<INTEREST-INVEST> 819,000 639,000
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 33,605,000 26,511,000
<INTEREST-DEPOSIT> 11,186,000 10,095,000
<INTEREST-EXPENSE> 14,448,000 12,411,000
<INTEREST-INCOME-NET> 19,157,000 14,100,000
<LOAN-LOSSES> 1,784,000 507,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,486,000 946,000
<INCOME-PRETAX> 17,908,000 10,739,000
<INCOME-PRE-EXTRAORDINARY> 17,908,000 10,739,000
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,336,000 6,248,000
<EPS-PRIMARY> 0.71 0.58
<EPS-DILUTED> 0.67 0.53
<YIELD-ACTUAL> 11.95 11.41
<LOANS-NON> 20,951,000 6,633,000
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 6,487,000 5,356,000
<CHARGE-OFFS> 3,764,000 2,474,000
<RECOVERIES> 1,109,000 1,145,000
<ALLOWANCE-CLOSE> 8,858,000 6,487,000
<ALLOWANCE-DOMESTIC> 8,858,000 6,487,000
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 613,000 593,000
</TABLE>
