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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER __, 1998
====================================================================================================================================
Registration No.333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
RESIDENTIAL ASSET FUNDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
301 South College Street
NORTH CAROLINA Charlotte, North Carolina 28202-6001 56-2064715
(Address, including zip code, and
(State or other jurisdiction of telephone number, including area code, of
incorporation or organization) registrant's principal executive offices) (I.R.S. Employer Identification Number)
Marion A. Cowell, Jr., Esq.
Executive Vice President, Secretary and General Counsel
First Union Corporation
One First Union Center
301 South College Street
Charlotte, North Carolina 28202-6001
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
Christopher J. DiAngelo
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
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Approximate Date of Commencement of Proposed Sale to the Public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
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CALCULATION OF REGISTRATION FEE
- ------------------------------ ------------------ -------------------------------- ----------------------------- -------------------
Title of each class of Amount to be Proposed Maximum Aggregate Proposed Maximum Aggregate Amount of
securities registered Registered Price Per Unit Offering Price Registration Fee
- ------------------------------ ------------------ -------------------------------- ----------------------------- -------------------
.
Asset Backed Securities $1,000,000 100% $1,000,0001 $295.00
- ------------------------------ ------------------ -------------------------------- ----------------------------- -------------------
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(1)Estimated solely for the purpose of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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RESIDENTIAL ASSET FUNDING CORPORATION
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K)
Item Location in Form S-3
Forepart of Registration
1. Forepart of the Registration Statement and Outside Front Cover Page of Statement and Outside Front
Prospectus........................................................... Cover Page of Prospectus
Inside Front and Outside Back
2. Inside Front and Outside Back Cover Pages of Prospectus.............. Cover Pages**
3. Summary Information; Risk Factors and Ratio of Earnings to Fixed Prospectus Summary**; Risk
Charges*............................................................. Factors**; *
4. Use of Proceeds...................................................... Use of Proceeds
5. Determination of Offering Price ..................................... *
6. Dilution............................................................. *
7. Selling Security Holders............................................. *
8. Plan of Distribution................................................. Underwriting**
Outside Front Cover Page**;
Prospectus Summary**;
The Trust Fund**; Description of
9. Description of Securities to be Registered........................... Certificates**
10. Interests of Named Experts and Counsel............................... *
11. Material Changes..................................................... *
Incorporation of Certain
12. Incorporation of Certain Information by Reference.................... Documents by Reference
13. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.......................................................... See Part II
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* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement
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PROSPECTUS
Asset Backed Notes and Asset Backed Certificates, issuable in Series
Residential Asset Funding Corporation
(Depositor)
Residential Asset Funding Corporation (the "Depositor") may offer from
time to time under this Prospectus and the related prospectus supplements (the
related "Prospectus Supplements") the Asset-Backed Notes (the "Notes") and the
Asset-Backed Certificates (the "Certificates" and, together with the Notes, the
"Securities") which may be sold from time to time in one or more series (each, a
"Series").
The Certificates of a Series will evidence undivided interests in
certain assets deposited into a trust (each, a "Trust Fund") by the Depositor
pursuant to a Pooling and Servicing Agreement or a Trust Agreement (an
"Agreement"), as described herein. The Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness secured the
related Trust Fund. The Trust Fund for a Series of Securities will include
assets originated or acquired by the originator or originators (the
"Originator") specified in the related Prospectus Supplement composed of (a)
primary assets, which may include one or more pools (each, a "Pool") of (i)
loans (the "Home Equity Loans") that are secured by mortgages on residential
properties and that may be secured by fixtures, as further described herein,(ii)
manufactured housing conditional sale contracts and installment agreements (the
"Contracts") that are secured by Manufactured Homes, as further described
herein, and (iii) securities backed or secured by Home Equity Loans and/or
Contracts (collectively, the "Primary Assets"), (b) all monies due thereunder
net, if and as provided in the related Prospectus Supplement, of certain amounts
payable to the servicer of the Home Equity Loans and/or Contracts, which
servicer may also be the related Originator, specified in the related Prospectus
Supplement (the "Servicer"), (c) as more fully described in the related
Prospectus Supplement, funds on deposit in one or more pre-funding amounts
and/or capitalized interest accounts and (d) reserve funds, letters of credit,
surety bonds, insurance policies or other forms of credit support as described
herein and in the related Prospectus Supplement. The Home Equity Loans will be
secured by mortgages and deeds of trust or other similar security instruments
creating a lien on a Mortgaged Property, which may be subordinated to one or
more senior liens on the Mortgaged Property. The Contracts will be secured by
security interests taken in the Manufactured Homes.
(cover continued on next page)
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS SECURED BY, AND
CERTIFICATES OF A SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST
FUND ONLY AND ARE NOT GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR,
THE RELATED ORIGINATOR, THE TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE
AFFILIATES. THE DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF
SECURITIES WILL BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH
IN THE RELATED AGREEMENT AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
--------------------
For a discussion of material risks associated with an investment in the
Securities, see the information herein under "Risk Factors" beginning on page
17.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by First Union Capital Markets, a division of Wheat First
Securities, Inc. and the other underwriters set forth in the related Prospectus
Supplement, if any, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by First
Union Capital Markets and the other underwriters, if any, and certain further
conditions. Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of the Securities offered hereby unless accompanied
by a Prospectus Supplement.
--------------------
First Union Capital Markets
September __, 1998
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(Continued from previous page)
Each Series of Securities will be issued in one or more classes (each,
a "Class"). Interest on and principal of the Securities of a Series will be
payable on each distribution date specified in the related Prospectus Supplement
(the "Distribution Date"), at the times, at the rates, in the amounts and in the
order of priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with
respect to the amount, percentage and timing of distributions of principal,
interest or both and one or more Classes may be subordinated to other Classes
with respect to distributions of principal, interest or both as described herein
and in the related Prospectus Supplement. The Primary Assets and other assets
comprising the Trust Fund may be divided into one or more Asset Groups and each
Class of the related Series will evidence beneficial ownership of the
corresponding Asset Group, as applicable.
The rate of reduction of the aggregate principal balance of each Class
of a Series may depend principally upon the rate of payment (including
prepayments) with respect to the Home Equity Loans, Contracts or Underlying
Loans relating to the Private Securities, as applicable. A rate of prepayment
lower or higher than anticipated will affect the yield on the Securities of a
Series in the manner described herein and in the related Prospectus Supplement.
Under certain limited circumstances described herein and in the related
Prospectus Supplement, a Series of Securities may be subject to termination or
redemption under the circumstances described herein and in the related
Prospectus Supplement.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate, and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Primary Assets, the Originator and any Servicer;
(iii) the terms of any credit enhancement with respect to such Series; (iv) the
terms of any insurance related to the Primary Assets; (v) information concerning
any other assets in the related Trust Fund, including any Reserve Fund; (vi) the
final scheduled distribution date of each Class of such Securities; (vii) the
method to be used to calculate the amount of principal required to be applied to
the Securities of each Class of such Series on each Distribution Date, the
timing of the application of principal and the order of priority of the
application of such principal to the respective Classes and the allocation of
principal to be so applied; (viii) the Distribution Dates and any Assumed
Reinvestment Rate (as defined herein); (ix) additional information with respect
to the plan of distribution of such Securities; and (x) the federal income tax
characterization of the Securities.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Securities are required under the related Agreement to be forwarded to
holders of the related Series of Securities (the "Holders"). If the Securities
are issued in book-entry form, (i) owners of beneficial interests in such
Securities will not be considered "Holders" under the Agreements and will not
receive such reports directly from the related Trust Fund; rather, such reports
will be furnished to such owners through the participants and indirect
participants of the applicable book-entry system and (ii) references herein to
the rights of "Holders" shall refer to the rights of such owners as they may be
exercised indirectly through such participants. See "THE AGREEMENTS-- Reports to
Holders" herein.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission ") a Registration Statement under the Securities Act of 1933,
as amended, with respect to the Securities. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
NW, Washington, D.C. 20549, and at its Regional Office located as follows,
Midwest Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
Northeast Regional Office, Seven World Trade Center, New York, New York 10048.
In addition, the Commission maintains a World Wide Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission.
Each Trust Fund will be required to file certain reports with the
Commission pursuant to the requirements of the Securities Exchange Act of 1934,
as amended. The Depositor intends to cause each Trust Fund to suspend filing
such reports if and when such reports are no longer required under said Act.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund
referred to in the accompanying Prospectus Supplement with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of this Prospectus and
prior to the termination of any offering of the Securities issued by such Trust
Fund shall be deemed to be incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
of this Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor on behalf of any Trust Fund will provide without charge
to each person to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to above
that have been or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Such requests should be directed to the
Depositor at One First Union Center, 301 S. College Street, Charlotte, North
Carolina 28288-0630.
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SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "GLOSSARY OF TERMS" herein.
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Securities Offered...................................Asset-Backed Certificates (the "Certificates") and
Asset-Backed Notes (the "Notes"). Certificates are issuable
from time to time in Series pursuant to a Pooling and
Servicing Agreement or Trust Agreement (the related
"Agreement"). Each Certificate of a Series will evidence an
interest in the Trust Fund for such Series, or in an Asset
Group specified in the related Prospectus Supplement. Notes
are issuable from time to time in Series pursuant to an
Indenture between the Issuer and the related trustee (the
"Trustee") whereby the Issuer will pledge the Trust Fund to
secure the Notes under the lien of the Indenture. Each
series of Notes will represent the indebtedness of the
Issuer. Each Series of Securities will consist of one or
more Classes, one or more of which may be Classes of
compound interest securities, planned amortization class
("PAC") securities, variable interest securities, zero coupon
securities, principal only securities, interest only
securities, participating securities, senior securities or
subordinate securities. Each Class may differ in, among
other things, the amounts allocated to and the priority of
principal and interest payments, final scheduled
distribution dates, Distribution Dates and interest rates.
The Securities of each Class will be issued in fully
registered form in the denominations specified in the
related Prospectus Supplement. The Securities or certain
Classes of such Securities offered thereby may be available
in book-entry form only.
Depositor ...........................................Residential Asset Funding Corporation (the "Depositor") was
incorporated in the State of North Carolina in December
1997, and is a wholly-owned, special purpose subsidiary of
First Union National Bank, a national banking association
with its headquarters in Charlotte, North Carolina. Neither
First Union National Bank nor any other affiliate of the
Depositor, the Servicer, the Trustee or the Originator has
guaranteed or is otherwise obligated with respect to the
Securities of any Series. See "THE DEPOSITOR" herein.
Issuer ..............................................With respect to each series of Notes, the issuer (the
"Issuer") will be an owner trust (the "Owner Trust")
established for the purpose of issuing such series of
Notes. Each such Owner Trust will be created pursuant to
the Trust Agreement (the "Trust Agreement") between the
Depositor and the Owner Trustee. With respect to each series
of Certificates, the Issuer will be the Trust established
pursuant to the related Agreement.
Trustees ............................................The trustee or indenture trustee (each, the "Trustee") for each
series of Certificates and Notes, respectively, will be named
in the related Prospectus Supplement. The Owner Trustee (the
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"Owner Trustee") for each series of Notes will be named in the
related Prospectus Supplement. See "The Agreements--The
Trustee" herein.
Interest Payments ...................................Interest payments on the Securities of a Series entitled by
their terms to receive interest will be made on each
Distribution Date, to the extent set forth in, and at the
applicable rate specified in (or determined in the manner
set forth in), the related Prospectus Supplement. The
interest rate on Securities of a Series may be variable or
change with changes in the rates of interest on the related
Home Equity Loans, Contracts, or Underlying Loans relating
to the Private Securities, as applicable and/or as
prepayments occur with respect to such Home Equity Loans,
Contracts or Underlying Loans, as applicable. Interest Only
Securities may be assigned a "Notional Amount" set forth in
the related Prospectus Supplement which is used solely for
convenience in expressing the calculation of interest and
for certain other purposes and does not represent the right
to receive any distributions allocable to principal.
Principal Only Securities may not be entitled to receive any
interest payments or may be entitled to receive only nominal
interest payments. Interest payable on the Securities of a
Series on a Distribution Date will include all interest
accrued during the period specified in the related
Prospectus Supplement. See "DESCRIPTION OF THE
SECURITIES--Payments of Interest" herein.
Principal Payments ..................................All payments of principal of a Series of Securities will be
made in an aggregate amount determined as set forth in the
related Prospectus Supplement and will be paid at the times
and will be allocated among the Classes of such Series in
the order and amounts, and will be applied either on a pro
rata or a random lot basis among all Securities of any such
Class, all as specified in the related Prospectus
Supplement.
Final Scheduled Distribution Date of the
Securities ..........................................The "Final Scheduled Distribution Date" with respect to each
Class of Notes is the date no later than which principal
thereof will be fully paid and with respect to each Class of
Certificates is the date after which no Certificates of such
Class are expected to remain outstanding, in each case
calculated on the basis of the assumptions applicable to such
Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date of a Class may equal the
maturity date of the Primary Asset in the related Trust Fund
which has the latest stated maturity or will be determined as
described herein and in the related Prospectus Supplement.
The actual final Distribution Date of the Securities of a
Series will depend primarily upon the rate of payment
(including prepayments, liquidations due to default, the
receipt of proceeds from casualty insurance policies and
repurchases) of the Home Equity Loans, Contracts or Underlying
Loans relating to the Private Securities, as applicable, in the
related Trust Fund. The actual final Distribution Date of a
Security may occur substantially earlier or may occur later
than its
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Final Scheduled Distribution Date as a result of the
application of prepayments to the reduction of the principal
balances of the Securities and as a result of defaults on the
Primary Assets. The rate of payments on the Home Equity Loans,
Contracts or Underlying Loans relating to the Private
Securities, as applicable, in the Trust Fund for a Series will
depend on a variety of factors, including certain
characteristics of such Home Equity Loans, Contracts or
Underlying Loans, as applicable, and the prevailing level of
interest rates from time to time, as well as on a variety of
economic, demographic, tax, legal, social and other factors. No
assurance can be given as to the actual prepayment experience
with respect to a Series. See "RISK FACTORS--Yield May Vary"
and "DESCRIPTION OF THE SECURITIES--Weighted Average Life of
the Securities" herein.
Optional Termination ................................One or more Classes of Securities of any Series may
be redeemed or repurchased in whole or in part, at such time,
by the related Originator, Servicer, Credit Enhancer, or an
affiliate thereof at the price set forth in the related
Agreement (which would not be less than an amount necessary to
pay all principal and interest on the securities outstanding).
Each such redemption or repurchase may occur on or after such
time as the aggregate principal balance of the Securities of
the Series or the Primary Assets relating to such Series is
less than the percentage (which percentage shall not exceed
20%) specified in the related Agreement. See "DESCRIPTION OF
THE SECURITIES--Optional Redemption, Purchase or Termination"
herein.
Mandatory Termination; Auction Sale .................The Trustee, the Servicer or the related Originator may be
required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase
of the related Primary Assets or otherwise, under other
circumstances and in the manner specified in "THE
AGREEMENTS--Termination" and in the related Agreement.
A mandatory termination may take the form of an auction sale.
Within a certain period following the failure of the holder of
the optional termination right to exercise such right, the
required party shall solicit bids for the purchase of all Home
Equity Loans and/or Contracts remaining in the Trust. In the
event that satisfactory bids are received (which would not be
less than an amount necessary to pay all principal and interest
on the securities outstanding), the net sale proceeds will be
distributed to Holders, in the same order of priority as
collections received in respect of the Home Equity Loans and/or
Contracts. If satisfactory bids are not received, such party
shall decline to sell the Home Equity Loans and/or Contracts
and shall not be under any obligation to solicit any further
bids or otherwise negotiate any further sale of the Home Equity
Loans and/or Contracts. Such sale and consequent termination of
the Trust must constitute a "qualified liquidation" of each
REMIC established by the Trust under Section 860F of the
Internal Revenue Code of 1986, as amended, including, without
limitation, the
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requirement that the qualified liquidation takes place over a
period not to exceed 90 days.
The Trust Fund.......................................The Trust Fund for a Series of Securities will consist of
one or more of the assets described below, as described in
the related Prospectus Supplement.
A. Primary Assets..............................The Primary Assets for a Series may consist of any
combination of the following assets, to the extent and as
specified in the related Prospectus Supplement. The Primary
Assets will be acquired by the related Trust Fund from the
related Originator, or may be acquired in the open market or
in privately negotiated transactions.
(1) Home Equity Loans...........................The Primary Assets for a Series will consist, in whole or in
part, of loans which are secured by mortgages on residential
properties and which may be secured by fixtures (the "Home
Equity Loans"). Some Home Equity Loans may be delinquent to
the extent specified in the related Prospectus Supplement.
The percentage of those Home Equity Loans which are
delinquent shall not exceed 10% of the aggregate principal
balance of the Primary Assets as of the cut-off date for
that Series (the "Cut-Off Date").
The Home Equity Loans will consist of what are commonly
referred to as "home equity" loans, as distinguished from
"purchase money" loans. Both of these concepts refer to the use
of proceeds made by the related borrower, rather than to any
legal or other documentary differences between the two types of
loans, except that "home equity" loans are usually (but not
always) secured by mortgages which are in a subordinate lien
position while "purchase money" loans are usually (but not
always) secured by mortgages which are in a senior lien
position, and "home equity" loans are typically (but not
always) shorter in maturity than "purchase money" loans (i.e.,
fifteen rather than thirty years). The Home Equity Loans, in
addition to being secured by mortgages on real estate, may also
be secured by "fixtures" treated as personal property under
local state law. Although fixtures may turn up more frequently
in the case of loans in which the proceeds are used to fund
home improvements, fixtures as a part of the collateral package
may be a part of either a "home equity" or "purchase money"
loan.
A "home equity" loan is a loan the proceeds of which are not
used to purchase the related mortgaged property; the proceeds
of a "purchase money" mortgage are applied to the purchase of
the related mortgaged property. Typical uses of proceeds of
"home equity" loans would be home improvement, debt
consolidation and the funding of large expenses such as college
tuition.
Payment Features of Home Equity Loans; Balloon Loans. The Trust
Fund may contain loans which have various payment
characteristics, including balloon or other non-traditional
payment features, and may accrue interest at a fixed
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rate or an adjustable rate. Balloon loans do not amortize their
entire principal balance by their stated maturity in accordance
with their terms and require a balloon payment of the remaining
principal balance at maturity (each such Home Equity Loan, a
"Balloon Loan"). See "RISK FACTORS--Balloon Loans" and
"DESCRIPTION OF THE SECURITIES--Weighted Average Life of the
Securities" herein.
The Home Equity Loans will be secured by mortgages and deeds of
trust or other similar security instruments creating a lien on
a Mortgaged Property, which may be subordinated to one or more
senior liens on the Mortgaged Property. The related Prospectus
Supplement will describe certain characteristics of the Home
Equity Loans for a Series, including, without limitation, and
to the extent relevant: (a) the aggregate unpaid principal
balance of the Home Equity Loans (or the aggregate unpaid
principal balance included in the Trust Fund for the related
Series); (b) the range and weighted average interest rate (the
"Loan Rate") on the loans and in the case of adjustable rate
loans, the range and weighted average of the current rate of
interest borne by such loans (the "Current Interest Rates") and
any maximum lifetime interest rates thereon (the "Lifetime Rate
Caps"); (c) the range and the average outstanding principal
balance of the Home Equity Loans; (d) the weighted average
original and remaining term-to-stated maturity of the Home
Equity Loans and the range of original and remaining
terms-to-stated maturity, if applicable; (e) the range and
combined loan-to-value ratios (each a "Combined Loan-to-Value
Ratio") or loan-to-value ratios, (each a "Loan-to-Value Ratio")
as applicable, of the Home Equity Loans, computed in the manner
described in the related Prospectus Supplement; (f) the
percentage (by principal balance as of the Cut-off Date) of
Home Equity Loans that accrue interest at adjustable or fixed
interest rates; (g) any Credit Enhancement relating to the Home
Equity Loans; (h) the geographic distribution of any Mortgaged
Properties securing the Home Equity Loans; (i) the use and type
of each Mortgaged Property securing a Home Equity Loan; (j) the
lien priority of the Home Equity Loans; and (k) the delinquency
status and year of origination of the Home Equity Loans.
(2) Contracts .............................Each Contract Pool (as defined herein) will consist of fixed or
adjustable rate manufactured housing installment sales
contracts and installment loan agreements. Each Contract may be
secured by a new or used Manufactured Home (as defined herein).
(3) Private Securities ....................Primary Assets for a Series may consist, in whole or in
part, of Private Securities which include (a) pass-through
certificates representing beneficial interests in loans of
the type that would otherwise be eligible to be Home Equity
Loans and/or Contracts (the "Underlying Loans") or (b)
collateralized obligations secured by Underlying Loans.
Such pass-through certificates or collateralized obligations
will have previously been (a) offered and distributed to the
public
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pursuant to an effective registration statement and
not purchased as part of the original distribution or (b)
acquired in a transaction not involving any public offering
from a person who is not an affiliate of the issuer of such
securities at the time of transfer (nor an affiliate thereof
at any time during the three preceding months); provided a
period of three years has elapsed since the later of the
date the securities were acquired from the issuer or an
affiliate thereof. Although individual Underlying Loans may
be insured or guaranteed by the United States or an agency
or instrumentality thereof, they need not be, and the
Private Securities themselves will not be so insured or
guaranteed. See "THE TRUST FUNDS--Private Securities"
herein.
The related Prospectus Supplement for a Series will specify
(such disclosure may be on an approximate basis, as described
above and will be as of the date specified in the related
Prospectus Supplement) to the extent relevant and to the extent
such information is reasonably available to the Depositor and
the Depositor reasonably believes such information to be
reliable: (i) the aggregate approximate principal amount and
type of any Private Securities to be included in the Trust Fund
for such Series; (ii) certain characteristics of the Underlying
Loans including (A) the payment features of such Underlying
Loans (i.e., whether they are fixed rate or adjustable rate and
whether they provide for fixed level payments, negative
amortization or other payment features), (B) the approximate
aggregate principal amount of such Underlying Loans which are
insured or guaranteed by a governmental entity, (C) the
servicing fee or range of servicing fees with respect to such
Underlying Loans, (D) the minimum and maximum stated maturities
of such Underlying Loans at origination, (E) the lien priority
of such Underlying Loans, and (F) the delinquency status and
year of origination of such Underlying Loans; (iii) the maximum
original term-to-stated maturity of the Private Securities;
(iv) the weighted average term-to-stated maturity of the
Private Securities; (v) the pass-through or certificate rate or
ranges thereof for the Private Securities; (vi) the sponsor or
depositor of the Private Securities (the "PS Sponsor"), the
servicer of the Private Securities (the "PS Servicer") and the
trustee of the Private Securities (the "PS Trustee"); (vii)
certain characteristics of Credit Enhancement, if any, such as
reserve funds, insurance policies, letters of credit or
guarantees, relating to the Home Equity Loans underlying the
Private Securities, or to such Private Securities themselves;
(viii) the terms on which the Underlying Loans may, or are
required to, be repurchased prior to stated maturity; (ix) the
terms on which substitute Underlying Loans may be delivered to
replace those initially deposited with the PS Trustee; and (x)
a description of the limited purpose and business of the issuer
of the Private Securities, the availability of public
information concerning such issuer and market information with
respect to the Private Securities. See "THE TRUST
FUNDS--Additional Information" herein.
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B. Collection and Distribution Accounts All payments on or with respect to the Primary Assets for a
Series will be remitted directly to an account (the "Collection
Account") to be established for such Series with the Trustee or
the Servicer, in the name of the Trustee. The Trustee shall be
required to apply a portion of the amount in the Collection
Account, together with reinvestment earnings from eligible
investments specified in the related Prospectus Supplement, to
the payment of certain amounts payable to the Servicer under
the related Agreement and any other person specified in the
Prospectus Supplement, and to deposit a portion of the amount
in the Collection Account into a separate account (the
"Distribution Account") to be established for such Series, each
in the manner and at the times established in the related
Prospectus Supplement. The amounts deposited in such
Distribution Account will be available for (i) application to
the payment of principal of and interest on such Series of
Securities on the next Distribution Date, (ii) the making of
adequate provision for future payments on certain Classes of
Securities and (iii) any other purpose specified in the related
Prospectus Supplement. After applying the funds in the
Collection Account as described above, any funds remaining in
the Collection Account may be paid over to the Servicer, the
Depositor, any provider of Credit Enhancement with respect to
such Series (a "Credit Enhancer") or any other person entitled
thereto in the manner and at the times established in the
related Prospectus Supplement.
C. Pre-Funding and Capitalized Interest
Accounts....................................A Trust Fund may include one or more segregated trust accounts
(each, a "Pre-Funding Account") established and maintained with
the Trustee for the related Series. On the closing date for
such Series, a portion of the proceeds of the sale of the
Securities of such Series (such amount, the "Pre-Funded
Amount") will be deposited in the Pre-Funding Account and may
be used to purchase additional Primary Assets during the period
of time specified in the related Prospectus Supplement (the
"Pre-Funding Period"). If any Pre-Funded Amount remains on
deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the manner
specified in the related Prospectus Supplement to prepay the
Notes and/or the Certificates of the applicable Series. If a
Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust
Fund during the Pre-Funding Period is less than the original
Pre-Funded Amount, the Holders of the Securities of the related
Series will receive a prepayment of principal as and to the
extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity
of the applicable Securities.
If a Pre-Funding Account is established, (a) the Pre-Funding
Period will not exceed 90 days from the related closing date,
(b) the additional Primary Assets to be acquired during the
Pre-Funding Period will be subject to the same representations
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and warranties and satisfy the same eligibility requirements as
the Primary Assets included in the related Trust Fund on the
closing date, subject to such exceptions as are expressly
stated in such Prospectus Supplement, (c) the Pre-Funding
Amount will not exceed 25% of the principal amount of the
Securities issued pursuant to a particular offering and (d)
prior to the investment of the Pre-Funded Amount in additional
Primary Assets, such Pre-Funded Amount will be invested in one
or more "Eligible Investments" specified in the related
Agreement and described herein under "THE TRUST FUNDS --
Collection and Distribution Accounts." Any Eligible Investment
must mature no later than the Business Day prior to the next
Distribution Date. "Business Day" means any day other than a
Saturday, Sunday or other day on which commercial banking
institutions or trust companies in New York, New York or the
principal place of business of the Trustee are closed.
If a Pre-Funding Account is established, one or more segregated
trust accounts (each, a "Capitalized Interest Account") may be
established and maintained with the Trustee for the related
Series. On the closing date for such Series, a portion of the
proceeds of the sale of the Securities of such Series will be
deposited in the Capitalized Interest Account and used to fund
the excess, if any, of (x) the sum of (i) the amount of
interest accrued on the Securities of such Series and (ii)
certain fees or expenses during the Pre-Funding Period such as
trustee fees and credit enhancement fees, over (y) the amount
of interest available therefor from the Primary Assets in the
Trust Fund. Any amounts on deposit in the Capitalized Interest
Account at the end of the Pre-Funding Period that are not
necessary for such purposes will be distributed to the person
specified in the related Prospectus Supplement. See "THE TRUST
FUNDS--Pre-Funding Account" herein.
Credit Enhancement...................................If stated in the Prospectus Supplement relating to a Series,
the Depositor will obtain an irrevocable letter of credit,
surety bond, certificate insurance policy, insurance policy
or other form of credit support (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the
Holders of such Series and any other person specified in
such Prospectus Supplement from an institution (a "Credit
Enhancer") acceptable to the rating agency or agencies
identified in the related Prospectus Supplement as rating
such Series of Securities (collectively, the "Rating
Agency") for the purposes specified in such Prospectus
Supplement. The Credit Enhancement will support the
payments on the Securities and may be used for other
purposes, to the extent and under the conditions specified
in such Prospectus Supplement. See "CREDIT ENHANCEMENT"
herein. Credit Enhancement for a Series may include one or
more of the following types of Credit Enhancement, or such
other type of Credit Enhancement specified in the related
Prospectus Supplement.
A. Subordinate Securities......................Credit Enhancement for a Series may consist of one or more
Classes of Subordinate Securities. The rights of Holders of
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such Subordinate Securities to receive distributions on any
Distribution Date will be subordinate in right and priority
to the rights of holders of Senior Securities of the Series,
but only to the extent described in the related Prospectus
Supplement.
B. Insurance ..................................Credit Enhancement for a Series may consist of
special hazard insurance policies, bankruptcy bonds and other
types of insurance supporting payments on the Securities.
C. Reserve Funds ..............................If stated in the Prospectus Supplement, the Depositor may
deposit cash, a letter or letters of credit, short-term
investments, or other instruments acceptable to the Rating
Agency in one or more reserve funds to be established in the
name of the Trustee (each a "Reserve Fund"), which will be
used by the Trustee to make required payments of principal
of or interest on the Securities of such Series, to make
adequate provision for future payments on such Securities or
for any other purpose specified in the Agreement, with
respect to such Series, to the extent that funds are not
otherwise available. In the alternative or in addition to
such deposit, a Reserve Fund for a Series may be funded
through application of all or a portion of the excess cash
flow from the Primary Assets for such Series, to the extent
described in the related Prospectus Supplement.
D. Minimum Principal Payment
Agreement...................................If stated in the Prospectus Supplement relating to a Series
of Securities, the Depositor will enter into a minimum
principal payment agreement (the "Minimum Principal Payment
Agreement") with an entity meeting the criteria of the
Rating Agency, pursuant to which such entity will provide
funds in the event that aggregate principal payments on the
Primary Assets for such Series are not sufficient to make
certain payments. See "CREDIT ENHANCEMENT--Minimum
Principal Payment Agreement" herein.
E. Deposit Agreement...........................If stated in the Prospectus Supplement, the Depositor and
the Trustee will enter into a guaranteed investment contract
or an investment agreement (the "Deposit Agreement")
pursuant to which all or a portion of amounts held in the
Collection Account, the Distribution Account or in any
Reserve Fund will be invested with the entity specified in
such Prospectus Supplement. The Trustee will be entitled to
withdraw amounts so invested, plus interest at a rate equal
to the Assumed Reinvestment Rate, in the manner specified in
the Prospectus Supplement. See "CREDIT ENHANCEMENT--Deposit
Agreement" herein.
Servicing ...........................................The Servicer will be responsible for servicing, managing and
making collections on the Home Equity Loans and/or Contracts
for a Series. In addition, the Servicer may act as custodian
and be responsible for maintaining custody of the Home Equity
Loans and/or Contracts and related documentation on behalf of
the Trustee. Advances with respect to delinquent payments of
principal or interest on a
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Home Equity Loan and/or Contracts will be made by the Servicer
only to the extent described in the related Prospectus
Supplement. Such advances will be intended to provide liquidity
only and the related Prospectus Supplement will specify the
extent to which they are reimbursable to the Servicer from
scheduled payments of principal and interest, late collections,
or from the proceeds of liquidation of the related Home Equity
Loans and/or Contracts or from other recoveries relating to
such Home Equity Loan or Contract (including any insurance
proceeds or payments from other credit support). In performing
these functions, the Servicer will exercise the same degree of
skill and care that it customarily exercises with respect to
similar receivables or Home Equity Loans and/or Contracts owned
or serviced by it. Under certain limited circumstances, the
Servicer may resign or be removed, in which event either the
Trustee or a third-party servicer will be appointed as
successor servicer. The Servicer will receive a periodic fee as
servicing compensation (the "Servicing Fee") and may, as
specified herein and in the related Prospectus Supplement,
receive certain additional compensation. See "SERVICING OF HOME
EQUITY LOANS -- Servicing Compensation and Payment of Expenses"
herein.
Material Federal Income
Tax Consequences ....................................Securities of each series offered hereby will, for federal
income tax purposes, constitute either (i) interests ("Grantor
Trust Securities") in a Trust treated as a grantor trust under
applicable provisions of the Code, (ii) "regular interests"
("REMIC Regular Securities") or "residual interests" ("REMIC
Residual Securities") in a Trust treated as a real estate
mortgage investment conduit ("REMIC") (or, in certain
instances, containing one or more REMICs) under Sections 860A
through 860G of the Code, (iii) debt issued by an Issuer ("Debt
Securities") (iv) interests in an Issuer which is treated as a
partnership ("Partnership Interests"), or (v) "regular
interests" ("FASIT Regular Securities"), "high-yield interests"
("FASIT High-Yield Securities") or an ownership interest
("FASIT Ownership Security") in a Trust treated as a financial
asset securitization investment conduit ("FASIT") (or, in
certain circumstances containing one or more FASITs) under
Sections 860H through 860L of the Code. In the event that FASIT
securities are issued, any revolving period, or addition or
substitution of collateral provisions otherwise available by
means of the FASIT election will be restricted so as to conform
to the requirements of REMICs.
Dewey Ballantine LLP, special tax counsel to the Depositor,
will render an opinion upon issuance of a series of Securities
which will be filed with the Commission as an exhibit to a
post-effective amendment or in a current report on Form 8-K.
Investors are urged to consult their tax advisors and to review
"Material Federal Income Tax Consequences" herein and in the
related Prospectus Supplement.
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ERISA Considerations.................................A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully review with its own
legal advisors whether the purchase or holding of Securities
could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. A violation of the
prohibited transaction rules may generate excise tax and
other liabilities under ERISA and the Code. If the
Securities offered are Certificates, an individual
prohibited transaction exemption issued by the Department of
Labor to various underwriters may exempt the purchase,
holding and resale of such Certificates. In addition,
Prohibited Transaction Class Exemption 83-1 may exempt the
sale or exchange of the Certificates. If the Securities
offered are Notes which are treated as indebtedness without
substantial equity features for purposes of ERISA, various
Department of Labor Class Exemptions may exempt the purchase
and holding of such Notes, and each purchaser and transferee
of such Notes may be required to represent and warrant that
such an exemption is applicable to its purchase and holding
of the Notes. See "ERISA CONSIDERATIONS" herein.
Legal Investment ....................................The related Prospectus Supplement will state whether or not
the Securities of each Series offered by this Prospectus and
the related Prospectus Supplement will constitute "mortgage
related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Investors whose
investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for
them. See "LEGAL INVESTMENT" herein.
Use of Proceeds .....................................The net proceeds from the sale of each Series will be
applied to one or more of the following purposes: (i) to
the acquisition of the related Primary Assets, (ii) to repay
indebtedness which has been incurred to obtain funds to
acquire such Primary Assets, (iii) to establish any Reserve
Funds described in the related Prospectus Supplement and
(iv) to pay costs of structuring and issuing such
Securities, including the costs of obtaining Credit
Enhancement, if any. The acquisition of the Primary Assets
for a Series may be effected by an exchange of Securities
with the Originator of such Primary Assets. See "USE OF
PROCEEDS" herein.
Ratings .............................................It will be a requirement for issuance of any Series that the
Securities offered by this Prospectus and the related
Prospectus Supplement be rated by at least one Rating Agency
in one of its four highest applicable rating categories.
The rating or ratings applicable to Securities of each
Series offered hereby and by the related Prospectus
Supplement will be as set forth in the related Prospectus
Supplement. A securities rating should be evaluated
independently of similar ratings on different types of
securities. A securities rating is not a recommendation to
buy, hold or sell securities and does not address the effect
that the rate of prepayments on Home Equity Loans, Contracts
or Underlying Loans relating to
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Private Securities, as applicable, for a Series may have on the
yield to investors in the Securities of such Series. See "RISK
FACTORS--Ratings Are Not Recommendations" herein.
Absence of Market ...................................The Securities will be a new issue of securities with no
established trading market. The Issuer does not expect to
apply for listing of the Securities on any national
securities exchange or quote the Securities in the automated
quotation system of a registered securities association.
The Underwriter(s) specified in the related Prospectus
Supplement expects to make a secondary market in the
Securities, but has no obligation to do so. See "RISK
FACTORS" herein.
Risk Factors ........................................There are material risks associated with an investment
in the Securities. For a discussion of all material factors
that should be considered by prospective investors in the
Securities, see "RISK FACTORS" herein and in the related
Prospectus Supplement.
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RISK FACTORS
For a discussion of all material risk factors that could make the
offering of the Securities speculative or one of high risk, Investors should
consider the following factors and "Risk Factors" in the related Prospectus
Supplement.
An Investment in Any Security May Be an Illiquid Investment, which May Result in
the Holder Holding such Investment to Maturity.
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Holders with liquidity of
investment or will continue for the life of the Securities of such Series. The
Underwriter(s) specified in the related Prospectus Supplement expects to make a
secondary market in the Securities, but has no obligation to do so.
The Assets of the Trust Fund, as Well as Any Applicable Credit Enhancement, Will
Be Limited and, if such Assets and/or Credit Enhancement Become Insufficient to
Service the Related Securities, Losses May Result.
The Securities of a Series will be payable solely from the assets of
the Trust Fund for such Securities. There will be no recourse to the Depositor
or any other person for any default on the Notes or any failure to receive
distributions on the Certificates. Further, at the times and to the extent set
forth in the related Prospectus Supplement, certain Primary Assets and/or any
balance remaining in the Collection Account or Distribution Account immediately
after making all payments due on the Securities of such Series and other
payments specified in the related Prospectus Supplement, may be promptly
released or remitted to the Depositor, the Servicer, the Credit Enhancer or any
other person entitled thereto and will no longer be available for making
payments to Holders. Consequently, Holders of Securities of each Series must
rely solely upon payments with respect to the Primary Assets and the other
assets constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any Credit Enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
Holders of Notes will be required under the Indenture to proceed only
against the Primary Assets and other assets constituting the related Trust Fund
in the case of a default with respect to such Notes and may not proceed against
any assets of the Depositor. There is no assurance that the market value of the
Primary Assets or any other assets for a Series will at any time be equal to or
greater than the aggregate principal amount of the Securities of such Series
then outstanding, plus accrued interest thereon. Moreover, upon an event of
default under the Indenture for a Series of Notes and a sale of the assets in
the Trust Fund or upon a sale of the assets of a Trust Fund for a Series of
Certificates, the Trustee, the Servicer, if any, the Credit Enhancer and any
other service provider specified in the related Prospectus Supplement generally
will be entitled to receive the proceeds of any such sale to the extent of
unpaid fees and other amounts owing to such persons under the related Agreement
prior to distributions to Holders of Securities. Upon any such sale, the
proceeds thereof may be insufficient to pay in full the principal of and
interest on the Securities of such Series.
The only obligations, if any, of the Depositor with respect to the
Securities of any Series will be pursuant to certain representations and
warranties. See "THE AGREEMENTS--Assignment of Primary Assets" herein.
Credit Enhancement Will Be Limited in Amount and Scope of Coverage and May Not
be Sufficient to Cover Losses.
Although any Credit Enhancement is intended to reduce the risk of
delinquent payments or losses to Holders entitled to the benefit thereof, the
amount of such Credit Enhancement will be limited and will decline and could be
depleted under certain circumstances prior to the payment in full of the related
Series of Securities, and as a result Holders may suffer losses. Furthermore,
such Credit Enhancement may provide only very limited coverage as to certain
types of losses and may provide no coverage as to certain other types of losses.
Generally, Credit Enhancements do not directly or indirectly guarantee to the
holders of Securities, any specific rate of prepayment. See "CREDIT ENHANCEMENT"
herein.
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The Timing of Principal Payments May Adversely Affect the Yield to Maturity of
the Securities.
The yield to maturity experienced by a Holder of Securities may be
affected by the rate of payment of principal of the Home Equity Loans or
Underlying Loans relating to the Private Securities, as applicable. The timing
of principal payments of the Securities of a Series will be affected by a number
of factors, including the following: (i) the extent of prepayments of the Home
Equity Loans, Contracts or Underlying Loans relating to the Private Securities,
as applicable; (ii) the manner of allocating principal payments among the
Classes of Securities of a Series as specified in the related Prospectus
Supplement; (iii) the exercise by the party entitled thereto of any right of
optional termination; (iv) liquidations due to defaults and (v) repurchases of
Home Equity Loans, Contracts, or Underlying Loans due to conversion of
adjustable-rate loans ("ARM Loans") to fixed-rate loans or breaches of the
related Originator's or Servicer's representations and warranties). See
"DESCRIPTION OF THE SECURITIES--Weighted Average Life of Securities.".
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate. See "DESCRIPTION OF THE SECURITIES--Payments of
Interest."
Prepayments May Adversely Affect the Yield to Maturity of the Securities.
The yield to maturity of the Securities of each series may be adversely
affected by a higher or lower than anticipated rate of prepayments on the
related Home Equity Loans and/or Contracts. The yield to maturity on
interest-only Private Securities or Private Securities purchased at premiums or
discounted to par will be extremely sensitive to the rate of prepayments on the
related Home Equity Loans and/or Contracts. In addition, the yield to maturity
on certain other types of classes of Securities, including certain classes in a
series including more than one class of Securities, may be relatively more
sensitive to the rate of prepayment on the related Home Equity Loans and/or
Contracts than other classes of Securities.
The Home Equity Loans and/or Contracts may be prepaid in full or in
part at any time; however, a prepayment penalty or premium may be imposed in
connection therewith. Unless so specified in the related Prospectus Supplement,
such penalties will not be property of the related Trust. The rate of
prepayments of the Home Equity Loans and/or Contracts cannot be predicted and is
influenced by a wide variety of economic, social and other factors, including
prevailing mortgage market interest rates, the availability of alternative
financing, local and regional economic conditions and homeowner mobility.
Therefore, no assurance can be given as to the level of prepayments that a Trust
will experience.
Prepayments may result from mandatory prepayments relating to unused
monies held in Pre-Funding Accounts, if any, voluntary early payments by
borrowers (including payments in connection with refinancings of the related
senior Home Equity Loan or Loans and/or Contracts), sales of Mortgaged
Properties subject to "due-on-sale" provisions and liquidations due to default,
as well as the receipt of proceeds from physical damage, credit life and
disability insurance policies. In addition, repurchases or purchases from a
Trust of Home Equity Loans and/or Contracts or substitution adjustments required
to be made under the Pooling and Servicing Agreement will have the same effect
on the Securityholders as a prepayment of such Home Equity Loans and/or
Contracts. The related Prospectus Supplement will specify whether any or all of
the Home Equity Loans contain "due-on-sale" provisions.
Collections on the Home Equity Loans and/or Contracts may vary due to
the level of incidence of delinquent payments and of prepayments. Collections on
the Home Equity Loans and/or Contracts may also vary due to seasonal purchasing
and payment habits of borrowers.
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As a Result of Optional Redemption or Repurchase or Auction Sale, Holders Could
Be Fully Paid Significantly Earlier than Would Otherwise Be the Case.
One or more Classes of Securities of any Series may be subject to
optional redemption or repurchase, in whole or in part, on or after such time as
the aggregate outstanding principal amount of the Primary Assets is less than
the amount or percentage specified in the related Agreement, (such amount or
percentage not to exceed 20% of the aggregate principal balance of the Primary
Assets as of the Cut-off Date for that Series). Neither the Trust nor the
Holders will have any continuing liability under such optional redemption or
repurchase. If the optional termination is not exercised, then one or more
Classes of Securities may be subject to early retirement by an auction sale. See
"THE AGREEMENTS--Termination" herein. The risk of reinvesting unscheduled
distributions resulting from redemption or repurchase of the Securities will be
borne by the Holders. See "DESCRIPTION OF THE SECURITIES--Optional Redemption,
Purchase or Termination." The optional termination and mandatory termination
described herein are the only circumstances in which the Securities could be
retired earlier than would be the case if the Trust were allowed to go to term.
Home Equity Loans with Balloon and Non-Traditional Payment Methods May Create
Greater Default Risk.
A portion of the aggregate principal balance of the Home Equity Loans
at any time may be Balloon Loans that provide for the payment of the unamortized
principal balance of such Home Equity Loan in a single payment at maturity Such
Balloon Loans provide for equal monthly payments, consisting of principal and
interest, generally based on a 30-year amortization schedule, and a single
payment of the remaining balance of the Balloon Loan generally 5, 7, 10, or 15
years after origination. Amortization of a Balloon Loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Depositor does not have any information regarding the default
history or prepayment history of payments on Balloon Loans. Because borrowers of
Balloon Loans are required to make substantial single payments upon maturity, it
is possible that the default risk associated with the Balloon Loans is greater
than that associated with fully-amortizing Home Equity Loans.
Other types of loans that may be included in the Trust Fund may involve
additional uncertainties not present in traditional types of loans. For example,
certain of the Home Equity Loans may provide for escalating or variable payments
by the borrower under the Home Equity Loan, as to which the borrower is
generally qualified on the basis of the initial payment amount. In some
instances the borrower's income may not be sufficient to enable them to continue
to make their loan payments as such payments increase and thus the likelihood of
default will increase. The Depositor does not have any information regarding the
default history or prepayment history of payments on these non-traditional loans
Junior Liens May Experience Higher Rates of Delinquencies and Losses.
If the Mortgages in a Trust Fund are primarily junior liens subordinate
to the rights of the mortgagee under the related senior mortgage or mortgages,
the proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such junior mortgage only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, a junior mortgagee may not
foreclose on the Mortgaged Property securing a junior mortgage unless it
forecloses subject to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages to the senior mortgagees at or prior
to the foreclosure sale or undertake the obligation to make payments on the
senior mortgages in the event the mortgagor is in default thereunder. The Trust
Fund will not have any source of funds to satisfy the senior mortgages or make
payments due to the senior mortgagees.
Property Values May Decline, Leading to Higher Losses.
There are several factors that could adversely affect the value of
Mortgaged Properties such that the outstanding balance of the related Home
Equity Loan, together with any senior financing on the Mortgaged Properties,
would equal or exceed the value of the Mortgaged Properties. Among the factors
that could adversely affect the value of the Mortgaged Properties are an overall
decline in the residential real estate market in the areas in which the
Mortgaged Properties are located or a decline in the general condition of the
Mortgaged Properties as a result of failure of borrowers to maintain adequately
the Mortgaged Properties or of natural disasters that are not
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necessarily covered by insurance, such as earthquakes and floods. Any such
decline could extinguish the value of a junior interest in a Mortgaged Property
before having any effect on the related senior interest therein. If such a
decline occurs, the actual rates of delinquencies, foreclosure and losses on the
junior loans could be higher than those currently experienced in the mortgage
lending industry in general.
Geographic Concentration of Mortgaged Properties May Result in Higher Losses, if
Particular Regions Experience Downturns.
Certain geographic regions from time to time will experience weaker
regional economic conditions and housing markets than will other regions, and,
consequently, will experience higher rates of loss and delinquency on home
equity loans generally. The Home Equity Loans underlying certain Series of
Securities may be concentrated in such regions, and such concentrations may
present risk considerations in addition to those generally present for similar
home equity loan asset-backed securities without such concentrations.
Information with respect to geographic concentration of Mortgaged Properties
that is known at the time of the offering will be specified in the related
Prospectus Supplement.
Pre-Funding May Adversely Affect Investment.
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
Each additional Primary Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and the related agreements. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or Credit Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Primary Asset were included as part
of the initial Trust Fund, the credit quality of such assets would be consistent
with the initial rating of each Class of Securities of such Series. Following
the transfer of additional Primary Assets to the Trust, the aggregate
characteristics of the Primary Assets then held in the Trust may vary from those
of the initial Primary Assets of such Trust. As a result, the additional Primary
Assets may adversely affect the performance of the related Securities
The ability of a Trust to invest in additional Primary Assets during
the related Pre-Funding Period will be dependant on the ability of the
Originator to originate or acquire Primary Assets that satisfy the requirements
for transfer to the Trust Fund. The ability of the Originator to originate or
acquire such Primary Assets will be affected by a variety of social and economic
factors, including the prevailing level of market interest rates, unemployment
levels and consumer perceptions of general economic conditions.
Environmental Conditions on the Mortgaged Property May Give Rise to Liability.
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
Mortgaged Property may give rise to a lien on the Mortgaged Property to assure
the costs of clean-up. In several states, such a lien has priority over the lien
of an existing mortgage or owner's interest against such Mortgaged Property. In
addition, under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), a
lender may be liable, as an "owner" or "operator," for costs of addressing
releases or threatened releases of hazardous substances that require remedy at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior owner. A lender also risks
such liability on foreclosure of the Mortgaged Property.
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Security Interests in the Manufactured Homes may not be perfected and the Trust
Fund may not realize upon the full amount due under the related Contract.
Each Contract is secured by a security interest in a Manufactured Home
together with, in the case of land secured contracts, the real estate on which
the related Manufactured home is located (such Contracts, the "Land Secured
Contracts"). Perfection of security interests in the Manufactured Homes and
enforcement of rights to realize upon the value of the Manufactured Homes as
collateral for the Contracts are subject to a number of federal and state laws,
including the Uniform Commercial Code (the "UCC") as adopted in the states in
which the Manufactured Homes are located and such states' certificate of title
statutes, but generally not their real estate laws. Under such federal and state
laws, a number of factors may limit the ability of a holder of a perfected
security interest in Manufactured Homes to realize upon such Manufactured Homes
or may limit the amount realized to less than the amount due under the related
Contract.
In addition, because of the expense and administrative inconvenience
involved, the seller of the Manufactured Home ("Seller") may not amend any
certificates of the title related to any Manufactured Home to change the
lienholder specified therein to the Trustee, and may not execute any transfer
instrument (including, among other instruments, UCC-3 assignments) relating to
any Manufactured Home in favor of the Trustee or note thereon the Trustee's
interest. Such amendment would require, consistent with the law of the related
State, filings at the state or county level for each Contract. As a result, the
Seller will remain the lienholder on the certificate of title relating to the
Manufactured Home. In some states, in the absence of such an amendment,
execution or notation, the assignment to the Trustee of the security interest in
the Manufactured Homes located therein may not be effective or such security
interest may not be perfected. If any otherwise effectively assigned security
interest in favor of the Trustee is not perfected, such assignment of the
security interest to the Trustee may not be effective against creditors of the
Seller to the extent it continues to be specified as lienholder on any
certificate of title or as secured party on any UCC filing, or against a trustee
in bankruptcy of the Seller.
Each Contract (other than a Land Secured Contract) will be "chattel
paper" as defined in the UCC in effect in the jurisdiction in which the related
Manufactured Home was located at origination. Under the UCC as in effect in each
such jurisdiction, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related Agreement,
the Trustee will have possession of the Contracts. In addition, the Seller will
make appropriate filings of UCC-1 financing statements in the office of the
Secretary of State of the state where its principal place of business is located
to give notice of the Trustee's ownership of the Contracts. The Trustee's
interest in the Contracts could, through the fraud or negligence of the Trustee,
be defeated if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment.
Further, because of the expenses and administrative inconvenience
involved, the assignment of mortgages or deeds of trust to the Trustee may not
be recorded with respect to the mortgages or deeds of trust securing each Land
Secured Contract. Recordation of such assignments would require the Seller to
retain counsel in the respective state, and make the appropriate filing at the
local level. The failure to record the assignments to the Trustee of the
mortgage securing Land Secured Contracts may result in the sale of such
Contracts or the Trustee's rights in the land secured by the mortgage being
ineffective against creditors of the Seller or against a trustee in bankruptcy
of the Seller or against a subsequent purchaser of such Contracts from the
Seller, without notice of the sale to the Trustee.
State and Federal Credit Protection Laws May Limit Collection of Principal and
Interest on the Home Equity Loans.
Applicable state laws generally regulate interest rates and other
charges and require certain disclosures. In addition, other state laws, public
policy and general principles of equity relating to the protection of consumers,
unfair and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Home Equity Loans.
The Home Equity Loans may also be subject to Federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated thereunder,
which require certain disclosures to the borrowers regarding the terms of the
Home Equity Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit;
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and (iii) the Fair Credit Reporting Act, which regulates the use and reporting
of information related to the borrower's credit experience.
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and
principles may limit the ability of the Servicer to collect all or part of the
principal of or interest on the Home Equity Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the owner of
the Home Equity Loan to damages and administrative enforcement.
See "CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS" herein.
Ratings Are Not Recommendations. A Reduction in the Rating of Any Credit
Enhancer Would Likely Adversely Impact the Rating of the Securities.
It will be a condition to the issuance of a Series of Securities that
they be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating would be based
on, among other things, the adequacy of the value of the Primary Assets and any
Credit Enhancement with respect to such Series. Such rating should not be deemed
a recommendation to purchase, hold or sell Securities, inasmuch as it does not
address market price or suitability for a particular investor.
A Reduction in the Rating of Any Credit Enhancer Would Likely Adversely Impact
the Rating of the Securities.
There is also no assurance that any such rating will remain in effect
for any given period of time or may not be lowered or withdrawn entirely by the
Rating Agency if in its judgment circumstances in the future so warrant. In
addition to being lowered or withdrawn due to any erosion in the adequacy of the
value of the Primary Assets, such rating might also be lowered or withdrawn,
among other reasons, because of an adverse change in the financial or other
condition of a Credit Enhancer or a change in the rating of such Credit
Enhancer's long term debt.
ERISA May Restrict the Acquisition, Ownership and Disposition of Securities.
Generally, ERISA applies to investments made by benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of Securities. See "ERISA
CONSIDERATIONS" herein.
DESCRIPTION OF THE SECURITIES
General
Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Issuer and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to separate agreements (each, a "Pooling and Servicing
Agreement" or a "Trust Agreement") among the Depositor, the Servicer, if the
Series relates to Home Equity Loans and/or Contracts, and the Trustee. A form of
Pooling and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. A Series may consist of both
Notes and Certificates.
The Originator may agree to reimburse the Depositor for certain fees
and expenses of the Depositor incurred in connection with the offering of the
Securities.
The following summaries describe certain provisions in the Agreements
common to each Series of Securities. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreements and the Prospectus Supplement relating to each
Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
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Each Series of Securities will consist of one or more Classes of
Securities, one or more of which may be compound interest securities, variable
interest securities, PAC securities, zero coupon securities, principal only
securities, interest only securities or participating securities. A Series may
also include one or more Classes of subordinate securities. The Securities of
each Series will be issued only in fully registered form, without coupons, in
the authorized denominations for each Class specified in the related Prospectus
Supplement. Upon satisfaction of the conditions, if any, applicable to a Class
of a Series, the transfer of the Securities may be registered and the Securities
may be exchanged at the office of the Trustee specified in the Prospectus
Supplement without the payment of any service charge other than any tax or
governmental charge payable in connection with such registration of transfer or
exchange. One or more Classes of a Series may be available in book-entry form
only.
Payments of principal of and interest on a Series of Securities will be
made on the Distribution Dates specified in the Prospectus Supplement relating
to such Series by check mailed to Holders of such Series, registered as such at
the close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer (at
the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by
the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Payments with respect to the Primary Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other Credit Enhancement
will be deposited into the Collection Account. Such amounts may be net of
certain amounts payable to the related Servicer and any other person specified
in the Prospectus Supplement. Such amounts thereafter will be deposited into the
Distribution Account and will be available to make payments on the Securities of
such Series on the next Distribution Date. See "THE TRUST FUNDS--Collection and
Distribution Accounts" herein.
Payments of Interest
The Securities of each Class by their terms entitled to receive
interest will bear interest from the date and at the rate per annum specified,
or calculated in the method described in the related Prospectus Supplement.
Interest on such Securities of a Series will be payable on the Distribution Date
specified in the related Prospectus Supplement. The rate of interest on
Securities of a Series may be variable or may change with changes in the annual
percentage rates of the Home Equity Loans, Contracts or Underlying Loans
relating to the Private Securities, as applicable included in the related Trust
Fund and/or as prepayments occur with respect to such Home Equity Loans,
Contracts or Underlying Loans, as applicable. Principal Only Securities may not
be entitled to receive any interest distributions or may be entitled to receive
only nominal interest distributions. Any interest on Zero Coupon Securities that
is not paid on the related Distribution Date will accrue and be added to the
principal thereof on such Distribution Date.
Interest payable on the Securities on a Distribution Date will include
all interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
Payments of Principal
On each Distribution Date for a Series, principal payments will be made
to the Holders of the Securities of such Series on which principal is then
payable, to the extent set forth in the related Prospectus Supplement. Such
payments will be made in an aggregate amount determined as specified in the
related Prospectus Supplement and will be allocated among the respective Classes
of a Series in the manner, at the times and in the priority (which may, in
certain cases, include allocation by random lot) set forth in the related
Prospectus Supplement.
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Final Scheduled Distribution Date
The Final Scheduled Distribution Date with respect to each Class of
Notes is the date no later than which the principal thereof will be fully paid
and with respect to each Class of a Series of Certificates will be the date on
which the entire aggregate principal balance of such Class is expected to be
reduced to zero, in each case calculated on the basis of the assumptions
applicable to such Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date for each Class of a Series will be specified
in the related Prospectus Supplement. Since payments on the Primary Assets will
be used to make distributions in reduction of the outstanding principal amount
of the Securities, it is likely that the actual final Distribution Date of any
such Class will occur earlier, and may occur substantially earlier, than its
Final Scheduled Distribution Date.
Furthermore, with respect to a Series of Certificates, as will be
further described in the related Prospectus Supplement, as a result of
delinquencies, defaults and liquidations of the Primary Assets in the Trust
Fund, the actual final Distribution Date of any Certificate may occur later than
its Final Scheduled Distribution Date. No assurance can be given as to the
actual prepayment experience with respect to a Series. See "Weighted Average
Life of the Securities" below.
Optional Redemption, Purchase or Termination
One or more Classes of Securities of any Series may be subject to
optional redemption or repurchase, in whole or in part, on any Distribution Date
by the related Originator, Servicer or Credit Enhancer or an affiliate thereof.
Such redemption or repurchase may occur or on or after a date specified in the
related Prospectus Supplement, or on or after such time as the aggregate
outstanding principal amount of the Securities or Primary Assets, is less than a
percentage not to exceed 20% of the aggregate principal balance of the Primary
Assets as of the Cut-off Date for that Series. Notice of such redemption,
purchase or termination must be given by the Depositor or the Trustee prior to
the related date. The redemption, purchase or repurchase price (which would not
be less than an amount necessary to pay all principal and interest on the
securities outstanding) will be set forth in the related Prospectus Supplement.
In the event that a REMIC election has been made, the Trustee shall receive a
satisfactory opinion of counsel that the optional redemption, purchase or
termination will be conducted so as to constitute a "qualified liquidation"
under Section 860F of the Code. The risk of reinvesting unscheduled
distributions resulting form prepayments of the Securities will be borne by the
Holders. Neither the Trust nor the Holders will have any continuing liability
under such optional redemption or repurchase.
In addition, the Trustee, the Servicer or certain other entities
specified in the related Prospectus Supplement may be required to effect early
retirement of a series of Securities by soliciting competitive bids for the
purchase of the related Primary Assets or otherwise, under other circumstances
and in the manner specified in "THE AGREEMENTS--Termination " herein.
Weighted Average Life of the Securities
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Securities of a Class will be influenced by the rate at which the amount
financed under Primary Assets included in the Trust Fund for a Series is paid.
Such repayment may be in the form of scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to
a prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the Home
Equity Loans or Underlying Loans relating to the Private Securities, as
applicable, included in the related Trust Fund are made at rates corresponding
to various percentages of the prepayment standard or model specified in such
Prospectus Supplement.
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There is, however, no assurance that prepayment of the Home Equity
Loans, Contracts or Underlying Loans relating to the Private Securities, as
applicable, included in the related Trust Fund will conform to any level of any
prepayment standard or model specified in the related Prospectus Supplement. The
rate of principal prepayments on pools of loans may be influenced by a variety
of factors, including job related factors such as transfers, layoffs or
promotions and personal factors such as divorce, disability or prolonged
illness. Economic conditions, either generally or within a particular geographic
area or industry, also may affect the rate of principal prepayments. Demographic
and social factors may influence the rate of principal prepayments in that some
borrowers have greater financial flexibility to move or refinance than do other
borrowers. The deductibility of mortgage interest payments, servicing decisions
and other factors also affect the rate of principal prepayments. As a result,
there can be no assurance as to the rate or timing of principal prepayments of
the Home Equity Loans or Underlying Loans either from time to time or over the
lives of such Home Equity Loans or Underlying Loans.
The rate of prepayments of conventional housing loans and other
receivables has fluctuated significantly in recent years. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Home Equity Loans, Contracts or Underlying Loans relating to the Private
Securities, as applicable, for a Series, such loans are likely to prepay at
rates higher than if prevailing interest rates remain at or above the interest
rates borne by such loans. In this regard, it should be noted that the Home
Equity Loans, Contracts or Underlying Loans, as applicable, for a Series may
have different interest rates. In addition, the weighted average life of the
Securities may be affected by the varying maturities of the Home Equity Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable.
If any Home Equity Loans, Contracts or Underlying Loans relating to the Private
Securities, as applicable, for a Series have actual terms-to-stated maturity of
less than those assumed in calculating the Final Scheduled Distribution Date of
the related Securities, one or more Classes of the Series may be fully paid
prior to their respective Final Scheduled Distribution Date, even in the absence
of prepayments and a reinvestment return higher than the Assumed Reinvestment
Rate.
THE TRUST FUNDS
General
The Notes of each Series will be secured by the pledge of the assets of
the related Trust Fund, and the Certificates of each Series will represent
interests in the assets of the related Trust Fund. The Trust Fund of each Series
will include assets acquired from the Originator composed of (i) the Primary
Assets, (ii) any Credit Enhancement, (iii) any Mortgaged Property that secured a
Home Equity Loan but which is acquired by foreclosure or deed in lieu of
foreclosure or repossession (iv) any Manufactured Home which initially secured a
Contract and which is acquired by repossession and (v) the amount, if any,
initially deposited in the Collection Account or Distribution Account for a
Series as specified in the related Prospectus Supplement. A maximum of 5% (by
Cut-off Date Principal Balance) of the aggregate Primary Assets that are
included in a Trust Fund as such Trust Fund will be constituted at the closing
date will deviate from the characteristics that are described in the related
Prospectus Supplement.
The Securities will be non-recourse obligations secured by the related
Trust Fund. Holders of a Series of Notes may only proceed against such
collateral securing such Series of Notes in the case of a default with respect
to such Series of Notes and may not proceed against any assets of the Depositor
or the related Trust Fund not pledged to secure such Notes.
The Primary Assets for a Series will be acquired by the related Trust
Fund from the related Originator, or may be acquired in the open market or in
privately negotiated transactions. Home Equity Loans and/or Contracts relating
to a Series will be serviced by the Servicer, which may be the Originator,
specified in the related Prospectus Supplement, pursuant to a Pooling and
Servicing Agreement, with respect to a Series of Certificates or a servicing
agreement (each, a "Servicing Agreement") between the Trust Fund and Servicer,
with respect to a Series of Notes.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series of Notes, the Indenture and the Servicing Agreement, as the
context requires.
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A Trust Fund relating to a Series of Securities may be a business trust
formed under the laws of the state specified in the related Prospectus
Supplement pursuant to a trust agreement (each, a "Trust Agreement") between the
Depositor and the trustee of such Trust Fund specified in the related Prospectus
Supplement
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Primary Assets and other assets contemplated
herein and in the related Prospectus Supplement and the proceeds thereof,
issuing Securities and making payments and distributions thereon and certain
related activities. No Trust Fund is expected to have any source of capital
other than its assets and any related Credit Enhancement.
Primary Assets included in the Trust Fund for a Series may consist of
any combination of Home Equity Loans, Contracts and Private Securities, to the
extent and as specified in the related Prospectus Supplement. Some of the Home
Equity Loans and/or Contracts may be delinquent to the extent and as specified
in the related Prospectus Supplement. The percentage of those Home Equity Loans
and/or Contracts which are delinquent shall not exceed 10% of the aggregate
principal balance of the Primary Assets as of the Cut-off Date for that Series.
The following is a brief description of the Home Equity Loans and/or Contracts
expected to be included in the related Trusts.
The Home Equity Loans
Home Equity Loans. The Primary Assets for a Series may consist, in
whole or in part, of loans (the "Home Equity Loans") secured by mortgages on
one- to four-family residential housing ("Single Family Properties"), including
condominium units ("Condominium Units") and cooperative dwellings ("Cooperative
Dwellings") which may be subordinated to other mortgages on the same Mortgaged
Property. The Home Equity Loans may have fixed interest rates or adjustable
interest rates and may provide for other payment characteristics as described
below and in the related Prospectus Supplement.
The Home Equity Loans will consist of what are commonly referred to as
"home equity" loans, as distinguished from "purchase money" loans. Both of these
concepts refer to the use of proceeds made by the related borrower, rather than
to any legal or other documentary differences between the two types of loans,
except that "home equity" loans are usually (but not always) secured by
mortgages which are in a subordinate lien position while "purchase money" loans
are usually (but not always) secured by mortgages which are in a senior lien
position, and "home equity" loans are typically (but not always) shorter in
maturity than "purchase money" loans (i.e., fifteen rather than thirty years).
The Home Equity Loans, in addition to being secured by mortgages on real estate,
may also be secured by "fixtures" treated as personal property under local state
law. Although fixtures may turn up more frequently in the case of loans in which
the proceeds are used to fund home improvements, fixtures as a part of the
collateral package may be a part of either a "home equity" or "purchase money"
loan.
A "home equity" loan is a loan the proceeds of which are not used to
purchase the related mortgaged property; the proceeds of a "purchase money"
mortgage are applied to the purchase of the related mortgaged property. Typical
uses of proceeds of "home equity" loans would be home improvement, debt
consolidation and the funding of large expenses such as college tuition.
The Home Equity Loans may be (i) "conventional" loans, that is, they
will not be insured or guaranteed by any governmental agency, (ii) insured by
the Federal Housing Authority ("FHA") or (iii) partially guaranteed by the
Veteran's Administration, as specified in the related Prospectus Supplement. The
Home Equity Loans may be either "closed-end" loans (i.e., loans which do not
permit the related borrower to obtain the proceeds of future advances) or
"open-end" loans (i.e., loans structured as lines of credit, which permit the
related borrower, subject to a maximum dollar amount, to obtain more than one
advance of proceeds). The Home Equity Loans will be secured by first, second or
more junior liens on fee simple or leasehold interests in one- to four-family
residential properties. The principal and interest on the Home Equity Loans
included in the Trust for a Series of Securities will be payable either on the
first day of each month or on different scheduled days throughout each month,
and the interest will be calculated either on a simple interest, actuarial
method or "Rule of 78s" method, as described herein and in the related
Prospectus Supplement. When a full principal prepayment is paid on a Home Equity
Loan during a month,
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the Mortgagor is generally charged interest only on the days of the month
actually elapsed up to the date of such prepayment, at a daily interest rate
that is applied to the principal amount of the Home Equity Loan so prepaid.
Payment Terms. The payment terms of the Home Equity Loans to be
included in a Trust for a Series will be described in the related Prospectus
Supplement and may include any of the following features of combinations thereof
or other features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index (which will be
specified in the related Prospectus Supplement), a rate that is fixed
for a period of time or under certain circumstances and is followed by
an adjustable rate, a rate that otherwise varies from time to time, or
a rate that is convertible from and adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of such limitations.
Accrued interest may be deferred and added to the principal of a Home
Equity Loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. Home Equity Loans may
provide for the payment of interest at a rate lower than the specified
Loan Rate for a period of time of for the life of the Home Equity Loan,
and the amount of any difference may be contributed from funds supplied
by the seller of the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service
basis to fully amortize the Home Equity Loan over its term, may be
calculated on the basis of an assumed amortization schedule that is
significantly longer than the original term to maturity or on an
interest rate that is different from the Loan Rate or may not be
amortized during all or a portion of the original term. Payment of all
or a substantial portion of the principal may be due on maturity.
Principal may include interest that has been deferred and added to the
principal balance of the Home Equity Loan.
(c) Monthly Payments of principal and interest may be
fixed for the life of the Home Equity Loan, may increase over a
specified period of time or may change from period to period. Home
Equity Loans may include limits on periodic increases or decreases in
the amount of Monthly Payments and may include maximum or minimum
amounts of Monthly Payments.
(d) Prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of the Home Equity Loan
or may decline over time, and may be prohibited for the life of the
Home Equity Loan or for certain periods. Certain Home Equity Loans may
permit prepayments after expiration of the applicable lockout period
and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other Home Equity Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Home Equity Loans may include "due
on sale" clauses which permit the mortgagee to demand payment of the
entire Home Equity Loan in connection with the sale or certain
transfers of the related Mortgaged Property. Other Home Equity Loans
may be assumable by persons meeting the then applicable underwriting
standards of the Originator.
Amortization of the Home Equity Loans. The Home Equity Loans will
provide for payments that are allocated to principal and interest according to
either the actuarial method (an "Actuarial Home Equity Loan"), the simple
interest method (a "Simple Interest Home Equity Loan") or the "Rule of 78s"
method (a "Rule of 78s Home Equity Loan"), as set forth in the related
Prospectus Supplement. The related Prospectus Supplement will set forth whether
any of the Home Equity Loans will provide for deferred interest or negative
amortization.
An Actuarial Home Equity Loan provides for payments in level monthly
installments (except, in the case of a Balloon Loan, the final payment)
consisting of interest equal to one-twelfth of the applicable Loan Rate times
the unpaid principal balance, with the remainder of such payment applied to
principal.
A Simple Interest Home Equity Loan provides for the amortization of the
amount financed under such Home Equity Loan over a series of equal Monthly
Payments (except, in the case of a Balloon Loan, the final payment). Each
Monthly Payment consists of an installment of interest which is calculated on
the basis of the outstanding principal balance of the Home Equity Loan being
multiplied by the stated Loan Rate and further multiplied by a fraction, the
numerator of which is the number of days in the period elapsed since the
preceding payment of interest was made and the denominator of which is the
number of days in the annual period for which
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interest accrues on such Home Equity Loan. As payments are received under a
Simple Interest Home Equity Loan, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if a borrower pays a fixed monthly
installment on a Simple Interest Home Equity Loan before its scheduled due date,
the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. However, the next
succeeding payment will result in an allocation of a greater amount to interest
if such payment is made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Home
Equity Loan is made on or prior to its scheduled due date, the principal balance
of the Home Equity Loan will amortize in the manner described in the preceding
paragraph. However, if the borrower consistently makes scheduled payments after
the scheduled due date, the Home Equity Loan will amortize more slowly than
scheduled. If a Simple Interest Home Equity Loan is prepaid, the borrower is
required to pay interest only to the date of prepayment.
Certain of the Home Equity Loans contained in a Trust may be loans
insured under the FHA Title I credit insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I Program").
Under the Title I Program, the FHA is authorized and empowered to insure
qualified lending institutions against losses on eligible loans. The Title I
Program operates as a coinsurance program in which the FHA insures up to 90% of
certain losses incurred on an individual insured loan, including the unpaid
principal balance of the loan, but only to the extent of the insurance coverage
available in the lender's FHA insurance coverage reserve account. The owner of
the loan bears the uninsured loss on each loan.
The Mortgaged Properties will include Single Family Property (i.e.,
one-to four-family residential housing, including Condominium Units and
Cooperative Dwellings) The Mortgaged Properties may consist of detached
individual dwellings, individual condominiums, townhouses, duplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
Each Single Family Property will be located on land owned in fee simple by the
borrower or on land leased by the borrower for a term at least equal to the term
of the related Mortgage. Attached dwellings may include owner-occupied
structures where each borrower owns the land upon which the unit is built, with
the remaining adjacent land owned in common or dwelling units subject to a
proprietary lease or occupancy agreement in a cooperatively owned apartment
building.
The related Prospectus Supplement will specify whether or not Mortgages
on Cooperative Dwellings consist of a lien on the shares issued by such
Cooperative Dwelling and the proprietary lease or occupancy agreement relating
to such Cooperative Dwelling.
The aggregate principal balance of Home Equity Loans secured by
Mortgaged Properties that are owner-occupied will be disclosed in the related
Prospectus Supplement. The sole basis for a representation that a given
percentage of the Home Equity Loans are secured by Single Family Property that
is owner-occupied will be either (i) the making of a representation by the
Mortgagor at origination of the Home Equity Loan either that the underlying
Mortgaged Property will be used by the Mortgagor for a period of at least six
months every year or that the Mortgagor intends to use the Mortgaged Property as
a primary residence, or (ii) a finding that the address of the underlying
Mortgaged Property is the Mortgagor's mailing address as reflected in the
Servicer's records. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include non-owner occupied investment
properties and vacation and second homes.
The initial Combined Loan-to-Value Ratio of a Home Equity Loan is
computed in the manner described in the related Prospectus Supplement, taking
into account the amounts of any related senior loans.
Additional Information. The selection criteria which will apply with
respect to the Home Equity Loans, including, but not limited to, the Combined
Loan-to-Value Ratios or Loan-to-Value Ratios, as applicable, original terms to
maturity and delinquency information, will be specified in the related
Prospectus Supplement.
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The Home Equity Loans for a Series may include Home Equity Loans that
do not amortize their entire principal balance by their stated maturity in
accordance with their terms and require a balloon payment of the remaining
principal balance at maturity, as specified in the related Prospectus
Supplement. The Home Equity Loans for a Series may include loans that do not
have a specified stated maturity.
The related Prospectus Supplement for each Series will provide
information with respect to the Home Equity Loans that are Primary Assets as of
the Cut-off Date, including, among other things, and to the extent relevant: (a)
the aggregate unpaid principal balance of the Home Equity Loans; (b) the range
and weighted average Loan Rate on the Home Equity Loans, and, in the case of
adjustable rate loans, the range and weighted average of the current Loan Rates
and the Lifetime Rate Caps, if any; (c) the range and average outstanding
principal balance of the Loans; (d) the weighted average original and remaining
term-to-stated maturity of the Home Equity Loans and the range of original and
remaining terms-to-stated maturity, if applicable; (e) the range and weighted
average of Combined Loan-to-Value Ratios or Loan-to-Value Ratios for the Home
Equity Loans, as applicable; (f) the percentage (by outstanding principal
balance as of the Cut-off Date) of Home Equity Loans that accrue interest at
adjustable or fixed interest rates; (g) any special hazard insurance policy or
bankruptcy bond or other Credit Enhancement relating to the Home Equity Loans;
(h) the geographic distribution of any Mortgaged Properties securing the Home
Equity Loans; (i) the percentage of Home Equity Loans (by principal balance as
of the Cut-off Date) that are secured by Single Family Mortgaged Properties,
shares relating to Cooperative Dwellings, Condominium Units, investment property
and vacation or second homes; (j) the lien priority of the Home Equity Loans;
(k) year of origination of the Home Equity Loans; and (l) the delinquency status
of Home Equity Loans, including the duration and history of such delinquencies
and the percentage of the of Home Equity Loans (by principal balance as of the
Cut-off Date) that are delinquent. The related Prospectus Supplement will also
specify any other limitations on the types or characteristics of Home Equity
Loans for a Series.
If specific information respecting the Home Equity Loans is not known
at the time the related series of Securities initially is offered, information
of the nature described above will be provided in the Prospectus Supplement, and
specific information will be set forth in a report on Form 8-K to be filed with
the Commission within fifteen days after the initial issuance of such
Securities. A copy of the Pooling and Servicing Agreement with respect to each
Series of Securities will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the Trustee specified in the related
Prospectus Supplement. A schedule of the Home Equity Loans relating to such
Series will be attached to the Pooling and Servicing Agreement delivered to the
Trustee upon delivery of the Securities.
The Contracts
Contracts. Each Pool of Contracts in a Trust Fund ("Contract Pool")
will consist of conventional manufactured housing installment sales contracts
and installment loan agreements (collectively, the "Contracts") originated by a
manufactured housing dealer in the ordinary course of business and purchased by
the Seller. Each Contract will be secured by Manufactured Homes (as defined
below), each of which will be located in any of the fifty states or the District
of Columbia. The Contracts will be fully amortizing and will bear interest at a
fixed or adjustable annual percentage rate (the "APR" or "Contract Rate"). The
Contract Pool may include Contracts with respect to which a Fixed Retained Yield
has been retained, in which event references herein to Contracts and payments
thereon shall mean the Contracts exclusive of such Fixed Retained Yield. The
Prospectus Supplement for a Series will specify whether there will be any Fixed
Retained Yield in any Contract, and if so, the owner thereof. A "Fixed Retained
Yield" in a Contract represents a specified portion of the interest payable
thereon.
The Seller of the Contracts will represent that the Manufactured Homes
securing the Contracts consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of [this] paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter."
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Manufactured Homes, unlike site-built homes, generally depreciate in
value. Consequently, at any time after origination it is possible, especially in
the case of Contracts with high Loan-to-Value Ratios at origination, that the
market value of a Manufactured Home may be lower than the principal amount
outstanding under the related Contract.
The Prospectus Supplement for each Series will set forth certain
characteristics of the related Contracts, which may include the aggregate
principal balance of the Contracts in the Contract Pool underlying such Series
as of the Cut-Off Date for such Series (the "Cut-Off Date Aggregate Principal
Balance"), the range of original terms to maturity of the Contracts in the
Contract Pool, the weighted average remaining term to stated maturity at the
Cut-Off Date of such Contracts, the earliest and latest origination dates of
such Contracts, the range of Contract Rates and net contract rates borne by such
Contracts ("Net Contract Rates"), the weighted average Net Contract Rate at the
Cut-Off Date of such Contracts, the range of such Contracts which had
Loan-to-Value Ratios at the time of origination of the Contracts and the highest
outstanding principal balance at origination of any such Contract.
The "Loan-to-Value Ratio" is the ratio, expressed as a percentage, of
the principal amount of the Contract outstanding at the origination of such loan
divided by the fair market value of the Manufactured Home. The fair market value
of the Manufactured Home securing any Contract is, unless otherwise specified in
the applicable Prospectus Supplement, either (x) the appraised value of the
related Manufactured Home determined in an appraisal obtained by the originator
at origination and (y) the sale price for such property, plus, in either case,
sales and other taxes and, to the extent financed, filing and recording fees
imposed by law, premiums for related insurance and prepaid finance charges. A
maximum of 5% (by Cut-Off Date Aggregate Principal Balance) of the aggregate
Contracts that are included in a Trust Fund will deviate from the
characteristics that are described in the related Prospectus Supplement.
The Contracts in a Trust Fund will generally have monthly payments due
on the first of each month (each, a "Due Date") and will be fully-amortizing
Contracts. Contracts may have Due Dates which occur on a date other than the
first of each month. The Contract Pools may include adjustable rate Contracts
that provide for payment adjustments to be made less frequently than adjustments
in the Contract Rates. Each adjustment in the Contract Rate which is not made at
the time of a corresponding adjustment in payments (and which adjusted amount of
interest is not paid currently on a voluntary basis by the obligor) will result
in a decrease (if the Contract Rate rises) or an increase (if the Contract Rate
declines) in the rate of amortization of the Contract. Moreover, such payment
adjustments on the Contracts may be subject to certain limitations, as specified
in the Prospectus Supplement, which may also affect the rate of amortization on
the Contract. As a result of such provisions, the amount of interest accrued in
any month may equal or exceed the scheduled monthly payment on the Contract. In
any such month, no principal would be payable on the Contract, and if the
accrued interest exceeded the scheduled monthly payment, such excess interest
due would become "Deferred Interest" that is added to the principal balance of
the Contract. Deferred Interest will bear interest at the Contract Rate until
paid. If such limitations prevent the payments from being sufficient to amortize
fully the Contract by its stated maturity date, a lump sum payment equal to the
remaining unpaid principal balance will be due on such stated maturity date.
The geographic distribution of Manufactured Homes will be set forth in
the Prospectus Supplement. Each Prospectus Supplement will set forth the
percentage of the Cut-Off Date Aggregate Principal Balance of any Contracts in
the Contract Pool which are secured by Manufactured Homes which have become
permanently affixed to real estate. Each Prospectus Supplement will also set
forth the percentage of the Cut-Off Date Aggregate Principal Balance of the
Contracts in the related Contract Pool representing the refinancing of existing
mortgage indebtedness.
If specific information respecting the Contracts to be included in a
Trust Fund is not known to the Sponsor at the time the Securities of a Series
are initially offered, more general information of the nature described above
will be provided in the Prospectus Supplement and final specific information
will be set forth in a Current Report on Form 8-K to be available to investors
on the date of issuance thereof and to be filed with the Commission promptly
after the initial issuance of such Securities.
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Private Securities
General. Primary Assets for a Series may consist, in whole or in part,
of Private Securities which include pass-through certificates representing
beneficial interests in loans of the type that would otherwise be eligible to be
Home Equity Loans and/or Contracts (the "Underlying Loans") or (b)
collateralized obligations secured by Underlying Loans. Such pass-through
certificates or collateralized obligations will have previously been (a) offered
and distributed to the public pursuant to an effective registration statement
and not purchased as part of the original distribution or (b) acquired in a
transaction not involving any public offering from a person who is not an
affiliate of the issuer of such securities at the time of transfer (nor an
affiliate thereof at any time during the three preceding months); provided a
period of three years elapsed since the later of the date the securities were
acquired from the issuer or an affiliate thereof. Although individual Underlying
Loans may be insured or guaranteed by the United States or an agency or
instrumentality thereof, they need not be, and Private Securities themselves
will not be so insured or guaranteed.
Private Securities will have been issued pursuant to a pooling and
servicing agreement, a trust agreement or similar agreement (a "PS Agreement").
The seller/servicer of the Underlying Loans will have entered into the PS
Agreement with the trustee under such PS Agreement (the "PS Trustee"). The PS
Trustee or its agent, or a custodian, will possess the Underlying Loans.
Underlying Loans will be serviced by a servicer (the "PS Servicer") directly or
by one or more sub-servicers who may be subject to the supervision of the PS
Servicer.
The sponsor of the Private Securities (the "PS Sponsor") will be a
financial institution or other entity engaged generally in the business of
lending; a public agency or instrumentality of a state, local or federal
government; or a limited purpose corporation organized for the purpose of, among
other things, establishing trusts and acquiring and selling loans to such
trusts, and selling beneficial interests in such trusts. The PS Sponsor may be
an affiliate of the Depositor. The obligations of the PS Sponsor will generally
be limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Additionally, although the Underlying Loans
may be guaranteed by an agency or instrumentality of the United States, the
Private Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Securities on the dates specified in the related Prospectus Supplement. The
Private Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal and interest
distributions will be made on the Private Securities by the PS Trustee or the PS
Servicer. The PS Sponsor or the PS Servicer may have the right to repurchase the
Underlying Loans after a certain date or under other circumstances specified in
the related Prospectus Supplement.
The Underlying Loans may be fixed rate, level payment, fully amortizing
loans or adjustable rate loans or loans having balloon or other irregular
payment features. Such Underlying Loans will be secured by mortgages on
Mortgaged Properties.
Credit Support Relating to Private Securities. Credit support in the
form of Reserve Funds, subordination of other private securities issued under
the PS Agreement, guarantees, letters of credit, cash collateral accounts,
insurance policies or other types of credit support may be provided with respect
to the Underlying Loans or with respect to the Private Securities themselves.
The type, characteristics and amount of credit support will be a function of
certain characteristics of the Underlying Loans and other factors and will have
been established for the Private Securities on the basis of requirements of the
nationally recognized statistical rating organization that rated the Private
Securities.
Additional Information. The Prospectus Supplement for a Series for
which the Primary Assets include Private Securities will specify (such
disclosure may be on an approximate basis and will be as of the date specified
in the related Prospectus Supplement), to the extent relevant and to the extent
such information is reasonably available to the Depositor and the Depositor
reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Private Securities to be included
in the Trust Fund for such Series; (ii) certain characteristics of the
Underlying Loans including (A) the payment features of such Underlying Loans
(i.e., whether they are fixed rate or adjustable rate and whether they provide
for fixed level payments or other payment features), (B) the approximate
aggregate principal balance, if known, of such Underlying Loans insured or
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guaranteed by a governmental entity, (C) the servicing fee or range of servicing
fees with respect to the Underlying Loans, (D) the minimum and maximum stated
maturities of such Underlying Loans at origination, (E) the lien priority of
such Underlying Loans, and (F) the delinquency status and year of origination of
such Underlying Loans; (iii) the maximum original term-to-stated maturity of the
Private Securities; (iv) the weighted average term-to-stated maturity of the
Private Securities; (v) the pass-through or certificate rate or ranges thereof
for the Private Securities; (vi) the PS Sponsor, the PS Servicer (if other than
the PS Sponsor) and the PS Trustee for such Private Securities; (vii) certain
characteristics of credit support if any, such as Reserve Funds, insurance
policies, letters of credit or guarantees relating to such Home Equity Loans
underlying the Private Securities or to such Private Securities themselves;
(viii) the terms on which Underlying Loans may, or are required to, be purchased
prior to their stated maturity or the stated maturity of the Private Securities;
and (ix) the terms on which Underlying Loans may be substituted for those
originally underlying the Private Securities.
If information of the nature described above representing the Private
Securities is not known to the Depositor at the time the Securities are
initially offered, approximate or more general information of the nature
described above will be provided in the Prospectus Supplement and the additional
information, if available, will be set forth in a Current Report on Form 8-K to
be available to investors on the date of issuance of the related Series and to
be filed with the Commission within 15 days of the initial issuance of such
Securities.
Collection and Distribution Accounts
A separate Collection Account will be established by the Trustee or the
Servicer, in the name of the Trustee, for each Series of Securities for receipt
of the amount of cash, if any, specified in the related Prospectus Supplement to
be initially deposited therein by the Depositor, all amounts received on or with
respect to the Primary Assets and any income earned thereon. Certain amounts on
deposit in such Collection Account and certain amounts available pursuant to any
Credit Enhancement will be deposited in a related Distribution Account, which
will also be established by the Trustee for each such Series of Securities, for
distribution to the related Holders. The Trustee may invest the funds in the
Collection and Distribution Accounts in eligible investments maturing, with
certain exceptions, not later, in the case of funds in the Collection Account,
than the day preceding the date such funds are due to be deposited in the
Distribution Account or otherwise distributed and, in the case of funds in the
Distribution Account, than the day preceding the next Distribution Date for the
related Series of Securities. "Eligible Investments" include, among other
investments, obligations of the United States and certain agencies thereof,
federal funds, certificates of deposit, commercial paper, demand and time
deposits and banker's acceptances, certain repurchase agreements of United
States government securities and certain guaranteed investment contracts, in
each case, acceptable to the Rating Agency.
Notwithstanding any of the foregoing, amounts may be deposited and
withdrawn pursuant to any Deposit Agreement or Minimum Principal Payment
Agreement as specified in the related Prospectus Supplement.
Pre-Funding Accounts
A Trust Fund may include one or more segregated trust accounts (each, a
"Pre-Funding Account") established and maintained with the Trustee for the
related Series. On the closing date for such Series, a portion of the proceeds
of the sale of the Securities of such Series (such amount, the "Pre-Funded
Amount") will be deposited in the Pre-Funding Account and may be used to acquire
additional Primary Assets during the period of time specified in the related
Prospectus Supplement (the "Pre-Funding Period"). If any Pre-Funded Amount
remains on deposit in the Pre-Funding Account at the end of the Pre-Funding
Period, such amount will be applied in the manner specified in the related
Prospectus Supplement to prepay the Notes and/or the Certificates of the
applicable Series.
If a Pre-Funding Account is established, (a) the Pre-Funding Period
will not exceed 90 days from the related closing date, (b) the additional
Primary Assets to be acquired during the Pre-Funding Period will be subject to
the same representations and warranties and satisfy the same eligibility
requirements as the Primary Assets included in the related Trust Fund on the
closing date, subject to such exceptions as are expressly stated in such
Prospectus Supplement, (c) the Pre-Funding Amount will not exceed 25% of the
principal amount of the Securities issued pursuant to a particular offering and
(d) prior to the investment of the Pre-Funded Amount in additional Primary
Assets, such Pre-Funded Amount will be invested in one or more Eligible
Investments. Any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
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If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a "Capitalized Interest Account") may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) certain fees or expenses during the
Pre-Funding Period, over the amount of interest available therefor from the
Primary Assets in the Trust Fund. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period that are not necessary for
such purposes will be distributed to the person specified in the related
Prospectus Supplement.
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
CREDIT ENHANCEMENT
If stated in the Prospectus Supplement relating to a Series of
Securities, simultaneously with the Depositor's assignment of the Primary Assets
to the Trustee, the Depositor will obtain an irrevocable letter of credit,
surety bond or insurance policy, issue Subordinate Securities or obtain any
other form of credit enhancement or combination thereof (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the Holders of the related
Series or designated Classes of such Series from an institution or by other
means acceptable to the Rating Agency. The Credit Enhancement will support the
payment of principal and interest on the Securities, and may be applied for
certain other purposes to the extent and under the conditions set forth in such
Prospectus Supplement. Credit Enhancement for a Series may include one or more
of the following forms, or such other form as may be specified in the related
Prospectus Supplement. Credit Enhancement may be structured so as to protect
against losses relating to more than one Trust Fund, in the manner described
therein.
Subordinate Securities
Credit Enhancement for a Series may consist of one or more Classes of
Subordinate Securities. The rights of holders of such Subordinate Securities to
receive distributions on any Distribution Date will be subordinate in right and
priority to the rights of Holders of Senior Securities of the Series, but only
to the extent described in the related Prospectus Supplement.
Insurance
Credit Enhancement for a Series may consist of special hazard insurance
policies, bankruptcy bonds and other types of insurance relating to the Primary
Assets, as described below and in the related Prospectus Supplement.
Pool Insurance Policy. The related Prospectus Supplement will describe
any pool insurance policy obtained by the Depositor for the Home Equity Loans
and/or Contracts in the related Trust Fund. The pool insurance policy will cover
any loss (subject to the limitations described in a related Prospectus
Supplement) by reason of default. but will not cover the portion of the
principal balance of any Home Equity Loan that is required to be covered by any
primary mortgage insurance policy. The amount and terms of any such coverage
will be set forth in the related Prospectus Supplement.
Special Hazard Insurance Policy. Although the terms of such policies
vary to some degree, a special hazard insurance policy typically provides that,
where there has been damage to Mortgaged Property securing a defaulted or
foreclosed Home Equity Loan or the Manufactured Home underlying a Contract
(title to which has been acquired by the insured) and to the extent such damage
is not covered by the standard hazard insurance policy or any
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flood insurance policy, if applicable, required to be maintained with respect to
such Mortgaged Property or Manufactured Home, or in connection with partial loss
resulting from the application of the coinsurance clause in a standard hazard
insurance policy, the special hazard insurer will pay the lesser of (i) the cost
of repair or replacement of such Mortgaged Property or Manufactured Home or (ii)
upon transfer of such Mortgaged Property or Manufactured Home to the special
hazard insurer, the unpaid principal balance of such Home Equity Loan or
Contract at the time of acquisition of such Mortgaged Property by foreclosure or
deed in lieu of foreclosure or repossession of the Manufactured Home, plus
accrued interest to the date of claim settlement and certain expenses incurred
by the Servicer with respect to such Mortgaged Property or Manufactured Home. If
the unpaid principal balance plus accrued interest and certain expenses is paid
by the special hazard insurer, the amount of further coverage under the special
hazard insurance policy will be reduced by such amount less any net proceeds
from the sale of such Mortgaged Property or Manufactured Home. Any amount paid
as the cost of repair of such Mortgaged Property or Manufactured Home will
reduce coverage by such amount. Special hazard insurance policies typically do
not cover losses occasioned by war, civil insurrection, certain governmental
actions, errors in design, faulty workmanship or materials (except under certain
circumstances), nuclear reaction, flood (if the Mortgaged Property is in a
federally designated flood area), chemical contamination and certain other
risks.
Restoration of the Mortgaged Property or replacement of the
Manufactured Home with the proceeds described under (i) above is expected to
satisfy the condition under any pool insurance policy that such Mortgaged
Property be restored or Manufactured Home replaced before a claim under such
pool insurance policy may be validly presented with respect to the defaulted
Home Equity Loan or Contract secured by such Mortgaged Property or Manufactured
Home, as applicable. The payment described under (ii) above will render
unnecessary presentation of a claim in respect of such Home Equity Loan or
Contract under any pool insurance policy. Therefore, so long as such pool
insurance policy remains in effect, the payment by the special hazard insurer of
the cost of repair or of the unpaid principal balance of the related Home Equity
Loan or Contract plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to Holders of the Securities, but will affect the
relative amounts of coverage remaining under the special hazard insurance policy
and pool insurance policy.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the Mortgaged Property securing the
related Home Equity Loan or the Manufactured Home securing the Contract at an
amount less than the then-outstanding principal balance of such Home Equity Loan
or Contract. The amount of the secured debt could be reduced to such value, and
the holder of such Home Equity Loan or Contract thus would become an unsecured
creditor to the extent the outstanding principal balance of such Home Equity
Loan or Contract exceeds the value so assigned to the Mortgaged Property or the
Manufactured Home by the bankruptcy court. In addition, certain other
modifications of the terms of a Home Equity Loan or Contract can result from a
bankruptcy proceeding. See "CERTAIN LEGAL ASPECTS OF HOME EQUITY LOANS" herein.
If so provided in the related Prospectus Supplement, the Depositor or other
entity specified in the related Prospectus Supplement will obtain a bankruptcy
bond or similar insurance contract (the "bankruptcy bond") covering losses
resulting from proceedings with respect to borrowers under the Bankruptcy Code.
The bankruptcy bond will cover certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a Home
Equity Loan or Contract or a reduction by such court of the principal amount of
a Home Equity Loan or Contract and will cover certain unpaid interest on the
amount of such a principal reduction from the date of the filing of a bankruptcy
petition.
The bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement for all Home Equity Loans and/or
Contracts in the Trust Fund for such Series. Such amount will be reduced by
payments made under such bankruptcy bond in respect of such Home Equity Loans
and/or Contracts, and will not be restored.
Reserve Funds
The Depositor may deposit into one or more funds to be established with
the Trustee as part of the Trust Fund for such Series or for the benefit of any
Credit Enhancer with respect to such Series (the "Reserve Funds") cash, a letter
or letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of the Rating Agency rating any Series of the
Securities in the amount specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, a Reserve Fund for a Series may be
funded over time through application of all or a portion of the excess cash flow
from the Primary Assets for such Series, to the extent
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described in the related Prospectus Supplement. If applicable, the initial
amount of the Reserve Fund and the Reserve Fund maintenance requirements for a
Series of Securities will be described in the related Prospectus Supplement.
Amounts withdrawn from any Reserve Fund will be applied by the Trustee
to make payments on the Securities of a Series, to pay expenses, to reimburse
any Credit Enhancer or for any other purpose, in the manner and to the extent
specified in the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments maturing no later than the day specified in the related
Prospectus Supplement.
Minimum Principal Payment Agreement
If stated in the Prospectus Supplement relating to a Series of
Securities, the Depositor will enter into a Minimum Principal Payment Agreement
with an entity meeting the criteria of the Rating Agency pursuant to which such
entity will provide certain payments on the Securities of such Series in the
event that aggregate scheduled principal payments and/or prepayments on the
Primary Assets for such Series are not sufficient to make certain payments on
the Securities of such Series, as provided in the Prospectus Supplement.
Deposit Agreement
The Depositor and the Trustee for such Series of Securities will enter
into a Deposit Agreement with the entity specified in such Prospectus Supplement
on or before the sale of such Series of Securities. The purpose of a Deposit
Agreement would be to accumulate available cash for investment so that such
cash, together with income thereon, can be applied to future distributions on
one or more Classes of Securities. The Prospectus Supplement for a Series of
Securities pursuant to which a Deposit Agreement is used will contain a
description of the terms of such Deposit Agreement.
SERVICING OF HOME EQUITY LOANS
General
Customary servicing functions with respect to Home Equity Loans and/or
Contracts comprising the Primary Assets in the Trust Fund will be provided by
the Servicer directly pursuant to the related Servicing Agreement or Pooling and
Servicing Agreement, as the case may be, with respect to a Series of Securities.
Collection Procedures; Escrow Accounts
The Servicer will make reasonable efforts to collect all payments
required to be made under the Home Equity Loans and/or Contracts and will,
consistent with the terms of the related Agreement for a Series and any
applicable Credit Enhancement, follow such collection procedures as it follows
with respect to comparable loans held in its own portfolio. Consistent with the
above, the Servicer may, in its discretion, (i) waive any assumption fee, late
payment charge, or other charge in connection with a Home Equity Loan or
Contract and (ii) to the extent provided in the related Agreement arrange with
an obligor a schedule for the liquidation of delinquencies by extending the
dates on which the related payments (the "Scheduled Payments") are due (the "Due
Dates") on such Home Equity Loan or Contract.
The Servicer, to the extent permitted by law, will establish and
maintain escrow or impound accounts ("Escrow Accounts") with respect to Home
Equity Loans and/or Contracts in which payments by obligors to pay taxes,
assessments, mortgage and hazard insurance premiums, and other comparable items
will be deposited. Home Equity Loans and/or Contracts may not require such
payments under the loan related documents, in which case the Servicer would not
be required to establish any Escrow Account with respect to such Home Equity
Loans and/or Contracts. Withdrawals from the Escrow Accounts are to be made to
effect timely payment of taxes, assessments and mortgage and hazard insurance,
to refund to obligors amounts determined to be overages, to pay interest to
obligors on balances in the Escrow Account to the extent required by law, to
repair or otherwise protect the
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Mortgaged Property securing the related Home Equity Loan or Manufactured Home
securing the related Contract and to clear and terminate such Escrow Account.
The Servicer will be responsible for the administration of the Escrow Accounts
and generally will make advances to such accounts when a deficiency exists
therein.
Deposits to and Withdrawals from the Collection Account
The Trustee or the Servicer will establish a separate account (the
"Collection Account") in the name of the Trustee. The Collection Account will be
an account maintained (i) at a depository institution, the long-term unsecured
debt obligations of which at the time of any deposit therein are rated by each
Rating Agency rating the Securities of such Series at levels satisfactory to
each Rating Agency or (ii) in an account or accounts the deposits in which are
insured to the maximum extent available by the Federal Deposit Insurance
Corporation ("FDIC") or which are secured in a manner meeting requirements
established by each Rating Agency.
The funds held in the Collection Account may be invested, pending
remittance to the Trustee, in Eligible Investments. The Servicer will be
entitled to receive as additional compensation any interest or other income
earned on funds in the Collection Account.
The Servicer, the Depositor, the Trustee or the Originator, as
appropriate, will deposit into the Collection Account for each Series on the
Business Day following the Closing Date any amounts representing Scheduled
Payments due after the related Cut-off Date but received by the Servicer on or
before the Closing Date, and thereafter, within two business days after the date
of receipt thereof, the following payments and collections received or made by
it (other than in respect of principal of and interest on the related Primary
Assets due on or before such Cut-off Date):
(i) All payments on account of principal, including
prepayments, on such Primary Assets;
(ii) All payments on account of interest on such Primary
Assets after deducting therefrom, at the discretion of the Servicer but
only to the extent of the amount permitted to be withdrawn or withheld
from the Collection Account in accordance with the related Agreement,
the Servicing Fee in respect of such Primary Assets;
(iii) All amounts received by the Servicer in connection with
the liquidation of Primary Assets or property acquired in respect
thereof, whether through foreclosure sale, repossession or otherwise,
including payments in connection with such Primary Assets received from
the obligor, other than amounts required to be paid or refunded to the
obligor pursuant to the terms of the applicable loan documents or
otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in
the discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Collection Account in accordance
with the related Agreement, the Servicing Fee, if any, in respect of
the related Primary Asset;
(iv) All proceeds under any title insurance, hazard insurance
or other insurance policy covering any such Primary Asset, other than
proceeds to be applied to the restoration or repair of the related
Mortgaged Property or Manufactured Home or released to the obligor in
accordance with the related Agreement;
(v) All amounts required to be deposited therein from any
applicable Reserve Fund for such Series pursuant to the related
Agreement;
(vi) All Advances made by the Servicer required pursuant to
the related Agreement; and
(vii) All repurchase prices of any such Primary Assets
repurchased by the Depositor, the Servicer or the Originator pursuant
to the related Agreement.
The Servicer may be permitted, from time to time, to make withdrawals
from the Collection Account for each Series for the following purposes:
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(i) to reimburse itself for Advances for such Series made by
it pursuant to the related Agreement; the Servicer's right to reimburse
itself is limited to amounts received on or in respect of particular
Home Equity Loans and/or Contracts (including, for this purpose,
Liquidation Proceeds and amounts representing proceeds of insurance
policies covering the related Mortgaged Property or Manufactured Home,
as applicable) which represent late recoveries of Scheduled Payments
respecting which any such Advance was made;
(ii) to the extent provided in the related Agreement, to
reimburse itself for any Advances for such Series that the Servicer
determines in good faith it will be unable to recover from amounts
representing late recoveries of Scheduled Payments respecting which
such Advance was made or from Liquidation Proceeds or the proceeds of
insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for
liquidation expenses and for amounts expended by it in good faith in
connection with the restoration of damaged Mortgaged Property or
Manufactured Home and, in the event deposited in the Collection Account
and not previously withheld, and to the extent that Liquidation
Proceeds after such reimbursement exceed the outstanding principal
balance of the related Home Equity Loan or Contract, together with
accrued and unpaid interest thereon to the Due Date for such Home
Equity Loan next succeeding the date of its receipt of such Liquidation
Proceeds, to pay to itself out of such excess the amount of any unpaid
Servicing Fee and any assumption fees, late payment charges, or other
charges on the related Home Equity Loan or Contract;
(iv) in the event it has elected not to pay itself the
Servicing Fee out of the interest component of any Scheduled Payment,
late payment or other recovery with respect to a particular Home Equity
Loan or Contract prior to the deposit of such Scheduled Payment, late
payment or recovery into the Collection Account, to pay to itself the
Servicing Fee, as adjusted pursuant to the related Agreement, from any
such Scheduled Payment, late payment or such other recovery, to the
extent permitted by the related Agreement;
(v) to reimburse itself for expenses incurred by and
recoverable by or reimbursable to it pursuant to the related Agreement;
(vi) to pay to the applicable person with respect to each
Primary Asset or Mortgaged Properties acquired through or in lieu of
foreclosure (each, an "REO Property") acquired in respect thereof that
has been repurchased or removed from the Trust Fund by the Depositor,
the Servicer or the Originator pursuant to the related Agreement, all
amounts received thereon and not distributed as of the date on which
the related repurchase price was determined;
(vii) to make payments to the Trustee of such Series for
deposit into the Distribution Account, if any, or for remittance to the
Holders of such Series in the amounts and in the manner provided for in
the related Agreement; and
(viii) to clear and terminate the Collection Account pursuant
to the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
Advances and Limitations Thereon
The related Prospectus Supplement will describe the circumstances, if
any, under which the Servicer will make Advances with respect to delinquent
payments on Home Equity Loans and/or Contracts. The Servicer will be obligated
to make Advances, and such obligation may be limited in amount, or may not be
activated until a certain portion of a specified Reserve Fund is depleted.
Advances are intended to provide liquidity and, except to the extent specified
in the related Prospectus Supplement, not to guarantee or insure against losses.
Accordingly, any funds advanced are recoverable by the Servicer out of amounts
received on particular Home Equity Loans and/or Contracts which represent late
recoveries of principal or interest, proceeds of insurance policies or
Liquidation Proceeds respecting which any such Advance was made. If an Advance
is made and subsequently determined to be
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nonrecoverable from late collections, proceeds of insurance policies, or
Liquidation Proceeds from the related Home Equity Loan or Contract, the Servicer
may be entitled to reimbursement from other funds in the Collection Account or
Distribution Account, as the case may be, or from a specified Reserve Fund as
applicable, to the extent specified in the related Prospectus Supplement.
Maintenance of Insurance Policies and other Servicing Procedures
Standard Hazard Insurance; Flood Insurance. The related Prospectus
Supplement will specify the extent to which the Servicer will be required to
maintain or to cause the obligor on each Home Equity Loan or Contract to
maintain a standard hazard insurance policy providing coverage of the standard
form of fire insurance with extended coverage for certain other hazards as is
customary in the state in which the related Mortgaged Property or Manufactured
Home is located. The standard hazard insurance policies will provide for
coverage at least equal to the applicable state standard form of fire insurance
policy with extended coverage for property of the type securing the related Home
Equity Loans and/or Contracts. In general, the standard form of fire and
extended coverage policy will cover physical damage to or destruction of, the
related Mortgaged Property or Manufactured Home caused by fire, lightning,
explosion, smoke, windstorm, hail, riot, strike and civil commotion, subject to
the conditions and exclusions particularized in each policy. Because the
standard hazard insurance policies relating to the Home Equity Loans and/or
Contracts will be underwritten by different hazard insurers and will cover
Mortgaged Properties and Manufactured Homes located in various states, such
policies will not contain identical terms and conditions. The basic terms,
however, generally will be determined by state law and generally will be
similar. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all inclusive. Uninsured risks not covered by a special hazard insurance policy
or other form of Credit Enhancement will adversely affect distributions to
Holders. When a Mortgaged Property securing a Home Equity Loan is located in a
flood area identified by HUD pursuant to the Flood Disaster Protection Act of
1973, as amended, the Servicer will be required to cause flood insurance to be
maintained with respect to such Mortgaged Property, to the extent available.
The standard hazard insurance policies covering Mortgaged Properties
securing Home Equity Loans or Manufactured Home Securing a Contract typically
will contain a "coinsurance" clause which, in effect, will require the insured
at all times to carry hazard insurance of a specified percentage (generally 80%
to 90%) of the full replacement value of the Mortgaged Property or Manufactured
Home, including the improvements on any Mortgaged Property or Manufactured Home,
in order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the hazard insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the Mortgaged Property or Manufactured Home, including the
improvements, if any, damaged or destroyed or (ii) such proportion of the loss,
without deduction for depreciation, as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such Mortgaged Property
or Manufactured Home and improvements. Since the amount of hazard insurance to
be maintained on the improvements securing the Home Equity Loans and
Manufactured Homes declines as the principal balances owing thereon decrease,
and since the value of the Mortgaged Properties or Manufactured Home will
fluctuate in value over time, the effect of this requirement in the event of
partial loss may be that hazard insurance proceeds will be insufficient to
restore fully the damage to the affected Mortgaged Property or Manufactured
Home.
Generally, coverage will be in an amount at least equal to the greater
of (i) the amount necessary to avoid the enforcement of any co-insurance clause
contained in the policy or (ii) the outstanding principal balance of the related
Home Equity Loan or Contract. The Servicer may also maintain on REO Property
that secured a defaulted Home Equity Loan and that has been acquired upon
foreclosure, deed in lieu of foreclosure, or repossession, a standard hazard
insurance policy in an amount that is at least equal to the maximum insurable
value of such REO Property. No earthquake or other additional insurance will be
required of any obligor or will be maintained on REO Property acquired in
respect of a defaulted Home Equity Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and shall require such
additional insurance.
Any amounts collected by the Servicer under any such policies of
insurance (other than amounts to be applied to the restoration or repair of the
Mortgaged Property or Manufactured Home, released to the obligor in
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accordance with normal servicing procedures or used to reimburse the Servicer
for amounts to which it is entitled to reimbursement) will be deposited in the
Collection Account. In the event that the Servicer obtains and maintains a
blanket policy insuring against hazard losses on all of the Home Equity Loans
and/or Contracts, written by an insurer then acceptable to each Rating Agency
which assigns a rating to such Series, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a standard hazard insurance
policy for each Loan or related REO Property. This blanket policy may contain a
deductible clause, in which case the Servicer will be required, in the event
that there has been a loss that would have been covered by such policy absent
such deductible clause, to deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of the application of such
deductible clause.
Realization upon Defaulted Home Equity Loans
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Mortgaged
Properties securing the related Home Equity Loans or possession of the
Manufactured Homes securing the Contracts as come into and continue in default
and as to which no satisfactory arrangements can be made for collection of
delinquent payments. In connection with such foreclosure, repossession or other
conversion, the Servicer will follow such practices and procedures as it deems
necessary or advisable and as are normal and usual in its servicing activities
with respect to comparable loans serviced by it. However, the Servicer will not
be required to expend its own funds in connection with any foreclosure or
repossession or towards the restoration of the Mortgaged Property or
Manufactured Home unless it determines that (i) such restoration, repossession
or foreclosure will increase the Liquidation Proceeds in respect of the related
Home Equity Loan or Contract available to the Holders after reimbursement to
itself for such expenses and (ii) such expenses will be recoverable by it either
through Liquidation Proceeds or the proceeds of insurance. Notwithstanding
anything to the contrary herein, in the case of a Trust Fund for which a REMIC
election has been made, the Servicer will be required to liquidate any Mortgaged
Property acquired through foreclosure within two years after the acquisition of
the beneficial ownership of such Mortgaged Property. While the holder of a
Mortgaged Property acquired through foreclosure can often maximize its recovery
by providing financing to a new purchaser, the Trust Fund, if applicable, will
have no ability to do so and neither the Servicer nor the Depositor will be
required to do so.
The Servicer may arrange with the obligor on a defaulted Home Equity
Loan or Contract a modification of such Home Equity Loan or Contract (a
"Modification") to the extent provided in the related Prospectus Supplement.
Such Modifications may only be entered into if they meet the underwriting
policies and procedures employed by the Servicer in servicing receivables for
its own account and meet the other conditions set forth in the related
Prospectus Supplement.
Enforcement of Due-On-Sale Clauses
When any Mortgaged Property is about to be conveyed by the obligor, the
Servicer may, to the extent it has knowledge of such prospective conveyance and
prior to the time of the consummation of such conveyance, exercise its rights to
accelerate the maturity of the related Home Equity Loan under the applicable
"due-on-sale" clause, if any, unless it reasonably believes that such clause is
not enforceable under applicable law or if the enforcement of such clause would
result in loss of coverage under any primary mortgage insurance policy. In such
event, the Servicer is authorized to accept from or enter into an assumption
agreement with the person to whom such Mortgaged Property has been or is about
to be conveyed, pursuant to which such person becomes liable under the Home
Equity Loan and pursuant to which the original obligor is released from
liability and such person is substituted as the obligor and becomes liable under
the Home Equity Loan. Any fee collected in connection with an assumption will be
retained by the Servicer as additional servicing compensation. The terms of a
Home Equity Loan may not be changed in connection with an assumption.
Servicing Compensation and Payment of Expenses
The Servicer will be entitled to a periodic fee as servicing
compensation (the "Servicing Fee") in an amount to be determined as specified in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, the Servicer
will be entitled to servicing compensation in the form of assumption fees, late
payment charges and similar items, or excess proceeds following disposition of
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Mortgaged Property in connection with defaulted Home Equity Loans or
Manufactured Homes in connection with a defaulted Contract, as will be further
specified in the related Prospectus Supplement,.
The Servicer may pay certain expenses incurred in connection with the
servicing of the Home Equity Loans, including, without limitation, the payment
of the fees and expenses of the Trustee and independent accountants, payment of
insurance policy premiums and the cost of credit support, if any, and payment of
expenses incurred in preparation of reports to Holders.
When an obligor makes a principal prepayment in full between Due Dates
on the related Home Equity Loan or Contract, the obligor will generally be
required to pay interest on the amount prepaid only to the date of prepayment.
If and to the extent provided in the related Prospectus Supplement in order that
one or more Classes of the Holders of a Series will not be adversely affected by
any resulting shortfall in interest, the amount of the Servicing Fee may be
reduced to the extent necessary to include in the Servicer's remittance to the
Trustee for deposit into the Distribution Account an amount equal to one month's
interest on the related Home Equity Loan or Contract (less the Servicing Fee).
If the aggregate amount of such shortfalls in a month exceeds the Servicing Fee
for such month, a shortfall to Holders may occur.
The Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Home Equity Loans
or Contracts. The related Holders will suffer no loss by reason of such expenses
to the extent expenses are covered under related insurance policies or from
excess Liquidation Proceeds. If claims are either not made or paid under the
applicable insurance policies or if coverage thereunder has been exhausted, the
related Holders will suffer a loss to the extent that Liquidation Proceeds,
after reimbursement of the Servicer's expenses, are less than the outstanding
principal balance of and unpaid interest on the related Home Equity Loan or
Contract which would be distributable to Holders. In addition, the Servicer will
be entitled to reimbursement of expenditures incurred by it in connection with
the restoration of property securing a defaulted Home Equity Loan or Contract,
such right of reimbursement being prior to the rights of the Holders to receive
any related proceeds of insurance policies, Liquidation Proceeds or amounts
derived from other Credit Enhancement. The Servicer is generally also entitled
to reimbursement from the Collection Account for Advances.
The rights of the Servicer to receive funds from the Collection Account
for a Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, may be subordinate to the
rights of Holders of such Series as set forth in the related Agreement.
Evidence as to Compliance
The applicable Agreement for each Series will provide that each year, a
firm of independent public accountants will furnish a statement to the Trustee
to the effect that such firm has examined certain documents and records relating
to the servicing of the Home Equity Loans and/or Contracts by the Servicer and
that, on the basis of such examination, such firm is of the opinion that the
servicing has been conducted in compliance with such Agreement, except for (i)
such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement.
The applicable Agreement for each Series will also provide for delivery
to the Trustee for such Series of an annual statement signed by an officer of
the Servicer to the effect that the Servicer has fulfilled its obligations under
such Agreement throughout the preceding calendar year.
Certain Matters Regarding the Servicer
The Servicer for each Series will be identified in the related
Prospectus Supplement. The Servicer may be an affiliate of the Depositor and may
have other business relationships with the Depositor and its affiliates.
If an event of default ("Event of Default") occurs under either a
Servicing Agreement or a Pooling and Servicing Agreement, the Servicer may be
replaced by the Trustee or a successor Servicer. Such Events of Default and the
rights of the Trustee upon such a default under the Agreement for the related
Series will be substantially
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similar to those described under "THE AGREEMENTS-- Events of Default; Rights
Upon Events of Default--Pooling and Servicing Agreement; Servicing Agreement"
herein.
The related Agreement will specify the circumstances under which the
Servicer may assign its rights and delegate its duties and obligations
thereunder for each Series, which generally will require that the successor
Servicer accepting such assignment or delegation (i) services similar loans in
the ordinary course of its business, (ii) is reasonably satisfactory to the
Trustee for the related Series, (iii) has a net worth of not less than the
amount specified in the related Prospectus Supplement, (iv) would not cause any
Rating Agency's rating of the Securities for such Series in effect immediately
prior to such assignment, sale or transfer to be qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer and (v) executes and
delivers to the Trustee an agreement, in form and substance reasonably
satisfactory to the Trustee, which contains an assumption by such Servicer of
the due and punctual performance and observance of each covenant and condition
to be performed or observed by the Servicer under the related Agreement from and
after the date of such agreement. No such assignment will become effective until
the Trustee or a successor Servicer has assumed the servicer's obligations and
duties under the related Agreement. To the extent that the Servicer transfers
its obligations to a wholly-owned subsidiary or affiliate, such subsidiary or
affiliate need not satisfy the criteria set forth above; however, in such
instance, the assigning Servicer will remain liable for the servicing
obligations under the related Agreement. Any entity into which the Servicer is
merged or consolidated or any successor corporation resulting from any merger,
conversion or consolidation will succeed to the Servicer's obligations under the
related Agreement provided that such successor or surviving entity meets the
requirements for a successor Servicer set forth above.
Except to the extent otherwise provided therein, each Agreement will
provide that neither the Servicer, nor any director, officer, employee or agent
of the Servicer, will be under any liability to the related Trust Fund, the
Depositor or the Holders for any action taken or for failing to take any action
in good faith pursuant to the related Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any breach of warranty or representations made under such
Agreement or the failure to perform its obligations in compliance with any
standard of care set forth in such Agreement, or liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder. Each Agreement will further provide that the
Servicer and any director, officer, employee or agent of the Servicer is
entitled to indemnification from the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Securities, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, the related
Agreement will provide that the Servicer is not under any obligation to appear
in, prosecute or defend any legal action which is not incidental to its
servicing responsibilities under such Agreement which, in its opinion, may
involve it in any expense or liability. The Servicer may, in its discretion,
undertake any such action which it may deem necessary or desirable with respect
to the related Agreement and the rights and duties of the parties thereto and
the interests of the Holders thereunder. In such event the legal expenses and
costs of such action and any liability resulting therefrom may be expenses,
costs, and liabilities of the Trust Fund and the Servicer may be entitled to be
reimbursed therefor out of the Collection Account.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the related Agreements.
Assignment of Primary Assets
General. At the time of issuance of the Securities of a Series, the
Originator will transfer, convey and assign to the Trust Fund all right, title
and interest of the Originator in the Primary Assets and other property to be
transferred to the Trust Fund for a Series. Such assignment will include all
principal and interest due on or with respect to the Primary Assets after the
Cut-off Date specified in the related Prospectus Supplement (except for any
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interests in the Trust Fund retained by the Depositor or its affiliate
("Retained Interests")). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
Assignment of Home Equity Loans. The Depositor will, as to each Home
Equity Loan, deliver or cause to be delivered to the Trustee, or, as specified
in the related Prospectus Supplement a custodian on behalf of the Trustee (the
"Custodian"), the Mortgage Note endorsed without recourse to the order of the
Trustee or in blank, the original Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public recording office,
in which case a copy of such Mortgage will be delivered, together with a
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. The Trustee or the
Custodian will hold such documents in trust for the benefit of the Holders.
With respect to Home Equity Loans secured by Mortgages and to the
extent described in the related Prospectus Supplement, the Depositor will, at
the time of issuance of the Securities, cause assignments to the Trustee of the
Mortgages relating to the Home Equity Loans for a Series to be recorded in the
appropriate public office for real property records, except in states where, in
the opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the related Home Equity Loans. The
Depositor will cause such assignments to be so recorded within the time after
issuance of the Securities as is specified in the related Prospectus Supplement,
in which event, the Agreement may require the Originator to repurchase from the
Trustee any Home Equity Loan the related Mortgage of which is not recorded
within such time, at the price described below with respect to repurchases by
reason of defective documentation. The related Prospectus Supplement will
specify whether or not the enforcement of the repurchase obligation would
constitute the sole remedy available to the Holders or the Trustee for the
failure of a Mortgage to be recorded.
Each Home Equity Loan will be identified in a schedule appearing as an
exhibit to the related Agreement (the "Loan Schedule"). Such Loan Schedule will
specify with respect to each Home Equity Loan: the original principal amount and
unpaid principal balance as of the Cut-off Date; the current interest rate; the
current Scheduled Payment of principal and interest; the maturity date, if any,
of the related Mortgage Note; if the Home Equity Loan is an adjustable rate Home
Equity Loan, the Lifetime Rate Cap, if any, and the current index.
Assignment of Private Securities. The Depositor will cause Private
Securities to be registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its nominee or correspondent) will have
possession of any certificated Private Securities. The related Prospectus
Supplement will specify whether or not the Trustee will be in possession of or
be assignee of record of any underlying assets for a Private Security. See "THE
TRUST FUNDS--Private Securities" herein. Each Private Security will be
identified in a schedule appearing as an exhibit to the related Agreement (the
"Certificate Schedule"), which will specify the original principal amount,
outstanding principal balance as of the Cut-off Date, annual pass-through rate
or interest rate and maturity date for each Private Security conveyed to the
Trust Fund. In the Agreement, the Depositor will represent and warrant to the
Trustee regarding the Private Securities: (i) that the information contained in
the Certificate Schedule is true and correct in all material respects; (ii)
that, immediately prior to the conveyance of the Private Securities, the
Depositor had good title thereto, and was the sole owner thereof (subject to any
Retained Interest); (iii) that there has been no other sale by it of such
Private Securities; and (iv) that there is no existing lien, charge, security
interest or other encumbrance (other than any Retained Interest) on such Private
Securities.
Repurchase and Substitution of Non-Conforming Primary Assets. If any
document required to be in the file relating to the Primary Assets delivered by
the Depositor to the Trustee (or Custodian) is found by the Trustee within a
period not to exceed 90 days of the execution of the related Agreement (or
promptly after the Trustee's receipt of any document permitted to be delivered
after the Closing Date) to be defective in any material respect and the
Depositor or Originator does not cure such defect within a period not to exceed
90 days, the Depositor or Originator will, not later than a period not to exceed
90 days after the Trustee's notice to the Depositor or the Originator, as the
case may be, of the defect, repurchase the related Primary Asset or any property
acquired in respect thereof from the Trustee at a price generally equal to, (a)
the lesser of (i) the outstanding principal balance of such Primary Asset and
(ii) the Trust Fund's federal income tax basis in the Primary Asset and (b)
accrued and unpaid interest to the date of the next scheduled payment on such
Primary Asset at the rate set forth in the related Agreement, provided, however,
the purchase price shall not be limited in (i) above to the Trust Fund's federal
income tax basis if the repurchase at a price equal to the outstanding principal
balance of such Primary Asset will not result in any prohibited transaction tax
under Section 860F(a) of the Code.
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The Depositor or Originator, as the case may be, may, rather than
repurchase the Primary Asset as described above, remove such Primary Asset from
the Trust Fund (the "Deleted Primary Asset") and substitute in its place one or
more other Primary Assets (each, a "Qualifying Substitute Primary Asset")
provided, however, that (i) with respect to a Trust Fund for which no REMIC
election is made, such substitution must be effected within 120 days of the date
of initial issuance of the Securities and (ii) with respect to a Trust Fund for
which a REMIC election is made, after a specified time period, the Trustee must
have received a satisfactory opinion of counsel that such substitution will not
cause the Trust Fund to lose its status as a REMIC or otherwise subject the
Trust Fund to a prohibited transaction tax.
Any Qualifying Substitute Primary Asset will have, on the date of
substitution, (i) an outstanding principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Primary Asset (the amount of any
shortfall to be deposited to the Collection Account in the month of substitution
for distribution to Holders), (ii) an interest rate not less than the interest
rate of the Deleted Primary Asset, (iii) a remaining term-to-stated maturity not
greater than that of the Deleted Primary Asset, and will comply with all of the
representations and warranties set forth in the applicable Agreement as of the
date of substitution.
The above-described cure, repurchase or substitution obligations
constitute the sole remedies available to the Holders or the Trustee for a
material defect in a document for a Primary Asset.
The Depositor or another entity will make representations and
warranties with respect to Primary Assets for a Series. If the Depositor or such
entity cannot cure a breach of any such representations and warranties in all
material respects within the time period specified in the related Prospectus
Supplement after notification by the Trustee of such breach, and if such breach
is of a nature that materially and adversely affects the value of such Primary
Asset, the Depositor or such entity is obligated to repurchase the affected
Primary Asset or, if provided in the related Prospectus Supplement, provide a
Qualifying Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations,
if any, of the responsible originator or Originator of such Primary Assets. See
"SPECIAL CONSIDERATIONS--Limited Assets" herein.
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Agreement for such
Series to institute any proceeding with respect to such Agreement, unless such
Holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Securities evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
Reports to Holders
The Trustee or other entity specified in the related Prospectus
Supplement will prepare and forward to each Holder on each Distribution Date, or
as soon thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
(i) the amount of principal distributed to Holders of the
related Securities and the outstanding principal balance of such
Securities following such distribution;
(ii) the amount of interest distributed to Holders of the
related Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included
in such distribution, (b) any remaining overdue accrued interest with
respect to such Securities or (c) any current shortfall in amounts to
be distributed as accrued interest to Holders of such Securities;
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(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining overdue
principal amounts with respect to such Securities, (c) any current
shortfall in receipt of scheduled principal payments on the related
Primary Assets or (d) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding principal balances of such
Securities;
(v) the amount received under any related Credit Enhancement,
and the remaining amount available under such Credit Enhancement;
(vi) the amount of any delinquencies with respect to payments
on the related Primary Assets;
(vii) the book value of any REO Property acquired by the
related Trust Fund; and
(viii) such other information as specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each Holder of record at any time
during such calendar year (a) the aggregate of amounts reported pursuant to (i),
(ii), and (iv)(d) above for such calendar year and (b) such information
specified in the related Agreement to enable Holders to prepare their tax
returns including, without limitation, the amount of original issue discount
accrued on the Securities, if applicable. Information in the Distribution Date
and annual statements provided to the Holders will not have been examined and
reported upon by an independent public accountant. However, the Servicer will
provide to the Trustee a report by independent public accountants with respect
to the Servicer's servicing of the Home Equity Loans. See "SERVICING OF HOME
EQUITY LOANS --Evidence as to Compliance" herein.
A Series of Securities or one or more Classes of such Series may be
issued in book-entry form. In such event, owners of beneficial interests in such
Securities will not be considered Holders and will not receive such reports
directly from the Trustee. The Trustee will forward such reports only to the
entity or its nominee which is the registered holder of the global certificate
which evidences such book-entry securities. Beneficial owners will receive such
reports from the participants and indirect participants of the applicable
book-entry system in accordance with the practices and procedures of such
entities.
Events of Default; Rights Upon Event of Default
Pooling and Servicing Agreement; Servicing Agreement. Events of Default
under the Pooling and Servicing Agreement for each Series of Certificates
relating to Home Equity Loans and/or Contracts generally include (i) any failure
by the Servicer to deposit amounts in the Collection Account and Distribution
Account to enable the Trustee to distribute to Holders of such Series any
required payment, which failure continues unremedied for the number of days
specified in the related Prospectus Supplement after the giving of written
notice of such failure to the Servicer by the Trustee for such Series, or to the
Servicer and the Trustee by the Holders of such Series evidencing not less than
25% of the aggregate voting rights of the Securities for such Series, (ii) any
failure by the Servicer duly to observe or perform in any material respect any
other of its covenants or agreements in the applicable Agreement which continues
unremedied for the number of days specified in the related Prospectus Supplement
after the giving of written notice of such failure to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Holders of such Series
evidencing not less than 25% of the aggregate voting rights of the Securities
for such Series, and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
The related Agreement will specify the circumstances under which the
Trustee of the Holders of Securities may remove the Servicer upon the occurrence
and continuance of an Event of Default thereunder relating to the servicing of
Home Equity Loans and/or Contracts (other than its right to recovery of other
expenses and amounts advanced pursuant to the terms of such Agreement which
rights the Servicer will retain under all circumstances), whereupon the Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under such Agreement and will be entitled to reasonable servicing compensation
not to exceed the applicable servicing fee,
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together with other servicing compensation in the form of assumption fees, late
payment charges or otherwise as provided in such Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth specified in
the related Prospectus Supplement to act as successor Servicer under the
provisions of the applicable Agreement. The successor Servicer would be entitled
to reasonable servicing compensation in an amount not to exceed the Servicing
Fee as set forth in the related Prospectus Supplement, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise, as provided in such Agreement.
During the continuance of any Event of Default of a Servicer under an
Agreement for a Series of Securities, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Holders of such Series, and Holders of
Securities evidencing not less than 51% of the aggregate voting rights of the
Securities for such Series may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Holders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
therein or thereby. The Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the nonassenting Holders.
Indenture. Events of Default under the Indenture for each Series of
Notes generally include: (i) a default in the payment of any principal of or
interest on any Note of such Series, which continues for the period of time
specified in the related Prospectus Supplement; (ii) failure to perform any
other covenant of the Depositor or the Trust Fund in the Indenture which
continues for the period of time specified in the related Prospectus Supplement
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by the
Depositor or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within the period of time specified in the
related Prospectus Supplement after notice thereof is given in accordance with
the procedures described in the related Prospectus Supplement; (iv) certain
events of bankruptcy, insolvency, receivership or liquidation of the Depositor
or the Trust Fund; or (v) any other Event of Default provided with respect to
Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series are Zero
Coupon Securities, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the Holders of a
majority in aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, unless (a) the Holders of 100% of the then aggregate outstanding amount of
the Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
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In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the Indenture
for the benefit of the Noteholders after the occurrence of such an Event of
Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of Notes of such Series, unless such Holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the Holders of a majority of the
then aggregate outstanding amount of the Notes of such Series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes of such Series, and the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
The Trustee
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor or the Servicer. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents will have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee will continue to be responsible for its duties and obligations under
the Agreement.
Duties of the Trustee
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any Primary Asset or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the Holders
or the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the Holders in an
Event of Default. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the Agreement, or in the exercise of any of its rights or powers, if it
has reasonable grounds for
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believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
Resignation of Trustee
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) if the Trustee ceases to be eligible to continue as such
under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
Holders of Securities evidencing over 50% of the aggregate voting rights of the
Securities in the Trust Fund upon written notice to the Trustee and to the
Depositor. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
Amendment of Agreement
The Agreement for each Series of Securities may be amended by the
Depositor, the Servicer (with respect to a Series relating to Home Equity Loans
and/or Contracts), and the Trustee with respect to such Series, without notice
to or consent of the Holders (i) to cure any ambiguity, (ii) to correct any
defective provisions or to correct or supplement any provision therein, (iii) to
add to the duties of the Depositor, the Trust Fund or Servicer, (iv) to add any
other provisions with respect to matters or questions arising under such
Agreement or related Credit Enhancement, (v) to add or amend any provisions of
such Agreement as required by a Rating Agency in order to maintain or improve
the rating of the Securities (it being understood that none of the Depositor,
the Originator, the Servicer or Trustee is obligated to maintain or improve such
rating), or (vi) to comply with any requirements imposed by the Code; provided
that any such amendment except pursuant to clause (vi) above will not adversely
affect in any material respect the interests of any Holders of such Series, as
evidenced by an opinion of counsel. Any such amendment except pursuant to clause
(vi) of the preceding sentence shall be deemed not to adversely affect in any
material respect the interests of any Holder if the Trustee receives written
confirmation from each Rating Agency rating such Securities that such amendment
will not cause such Rating Agency to reduce the then current rating thereof. The
Agreement for each Series may also be amended by the Trustee, the Servicer, if
applicable, and the Depositor with respect to such Series with the consent of
the Holders possessing not less than 66 2/3% of the aggregate outstanding
principal amount of the Securities of such Series or, if only certain Classes of
such Series are affected by such amendment, 66 2/3% of the aggregate outstanding
principal amount of the Securities of each Class of such Series affected
thereby, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Agreement or modifying in any
manner the rights of Holders of such Series; provided, however, that no such
amendment may (a) reduce the amount or delay the timing of payments on any
Security without the consent of the Holder of such Security; or (b) reduce the
aforesaid percentage of the aggregate outstanding principal amount of Securities
of each Class, the Holders of which are required to consent to any such
amendment without the consent of the Holders of 100% of the aggregate
outstanding principal amount of each Class of Securities affected thereby.
Voting Rights
The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series.
List of Holders
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the Agreement, which request is accompanied by a copy of the communication which
such Holders propose to transmit, the Trustee will afford such Holders access
during business hours to the most recent list of Holders of that Series held by
the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Holders.
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Form of Securities
The Securities in each Series will either be issued as physical
certificates or in uncertificated book-entry form. Physical certificates
("Physical Certificates") in fully registered form only in the denominations
specified in the related Prospectus Supplement, and will be transferable and
exchangeable at the corporate trust office of the registrar of the Securities
(the "Security Registrar") named in the related Prospectus Supplement. No
service charge will be made for any registration of exchange or transfer of
Securities, but the Trustee may require payment of a sum sufficient to cover any
tax or other government charge.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be issued in uncertificated book-entry form
("Book-Entry Securities"), and will be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code
("UCC") and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system also is
available to others such as brokers, dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participant").
Under a book-entry format, Holders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of the Securities registered in the name of Cede, as nominee of DTC,
may do so only through Participants and Indirect Participants. In addition, such
Holders will receive all distributions of principal of and interest on the
Securities from the Trustee through DTC and its Participants. Under a book-entry
format, Holders will receive payments after the related Payment Date because,
while payments are required to be forwarded to Cede, as nominee for DTC, on each
such date, DTC will forward such payments to its Participants, which thereafter
will be required to forward such payments to Indirect Participants or Holders.
Unless and until Physical Securities are issued, it is anticipated that the only
Holder will be Cede, as nominee of DTC, and that the beneficial holders of
Securities will not be recognized by the Trustee as Holders under the Pooling
and Servicing Agreement. The beneficial holders of such Securities will only be
permitted to exercise the rights of Holders under the Pooling and Servicing
Agreement indirectly through DTC and its Participants who in turn will exercise
their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. Participants and Indirect Participants with which Holders have
accounts with respect to their Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Holders. Accordingly, although Holders will not process Securities,
the rules provide a mechanism by which Holders will receive distributions and
will be able to transfer their interests.
Unless and until Physical Certificates are issued, Holders who are not
Participants may transfer ownership of Securities only through Participants by
instructing such Participants to transfer Securities, by book-entry transfer,
through DTC for the account of the purchasers of such Securities, which account
is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of Securities
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the respective Participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Holder to
pledge Securities to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Securities may be limited
due to the lack of a Physical Certificate for such Securities.
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DTC in general advises that it will take any action permitted to be
taken by a Holder under a Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account with DTC the related Securities are
credited. Additionally, DTC in general advises that it will take such actions
with respect to specified percentages of the Holders only at the direction of
and on behalf of Participants whose holdings include current principal amounts
of outstanding Securities that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Securities to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Securities.
Any Securities initially registered as Physical Certificates in the
name of Cede, as nominee of DTC, will be issued in fully registered,
certificated form to Holders or their nominees, rather than to DTC or its
nominee only under the events specified in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement. Upon the
occurrence of any of the events specified in the related Pooling and Servicing
Agreement and the Prospectus Supplement, DTC will be required to notify all
Participants of the availability through DTC of Physical Certificates. Upon
surrender by DTC of the securities representing the Securities and instruction
for re-registration, the Trustee will take the Securities in the form of
Physical Certificates, and thereafter the Trustee will recognize the holders of
such Physical Certificates as Holders. Thereafter, payments of principal of and
interest on the Securities will be made by the Trustee directly to Holders in
accordance with the procedures set forth herein and in the Pooling and Servicing
Agreement. The final distribution of any Security (whether Physical Certificates
or Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to Holders.
REMIC Administrator
For any Series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the Trust Fund may be performed by a REMIC administrator, who may be
an affiliate of the Depositor.
Termination
Pooling and Servicing Agreement; Trust Agreement. The obligations
created by the Pooling and Servicing Agreement or Trust Agreement for a Series
will terminate upon the distribution to Holders of all amounts distributable to
them pursuant to such Agreement after the earlier of (i) the later of (a) the
final payment or other liquidation of the last Primary Asset remaining in the
Trust Fund for such Series and (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure or repossession in respect of any
Primary Asset; (ii) the repurchase, as described below, by the Servicer or other
entity specified in the related Prospectus Supplement from the Trustee for such
Series of all Primary Assets and other property at that time subject to such
Agreement; or (iii) the mandatory termination of the Trust by the Trustee, the
Servicer or certain other entities specified in the related Prospectus
Supplement by soliciting competitive bids for the purchase of the Primary Assets
of the related Trust Fund
Repurchase of the Remaining Primary Assets. The Agreement for each
Series may permit, but not require, the Servicer or other entity specified in
the related Prospectus Supplement to purchase from the Trust Fund for such
Series all remaining Primary Assets at a price equal to 100% of the aggregate
Principal Balance of such Primary Assets plus, with respect to any property
acquired in respect of a Primary Asset, if any, the outstanding Principal
Balance of the related Primary Asset at the time of foreclosure, less, in either
case, related unreimbursed Advances (in the case of the Primary Assets, only to
the extent not already reflected in the computation of the aggregate Principal
Balance of such Primary Assets) and unreimbursed expenses (that are reimbursable
pursuant to the terms of the Pooling and Servicing Agreement) plus, in either
case, accrued interest thereon at the weighted average rate on the related
Primary Assets through the last day of the Due Period in which such repurchase
occurs; provided, however, that if an election is made for treatment as a REMIC
under the Code, the repurchase price may equal the greater of (a) 100% of the
aggregate Principal Balance of such Primary Assets, plus accrued interest
thereon at the applicable net rates on the Primary Assets through the last day
of the month of such repurchase and (b) the aggregate fair market value of such
Primary Assets plus the fair market value of any property acquired in respect of
a Primary Asset and remaining in the Trust Fund. The exercise of such right will
effect early retirement of the Securities of such Series, but such entity's
right to so purchase is subject to the aggregate Principal Balance of the
Primary Assets
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at the time of repurchase being less than a fixed percentage, to be set forth in
the related Prospectus Supplement, of the aggregate Principal Balance of the
Primary Assets as of the Cut-off Date.
Mandatory Termination; Auction Sale. The Trustee, the Servicer or the
related Originator may be required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase of the related Trust
Estate.
The mandatory termination may take the form of an auction sale. Within
a certain period following the failure of the holder of the optional termination
right to exercise such right, the required party shall solicit bids for the
purchase of all Home Equity Loans remaining in the Trust. In the event that
satisfactory bids (which would not be less than an amount necessary to pay all
principal and interest on the securities outstanding) are received as specified
in the related Agreement, the net sale proceeds will be distributed to Holders,
in the same order of priority as collections received in respect of the Home
Equity Loans and/or Contracts. If satisfactory bids are not received, such party
shall decline to sell the Home Equity Loans and/or Contracts and shall not be
under any obligation to solicit any further bids or otherwise negotiate any
further sale of the Home Equity Loans and/or Contracts. Such sale and consequent
termination of the Trust must constitute a "qualified liquidation" of each REMIC
established by the Trust under Section 860F of the Internal Revenue Code of
1986, as amended, including, without limitation, the requirement that the
qualified liquidation takes place over a period not to exceed 90 days.
In no event, however, will the trust created by the Agreement continue
beyond the expiration of 21 years from the death of the last survivor of certain
persons identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Agreement to each
Holder, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency specified in the notice of
termination. The Depositor or another entity may effect an optional termination
of the Trust Fund under the circumstances described in such Prospectus
Supplement. See "DESCRIPTION OF THE SECURITIES--Optional Redemption, Purchase or
Termination" herein.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF HOME EQUITY LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
home equity loans and Contracts, which are general in nature. Because certain of
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor reflect the laws
of any particular state, nor encompass the laws of all states in which the
properties securing the Home Equity Loans are situated.
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General -- Home Equity Loans
The Home Equity Loans will be represented by a Note and an accompanying
Mortgage. Pursuant to the Note, the related borrower is personally liable to
repay the indebtedness evidenced by the Home Equity Loan; pursuant to the
Mortgage, such indebtedness is secured by a lien on the related Mortgaged
Property.
Enforcement of the Note
Pursuant to the Note, the related borrower is personally liable to
repay the indebtedness evidenced by the Home Equity Loan. In certain states, the
lender on a note secured by a lien on real property has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the related property
security. Consequently, the practical effect of the election requirement, in
those states permitting such election, is that lenders will usually proceed
against the property first rather than bringing a personal action against the
borrower on the Note.
Certain states have imposed statutory prohibitions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, including California, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the amount due to
the lender and the net amount realized upon the public sales of the real
property. In the case of a Home Equity Loan secured by a property owned by a
trust where the Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a deed of trust,
even if obtainable under applicable law, may be of little value to the mortgagee
or beneficiary if there are no trust assets against which such deficiency
judgment may be executed. Other statutes require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the borrower. Finally, in certain other states, statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure to the
excess of the outstanding debt over the fair value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or mortgagee from obtaining a large deficiency judgment against the
former borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a
monetary default in respect of a loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original loan
payment schedule even though the lender accelerated the loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a loan
default by paying arrearages over a number of years.
Court with federal bankruptcy jurisdiction also have indicated that the
terms of a loan secured by property of the debtor may be modified. These courts
have allowed modifications that include reducing the amount of each monthly
payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Certain states have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes for the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, lender have
been required to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disabilities.
In other cases, such courts have limited the right of the lender to foreclose if
the default under the loan
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is not monetary, such as the borrower failing to adequately maintain the
property or the borrower executing a second deed of trust affecting the
property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
loans by numerous federal and some state consumer protection laws. These laws
include, by example, the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes and state laws, such a s the
California Fair Debt Collection Practices Act. These laws and regulations impose
specific statutory liabilities upon lenders who originate loans and fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
Security Interests
Real Estate Mortgages. The Home Equity Loans for a Series will be
secured by either mortgages or deeds of trust or deeds to secure debt depending
upon the prevailing practice in the state in which the Mortgaged Property
subject to a Home Equity Loan is located. The filing of a mortgage, deed of
trust or deed to secure debt creates a lien or title interest upon the real
property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers and may also be subject to
other liens pursuant to the laws of the jurisdiction in which the Mortgaged
Property is located. Priority with respect to such instruments depends on their
terms, the knowledge of the parties to the mortgage and generally on the order
of recording with the applicable state, county or municipal office. There are
two parties to a mortgage, the mortgagor, who is the borrower/property owner or
the land trustee (as described below), and the mortgagee, who is the lender.
Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or
bond and the mortgage. In the case of a land trust, there are three parties
because title to the Mortgaged Property is held by a land trustee under a land
trust agreement of which the borrower/property owner is the beneficiary; at
origination of a Home Equity Loan, the borrower executes a separate undertaking
to make payments on the mortgage note. A deed of trust transaction normally has
three parties: The trustor, who is the borrower/property owner; the beneficiary,
who is the lender; and the trustee, a third-party grantee. Under a deed of
trust, the trustor grants the Mortgaged Property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure payment
of the obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
Foreclosure on Mortgages. Foreclosure of a mortgage is generally
accomplished by judicial action. Generally, the action is initiated by the
service of legal pleadings upon all parties having an interest of record in the
real property. Delays in completion of the foreclosure occasionally may result
from difficulties in locating necessary parties defendant. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming and expensive. After the completion of a
judicial foreclosure proceeding, the court may issue a judgment of foreclosure
and appoint a receiver or other officer to conduct the sale of the Mortgaged
Property. In some states, mortgages may also be foreclosed by advertisement,
pursuant to a power of sale provided in the mortgage. Foreclosure of a mortgage
by advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
nonjudicial trustee's sale under a specific provision in the deed of trust which
authorizes the trustee to sell the Mortgaged Property upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an interest in the real property, including any junior lienholders. If
the deed of trust is not reinstated within any applicable cure period, a notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the Mortgaged Property
and sent to all parties having an interest of record in the Mortgaged Property.
The trustor, borrower, or any person having a junior encumbrance on the real
estate, may,
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during a reinstatement period, cure the default by paying the entire amount in
arrears plus the costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the Mortgaged Property, recorded and sent to all parties
having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical condition of the Mortgaged Property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
Mortgaged Property at a foreclosure sale. Rather, it is common for the lender to
purchase the Mortgaged Property from the trustee or referee for an amount which
may be equal to the unpaid principal amount of the mortgage note secured by the
mortgage or deed of trust plus accrued and unpaid interest and the expenses of
foreclosure, in which event the mortgagor's debt will be extinguished or the
lender may purchase for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a judgment is
available. Thereafter, subject to the right of the borrower in some states to
remain in possession during the redemption period, the lender will assume the
burdens of ownership, including obtaining hazard insurance, paying taxes and
making such repairs at its own expense as are necessary to render the Mortgaged
Property suitable for sale. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the sale
of the Mortgaged Property. Depending upon market conditions, the ultimate
proceeds of the sale of the Mortgaged Property may not equal the lender's
investment in the Mortgaged Property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the trustor or mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the Mortgaged
Property from the foreclosure sale. The right of redemption should be
distinguished from the equity of redemption, which is a non-statutory right that
must be exercised prior to the foreclosure sale. In some states, redemption may
occur only upon payment of the entire principal balance of the loan, accrued
interest and expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed Mortgaged Property. The exercise of a right of
redemption would defeat the title of any purchaser at a foreclosure sale, or of
any purchaser from the lender subsequent to foreclosure or sale under a deed of
trust. Consequently the practical effect of a right of redemption is to force
the lender to retain the Mortgaged Property and pay the expenses of ownership
until the redemption period has run. In some states, there is no right to redeem
Mortgaged Property after a trustee's sale under a deed of trust.
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Junior Mortgages; Rights of Senior Mortgages. The Home Equity Loans
comprising or underlying the Primary Assets included in the Trust Fund for a
Series will be secured by mortgages or deeds of trust which may be second or
more junior mortgages to other mortgages held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the Holders), as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
under the senior mortgage, including the prior rights of the senior mortgagee to
receive hazard insurance and condemnation proceeds and to cause the Mortgaged
Property securing the Home Equity Loan to be sold upon default of the mortgagor,
thereby extinguishing the junior mortgagee's lien unless the junior mortgagee
asserts its subordinate interest in the Mortgaged Property in foreclosure
litigation and, possibly, satisfies the defaulted senior mortgage. A junior
mortgagee may satisfy a defaulted senior loan in full and, in some states, may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the Mortgaged Property are damaged or destroyed by fire or
other casualty, or in the event the Mortgaged Property is taken by condemnation,
the mortgagee or beneficiary under underlying senior mortgages will have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the senior mortgages. Proceeds in excess
of the amount of senior mortgage indebtedness, in most cases, may be applied to
the indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the Mortgaged Property and, when due,
all encumbrances, charges and liens on the Mortgaged Property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on the
Mortgaged Property, to maintain and repair the Mortgaged Property and not to
commit or permit any waste thereof, and to appear in and defend any action or
proceeding purporting to affect the Mortgaged Property or the rights of the
mortgagee under the mortgage. Upon a failure of the mortgagor to perform any of
these obligations, the mortgagee is given the right under certain mortgages to
perform the obligation itself, at its election, with the mortgagor agreeing to
reimburse the mortgagee for any sums expended by the mortgagee on behalf of the
mortgagor. All sums so expended by the mortgagee become part of the indebtedness
secured by the mortgage.
Due-On-Sale Clauses in Home Equity Loans. Due-on-sale clauses permit
the lender to accelerate the maturity of the loan if the borrower sells or
transfers, whether voluntarily or involuntarily, all or part of the real
Mortgaged Property securing the loan without the lender's prior written consent.
The enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases, typically involving single family
residential mortgage transactions, their enforceability has been limited or
denied. In any event, the Garn-St. Germain Depository Institutions Act of 1982
(the "Garn-St. Germain Act") preempts state constitutional, statutory and case
law that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain
exceptions. As a result, due-on-sale clauses have become generally enforceable
except in those states whose legislatures exercised their authority to regulate
the enforceability of such clauses with respect to loans that were (i)
originated or assumed during the "window period" under the Garn-St. Germain Act
which ended in all cases not later than October 15, 1982, and (ii) originated by
lenders other than national banks, federal savings institutions and federal
credit unions. The Federal Home Loan Mortgage Corporation ("FHLMC") has taken
the position in its published mortgage servicing standards that, out of a total
of eleven "window period states," five states (Arizona, Michigan, Minnesota, New
Mexico and Utah) have enacted statutes extending, on various terms and for
varying periods, the prohibition on enforcement of due-on-sale clauses with
respect to certain categories of window period loans. Also, the Garn-St. Germain
Act does "encourage" lenders to permit assumption of loans at the original rate
of interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
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Enforceability of Prepayment and Late Payment Fees. Forms of notes,
mortgages and deeds of trust used by lenders may contain provisions obligating
the borrower to pay a late charge if payments are not timely made, and in some
circumstances may provide for prepayment fees or penalties if the obligation is
paid prior to maturity. In certain states, there are or may be specific
limitations, upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. Late
charges and prepayment fees are typically retained by servicers as additional
servicing compensation.
Equitable Limitations on Remedies. In connection with lenders' attempts
to realize upon their security, courts have invoked general equitable
principles. The equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive actions to
determine the causes of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other cases,
courts have limited the right of a lender to realize upon his security if the
default under the security agreement is not monetary, such as the borrower's
failure to adequately maintain the Mortgaged Property or the borrower's
execution of secondary financing affecting the Mortgaged Property. Finally, some
courts have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under security agreements receive notices in addition to
the statutorily-prescribed minimums. For the most part, these cases have upheld
the notice provisions as being reasonable or have found that, in cases involving
the sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family loans may be prepaid in full or in part
without penalty. The regulations of the Office of Thrift Supervision (the "OTS")
prohibit the imposition of a prepayment penalty or equivalent fee for or in
connection with the acceleration of a loan by exercise of a due-on-sale clause.
A mortgagee to whom a prepayment in full has been tendered may be compelled to
give either a release of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment, particularly with respect to
loans having higher mortgage rates, may increase the likelihood of refinancing
or other early retirements of such loans.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations shall not apply to certain types of
residential first loans originated by certain lenders after March 31, 1980.
Similar federal statutes were in effect with respect to loans made during the
first three months of 1980. The OTS, as successor to the Federal Home Loan Bank
Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Tide V. Tide V authorizes any state
to reimpose interest rate limits by adopting, before April 1, 1983, a state law,
or by certifying that the voters of such state have voted in favor of any
provision, constitutional or otherwise, which expressly rejects an application
of the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V.
Security Interests in Personal Property and Fixtures. A portion of each
Mortgaged Property may consist of property which is "personal property" or a
"fixture" under local state law. This will most commonly occur when the proceeds
of the related Home Equity Loan were applied to property improvements, although
any Mortgaged Property may have some personal property components. A financing
statement generally is not required to be filed to perfect a purchase money
security interest in consumer goods. Such purchase money security interests are
assignable. In general, a purchase money security interest grants to the holder
a security interest that has priority over a conflicting security interest in
the same collateral and the proceeds of such collateral. However, to the extent
that the collateral subject to a purchase money security interest becomes a
fixture, in order for the related purchase money security interest to take
priority over a conflicting interest in the fixture, the holder's interest in
such personal property must generally be perfected by a timely fixture filing.
In general, under the Uniform Commercial Code (the "UCC"), a security interest
does not exist under the UCC in ordinary building material incorporated into an
improvement on land. Contracts that finance lumber, bricks, other types of
ordinary building material or other
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goods that are deemed to lose such characterization, upon incorporation of such
materials into the related property, will not be secured by a purchase money
security interest in the personal property being financed.
Enforcement of Security Interest in Personal Property. So long as the
personal property has not become subject to the real estate law, a creditor can
repossess such property securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgement from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgements, and in many cases
the defaulting borrower would have no assets with which to pay a judgement.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgement.
Consumer Protection Laws. The so-called "Holder-in-Due-Course" rule of
the Federal Trade Commission is intended to defeat the ability of the transferor
of a consumer credit contract which is the seller of goods which gave rise to
the transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
General -- Contracts
General
As a result of the assignment of the Contracts to the Trustee, the
Trust Fund will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) and will assume the obligations of the
obligee under the Contracts. Each Contract evidences both (a) the obligation of
the obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Servicer will transfer
physical possession of the Contracts to the Trustee or a designated custodian or
may retain possession of the Contracts as custodian for the Trustee. In
addition, the Servicer will make an appropriate filing of a UCC-1 financing
statement in the appropriate states to give notice of the Trustee's ownership of
the Contracts. Unless otherwise specified in the related Prospectus Supplement,
the Contracts will not be stamped or marked otherwise to reflect their
assignment from the Sponsor to the Trustee. Therefore, if through negligence,
fraud or otherwise, a subsequent purchaser were able to take physical possession
of the Contracts without notice of such assignment, the Trustee's interest in
Contracts could be defeated.
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Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some non-title states, perfection pursuant
to the provisions of the UCC is required. The Servicer may effect such notation
or delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional sales contract is
registered. In the event the Servicer fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC, in
a few states), the securityholders may not have a first priority security
interest in the Manufactured Home securing a Contract. As manufactured homes
have become larger and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the secured party must file either a "fixture filing" under the provisions
of the UCC or a real estate mortgage under the real estate laws of the state
where the home is located. These filings must be made in the real estate records
office of the county where the home is located. Substantially all of the
Contracts contain provisions prohibiting the borrower from permanently attaching
the Manufactured Home to its site. So long as the borrower does not violate this
agreement, a security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the Manufactured Home which is prior
to the security interest originally retained by the Seller and transferred to
the Sponsor. With respect to a Series of Securities and if so described in the
related Prospectus Supplement, the Servicer may be required to perfect a
security interest in the Manufactured Home under applicable real estate laws.
The Servicer will represent that at the date of the initial issuance of the
related Securities it has obtained a perfected first priority security interest
by proper notation or delivery of the required documents and fees with respect
to substantially all of the Manufactured Homes securing the Contracts.
The Sponsor will cause the security interests in the Manufactured Homes
to be assigned to the Trustee on behalf of the securityholders. Unless otherwise
specified in the related Prospectus Supplement, neither the Sponsor nor the
Trustee will amend the Certificates of title to identify the Trustee or the
Trust Fund as the new secured party, and neither the Sponsor nor the Servicer
will deliver the Securities of title to the Trustee or note thereon the interest
of the Trustee. Accordingly, the Servicer (or the seller) which continue to be
named as the secured party on the certificate of title relating to the
Manufactured Homes. In many states, such assignment is an effective conveyance
of such security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Sponsor's rights
as the secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest in the Manufactured Home might not be effective or perfected
or that, in the absence of such notation or delivery to the Trustee, the
assignment of the security interest in the Manufactured Home might not be
effective against creditors of the Servicer (or the Seller) or a trustee in
bankruptcy of the Servicer (or the Seller).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Servicer (or
the Seller) on the certificate of title or delivery of the required documents
and fees will be sufficient to protect the securityholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home. If there are any Manufactured Homes
as to which the security interest assigned to the Trustee is not perfected, such
security interest would be subordinate to, among others, subsequent purchasers
for value of Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee as the new secured party
on the certificate of title that, through fraud or negligence, the security
interest of the Securityholders could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
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Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and not
re-register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security interest
in the Manufactured Home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien, the
Servicer would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the Trustee
would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing conditional sales contracts, the Servicer takes steps to effect such
re-perfection upon receipt of notice of registration or information from the
obligor as to relocation. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the Trustee (or
its custodian) must surrender possession of the certificate of title or the
Servicer will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
manufactured housing conditional sales contract before release of the lien.
Under the Pooling and Servicing Agreement, the Servicer is obligated to take
steps, at the Servicer's expense, as are necessary to maintain perfection of
security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufacturer Home and liens for personal property taxes take priority over a
perfected security interest. The Seller will represent in the Pooling and
Servicing Agreement that it has no knowledge of any such liens with respect to
any Manufactured Home securing payment on any Contract. However, such liens
could arise at any time during the term of a Contract. No notice will be given
to the Trustee or Securityholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by repossession
and resale of the Manufactured Homes securing such defaulted Contracts. So long
as the Manufactured Home has not become subject to the real estate law, a
creditor can repossess a Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without breach
of the peace) or, in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
Contract must give the debtor a number of days' notice, which varies from 10 to
30 days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the unit
so that the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the debted thereunder.
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The effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a Contract; however,
the obligor also may be able to asset the rule to set off remaining amounts due
as a defense against a claim brought by the Trustee against such obligor.
Numerous other federal and state consumer protection laws impose requirements
applicable to the origination and lending pursuant to the Contracts, including
the Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code. In
the case of some of these laws, the failure to comply with their provisions may
affect the enforceability of the related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to.
In the case of a transfer of a Manufactured Home after which the
Servicer desires to accelerate the maturity of the related Contract, the
Servicer's ability to do so will depend on the enforceability under state law of
the "due-on-sale" clause. The Garn-St Germain Depository Institutions Act of
1982 preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of "due-on-sale" clauses applicable to the Manufactured
Homes. Consequently, in some states the Servicer may be prohibited from
enforcing a "due-on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to the
following conditions, state usury limitations shall not apply to any loan which
is secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading to
repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, and state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The Seller will represent that all of the Contracts comply with applicable usury
law.
Formaldehyde Litigation with Respect to Contracts
A number of lawsuits have been brought in the United States alleging
personal injury from exposure to the chemical formaldehyde, which is preset in
many building materials, including such components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits were brought against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. Sponsor is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
The holder of any Contract secured by a Manufactured Home with respect
to which a formaldehyde claim has been successfully asserted may be liable to
the obligor for the amount paid by the obligor on the related Contract and may
be unable to collect amounts still due under the Contract. The successful
assertion of such claim constitutes a breach of a representation or warranty of
the person specified in the related Prospectus Supplement, and the
Securityholders would suffer a loss only to the extent that (i) such person
breached its obligation to repurchase the Contract in the event an obligor is
successful in asserting such a claim, and (ii) such person, the Servicer or the
Trustee were unsuccessful in asserting any claim of contribution or subrogation
on behalf of the Securityholders against the manufacturer or other persons who
were directly liable to the plaintiff for the damages. Typical products
liability insurance policies held by manufacturers and component suppliers of
manufactured homes may not cover liabilities arising from formaldehyde in
manufactured housing, with the result that recoveries from
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such manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum, on obligations (including Home Equity Loans) incurred prior to
the commencement of military service for the duration of military service, (ii)
may be entitled to a stay of proceedings on any kind of foreclosure or
repossession action in the case of defaults on such obligations entered into
prior to military service for the duration of military service and (iii) may
have the maturity of such obligations incurred prior to military service
extended, the payments lowered and the payment schedule readjusted for a period
of time after the completion of military service. However, the benefits of (i),
(ii), or (iii) above are subject to challenge by creditors and if, in the
opinion of the court, the ability of a person to comply with such obligations is
not materially impaired by military service, the court may apply equitable
principles accordingly. If a borrower's obligation to repay amounts otherwise
due on a Home Equity Loan included in a Trust Fund for a Series is relieved
pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, none of the
Trust Fund, the Servicer, the Depositor nor the Trustee will be required to
advance such amounts, and any loss in respect thereof may reduce the amounts
available to be paid to the Holders of the Securities of such Series. Any
shortfalls in interest collections on Home Equity Loans, Contracts or Underlying
Loans relating to the Private Securities, as applicable, included in a Trust
Fund for a Series resulting from application of the Soldiers' and Sailors' Civil
Relief Act of 1940 will be allocated in the manner set forth in the related
Agreement.
THE DEPOSITOR
General
The Depositor was incorporated in the State of North Carolina. in
December 1997, and is a wholly-owned subsidiary of First Union National Bank, a
national banking association with its headquarters in Charlotte, North Carolina.
The Depositor's principal executive offices are located at One First Union
Center, 301 S. College Street, Charlotte, North Carolina 28288-0630. Its
telephone number is (704) 373-6611.
The Depositor will not engage in any activities other than to
authorize, issue, sell, deliver, purchase and invest in (and enter into
agreements in connection with), and/or to engage in the establishment of one or
more trusts which will issue and sell, bonds, notes, debt or equity securities,
obligations and other securities and instruments ("Depositor Securities")
collateralized or otherwise secured or backed by, or otherwise representing an
interest in, among other things, receivables or pass-through certificates, or
participations or certificates of participation or beneficial ownership in one
or more pools of receivables, and the proceeds of the foregoing, that arise in
connection with loans secured by certain first or junior mortgages on real
estate or manufactured housing and any and all other commercial transactions and
commercial, sovereign, student or consumer loans or indebtedness and, in
connection therewith or otherwise, purchasing, acquiring, owning, holding,
transferring, conveying, servicing, selling, pledging, assigning, financing and
otherwise dealing with such receivables, pass-through certificates, or
participations or certificates of participation or beneficial ownership. Article
Third of the Depositor's Certificate of Incorporation limits the Depositor's
activities to the above activities and certain related activities, such as
credit enhancement with respect to such Depositor Securities, and to any
activities incidental to and necessary or convenient for the accomplishment of
such purposes.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Securities will be
applied to one or more of the following purposes: (i) to acquire the related
Primary Assets, (ii) to repay indebtedness which has been incurred to obtain
funds to acquire such Primary Assets, (iii) to establish any Reserve Funds
described in the related Prospectus Supplement and (iv) to pay costs of
structuring and issuing such Securities, including the costs of obtaining Credit
Enhancement, if any. The acquisition of the Primary Assets for a Series may be
effected by an exchange of Securities with the Originator of such Primary
Assets.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the material anticipated
federal income tax consequences to investors of the purchase, ownership and
disposition of the Securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors are urged to consult their own tax advisors
in determining the particular federal, state and local consequences to them of
the purchase, ownership and disposition of the Securities.
The following discussion addresses securities of five general types:
(i) securities ("Grantor Trust Securities") representing interests in a trust (a
"Grantor Trust") which the Company will covenant not to elect to have treated as
a real estate mortgage investment conduit ("REMIC") or a financial asset
securitization investment trust ("FASIT"); (ii) securities ("REMIC Securities")
representing interests in a trust, or a portion thereof, which the Company will
covenant to elect to have treated as a REMIC under sections 860A through 860G of
the Internal Revenue Code of 1986, as amended (the "Code"); (iii) securities
("Debt Securities") that are intended to be treated for federal income tax
purposes as indebtedness secured by the underlying loans; (iv) securities
("Partnership Interests") representing interests in a trust (a "Partnership")
that is intended to be treated as a partnership under the Code; and (v)
securities ("FASIT Securities") representing interests in a trust, or portion
thereof, which the Company will covenant to elect to have treated as a FASIT
under sections 860H through 860L of the Code. The Prospectus Supplement for each
series of Securities will indicate whether a REMIC or FASIT election (or
elections) will be made for the related trust and, if a REMIC or FASIT election
is to be made, will identify all "regular interests" and "residual interests" in
the REMIC or all "regular interests," "high-yield interests" or the "ownership
interest" in the FASIT.
The Taxpayer Relief Act of 1997 adds provisions to the Code that
require the recognition of gain upon the "constructive sale of an appreciated
financial position." A constructive sale of an appreciated financial position
occurs if a taxpayer enters into certain transactions or series of such
transactions with respect to a financial instrument that have the effect of
substantially eliminating the taxpayer's risk of loss and opportunity for gain
with respect to the financial instrument. These provisions apply only to Classes
of Securities that do not have a principal balance.
Grantor Trust Securities
With respect to each series of Grantor Trust Securities, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that the related Grantor Trust will be classified as a grantor trust
and not as a partnership or an association taxable as a corporation. Such
opinion shall be attached on Form 8-K to be filed with the Commission within
fifteen days after the initial issuance of such Securities or filed with the
Commission as a post-effective amendment to the Prospectus. Accordingly, each
beneficial owner of a Grantor Trust Security will generally be treated as the
owner of an interest in the Home Equity Loans and/or Contracts included in the
Grantor Trust.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Home Equity Loans and/or Contracts constituting the related Grantor Trust,
together with interest thereon at a pass-through rate, will be referred to as a
"Grantor Trust Fractional Interest Security." A Grantor Trust Security
representing ownership of all or a portion of the difference between interest
paid on the Home Equity Loans and/or Contracts constituting the related Grantor
Trust and interest paid to the beneficial owners of Grantor Trust Fractional
Interest Securities issued with respect to such Grantor Trust will be referred
to as a "Grantor Trust Strip Security."
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Taxation of Beneficial Owners of Grantor Trust Securities
Beneficial owners of Grantor Trust Fractional Interest Securities
generally will be required to report on their federal income tax returns their
respective shares of the income from the Home Equity Loans and/or Contracts
(including amounts used to pay reasonable servicing fees and other expenses but
excluding amounts payable to beneficial owners of any corresponding Grantor
Trust Strip Securities) and, subject to the limitations described below, will be
entitled to deduct their shares of any such reasonable servicing fees and other
expenses. If a beneficial owner acquires a Grantor Trust Fractional Interest
Security for an amount that differs from its outstanding principal amount, the
amount includible in income on a Grantor Trust Fractional Interest Security may
differ from the amount of interest distributable thereon. See "Discount and
Premium," below. Individuals holding a Grantor Trust Fractional Interest
Security directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to the extent
that the aggregate of such beneficial owner's miscellaneous itemized deductions
exceeds 2% of such beneficial owner's adjusted gross income. Further, beneficial
owners (other than corporations) subject to the alternative minimum tax may not
deduct miscellaneous itemized deductions in determining alternative minimum
taxable income.
Beneficial owners of Grantor Trust Strip Securities generally will be
required to treat such Securities as "stripped coupons" under section 1286 of
the Code. Accordingly, such a beneficial owner will be required to treat the
excess of the total amount of payments on such a Security over the amount paid
for such Security as original issue discount and to include such discount in
income as it accrues over the life of such Security. See "--Discount and
Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the beneficial owner's
income as it accrues (regardless of the beneficial owner's method of
accounting), as described below under "--Discount and Premium." The coupon
stripping rules will not apply, however, if (i) the pass-through rate is no more
than 100 basis points lower than the gross rate of interest payable on the
underlying Home Equity Loans and/or Contracts and (ii) the difference between
the outstanding principal balance on the Security and the amount paid for such
Security is less than 0.25% of such principal balance times the weighted average
remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security
(equal to the difference between the amount realized on the sale and the
adjusted basis of such Grantor Trust Security) will be capital gain or loss,
except to the extent of accrued and unrecognized market discount, which will be
treated as ordinary income, and in the case of banks and other financial
institutions except as provided under section 582(c) of the Code. The adjusted
basis of a Grantor Trust Security will generally equal its cost, increased by
any income reported by the Originator (including original issue discount and
market discount income) and reduced (but not below zero) by any previously
reported losses, any amortized premium and by any distributions of principal.
Grantor Trust Reporting
The Trustee will furnish to each beneficial owner of a Grantor Trust
Fractional Interest Security with each distribution a statement setting forth
the amount of such distribution allocable to principal on the underlying Home
Equity Loans and/or Contracts and to interest thereon at the related interest
rate. In addition, within a reasonable time after the end of each calendar year,
based on information provided by the Master Servicer, the Trustee will furnish
to each beneficial owner during such year such customary factual information as
the Master Servicer deems necessary or desirable to enable beneficial owners of
Grantor Trust Securities to prepare their tax returns and will furnish
comparable information to the Internal Revenue Service (the "IRS") as and when
required to do so by law.
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REMIC Securities
If provided in a related Prospectus Supplement, an election will be
made to treat a Trust as a REMIC under the Code. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each series
of Securities for which such an election is made, Dewey Ballantine LLP, special
tax counsel to the Company, will deliver its opinion to the Company that,
assuming compliance with the Pooling and Servicing Agreement, the trust will be
treated as a REMIC for federal income tax purposes. A Trust for which a REMIC
election is made will be referred to herein as a "REMIC Trust." The Securities
of each class will be designated as "regular interests" in the REMIC Trust
except that a separate class will be designated as the "residual interest" in
the REMIC Trust. The Prospectus Supplement for each series of Securities will
state whether Securities of each class will constitute a regular interest (a
REMIC Regular Security) or a residual interest (a REMIC Residual Security). Such
opinion shall be attached on Form 8-K to be filed with the Commission within
fifteen days after the initial issuance of such Securities or filed with the
Commission as a post-effective amendment to the Prospectus.
A REMIC Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances
described below. See "--Taxes on a REMIC Trust." Generally, the total income
from the Home Equity Loans in a REMIC Trust will be taxable to the beneficial
owners of the Securities of that series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC Regulations") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
Special Tax Attributes
REMIC Regular Securities and REMIC Residual Securities will be "regular
or residual interests in a REMIC" within the meaning of section
7701(a)(19)(C)(xi) of the Code and "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code. If at any time during a calendar year less
than 95% of the assets of a REMIC Trust consist of "qualified mortgages" (within
the meaning of section 860G(a)(3) of the Code) then the portion of the REMIC
Regular Securities and REMIC Residual Securities that are qualifying assets
under those sections during such calendar year may be limited to the portion of
the assets of such REMIC Trust that are qualified mortgages. Similarly, income
on the REMIC Regular Securities and REMIC Residual Securities will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of section 856(c)(3)(B) of the Code, subject to the same limitation as
set forth in the preceding sentence. For purposes of applying this limitation, a
REMIC Trust should be treated as owning the assets represented by the qualified
mortgages. The assets of the Trust Estate will include, in addition to the Home
Equity Loans, payments on the Home Equity Loans held pending distribution on the
REMIC Regular Securities and REMIC Residual Securities and any reinvestment
income thereon. REMIC Regular Securities and REMIC Residual Securities held by a
financial institution to which section 585, 586 or 593 of the Code applies will
be treated as evidences of indebtedness for purposes of section 582(c)(1) of the
Code. REMIC Regular Securities will also be qualified mortgages with respect to
other REMICs.
Taxation of Beneficial Owners of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the
REMIC Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Settlement Date") and not as ownership interests in the
REMIC Trust or its assets. beneficial owners of REMIC Regular Securities that
otherwise report income under a cash method of accounting will be required to
report income with respect to such Securities under an accrual method. For
additional tax consequences relating to REMIC Regular Securities purchased at a
discount or with premium, see "--Discount and Premium," below.
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Taxation of Beneficial Owners of REMIC Residual Securities
Daily Portions. Except as indicated below, a beneficial owner of a
REMIC Residual Security for a REMIC Trust generally will be required to report
its daily portion of the taxable income or net loss of the REMIC Trust for each
day during a calendar quarter that the beneficial owner owned such REMIC
Residual Security. For this purpose, the daily portion shall be determined by
allocating to each day in the calendar quarter its ratable portion of the
taxable income or net loss of the REMIC Trust for such quarter and by allocating
the amount so allocated among the Residual beneficial owners (on such day) in
accordance with their percentage interests on such day. Any amount included in
the gross income or allowed as a loss of any Residual beneficial owner by virtue
of this paragraph will be treated as ordinary income or loss.
The requirement that each beneficial owner of a REMIC Residual Security
report its daily portion of the taxable income or net loss of the REMIC Trust
will continue until there are no Securities of any class outstanding, even
though the beneficial owner of the REMIC Residual Security may have received
full payment of the stated interest and principal on its REMIC Residual
Security.
The Trustee will provide to beneficial owners of REMIC Residual
Securities of each series of Securities (i) such information as is necessary to
enable them to prepare their federal income tax returns and (ii) any reports
regarding the Securities of such series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net
loss of a REMIC Trust will be the income from the qualified mortgages it holds
and any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications. The
first modification is that a deduction will be allowed for accruals of interest
(including any original issue discount, but without regard to the investment
interest limitation in section 163(d) of the Code) on the REMIC Regular
Securities (but not the REMIC Residual Securities), even though REMIC Regular
Securities are for non-tax purposes evidences of beneficial ownership rather
than indebtedness of a REMIC Trust. Second, market discount or premium equal to
the difference between the total stated principal balances of the qualified
mortgages and the basis to the REMIC Trust therein generally will be included in
income (in the case of discount) or deductible (in the case of premium) by the
REMIC Trust as it accrues under a constant yield method, taking into account the
"Prepayment Assumption" (as defined in the Related Prospectus Supplement, see
"--Discount and Premium--Original Issue Discount," below). The basis to a REMIC
Trust in the qualified mortgages is the aggregate of the issue prices of all the
REMIC Regular Securities and REMIC Residual Securities in the REMIC Trust on the
Settlement Date. If, however, a substantial amount of a class of REMIC Regular
Securities or REMIC Residual Securities has not been sold to the public, then
the fair market value of all the REMIC Regular Securities or REMIC Residual
Securities in that class as of the date of the Prospectus Supplement should be
substituted for the issue price.
Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "--Taxes on a REMIC Trust--Prohibited Transactions"
below) will be taken into account. Fourth, a REMIC Trust generally may not
deduct any item that would not be allowed in calculating the taxable income of a
partnership by virtue of section 703(a)(2) of the Code. Finally, the limitation
on miscellaneous itemized deductions imposed on individuals by section 67 of the
Code will not be applied at the REMIC Trust level to any servicing and guaranty
fees. (See, however, "--Pass-Through of Servicing and Guaranty Fees to
Individuals" below.) In addition, under the REMIC Regulations, any expenses that
are incurred in connection with the formation of a REMIC Trust and the issuance
of the REMIC Regular Securities and REMIC Residual Securities are not treated as
expenses of the REMIC Trust for which a deduction is allowed. If the deductions
allowed to a REMIC Trust exceed its gross income for a calendar quarter, such
excess will be a net loss for the REMIC Trust for that calendar quarter. The
REMIC Regulations also provide that any gain or loss to a REMIC Trust from the
disposition of any asset, including a qualified mortgage or "permitted
investment" (as defined in section 860G(a)(5) of the Code) will be treated as
ordinary gain or loss.
A beneficial owner of a REMIC Residual Security may be required to
recognize taxable income without being entitled to receive a corresponding
amount of cash. This could occur, for example, if the qualified mortgages are
considered to be purchased by the REMIC Trust at a discount, some or all of the
REMIC Regular Securities are issued at a discount, and the discount included as
a result of a prepayment on a Home Equity Loan that is used to pay principal on
the REMIC Regular Securities exceeds the REMIC Trust's deduction for unaccrued
original issue
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discount relating to such REMIC Regular Securities. Taxable income may also be
greater in earlier years because interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular Securities,
may increase over time as the earlier classes of REMIC Regular Securities are
paid, whereas interest income with respect to any given Home Equity Loan
expressed as a percentage of the outstanding principal amount of that Home
Equity Loan, will remain constant over time.
Basis Rules and Distributions. A beneficial owner of a REMIC Residual
Security has an initial basis in its Security equal to the amount paid for such
REMIC Residual Security. Such basis is increased by amounts included in the
income of the beneficial owner and decreased by distributions and by any net
loss taken into account with respect to such REMIC Residual Security. A
distribution on a REMIC Residual Security to a beneficial owner is not included
in gross income to the extent it does not exceed such beneficial owner's basis
in the REMIC Residual Security (adjusted as described above) and, to the extent
it exceeds the adjusted basis of the REMIC Residual Security, shall be treated
as gain from the sale of the REMIC Residual Security.
A beneficial owner of a REMIC Residual Security is not allowed to take
into account any net loss for any calendar quarter to the extent such net loss
exceeds such beneficial owner's adjusted basis in its REMIC Residual Security as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss disallowed by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC Residual Security.
Excess Inclusions. Any excess inclusions with respect to a REMIC
Residual Security are subject to certain special tax rules. With respect to a
beneficial owner of a REMIC Residual Security, the excess inclusion for any
calendar quarter is defined as the excess (if any) of the daily portions of
taxable income over the sum of the "daily accruals" for each day during such
quarter that such REMIC Residual Security was held by such beneficial owner. The
daily accruals are determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Security at the beginning of the calendar quarter and 120% of the
"federal long-term rate" in effect on the Settlement Date, based on quarterly
compounding, and properly adjusted for the length of such quarter. For this
purpose, the adjusted issue price of a REMIC Residual Security as of the
beginning of any calendar quarter is equal to the issue price of the REMIC
Residual Security, increased by the amount of daily accruals for all prior
quarters and decreased by any distributions made with respect to such REMIC
Residual Security before the beginning of such quarter. The issue price of a
REMIC Residual Security is the initial offering price to the public (excluding
bond houses and brokers) at which a substantial number of the REMIC Residual
Securities was sold. The federal long-term rate is a blend of current yields on
Treasury securities having a maturity of more than nine years, computed and
published monthly by the IRS.
In general, beneficial owners of REMIC Residual Securities with excess
inclusion income cannot offset such income by losses from other activities. For
beneficial owners that are subject to tax only on unrelated business taxable
income (as defined in section 511 of the Code), an excess inclusion of such
beneficial owner is treated as unrelated business taxable income. With respect
to variable contracts (within the meaning of section 817 of the Code), a life
insurance company cannot adjust its reserve to the extent of any excess
inclusion, except as provided in regulations. The REMIC Regulations indicate
that if a beneficial owner of a REMIC Residual Security is a member of an
affiliated group filing a consolidated income tax return, the taxable income of
the affiliated group cannot be less than the sum of the excess inclusions
attributable to all residual interests in REMICs held by members of the
affiliated group. For a discussion of the effect of excess inclusions on certain
foreign investors that own REMIC Residual Securities, see "--Foreign Investors"
below.
The Treasury Department also has the authority to issue regulations
that would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
how significant value would be determined for these purposes. If no such rule is
applicable, excess inclusions should be calculated as discussed above.
In the case of any REMIC Residual Securities that are held by a real
estate investment trust, the aggregate excess inclusions with respect to such
REMIC Residual Securities reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of section 857(b)(2) of the
Code, excluding any net capital gain) will be allocated among the shareholders
of such trust in proportion to the dividends received by such
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shareholders from such trust, and any amount so allocated will be treated as an
excess inclusion with respect to a REMIC Residual Security as if held directly
by such shareholder. Similar rules will apply in the case of regulated
investment companies, common trust funds and certain cooperatives that hold a
REMIC Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A
beneficial owner of a REMIC Residual Security who is an individual will be
required to include in income a share of any servicing and guaranty fees. A
deduction for such fees will be allowed to such beneficial owner only to the
extent that such fees, along with certain of such beneficial owner's other
miscellaneous itemized deductions exceed 2% of such beneficial owner's adjusted
gross income. In addition, a beneficial owner of a REMIC Residual Security may
not be able to deduct any portion of such fees in computing such beneficial
owner's alternative minimum tax liability. A beneficial owner's share of such
fees will generally be determined by (i) allocating the amount of such expenses
for each calendar quarter on a pro rata basis to each day in the calendar
quarter, and (ii) allocating the daily amount among the beneficial owners in
proportion to their respective holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to
100% of the net income derived from "prohibited transactions." In general, a
prohibited transaction means the disposition of a qualified mortgage other than
pursuant to certain specified exceptions, the receipt of investment income from
a source other than a Home Equity Loan or certain other permitted investments,
the receipt of compensation for services, or the disposition of an asset
purchased with the payments on the qualified mortgages for temporary investment
pending distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax
on a REMIC equal to 100% of the value of any property contributed to the REMIC
after the "startup day" (generally the same as the Settlement Date). Exceptions
are provided for cash contributions to a REMIC (i) during the three month period
beginning on the startup day, (ii) made to a qualified reserve fund by a
beneficial owner of a residual interest, (iii) in the nature of a guarantee,
(iv) made to facilitate a qualified liquidation or clean-up call, and (v) as
otherwise permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of three years, with
a possible extension. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
General. Except as provided below, if a Regular or REMIC Residual
Security is sold, the seller will recognize gain or loss equal to the difference
between the amount realized in the sale and its adjusted basis in the Security.
The adjusted basis of a REMIC Regular Security generally will equal the cost of
such Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distributions on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"--Discount and Premium." The adjusted basis of a REMIC Residual Security is
determined as described above under "--Taxation of Beneficial Owners of REMIC
Residual Securities--Basis Rules and Distributions." Except as provided in the
following paragraph or under section 582(c) of the Code, any such gain or loss
will be capital gain or loss, provided such Security is held as a "capital
asset" (generally, property held for investment) within the meaning of section
1221 of the Code.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the beneficial owner of a REMIC Regular Security had
income accrued at a rate equal to 110% of the "applicable federal rate"
(generally, an average of current yields on Treasury securities) as of
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the date of purchase over (ii) the amount actually includible in such beneficial
owner's income. In addition, gain recognized on such a sale by a beneficial
owner of a REMIC Regular Security who purchased such a Security at a market
discount would also be taxable as ordinary income in an amount not exceeding the
portion of such discount that accrued during the period such Security was held
by such beneficial owner, reduced by any market discount includible in income
under the rules described below under "--Discount and Premium."
If a beneficial owner of a REMIC Residual Security sells its REMIC
Residual Security at a loss, the loss will not be recognized if, within six
months before or after the sale of the REMIC Residual Security, such beneficial
owner purchases another residual interest in any REMIC or any interest in a
taxable mortgage pool (as defined in section 7701(i) of the Code) comparable to
a residual interest in a REMIC. Such disallowed loss would be allowed upon the
sale of the other residual interest (or comparable interest) if the rule
referred to in the preceding sentence does not apply to that sale. While this
rule may be modified by Treasury regulations, no such regulations have yet been
published.
Transfers of REMIC Residual Securities. Section 860E(e) of the Code
imposes a substantial tax, payable by the transferor (or, if a transfer is
through a broker, nominee, or other middleman as the transferee's agent, payable
by that agent) upon any transfer of a REMIC Residual Security to a disqualified
organization and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any
state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(other than certain taxable instrumentalities), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas, or any organization (other than a farmers' cooperative) that is exempt
from federal income tax, unless such organization is subject to the tax on
unrelated business income. Moreover, an entity will not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that (i) residual
interests in such entity are not held by disqualified organizations and (ii)
information necessary for the application of the tax described herein will be
made available. Restrictions on the transfer of a REMIC Residual Security and
certain other provisions that are intended to meet this requirement are
described in the Pooling and Servicing Agreement, and will be discussed more
fully in the related Prospectus Supplement relating to the offering of any REMIC
Residual Security. In addition, a pass-through entity (including a nominee) that
holds a REMIC Residual Security may be subject to additional taxes if a
disqualified organization is a record-holder therein. A transferor of a REMIC
Residual Security (or an agent of a transferee of a REMIC Residual Security, as
the case may be) will be relieved of such tax liability if (i) the transferee
furnishes to the transferor (or the transferee's agent) an affidavit that the
transferee is not a disqualified organization, and (ii) the transferor (or the
transferee's agent) does not have actual knowledge that the affidavit is false
at the time of the transfer. Similarly, no such tax will be imposed on a
pass-through entity for a period with respect to an interest therein owned by a
disqualified organization if (i) the record-holder of such interest furnishes to
the pass-through entity an affidavit that it is not a disqualified organization,
and (ii) during such period, the pass-through entity has no actual knowledge
that the affidavit is false.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership holds
a Residual Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by section 860E(e) of the Code. An exception to this
tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below in "--Foreign Investors--Grantor
Trust Securities and REMIC Regular Securities") will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. A REMIC Residual Security would be treated
as constituting a noneconomic residual interest unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
REMIC Residual Security is no less than the product of the present value of the
"anticipated excess inclusions" with respect to such Security and the highest
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corporate rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the applicable REMIC Trust in an amount sufficient to satisfy the liability
for income tax on any "excess inclusions" at or after the time when such
liability accrues. Anticipated excess inclusions are the excess inclusions that
are anticipated to be allocated to each calendar quarter (or portion thereof)
following the transfer of a REMIC Residual Security, determined as of the date
such Security is transferred and based on events that have occurred as of that
date and on the Prepayment Assumption. See "--Discount and Premium" and
"--Taxation of Beneficial Owners of REMIC Residual Securities--Excess
Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC Trust). A
transferor is presumed not to have improper knowledge if (i) the transferor
conducts, at the time of a transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
come due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future; and (ii) the
transferee makes certain representations to the transferor in the affidavit
relating to disqualified organizations discussed above. Transferors of a REMIC
Residual Security should consult with their own tax advisors for further
information regarding such transfers.
Reporting and Other Administrative Matters. For purposes of the
administrative provisions of the Code, each REMIC Trust will be treated as a
partnership and the beneficial owners of REMIC Residual Securities will be
treated as partners. The Trustee will prepare, sign and file federal income tax
returns for each REMIC Trust, which returns are subject to audit by the IRS.
Moreover, within a reasonable time after the end of each calendar year, the
Trustee will furnish to each beneficial owner that received a distribution
during such year a statement setting forth the portions of any such
distributions that constitute interest distributions, original issue discount,
and such other information as is required by Treasury regulations and, with
respect to beneficial owners of REMIC Residual Securities in a REMIC Trust,
information necessary to compute the daily portions of the taxable income (or
net loss) of such REMIC Trust for each day during such year. The Trustee will
also act as the tax matters partner for each REMIC Trust, either in its capacity
as a beneficial owner of a REMIC Residual Security or in a fiduciary capacity.
Each beneficial owner of a REMIC Residual Security, by the acceptance of its
REMIC Residual Security, agrees that the Trustee will act as its fiduciary in
the performance of any duties required of it in the event that it is the tax
matters partner.
Each beneficial owner of a REMIC Residual Security is required to treat
items on its return consistently with the treatment on the return of the REMIC
Trust, unless the beneficial owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Trust. The IRS may assert a deficiency
resulting from a failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC Trust level.
Termination
In general, no special tax consequences will apply to a beneficial
owner of a REMIC Regular Security upon the termination of a REMIC Trust by
virtue of the final payment or liquidation of the last Home Equity Loan
remaining in the Trust Estate. If a beneficial owner of a REMIC Residual
Security's adjusted basis in its REMIC Residual Security at the time such
termination occurs exceeds the amount of cash distributed to such beneficial
owner in liquidation of its interest, although the matter is not entirely free
from doubt, it would appear that the beneficial owner of the REMIC Residual
Security is entitled to a loss equal to the amount of such excess.
Debt Securities
General
With respect to each series of Debt Securities, Dewey Ballantine LLP,
special tax counsel to the Company, will deliver its opinion to the Company that
the Securities will be classified as debt secured by the related Home Equity
Loans and/or Contracts. Consequently, the Debt Securities will not be treated as
ownership interests in the Home Equity Loans and/or Contracts or the Trust.
Beneficial owners will be required to report income received
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with respect to the Debt Securities in accordance with their normal method of
accounting. For additional tax consequences relating to Debt Securities
purchased at a discount or with premium, see "--Discount and Premium," below.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general, Debt
Securities will not possess such special tax attributes. Investors to whom such
attributes are important should consult their own tax advisors regarding
investment in Debt Securities.
Sale or Exchange
If a beneficial owner of a Debt Security sells or exchanges such
Security, the beneficial owner will recognize gain or loss equal to the
difference, if any, between the amount received and the beneficial owner's
adjusted basis in the Security. The adjusted basis in the Security generally
will equal its initial cost, increased by any original issue discount or market
discount previously included in the seller's gross income with respect to the
Security and reduced by the payments previously received on the Security, other
than payments of qualified stated interest, and by any amortized premium.
In general (except as described in "--Discount and Premium--Market
Discount," below), except for certain financial institutions subject to section
582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security
recognized by an investor who holds the Security as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Security has been held for more
than one year.
Partnership Interests
With respect to each series of Partnership Interests, Dewey Ballantine
LLP, special tax counsel to the Company, will deliver its opinion to the Company
that the trust will be treated as a partnership and not an association taxable
as a corporation for federal income tax purposes. Such opinion shall be attached
on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Securities or filed with the Commission as a
post-effective amendment to the Prospectus. Accordingly, each beneficial owner
of a Partnership Interest will generally be treated as the owner of an interest
in the Home Equity Loans and/or Contracts.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general,
Partnership Interests will not possess such special tax attributes. Investors to
whom such attributes are important should consult their own tax advisors
regarding investment in Partnership Interests.
Taxation of Beneficial Owners of Partnership Interests
If the Trust is treated as a partnership for Federal Income Tax
Purposes, the Trust will not be subject to federal income tax. Instead, each
beneficial owner of a Partnership Interest will be required to separately take
into account an allocable share of income, gains, losses, deductions, credits
and other tax items of the Trust. These partnership allocations are made in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents).
The Trust's assets will be the assets of the partnership. The Trust's
income will consist primarily of interest and finance charges earned on the
underlying Home Equity Loans. The Trust's deductions will consist primarily of
interest accruing with respect to any indebtedness issued by the Trust,
servicing and other fees, and losses or deductions upon collection or
disposition of the Trust's assets.
In certain instances, the Trust could have an obligation to make
payments of withholding tax on behalf of a beneficial owner of a Partnership
Interest. (See "Backup Withholding" and "Foreign Investors" below).
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Substantially all of the taxable income allocated to a beneficial owner
of a Partnership Interest that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
Under section 708 of the Code, the Trust will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Trust are sold or exchanged within a 12-month period. Under the
final regulations issued on May 9, 1997 if such a termination occurs, the Trust
is deemed to contribute all of its assets and liabilities to a newly formed
partnership in exchange for a partnership interest. Immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
purchasing partner and remaining partners in proportion to their interests in
liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests
Generally, capital gain or loss will be recognized on a sale or
exchange of Partnership Interests in an amount equal to the difference between
the amount realized and the seller's tax basis in the Partnership Interests
sold. A beneficial owner of a Partnership Interest's tax basis in a Partnership
Interest will generally equal the beneficial owner's cost increased by the
beneficial owner's share of Trust income (includible in income) and decreased by
any distributions received with respect to such Partnership Interest. In
addition, both the tax basis in the Partnership Interest and the amount realized
on a sale of a Partnership Interest would take into account the beneficial
owner's share of any indebtedness of the Trust. A beneficial owner acquiring
Partnership Interests at different prices may be required to maintain a single
aggregate adjusted tax basis in such Partnership Interest, and upon sale or
other disposition of some of the Partnership Interests, allocate a portion of
such aggregate tax basis to the Partnership Interests sold (rather than
maintaining a separate tax basis in each Partnership Interest for purposes of
computing gain or loss on a sale of that Partnership Interest).
Any gain on the sale of a Partnership Interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the Trust would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a Partnership Interest is required to recognize an aggregate amount of income
over the life of the Partnership Interest that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Partnership Interest. If a beneficial
owner sells its Partnership Interest at a profit or loss, the transferee will
have a higher or lower basis in the Partnership Interests than the transferor
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an election under section 754 of
the Code.
Partnership Reporting Matters
The Owner Trustee is required to (i) keep complete and accurate books
of the Trust, (ii) file a partnership information return (IRS Form 1065) with
the IRS for each taxable year of the Trust and (iii) report each beneficial
owner of a Partnership Interest's allocable share of items of Trust income and
expense to beneficial owners and the IRS on Schedule K-1. The Trust will provide
the Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Partnership Interests.
Generally, beneficial owners of a Partnership Interests must file tax returns
that are consistent with the information return filed by the Trust or be subject
to penalties unless the beneficial owner of a Partnership Interest notifies the
IRS of all such inconsistencies.
Under section 6031 of the Code, any person that holds Partnership
Interests as a nominee at any time during a calendar year is required to furnish
the Trust with a statement containing certain information on the nominee, the
beneficial owners and the Partnership Interests so held. Such information
includes (i) the name, address and taxpayer identification number of the nominee
and (ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, and international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and (z)
certain information on Partnership Interests that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and financial
institutions that hold Partnership Interests through a nominee are required to
furnish directly to the Trust information as to themselves and their ownership
of Partnership Interests. A clearing agency registered under section 17A of the
Exchange Act is not required to furnish any such information statement to the
Trust. Nominees, brokers and financial institutions that fail to provide the
Trust with the information described above may be subject to penalties.
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The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
beneficial owner of a Partnership Interests, and, under certain circumstances, a
beneficial owner of a Partnership Interest may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of the beneficial owner of a Partnership Interest's
returns and adjustments of items note related to the income and losses of the
Trust.
FASIT Securities
If provided in a related Prospectus Supplement, an election will be
made to treat the Trust as a FASIT within the meaning of Code Section 860L(a).
Qualification as a FASIT requires ongoing compliance with certain conditions.
With respect to each series of Securities for which an election is made, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that, assuming compliance with the Pooling and Servicing Agreement,
the trust will be treated as a FASIT for federal income tax purposes. A Trust
for which a FASIT election is made will be referred to herein as a "FASIT
Trust." The Securities of each class will be designated as "regular interests"
or "high-yield regular interests" in the FASIT Trust except that one separate
class will be designated as the "ownership interest" in the FASIT Trust. The
Prospectus Supplement for each series of Securities will state whether
Securities of each class will constitute either a regular interest or a
high-yield regular interest (a FASIT Regular Security) or an ownership interest
(a FASIT Ownership Security). Such opinion shall be attached on Form 8-K to be
filed with the Commission within fifteen days after the initial issuance of such
Securities or filed with the Commission as a post-effective amendment to the
Prospectus.
Special Tax Attributes
FASIT Securities held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Sections 856(c)(5)(A) and
856(c)(6) and interest on the FASIT Regular Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the FASIT Trust and the income
thereon would be so treated. FASIT Regular Securities held by a domestic
building and loan association will be treated as "regular interest[s] in a
FASIT" under Code Section 7701(a)(19)(C)(xi), but only in the proportion that
the FASIT Trust holds "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v). If at all times 95% or more of the assets of the FASIT Trust
or the income thereon qualify for the foregoing treatments, the FASIT Regular
Securities will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(A), payments of principal and interest on a
Home Equity Loan that are reinvested pending distribution to holders of FASIT
Regular Securities should qualify for such treatment. FASIT Regular Securities
held by a regulated investment company will not constitute "government
securities" within the meaning of Code Section 851(b)(4)(A)(i). FASIT Regular
Securities held by certain financial institutions will constitute an "evidence
of indebtedness" within the meaning of Code Section 582(c)(1).
Taxation of Beneficial Owners of FASIT Regular Securities
A FASIT Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances as
described below. The FASIT Regular Securities generally will be treated for
federal income tax purposes as newly-originated debt instruments. In general,
interest, original issue discount ("OID") and market discount on a FASIT Regular
Security will be treated as ordinary income to the beneficial owner, and
principal payments (other than principal payments that do not exceed accrued
market discount) on an FASIT Regular Security will be treated as a return of
capital to the extent of the beneficial owner's basis allocable thereto.
Beneficial owners must use the accrual method of accounting with respect to
FASIT Regular Securities, regardless of the method of accounting otherwise used
by such beneficial owners. See discussion of "Discount and Premium" below.
In order for the FASIT Trust to qualify as a FASIT, there must be
ongoing compliance with the requirements set forth in the Code. The FASIT must
fulfill an asset test, which requires that substantially all the assets of the
FASIT, as of the close of the third calendar month beginning after the "Startup
Day" (which for
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purposes of this discussion is the date of the initial issuance of the FASIT
Securities) and at all times thereafter, must consist of cash or cash
equivalents, certain debt instruments (other than debt instruments issued by the
owner of the FASIT or a related party) and hedges (and contracts to acquire the
same), foreclosure property and regular interests in another FASIT or in a
REMIC. Based on identical statutory language applicable to REMICs, it appears
that the "substantially all" requirement should be met if at all times the
aggregate adjusted basis of the nonqualified assets is less than one percent of
the aggregate adjusted basis of all the FASIT's assets. The FASIT provisions of
the Code (sections 860H through 860L) also require the FASIT ownership interest
and certain "high-yield regular interests" (described below) to be held only by
certain fully taxable domestic corporations.
Permitted debt instruments must bear interest, if any, at a fixed or
qualified variable rate. Permitted hedges include interest rate or foreign
currency notional principal contracts, letters of credit, insurance, guarantees
of payment default and similar instruments to be provided in regulations, and
which are reasonably required to guarantee or hedge against the FASIT's risks
associated with being the obligor on interests issued by the FASIT. Foreclosure
property is real property acquired by the FASIT in connection with the default
or imminent default of a qualified mortgage, provided the Depositor had no
knowledge or reason to know as of the date such asset was acquired by the FASIT
that such a default had occurred or would occur.
In addition to the foregoing requirements, the various interests in a
FASIT also must meet certain requirements. All of the interests in a FASIT must
be either of the following: (a) one or more classes of regular interests or (b)
a single class of ownership interest. A regular interest is an interest in a
FASIT that is issued on or after the Startup Day with fixed terms, is designated
as a regular interest, and (i) unconditionally entitles the holder to receive a
specified principal amount (or other similar amount), (ii) provides that
interest payments (or other similar amounts), if any, at or before maturity
either are payable based on a fixed rate or a qualified variable rate, (iii) has
a stated maturity of not longer than 30 years, (iv) has an issue price not
greater than 125% of its stated principal amount, and (v) has a yield to
maturity not greater than 5 percentage points higher than the related applicable
Federal rate (as defined in Code section 1274(d)). In order to meet the 30 year
maturity requirement, the FASIT Regular Securities will be retired and replaced,
to the extent then-outstanding, with new regular interests on the 30th
anniversary of the date of issuance of the FASIT Regular Securities. A regular
interest that is described in the preceding sentence except that if fails to
meet one or more of requirements (i), (ii) (iv) or (v) is a "high-yield regular
interest." A high-yield regular interest that fails requirement (ii) must
consist of a specified, nonvarying portion of the interest payments on the
permitted assets, by reference to the REMIC rules. An ownership interest is an
interest in a FASIT other than a regular interest that is issued on the Startup
Day, is designated an ownership interest and is held by a single, fully-taxable,
domestic corporation. An interest in a FASIT may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the ownership interest in
the FASIT, and are dependent on the absence of defaults or delinquencies on
permitted assets lower than reasonably expected returns on permitted assets,
unanticipated expenses incurred by the FASIT or prepayment interest shortfalls.
If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as a FASIT during any taxable year, the Code
provides that the entity or applicable potion thereof will not be treated as a
FASIT thereafter. In this event, any entity that holds home equity loans and is
the obligor with respect to debt obligations with two or more maturities, such
as the Trust Fund, may be treated as a separate association taxable as a
corporation, and the FASIT Regular Securities may be treated as equity interests
therein. The legislative history to the FASIT Provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all regular interests and their reissuance. If the resulting instruments would
be treated as equity under general tax principles, cancellation of debt income
may result.
Taxes on a FASIT Trust
Income from certain transactions by a FASIT, called prohibited
transactions, are taxable to the holder of the ownership interest in a FASIT at
a 100% rate. Prohibited transactions generally include (i) the disposition of a
permitted asset other than for (a) foreclosure, default, or imminent default of
a qualified mortgage, (b) bankruptcy or insolvency of the FASIT, (c) a qualified
(complete) liquidation, (d) substitution for another permitted debt instrument
or distribution of the debt instrument to the holder of the ownership interest
to reduce overcollateralization, but only if a principal purpose of acquiring
the debt instrument which is disposed of was not the recognition of gain (or the
reduction of a loss) on the withdrawn asset as a result of an increase in the
market
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value of the asset after its acquisition by the FASIT or (e) the retirement of a
Class of FASIT regular interests; (ii) the receipt of income from nonpermitted
assets; (iii) the receipt of compensation for services; or (iv) the receipt of
any income derived from a loan originated by the FASIT. It is unclear the extent
to which tax on such transactions could be collected from the FASIT Trust
directly under the applicable statutes rather than from the holder of the FASIT
Residual Security.
DUE TO THE COMPLEXITY OF THESE RULES, THE ABSENCE OF TREASURY REGULATIONS AND
THE CURRENT UNCERTAINTY AS TO THE MANNER TO THEIR APPLICATION TO THE TRUST AND
TO HOLDERS OF FASIT SECURITIES, IT IS PARTICULARLY IMPORTANT THAT POTENTIAL
INVESTORS CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT OF THEIR
ACQUISITION OWNERSHIP AND DISPOSITION OF THE FASIT REGULAR SECURITIES.
Discount and Premium
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a beneficial owner's income as it accrues
(regardless of the beneficial owner's regular method of accounting) using a
constant yield method; (ii) market discount is treated as ordinary income and
must be included in a beneficial owner's income as principal payments are made
on the Security (or upon a sale of a Security); and (iii) if a beneficial owner
so elects, premium may be amortized over the life of the Security and offset
against inclusions of interest income. These tax consequences are discussed in
greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original
issue discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The issue price of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
Remittance Period and the Settlement Date. The stated redemption price at
maturity of a Security that has a notional principal amount or receives
principal only or that is or may be an Accrual Security is equal to the sum of
all distributions to be made under such Security. The stated redemption price at
maturity of any other Security is its stated principal amount, plus an amount
equal to the excess (if any) of the interest payable on the first Payment Date
over the interest that accrues for the period from the Settlement Date to the
first Payment Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25% of the stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a Security is apparently computed for this purpose as the sum, for all
distributions included in the stated redemption price at maturity of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the Settlement Date until the date on which each such
distribution is expected to be made under the assumption that the Home Equity
Loans prepay at the rate specified in the related Prospectus Supplement (the
"Prepayment Assumption") by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the Security's
stated redemption price at maturity. If original issue discount is treated as
zero under this rule, the actual amount of original issue discount must be
allocated to the principal distributions on the Security and, when each such
distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer
Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor
Trust Securities for tax years beginning after August 5, 1997. Under these rules
(described in greater detail below), (i) the amount and rate of accrual of
original issue discount on each series of Securities will be based on (x) the
Prepayment Assumption, and (y) in the case of a Security calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains equal to the value of that rate on the
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Settlement Date, and (ii) adjustments will be made in the amount of discount
accruing in each taxable year in which the actual prepayment rate differs from
the Prepayment Assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Depositor anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The
Depositor makes no representation, however, that the Home Equity Loans for a
given series will prepay at the rate reflected in the Prepayment Assumption for
that series or at any other rate. Each investor must make its own decision as to
the appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Securities.
Each beneficial owner must include in gross income the sum of the
"daily portions" of original issue discount on its Security for each day during
its taxable year on which it held such Security. For this purpose, in the case
of an original beneficial owner, the daily portions of original issue discount
will be determined as follows. A calculation will first be made of the portion
of the original issue discount that accrued during each "accrual period." The
Trustee will supply, at the time and in the manner required by the IRS, to
beneficial owners, brokers and middlemen information with respect to the
original issue discount accruing on the Securities. The Trustee will report
original issue discount based on accrual periods of no longer than one year
either (i) beginning on a payment date (or, in the case of the first such
period, the Settlement Date) and ending on the day before the next payment date
or (ii) beginning on the next day following a payment date and ending on the
next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity, over (ii) the adjusted
issue price of such Security at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding sentence will
be calculated based on (i) the yield to maturity of the Security, calculated as
of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a
Security calling for a variable rate of interest, an assumption that the value
of the index upon which such variable rate is based remains the same as its
value on the Settlement Date over the entire life of such Security. The adjusted
issue price of a Security at any time will equal the issue price of such
Security, increased by the aggregate amount of previously accrued original issue
discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of such negative
amounts. The legislative history to section 1272(a)(6) indicates that such
negative amounts may be used to offset subsequent positive accruals but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Beneficial owners of
such Securities should consult their own tax advisors concerning the treatment
of such negative accruals.
A subsequent purchaser of a Security that purchases such Security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
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Market Discount
A beneficial owner that purchases a Security at a market discount, that
is, at a purchase price less than the remaining stated redemption price at
maturity of such Security (or, in the case of a Security with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Security, and recognize
ordinary income to the extent such distribution does not exceed the aggregate
amount of accrued market discount on such Security not previously included in
income. With respect to Securities that have unaccrued original issue discount,
such market discount must be included in income in addition to any original
issue discount. A beneficial owner that incurs or continues indebtedness to
acquire a Security at a market discount may also be required to defer the
deduction of all or a portion of the interest on such indebtedness until the
corresponding amount of market discount is included in income. In general terms,
market discount on a Security may be treated as accruing either (i) under a
constant yield method or (ii) in proportion to remaining accruals of original
issue discount, if any, or if none, in proportion to remaining distributions of
interest on the Security, in any case taking into account the Prepayment
Assumption. The Trustee will make available, as required by the IRS, to
beneficial owners of Securities information necessary to compute the accrual of
market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased such Security (a "Premium Security") at a premium.
Such a purchaser need not include in income any remaining original issue
discount and may elect, under section 171(c)(2) of the Code, to treat such
premium as "amortizable bond premium." If a beneficial owner makes such an
election, the amount of any interest payment that must be included in such
beneficial owner's income for each period ending on a Payment Date will be
reduced by the portion of the premium allocable to such period based on the
Premium Security's yield to maturity. Such premium amortization should be made
using constant yield principles. If such election is made by the beneficial
owner, the election will also apply to all bonds the interest on which is not
excludible from gross income ("fully taxable bonds") held by the beneficial
owner at the beginning of the first taxable year to which the election applies
and to all such fully taxable bonds thereafter acquired by it, and is
irrevocable without the consent of the IRS. If such an election is not made, (i)
such a beneficial owner must include the full amount of each interest payment in
income as it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Security and, when each such distribution is
received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal
in comparison to the distributions of interest thereon. It is possible that the
IRS or the Treasury Department may issue guidance excluding such Securities from
the rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, section 1272(a)(6) of the Code
would govern the accrual of such original issue discount, but a beneficial owner
would recognize substantially the same income in any given period as would be
recognized if an election were made under section 171(c)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Securities, the Trustee intends to furnish
tax information to beneficial owners of such Securities in accordance with the
rules described in the preceding paragraph.
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Special Election
For any Security acquired on or after April 4, 1994, a beneficial owner
may elect to include in gross income all "interest" that accrues on the Security
by using a constant yield method. For purposes of the election, the term
"interest" includes stated interest, acquisition discount, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount and unstated interest as adjusted by any amortizable bond premium or
acquisition premium. A beneficial owner should consult its own tax advisor
regarding the time and manner of making and the scope of the election and the
implementation of the constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The Internal Revenue Service recently issued final regulations (the
"Withholding Regulations"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective January 1, 1999, although valid
withholding certificates that are held on December 31, 1998 remain valid until
the earlier of December 31, 1999 or the due date of expiration of the
certificate under the rules as currently in effect.
Foreign Investors
The Withholding Regulations would require, in the case of Securities
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. See "--Backup Withholding" above. A look-through rule
would apply in the case of tiered partnerships. Non-U.S. Persons should consult
their own tax advisors regarding the application to them of the Withholding
Regulations.
Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security, Debt Security or a
REMIC Regular Security to, or on behalf of, a beneficial owner that is not a
U.S. Person generally will be exempt from U.S. federal income and withholding
taxes. The term "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate that
is subject to U.S. federal income tax regardless of the source of its income, or
a trust if a court within the United States can exercise primary supervision
over its administration and at least one United States fiduciary has the
authority to control all substantial decisions of the trust. This exemption is
applicable provided (a) the beneficial owner is not subject to U.S. tax as a
result of a connection to the United States other than ownership of the
Security, (b) the beneficial owner signs a statement under penalties of perjury
that certifies that such beneficial owner is not a U.S. Person, and provides the
name and address of such beneficial owner, and (c) the last U.S. Person in the
chain of payment to the beneficial owner receives such statement from such
beneficial owner or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. Beneficial owners should be
aware that the IRS might take the position that this exemption does not apply to
a beneficial owner that also owns 10% or more of the REMIC Residual Securities
of any REMIC trust, or to a beneficial owner that is a "controlled foreign
corporation" described in section 881(c)(3)(C) of the Code.
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REMIC Residual Securities and FASIT Ownership Securities
Amounts distributed to a beneficial owner of a REMIC Residual Security
that is a not a U.S. Person generally will be treated as interest for purposes
of applying the 30% (or lower treaty rate) withholding tax on income that is not
effectively connected with a U.S. trade or business. Temporary Treasury
Regulations clarify that amounts not constituting excess inclusions that are
distributed on a REMIC Residual Security or a FASIT Ownership Security to a
beneficial owner that is not a U.S. Person generally will be exempt from U.S.
federal income and withholding tax, subject to the same conditions applicable to
distributions on Grantor Trust Securities, Debt Securities and REMIC Regular
Securities, as described above, but only to the extent that the obligations
directly underlying the REMIC or FASIT Trust that issued the REMIC Residual
Security or FASIT Ownership Security (e.g., Home Equity Loans or regular
interests in another REMIC or FASIT) were issued after July 18, 1984. In no case
will any portion of REMIC or FASIT income that constitutes an excess inclusion
be entitled to any exemption from the withholding tax or a reduced treaty rate
for withholding. See "--REMIC Securities--Taxation of Beneficial Owners of REMIC
Residual Securities--Excess Inclusions" herein.
Partnership Interests
Depending upon the particular terms of the Trust Agreement and Sale and
Servicing Agreement, a Trust may be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to non-U.S. persons. If the Trust is considered to be engaged in a trade
or business in the United States for such purposes and the Trust is treated as a
partnership, the income of the Trust distributable to a non-U.S. person would be
subject to federal withholding tax. Also, in such cases, a non-U.S. beneficial
owner of a Partnership Interest that is a corporation may be subject to the
branch profits tax. If the Trust is notified that a beneficial owner of a
Partnership Interest is a foreign person, the Trust may withhold as if it were
engaged in a trade or business in the United States in order to protect the
Trust from possible adverse consequences of a failure to withhold. A foreign
holder generally would be entitled to file with the IRS a claim for refund with
respect to withheld taxes, taking the position that no taxes were due because
the Trust was not in a U.S. trade or business.
FASIT Regular Securities
Certain "high-yield" FASIT Regular Securities may not be sold to or
beneficially owned by Non-U.S. Persons. Any such purported transfer will be null
and void and, upon the Trustee's discovery of any purported transfer in
violation of this requirement, the last preceding owner of such high-yield FASIT
Regular Securities will be restored to ownership thereof as completely as
possible. Such last preceding owner will, in any event, be taxable on all income
with respect to such high-yield FASIT Regular Securities for federal income tax
purposes. The Pooling and Servicing Agreement will provide that, as a condition
to transfer of a high-yield FASIT Regular Security, the proposed transferee must
furnish an affidavit as to its status as a U.S. Person and otherwise as a
permitted transferee.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences," potential investors should consider
the state and local income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in the
Securities.
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan (a "Plan") and certain individual
retirement arrangements from engaging in certain transactions involving "plan
assets" with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the Plan, unless a statutory or
administrative exemption applies to the transaction. ERISA and the Code also
prohibit generally certain actions involving conflicts of interest by persons
who are fiduciaries of such
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Plans or arrangements. A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code for such
persons. In addition, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Employee benefit plans that
are governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA) are not subject to ERISA
requirements. Accordingly, assets of such plans may be invested in Securities
without regard to the ERISA considerations discussed below, subject to the
provisions of other applicable federal, state and local law. Any such plan which
is qualified and exempt from taxation under Section 401(a) and 501(a) of the
Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan
(including an individual retirement arrangement) that purchased Securities, if
the assets of the Trust were deemed to be assets of the Plan. Under a regulation
(the "Plan Assets Regulation") issued by the United States Department of Labor
(the "DOL"), the assets of the Trust would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquired an equity
interest in the Trust and none of the exceptions contained in the Plan Assets
Regulation were applicable. An "equity interest" is defined under the Plan
Assets Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. In addition, in John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank, 510 U.S. 86 (1993), the United States Supreme Court ruled that
assets held in an insurance company's general account may be deemed to be "plan
assets" for ERISA purposes under certain circumstances. Therefore, in the
absence of an exemption, the purchase, sale or holding of a Security by a Plan
(including certain individual retirement arrangements) subject to Section 406 of
ERISA or Section 4975 of the Code might result in prohibited transactions and
the imposition of excise taxes and civil penalties.
CERTIFICATES
The DOL has issued to various underwriters individual prohibited
transaction exemptions (the "Underwriter Exemptions"), which generally exempt
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise
taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain
transactions with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of secured receivables, secured loans and other secured obligations that meet
the conditions and requirements of the Underwriter Exemptions. The Underwriter
Exemptions will only be available for Securities that are Certificates.
Among the conditions that must be satisfied in order for the
Underwriter Exemptions to apply to offered certificates are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least
as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust;
(3) the certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the three
highest generic rating categories from Standard & Poor's,
Moody's, Duff & Phelps Credit Rating Co. ("D&P") or Fitch;
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the
certificates represents not more than reasonable compensation
for underwriting the certificates; the sum of all payments
made to and retained by the originators and the sponsor
pursuant to the assignment of the loans to the trust estate
represents not more than the fair market value of such loans;
the sum of all payments made to and retained by any servicer
represents not
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more than reasonable compensation for such person's services
under the pooling and servicing agreement and reimbursement of
such person's reasonable expenses in connection therewith;
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933; and
(7) in the event that all of the obligations used to fund the
trust have not been transferred to the trust on the closing
date, additional obligations of the types specified in the
prospectus supplement and/or pooling and servicing agreement
having an aggregate value equal to no more than 25% of the
total principal amount of the certificates being offered by
the trust may be transferred to the trust, in exchange for
amounts credited to the account funding the additional
obligations, within a funding period of no longer than 90 days
or 3 months following the closing date.
The trust estate must also meet the following requirements:
(i) the corpus of the trust estate must consist solely of assets
of the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of
Standard & Poor's, Moody's, Fitch or D&P for at least one year
prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans
for at least one year prior to the Plan's acquisition of
certificates.
Moreover, the Underwriter Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Depositor, the
Underwriters, the Trustee, the Master Servicer, any other servicer, any obligor
with respect to Home Equity Loans included in the Trust Estate constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the Trust Estate, or any affiliate of such parties (the "Restricted Group").
In addition to the Underwriter Exemptions, the DOL has issued
Prohibited Transaction Class Exemption ("PTCE") 83-1 which provides an exemption
for certain transactions involving the sale or exchange of certain residential
mortgage pool pass-through certificates by Plans and for transactions in
connection with the servicing and operation of the mortgage pool.
NOTES
The Underwriter Exemptions will not be available for Securities which
are Notes. However, if the Notes are treated as indebtedness without substantial
equity features, the Trust's assets would not be deemed assets of a Plan. If the
Notes are treated as having substantial equity features, the purchase, holding
and resale of the Notes could result in a transaction that is prohibited under
ERISA or the Code. The acquisition or holding of the Notes by or on behalf of a
Plan could nevertheless give rise to a prohibited transaction, if such
acquisition and holding of Notes by or on behalf of a Plan were deemed to be a
prohibited loan to a party in interest with respect to such Plan. Certain
exemptions from such prohibited transaction rules could be applicable to the
purchase and holding of Notes
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by a Plan, depending on the type and circumstances of the plan fiduciary making
the decision to acquire such Notes. Included among these exemptions are: PTCE
84-14, regarding certain transactions effected by "qualified professional asset
managers"; PTCE 90-1, regarding certain transactions entered into by insurance
company pooled separate accounts; PTCE 91-38, regarding certain transactions
entered into by bank collective investment funds; PTCE 95-60, regarding certain
transactions entered into by insurance company general accounts; and PTCE 96-23,
regarding certain transactions effected by "in-house asset managers". Each
purchaser and each transferee of a Note that is treated as debt for purposes of
the Plan Assets Regulation may be required to represent and warrant that its
purchase and holding of such Note will be covered by one of the exemptions
listed above or by another Department of Labor Class Exemption.
CONSULTATION WITH COUNSEL
The Prospectus Supplement for each series of Securities will provide
further information which Plans should consider before purchasing the offered
Securities. A Plan fiduciary considering the purchase of Securities should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other ERISA issues and their potential
consequences. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio. The sale of Securities to a Plan is in no respect a
representation by the Sponsor or the Underwriters that this investment meets all
relevant requirements with respect to investments by Plans generally or any
particular Plan or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
The related Prospectus Supplement will describe whether or not the
Securities will constitute "mortgage-related securities" within the meaning of
SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for them.
PLAN OF DISTRIBUTION
The Depositor may offer each Series of Securities through First Union
Capital Markets ("First Union"), a division of Wheat First Securities, Inc. or
one or more other firms that may be designated at the time of each offering of
such Securities. The participation of First Union in any offering will comply
with Schedule E to the bylaws of the National Association of Securities Dealers,
Inc. The Prospectus Supplement relating to each Series of Securities will set
forth the specific terms of the offering of such Series of Securities and of
each Class within such Series, the names of the underwriters, the purchase price
of the Securities, the proceeds to the Depositor from such sale, any securities
exchange on which the Securities may be listed, and, if applicable, the initial
public offering prices, the discounts and commissions to the underwriters and
any discounts and concessions allowed or reallowed to certain dealers. The place
and time of delivery of each Series of Securities will also be set forth in the
Prospectus Supplement relating to such Series. First Union is an affiliate of
the Depositor.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed
upon for the Depositor by Dewey Ballantine LLP, New York, New York or such other
counsel identified in the related Prospectus Supplement.
FINANCIAL INFORMATION
The Depositor has determined that its financial statements are not
material to the offering made hereby.
A new Trust will be formed to own the Primary Assets and to issue each
Series of Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities
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other than those described herein. Accordingly, no financial statements with
respect to such Trusts will be included in this Prospectus or any Prospectus
Supplement.
A Prospectus Supplement and the related Form 8-K (which will be
incorporated by reference to the Registration Statement) may contain financial
statements of the related Credit Enhancer, if any.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. The definitions may vary from those in the related
Agreement for a Series and the related Agreement for a Series generally provides
a more complete definition of certain of the terms. Reference should be made to
the related Agreement for a Series for a more compete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date specified in the related Prospectus
Supplement.
"Advance" means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Home Equity Loan and for any other
purposes in servicing such Home Equity Loan.
"Agreement" means, with respect to a Series of Certificates, the
Pooling and Servicing Agreement or Trust Agreement, and, with respect to a
Series of Notes, the Indenture and the Servicing Agreement, as the context
requires.
"Appraised Value" means, with respect to property securing a Home
Equity Loan, the lesser of the appraised value determined in an appraisal
obtained at origination of the Home Equity Loan or sales price of such property
at such time.
"Asset Group" means, with respect to the Primary Assets and other
assets comprising the Trust Fund of a Series, a group of such Primary Assets and
other assets having the characteristics described in the related Prospectus
Supplement.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Available Distribution Amount" means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other fund
or account) eligible for distribution to Holders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States
Code 101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the City of New York or in the city
or cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
"Certificate" means the Asset-Backed Certificates.
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities of such Series
are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Primary Assets.
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"Combined Loan-to-Value Ratio" means, with respect to a Home Equity
Loan, the ratio determined as set forth in the related Prospectus Supplement
taking into account the amounts of any related senior loans on the related
Mortgaged Property.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which
all or a portion of the interest accrued thereon is added to the principal
balance of such Security on each Distribution Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on the
Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Condominium" means a form of ownership of real property wherein each
owner is entitled to the exclusive ownership and possession of his or her
individual Condominium Unit and also owns a proportionate undivided interest in
all parts of the Condominium Building (other than the individual Condominium
Units) and all areas or facilities, if any, for the common use of the
Condominium Units.
"Condominium Association" means the person(s) appointed or elected by
the Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a
group of buildings whether or not attached to each other, located on property
subject to Condominium ownership.
"Condominium Loan" means a Home Equity Loan secured by a Mortgage on a
Condominium Unit (together with its appurtenant interest in the common
elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Cooperative" means a corporation owned by tenant-stockholders who,
through the ownership of stock, shares or membership securities in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units and which is described in Section 216
of the Code.
"Cooperative Dwelling" means an individual housing unit in a building
owned by a Cooperative.
"Cooperative Loan" means a housing loan made with respect to a
Cooperative Dwelling and secured by an assignment by the borrower
(tenant-stockholder) or security interest in shares issued by the applicable
Cooperative.
"Credit Enhancement" means the credit enhancement for a Series, if any,
specified in the related Prospectus Supplement.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
"Deferred Interest" means the excess of the interest accrued on the
outstanding principal balance of a Home Equity Loan during a specified period
over the amount of interest required to be paid by an obligor on such Home
Equity Loan on the related Due Date.
"Deposit Agreement" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
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"Depositor" means Residential Asset Funding Corporation
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
"Distribution Date" means, with respect to a Series or Class of
Securities, each date specified as a distribution date for such Series or Class
in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"Credit Enhancer" means the provider of the Credit Enhancement for a
Series specified in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Home Equity Loan, into which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
required to be paid to the mortgagee are deposited.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of
Notes of a Series, the date no later than which principal thereof will be fully
paid and with respect to a Class of Certificates of a Series, the date after
which no Certificates of such Class will remain outstanding, in each case based
on the assumptions set forth in the related Prospectus Supplement.
"FNMA" means the Federal National Mortgage Association.
"Holder" means the person or entity in whose name a Security is
registered.
"Home Improvements" means the home improvements financed by a Home
Equity Loan.
"HUD" means the United States Department of Housing and Urban
Development.
"Indenture" means the indenture relating to a Series of Notes between
the Trust Fund and the Trustee.
"Insurance Policies" means certain mortgage insurance, hazard insurance
and other insurance policies required to be maintained with respect to Home
Equity Loans.
"Insurance Proceeds" means amount paid by the insurer under any of the
Insurance Policies covering any Home Equity Loan or Mortgaged Property.
"Interest Only Securities" means a Class of Securities entitled solely
or primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
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"IRS" means the Internal Revenue Service.
"Lifetime Rate Cap" means the lifetime limit if any, on the Loan Rate
during the life of each adjustable rate Home Equity Loan.
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Home Equity Loan, net of liquidation
expenses.
"Loan Rate" means the interest rate borne by a Home Equity Loan.
"Loan-to-Value Ratio" means, with respect to a Home Equity Loan, the
ratio determined as set forth in the related Prospectus Supplement.
"Minimum Rate" means the lifetime minimum Loan Rate during the life of
each adjustable rate Loan.
"Minimum Principal Payment Agreement" means a minimum principal payment
agreement with an entity meeting the criteria of the Rating Agencies.
"Modification" means a change in any term of a Home Equity Loan.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgaged Property" means residential properties securing a Home
Equity Loan.
"Home Equity Loan" means a loan secured by a Mortgaged Property.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Home Equity Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"1986 Act" means the Tax Reform Act of 1986.
"Notes" means the Asset-Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"PAC" ("Planned Amortization Class Securities") means a Class of
Securities of a Series on which payments of principal are made in accordance
with a schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
"Participating Securities" means Securities entitled to receive
payments of principal and interest and an additional return on investment as
described in the related Prospectus Supplement.
"Pass-Through Security" means a security representing an undivided
beneficial interest in a pool of assets, including the right to receive a
portion of all principal and interest payments relating to those assets.
"Pay Through Security" means Regular Interest Securities and certain
Debt Securities that are subject to acceleration due to prepayment on the
underlying Primary Assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
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"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Depositor, the Servicer
(if such Series relates to Home Equity Loans) and the Trustee.
"Primary Assets" means the Private Securities, the Home Equity Loans,
as the case may be, which are included in the Trust Fund for such Series. A
Primary Asset refers to a specific Private Security or Home Equity Loan, as the
case may be.
"Principal Balance" means, with respect to a Primary Asset and as of a
Due Date, the original principal amount of the Primary Asset, plus the amount of
any Deferred Interest added to such principal amount, reduced by all payments,
both scheduled or otherwise, received on such Primary Asset prior to such Due
Date and applied to principal in accordance with the terms of the Primary Asset.
"Principal Only Securities" means a Class of Securities entitled solely
or primarily to distributions of principal and identified as such in the
Prospectus Supplement.
"Private Security" means a participation or pass-through certificate
representing a fractional, undivided interest in Underlying Loans or
collateralized obligations secured by Underlying Loans.
"PS Agreement" means the pooling and servicing agreement, indenture,
trust agreement or similar agreement pursuant to which a Private Security is
issued.
"PS Servicer" means the servicer of the Underlying Loans.
"PS Sponsor" means, with respect to Private Securities, the sponsor or
depositor under a PS Agreement.
"PS Trustee" means the trustee designated under a PS Agreement.
"Qualified Insurer" means a mortgage guarantee or insurance company
duly qualified as such under the laws of the states in which the Mortgaged
Properties are located duly authorized and licensed in such states to transact
the applicable insurance business and to write the insurance provided.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Securities upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the
related Prospectus Supplement for a Series for which a REMIC election is made,
to serve as administrator of the Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be in
effect from time to time.
"REO Property" means real property which secured a defaulted Home
Equity Loan, beneficial ownership of which has been acquired upon foreclosure,
deed in lieu of foreclosure, repossession or otherwise.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the related Agreement.
"Residual Interest" means a residual interest in a REMIC.
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"Retained Interest" means, with respect to a Primary Asset, the amount
or percentage specified in the related Prospectus Supplement which is not
included in the Trust Fund for the related Series.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the borrower on a Primary Asset.
"Securities" means the Notes or the Certificates.
"Originator" means the originator or acquiror of the Primary Assets to
the Depositor identified in the related Prospectus Supplement for a Series.
"Senior Securityholder" means a holder of a Senior Security.
"Senior Securities" means a Class of Securities as to which the
holders' rights to receive distributions of principal and interest are senior to
the rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicer" means, with respect to a Series relating to Home Equity
Loans, the Person if any, designated in the related Prospectus Supplement to
service Home Equity Loans for that Series, or the successors or assigns of such
Person.
"Single Family Property" means property securing a Home Equity Loan
consisting of one-to four-family attached or detached residential housing,
including Cooperative Dwellings.
"Stripped Securities" means Pass-Through Securities representing
interests in Primary Assets with respect to which all or a portion of the
principal payments have been separated from all or a portion of the interest
payments.
"Subordinate Securityholder" means a Holder of a Subordinate Security.
"Subordinated Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
"Trustee" means the trustee under the applicable Agreement and its
successors.
"Trust Fund" means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including, without
limitation, the Primary Assets (except any Retained Interests), all amounts in
the Distribution Account Collection Account or Reserve Funds, distributions on
the Primary Assets (net of servicing fees), and reinvestment earnings on such
net distributions and any Credit Enhancement and all other property and interest
held by or pledged to the Trustee pursuant to the related Agreement for such
Series.
"UCC" means the Uniform Commercial Code.
"Underlying Loans" means loans of the type eligible to be Home Equity
Loans underlying or securing Private Securities.
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"Variable Interest Security" means a Security on which interest accrues
at a rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
"Zero Coupon Security" means a Security entitled to receive payments of
principal only.
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<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT.............................................................................................3
REPORTS TO HOLDERS................................................................................................3
AVAILABLE INFORMATION.............................................................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................4
SUMMARY OF PROSPECTUS.............................................................................................5
RISK FACTORS.....................................................................................................17
AN INVESTMENT IN ANY SECURITY MAY BE AN ILLIQUID INVESTMENT, WHICH MAY RESULT IN THE HOLDER
HOLDING SUCH INVESTMENT TO MATURITY...........................................................................17
THE ASSETS OF THE TRUST FUND, AS WELL AS ANY APPLICABLE CREDIT ENHANCEMENT, WILL BE LIMITED
AND, IF SUCH ASSETS AND/OR CREDIT ENHANCEMENT BECOME INSUFFICIENT TO SERVICE THE RELATED
SECURITIES, LOSSES MAY RESULT.................................................................................17
CREDIT ENHANCEMENT WILL BE LIMITED IN AMOUNT AND SCOPE OF COVERAGE AND MAY NOT BE SUFFICIENT
TO COVER LOSSES...............................................................................................17
THE TIMING OF PRINCIPAL PAYMENTS MAY ADVERSELY AFFECT THE YIELD TO MATURITY OF THE SECURITIES.................18
PREPAYMENTS MAY ADVERSELY AFFECT THE YIELD TO MATURITY OF THE SECURITIES......................................18
AS A RESULT OF OPTIONAL REDEMPTION OR REPURCHASE OR AUCTION SALE, HOLDERS COULD BE FULLY PAID
SIGNIFICANTLY EARLIER THAN WOULD OTHERWISE BE THE CASE........................................................19
HOME EQUITY LOANS WITH BALLOON AND NON-TRADITIONAL PAYMENT METHODS MAY CREATE GREATER DEFAULT
RISK..........................................................................................................19
JUNIOR LIENS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND LOSSES..........................................19
PROPERTY VALUES MAY DECLINE, LEADING TO HIGHER LOSSES.........................................................19
GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES MAY RESULT IN HIGHER LOSSES, IF PARTICULAR
REGIONS EXPERIENCE DOWNTURNS..................................................................................20
PRE-FUNDING MAY ADVERSELY AFFECT INVESTMENT...................................................................20
ENVIRONMENTAL CONDITIONS ON THE MORTGAGED PROPERTY MAY GIVE RISE TO LIABILITY.................................20
STATE AND FEDERAL CREDIT PROTECTION LAWS MAY LIMIT COLLECTION OF PRINCIPAL AND INTEREST ON
THE HOME EQUITY LOANS.........................................................................................21
RATINGS ARE NOT RECOMMENDATIONS. A REDUCTION IN THE RATING OF ANY CREDIT ENHANCER WOULD
LIKELY ADVERSELY IMPACT THE RATING OF THE SECURITIES..........................................................22
A REDUCTION IN THE RATING OF ANY CREDIT ENHANCER WOULD LIKELY ADVERSELY IMPACT THE RATING OF
THE SECURITIES................................................................................................22
ERISA MAY RESTRICT THE ACQUISITION, OWNERSHIP AND DISPOSITION OF SECURITIES...................................22
DESCRIPTION OF THE SECURITIES....................................................................................22
GENERAL.......................................................................................................22
PAYMENTS OF INTEREST..........................................................................................23
PAYMENTS OF PRINCIPAL.........................................................................................23
FINAL SCHEDULED DISTRIBUTION DATE.............................................................................24
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION..................................................................24
WEIGHTED AVERAGE LIFE OF THE SECURITIES.......................................................................24
THE TRUST FUNDS..................................................................................................25
GENERAL.......................................................................................................25
THE HOME EQUITY LOANS.........................................................................................26
PRIVATE SECURITIES............................................................................................31
COLLECTION AND DISTRIBUTION ACCOUNTS..........................................................................32
PRE-FUNDING ACCOUNTS..........................................................................................32
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
CREDIT ENHANCEMENT...............................................................................................33
SUBORDINATE SECURITIES........................................................................................33
INSURANCE.....................................................................................................33
RESERVE FUNDS.................................................................................................35
MINIMUM PRINCIPAL PAYMENT AGREEMENT...........................................................................35
DEPOSIT AGREEMENT.............................................................................................35
SERVICING OF HOME EQUITY LOANS...................................................................................35
GENERAL.......................................................................................................35
COLLECTION PROCEDURES; ESCROW ACCOUNTS........................................................................35
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT.......................................................36
ADVANCES AND LIMITATIONS THEREON..............................................................................38
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES..............................................38
REALIZATION UPON DEFAULTED HOME EQUITY LOANS..................................................................39
ENFORCEMENT OF DUE-ON-SALE CLAUSES............................................................................39
SERVICING COMPENSATION AND PAYMENT OF EXPENSES................................................................40
EVIDENCE AS TO COMPLIANCE.....................................................................................40
CERTAIN MATTERS REGARDING THE SERVICER........................................................................41
THE AGREEMENTS...................................................................................................41
ASSIGNMENT OF PRIMARY ASSETS..................................................................................42
REPORTS TO HOLDERS............................................................................................43
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT...............................................................44
THE TRUSTEE...................................................................................................46
DUTIES OF THE TRUSTEE.........................................................................................46
RESIGNATION OF TRUSTEE........................................................................................47
AMENDMENT OF AGREEMENT........................................................................................47
VOTING RIGHTS.................................................................................................47
LIST OF HOLDERS...............................................................................................48
FORM OF SECURITIES............................................................................................48
REMIC ADMINISTRATOR...........................................................................................49
TERMINATION...................................................................................................49
CERTAIN LEGAL ASPECTS OF HOME EQUITY LOANS.......................................................................51
GENERAL.......................................................................................................51
ENFORCEMENT OF THE NOTE.......................................................................................51
SECURITY INTERESTS............................................................................................52
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940...............................................................60
THE DEPOSITOR....................................................................................................60
GENERAL.......................................................................................................60
USE OF PROCEEDS..................................................................................................61
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.........................................................................61
GENERAL.......................................................................................................61
GRANTOR TRUST SECURITIES......................................................................................61
REMIC SECURITIES..............................................................................................63
DEBT SECURITIES...............................................................................................69
DISCOUNT AND PREMIUM..........................................................................................73
BACKUP WITHHOLDING............................................................................................76
FOREIGN INVESTORS.............................................................................................76
STATE TAX CONSIDERATIONS.........................................................................................77
ERISA CONSIDERATIONS.............................................................................................77
LEGAL INVESTMENT.................................................................................................80
PLAN OF DISTRIBUTION.............................................................................................80
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
LEGAL MATTERS....................................................................................................80
FINANCIAL INFORMATION............................................................................................81
GLOSSARY OF TERMS................................................................................................82
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
Actuarial Mortgage Loan..........................................................................................28
Agreement.........................................................................................................6
APR..............................................................................................................30
ARM Loans........................................................................................................19
Balloon Loan.....................................................................................................10
bankruptcy bond..................................................................................................35
Book-Entry Securities............................................................................................49
Business Day.....................................................................................................13
Capitalized Interest Account.....................................................................................13
Cede.............................................................................................................49
CERCLA...........................................................................................................21
Certificate Schedule.............................................................................................43
Certificates...................................................................................................1, 6
Class.............................................................................................................3
Code.............................................................................................................62
Collection Account...............................................................................................12
Combined Loan-to-Value Ratio.....................................................................................10
Commission........................................................................................................4
Condominium Units................................................................................................27
Contract Rate....................................................................................................30
Contracts.....................................................................................................1, 30
Cooperative Dwellings............................................................................................27
Credit Enhancement...............................................................................................13
Credit Enhancer..................................................................................................12
Current Interest Rates...........................................................................................10
Custodian........................................................................................................43
Cut-Off Date......................................................................................................9
Cut-Off Date Aggregate Principal Balance.........................................................................31
D&P..............................................................................................................79
Debt Securities..............................................................................................15, 62
Deferred Interest................................................................................................31
Deleted Primary Asset............................................................................................44
Deposit Agreement................................................................................................15
Depositor.........................................................................................................1
Depositor Securities.............................................................................................61
Distribution Account.............................................................................................12
Distribution Date.................................................................................................3
DOL..............................................................................................................79
Due Date.........................................................................................................31
Eligible Investments.........................................................................................13, 33
ERISA............................................................................................................16
Escrow Accounts..................................................................................................37
Event of Default.................................................................................................42
Exchange Act......................................................................................................5
FASIT........................................................................................................16, 62
FASIT High-Yield Securities......................................................................................16
FASIT Ownership Security.........................................................................................16
FASIT Regular Securities.........................................................................................16
FASIT Securities.................................................................................................62
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
FDIC.............................................................................................................37
FHA..............................................................................................................27
FHLMC............................................................................................................55
Final Scheduled Distribution Date.................................................................................7
First Union......................................................................................................81
fully taxable bonds..............................................................................................76
Garn-St. Germain Act.............................................................................................55
Grantor Trust....................................................................................................62
Grantor Trust Securities.........................................................................................15
Holders...........................................................................................................4
Indenture........................................................................................................23
Indirect Participant.............................................................................................49
IRS..............................................................................................................64
Issuer............................................................................................................6
Lifetime Rate Caps...............................................................................................10
Liquidation Proceeds.............................................................................................37
Loan Rate........................................................................................................10
Loan Schedule....................................................................................................43
Loan-to-Value Ratio..........................................................................................10, 31
Minimum Principal Payment Agreement..............................................................................14
Modification.....................................................................................................40
Mortgage Loans.............................................................................................1, 9, 27
Notes..........................................................................................................1, 6
Notional Amount...................................................................................................7
Originator........................................................................................................1
OTS..............................................................................................................56
Owner Trust.......................................................................................................6
Owner Trustee.....................................................................................................7
PAC...............................................................................................................6
Participants.....................................................................................................49
Partnership......................................................................................................62
Partnership Interests........................................................................................16, 62
Physical Certificates............................................................................................49
Plan.............................................................................................................79
Plan Assets Regulation...........................................................................................79
Pool..............................................................................................................1
Pooling and Servicing Agreement..................................................................................23
Pre-Funded Amount................................................................................................12
Pre-Funding Account..............................................................................................12
Pre-Funding Period...............................................................................................12
Premium Security.................................................................................................76
Prepayment Assumption............................................................................................75
Primary Assets....................................................................................................1
Prospectus Supplements............................................................................................1
PS Agreement.....................................................................................................32
PS Servicer......................................................................................................11
PS Sponsor.......................................................................................................11
PS Trustee.......................................................................................................11
PTCE.............................................................................................................80
Qualifying Substitute Primary Asset..............................................................................44
Rating Agency....................................................................................................14
REMIC........................................................................................................15, 62
REMIC Regular Securities.........................................................................................15
REMIC Regulations................................................................................................64
REMIC Residual Securities........................................................................................15
REMIC Securities.................................................................................................62
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
REO Property.....................................................................................................38
Reserve Fund.....................................................................................................14
Restricted Group.................................................................................................80
Retained Interests...............................................................................................43
Rule of 78s Mortgage Loan........................................................................................28
Securities........................................................................................................1
Security Registrar...............................................................................................49
Series............................................................................................................1
Servicer..........................................................................................................1
Servicing Agreement..............................................................................................26
Servicing Fee....................................................................................................15
Settlement Date..................................................................................................65
Simple Interest Mortgage Loan....................................................................................28
Single Family Properties.........................................................................................27
SMMEA............................................................................................................16
Title I Program..................................................................................................29
Title V......................................................................................................56, 60
Trust Agreement...................................................................................................6
Trust Fund........................................................................................................1
Trustee........................................................................................................6, 7
UCC..........................................................................................................49, 57
Underlying Loans.................................................................................................11
Underwriter Exemptions...........................................................................................79
</TABLE>
iii
<PAGE>
PROSPECTUS
Asset Backed Notes and Asset Backed Certificates, issuable in Series
Residential Asset Funding Corporation
(Depositor)
Residential Asset Funding Corporation (the "Depositor") may offer from
time to time under this Prospectus and the related prospectus supplements (the
related "Prospectus Supplements") the Asset-Backed Notes (the "Notes") and the
Asset-Backed Certificates (the "Certificates" and, together with the Notes, the
"Securities") which may be sold from time to time in one or more series (each, a
"Series").
The Certificates of a Series will evidence undivided interests in
certain assets deposited into a trust (each, a "Trust Fund") by the Depositor
pursuant to a Pooling and Servicing Agreement or a Trust Agreement (an
"Agreement"), as described herein. The Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness secured the
related Trust Fund. The Trust Fund for a Series of Securities will include
assets originated or acquired by the originator or originators (the
"Originator") specified in the related Prospectus Supplement composed of (a)
primary assets, which may include one or more pools (each, a "Pool") of (i)
loans (the "Mortgage Loans") that are secured by mortgages on residential
properties and that may be secured by fixtures, as further described herein and
(ii) manufactured housing conditional sale contracts and installment agreements
(the "Contracts") that are secured by Manufactured Homes, as further described
herein, and (iii) securities backed or secured by Mortgage Loans and/or
Contracts (collectively, the "Primary Assets"), (b) all monies due thereunder
net, if and as provided in the related Prospectus Supplement, of certain amounts
payable to the servicer of the Mortgage Loans, and/or Contracts, which servicer
may also be the related Originator, specified in the related Prospectus
Supplement (the "Servicer"), (c) as more fully described in the related
Prospectus Supplement, funds on deposit in one or more pre-funding amounts
and/or capitalized interest accounts and (d) reserve funds, letters of credit,
surety bonds, insurance policies or other forms of credit support as described
herein and in the related Prospectus Supplement. The Mortgage Loans will be
secured by mortgages and deeds of trust or other similar security instruments
creating a lien on a Mortgaged Property, which may be subordinated to one or
more senior liens on the Mortgaged Property. The Contracts will be secured by
security interests taken in the Manufactured Homes.
(cover continued on next page)
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS SECURED BY, AND
CERTIFICATES OF A SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST
FUND ONLY AND ARE NOT GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR,
THE RELATED ORIGINATOR, THE TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE
AFFILIATES. THE DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF
SECURITIES WILL BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH
IN THE RELATED AGREEMENT AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
--------------------
For a discussion of material risks associated with an investment in the
Securities, see the information herein under "Risk Factors" beginning on page
17.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by First Union Capital Markets, a division of Wheat First
Securities, Inc. and the other underwriters set forth in the related Prospectus
Supplement, if any, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by First
Union Capital Markets and the other underwriters, if any, and certain further
conditions. Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of the Securities offered hereby unless accompanied
by a Prospectus Supplement.
--------------------
First Union Capital Markets
September __, 1998
<PAGE>
(Continued from previous page)
Each Series of Securities will be issued in one or more classes (each,
a "Class"). Interest on and principal of the Securities of a Series will be
payable on each distribution date specified in the related Prospectus Supplement
(the "Distribution Date"), at the times, at the rates, in the amounts and in the
order of priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with
respect to the amount, percentage and timing of distributions of principal,
interest or both and one or more Classes may be subordinated to other Classes
with respect to distributions of principal, interest or both as described herein
and in the related Prospectus Supplement. The Primary Assets and other assets
comprising the Trust Fund may be divided into one or more Asset Groups and each
Class of the related Series will evidence beneficial ownership of the
corresponding Asset Group, as applicable.
The rate of reduction of the aggregate principal balance of each Class
of a Series may depend principally upon the rate of payment (including
prepayments) with respect to the Mortgage Loans or Underlying Loans, Contracts
relating to the Private Securities, as applicable. A rate of prepayment lower or
higher than anticipated will affect the yield on the Securities of a Series in
the manner described herein and in the related Prospectus Supplement. Under
certain limited circumstances described herein and in the related Prospectus
Supplement, a Series of Securities may be subject to termination or redemption
under the circumstances described herein and in the related Prospectus
Supplement.
2
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate, and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Primary Assets, the Originator and any Servicer;
(iii) the terms of any credit enhancement with respect to such Series; (iv) the
terms of any insurance related to the Primary Assets; (v) information concerning
any other assets in the related Trust Fund, including any Reserve Fund; (vi) the
final scheduled distribution date of each Class of such Securities; (vii) the
method to be used to calculate the amount of principal required to be applied to
the Securities of each Class of such Series on each Distribution Date, the
timing of the application of principal and the order of priority of the
application of such principal to the respective Classes and the allocation of
principal to be so applied; (viii) the Distribution Dates and any Assumed
Reinvestment Rate (as defined herein); (ix) additional information with respect
to the plan of distribution of such Securities; and (x) the federal income tax
characterization of the Securities.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Securities are required under the related Agreement to be forwarded to
holders of the related Series of Securities (the "Holders"). If the Securities
are issued in book-entry form, (i) owners of beneficial interests in such
Securities will not be considered "Holders" under the Agreements and will not
receive such reports directly from the related Trust Fund; rather, such reports
will be furnished to such owners through the participants and indirect
participants of the applicable book-entry system and (ii) references herein to
the rights of "Holders" shall refer to the rights of such owners as they may be
exercised indirectly through such participants. See "THE AGREEMENTS-- Reports to
Holders" herein.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission ") a Registration Statement under the Securities Act of 1933,
as amended, with respect to the Securities. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
NW, Washington, D.C. 20549, and at its Regional Office located as follows,
Midwest Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
Northeast Regional Office, Seven World Trade Center, New York, New York 10048.
In addition, the Commission maintains a World Wide Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission.
Each Trust Fund will be required to file certain reports with the
Commission pursuant to the requirements of the Securities Exchange Act of 1934,
as amended. The Depositor intends to cause each Trust Fund to suspend filing
such reports if and when such reports are no longer required under said Act.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund
referred to in the accompanying Prospectus Supplement with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of this Prospectus and
prior to the termination of any offering of the Securities issued by such Trust
Fund shall be deemed to be incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
of this Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor on behalf of any Trust Fund will provide without charge
to each person to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to above
that have been or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Such requests should be directed to the
Depositor at One First Union Center, 301 S. College Street, Charlotte, North
Carolina 28288-0630.
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "GLOSSARY OF TERMS" herein.
<TABLE>
<S> <C>
Securities Offered...................................Asset-Backed Certificates (the "Certificates") and
Asset-Backed Notes (the "Notes"). Certificates are issuable
from time to time in Series pursuant to a Pooling and
Servicing Agreement or Trust Agreement (the related
"Agreement"). Each Certificate of a Series will evidence an
interest in the Trust Fund for such Series, or in an Asset
Group specified in the related Prospectus Supplement. Notes
are issuable from time to time in Series pursuant to an
Indenture between the Issuer and the related trustee (the
"Trustee") whereby the Issuer will pledge the Trust Fund to
secure the Notes under the lien of the Indenture. Each
series of Notes will represent the indebtedness of the
Issuer. Each Series of Securities will consist of one or
more Classes, one or more of which may be Classes of
compound interest securities, planned amortization class
("PAC") securities, variable interest securities, zero coupon
securities, principal only securities, interest only
securities, participating securities, senior securities or
subordinate securities. Each Class may differ in, among
other things, the amounts allocated to and the priority of
principal and interest payments, final scheduled
distribution dates, Distribution Dates and interest rates.
The Securities of each Class will be issued in fully
registered form in the denominations specified in the
related Prospectus Supplement. The Securities or certain
Classes of such Securities offered thereby may be available
in book-entry form only.
Depositor ...........................................Residential Asset Funding Corporation (the "Depositor") was
incorporated in the State of North Carolina in December
1997, and is a wholly-owned, special purpose subsidiary of
First Union National Bank, a national banking association
with its headquarters in Charlotte, North Carolina. Neither
First Union National Bank nor any other affiliate of the
Depositor, the Servicer, the Trustee or the Originator has
guaranteed or is otherwise obligated with respect to the
Securities of any Series. See "THE DEPOSITOR" herein.
Issuer ..............................................With respect to each series of Notes, the issuer (the
"Issuer") will be an owner trust (the "Owner Trust")
established for the purpose of issuing such series of
Notes. Each such Owner Trust will be created pursuant to
the Trust Agreement (the "Trust Agreement") between the
Depositor and the Owner Trustee. With respect to each series
of Certificates, the Issuer will be the Trust established
pursuant to the related Agreement.
Trustees ............................................The trustee or indenture trustee (each, the "Trustee") for each
series of Certificates and Notes, respectively, will be named
in the related Prospectus Supplement. The Owner Trustee (the
5
<PAGE>
"Owner Trustee") for each series of Notes will be named in the
related Prospectus Supplement. See "The Agreements--The
Trustee" herein.
Interest Payments ...................................Interest payments on the Securities of a Series entitled by
their terms to receive interest will be made on each
Distribution Date, to the extent set forth in, and at the
applicable rate specified in (or determined in the manner
set forth in), the related Prospectus Supplement. The
interest rate on Securities of a Series may be variable or
change with changes in the rates of interest on the related
Mortgage Loans, Contracts or Underlying Loans relating to
the Private Securities, as applicable and/or as prepayments
occur with respect to such Mortgage Loans, Contracts or
Underlying Loans, as applicable. Interest Only Securities
may be assigned a "Notional Amount" set forth in the related
Prospectus Supplement which is used solely for convenience
in expressing the calculation of interest and for certain
other purposes and does not represent the right to receive
any distributions allocable to principal. Principal Only
Securities may not be entitled to receive any interest
payments or may be entitled to receive only nominal interest
payments. Interest payable on the Securities of a Series on
a Distribution Date will include all interest accrued during
the period specified in the related Prospectus Supplement.
See "DESCRIPTION OF THE SECURITIES--Payments of Interest"
herein.
Principal Payments ..................................All payments of principal of a Series of Securities will be
made in an aggregate amount determined as set forth in the
related Prospectus Supplement and will be paid at the times
and will be allocated among the Classes of such Series in
the order and amounts, and will be applied either on a pro
rata or a random lot basis among all Securities of any such
Class, all as specified in the related Prospectus
Supplement.
Final Scheduled Distribution Date of the
Securities ..........................................The "Final Scheduled Distribution Date" with respect to each
Class of Notes is the date no later than which principal
thereof will be fully paid and with respect to each Class of
Certificates is the date after which no Certificates of such
Class are expected to remain outstanding, in each case
calculated on the basis of the assumptions applicable to such
Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date of a Class may equal the
maturity date of the Primary Asset in the related Trust Fund
which has the latest stated maturity or will be determined as
described herein and in the related Prospectus Supplement.
The actual final Distribution Date of the Securities of a
Series will depend primarily upon the rate of payment
(including prepayments, liquidations due to default, the
receipt of proceeds from casualty insurance policies and
repurchases) of the Mortgage Loans, Contracts or Underlying
Loans relating to the Private Securities, as applicable, in the
related Trust Fund. The actual final Distribution Date of a
Security may occur substantially earlier or may occur later
than its Final
6
<PAGE>
Scheduled Distribution Date as a result of the application of
prepayments to the reduction of the principal balances of the
Securities and as a result of defaults on the Primary Assets.
The rate of payments on the Mortgage Loans, Contracts or
Underlying Loans relating to the Private Securities, as
applicable, in the Trust Fund for a Series will depend on a
variety of factors, including certain characteristics of such
Mortgage Loans, Contracts or Underlying Loans, as applicable,
and the prevailing level of interest rates from time to time,
as well as on a variety of economic, demographic, tax, legal,
social and other factors. No assurance can be given as to the
actual prepayment experience with respect to a Series. See
"RISK FACTORS--Yield May Vary" and "DESCRIPTION OF THE
SECURITIES--Weighted Average Life of the Securities" herein.
Optional Termination.................................One or more Classes of Securities of any Series may be redeemed
or repurchased in whole or in part, at such time, by the
related Originator, Servicer, Credit Enhancer, or an affiliate
thereof at the price set forth in the related Agreement (which
would not be less than an amount necessary to pay all principal
and interest on the securities outstanding). Each such
redemption or repurchase may occur on or after such time as the
aggregate principal balance of the Securities of the Series or
the Primary Assets relating to such Series is less than the
percentage (which percentage shall not exceed 20%) specified in
the related Agreement. See "DESCRIPTION OF THE
SECURITIES--Optional Redemption, Purchase or Termination"
herein.
Mandatory Termination; Auction Sale .................The Trustee, the Servicer or the related Originator may be
required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase
of the related Primary Assets or otherwise, under other
circumstances and in the manner specified in "THE
AGREEMENTS--Termination" and in the related Agreement.
A mandatory termination may take the form of an auction sale.
Within a certain period following the failure of the holder of
the optional termination right to exercise such right, the
required party shall solicit bids for the purchase of all
Mortgage Loans and/or Contracts remaining in the Trust. In the
event that satisfactory bids are received (which would not be
less than an amount necessary to pay all principal and interest
on the securities outstanding), the net sale proceeds will be
distributed to Holders, in the same order of priority as
collections received in respect of the Mortgage Loans and/or
Contracts. If satisfactory bids are not received, such party
shall decline to sell the Mortgage Loans and/or Contracts and
shall not be under any obligation to solicit any further bids
or otherwise negotiate any further sale of the Mortgage Loans
and/or Contracts. Such sale and consequent termination of the
Trust must constitute a "qualified liquidation" of each REMIC
established by the Trust under Section 860F of the Internal
Revenue Code of 1986, as amended, including, without
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limitation, the requirement that the qualified liquidation
takes place over a period not to exceed 90 days.
The Trust Fund.......................................The Trust Fund for a Series of Securities will consist of
one or more of the assets described below, as described in
the related Prospectus Supplement.
A. Primary Assets..............................The Primary Assets for a Series may consist of any
combination of the following assets, to the extent and as
specified in the related Prospectus Supplement. The Primary
Assets will be acquired by the related Trust Fund from the
related Originator, or may be acquired in the open market or
in privately negotiated transactions.
(1) Mortgage Loans..............................The Primary Assets for a Series will consist, in whole or in
part, of loans which are secured by mortgages on residential
properties and which may be secured by fixtures (the
"Mortgage Loans"). Some Mortgage Loans may be delinquent to
the extent specified in the related Prospectus Supplement.
The percentage of those Mortgage Loans which are delinquent
shall not exceed 10% of the aggregate principal balance of
the Primary Assets as of the cut-off date for that Series
(the "Cut-Off Date").
[The Mortgage Loans will consist of what are commonly referred
to as "purchase money" loans, as distinguished from "home
equity" loans. Both of these concepts refer to the use of
proceeds made by the related borrower, rather than to any
legal or other documentary differences between the two types
of loans, except that "home equity" loans are usually (but not
always) secured by mortgages which are in a subordinate lien
position while "purchase money" loans are usually (but not
always) secured by mortgages which are in a senior lien
position, and "home equity" loans are typically (but not
always) shorter in maturity than "purchase money" loans (i.e.,
fifteen rather than thirty years). The Mortgage Loans, in
addition to being secured by mortgages on real estate, may
also be secured by "fixtures" treated as personal property
under local state law. Although fixtures may turn up more
frequently in the case of loans in which the proceeds are used
to fund home improvements, fixtures as a part of the
collateral package may be a part of either a "home equity" or
"purchase money" loan.]
[A "purchase money" mortgage is a loan the proceeds of which
are used to purchase the related mortgaged property; the
proceeds of a "home equity" loan are not applied to the
purchase of the related mortgaged property.]
Payment Features of Mortgage Loans; Balloon Loans. The Trust
Fund may contain loans which have various payment
characteristics, including balloon or other non-traditional
payment features, and may accrue interest at a fixed rate or
an adjustable rate. Balloon loans do not amortize their entire
principal balance by their stated maturity in accordance with
their terms and require a balloon payment of the remaining
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principal balance at maturity (each such Mortgage Loan, a
"Balloon Loan"). See "RISK FACTORS--Balloon Loans" and
"DESCRIPTION OF THE SECURITIES--Weighted Average Life of the
Securities" herein.
The Mortgage Loans will be secured by mortgages and deeds of
trust or other similar security instruments creating a lien on
a Mortgaged Property, which may be subordinated to one or more
senior liens on the Mortgaged Property. The related Prospectus
Supplement will describe certain characteristics of the
Mortgage Loans for a Series, including, without limitation,
and to the extent relevant: (a) the aggregate unpaid principal
balance of the Mortgage Loans (or the aggregate unpaid
principal balance included in the Trust Fund for the related
Series); (b) the range and weighted average interest rate (the
"Loan Rate") on the loans and in the case of adjustable rate
loans, the range and weighted average of the current rate of
interest borne by such loans (the "Current Interest Rates")
and any maximum lifetime interest rates thereon (the "Lifetime
Rate Caps"); (c) the range and the average outstanding
principal balance of the Mortgage Loans; (d) the weighted
average original and remaining term-to-stated maturity of the
Mortgage Loans and the range of original and remaining
terms-to-stated maturity, if applicable; (e) the range and
combined loan-to-value ratios (each a "Combined Loan-to-Value
Ratio") or loan-to-value ratios, (each a "Loan-to-Value
Ratio") as applicable, of the Mortgage Loans, computed in the
manner described in the related Prospectus Supplement; (f) the
percentage (by principal balance as of the Cut-off Date) of
Mortgage Loans that accrue interest at adjustable or fixed
interest rates; (g) any Credit Enhancement relating to the
Mortgage Loans; (h) the geographic distribution of any
Mortgaged Properties securing the Mortgage Loans; (i) the use
and type of each Mortgaged Property securing a Mortgage Loan;
(j) the lien priority of the Mortgage Loans; and (k) the
delinquency status and year of origination of the Mortgage
Loans.
(2) Contracts Each Contract Pool (as defined herein) will consist of fixed
or adjustable rate manufactured housing installment sales
contracts and installment loan agreements. Each Contract
may be secured by a new or used Manufactured Home (as
defined herein).
(3) Private Securities..................... Primary Assets for a Series may consist, in whole or in
part, of Private Securities which include (a) pass-through
certificates representing beneficial interests in loans of
the type that would otherwise be eligible to be Mortgage
Loans and/or Contracts (the "Underlying Loans") or (b)
collateralized obligations secured by Underlying Loans.
Such pass-through certificates or collateralized obligations
will have previously been (a) offered and distributed to the
public pursuant to an effective registration statement and
not purchased as part of the original distribution or (b)
acquired in a transaction not involving any public offering
from a person who is not an affiliate of the issuer of such
securities at the
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time of transfer (nor an affiliate thereof at any time during
the three preceding months); provided a period of three years
has elapsed since the later of the date the securities were
acquired from the issuer or an affiliate thereof. Although
individual Underlying Loans may be insured or guaranteed by
the United States or an agency or instrumentality thereof,
they need not be, and the Private Securities themselves will
not be so insured or guaranteed. See "THE TRUST FUNDS--Private
Securities" herein.
The related Prospectus Supplement for a Series will specify
(such disclosure may be on an approximate basis, as described
above and will be as of the date specified in the related
Prospectus Supplement) to the extent relevant and to the
extent such information is reasonably available to the
Depositor and the Depositor reasonably believes such
information to be reliable: (i) the aggregate approximate
principal amount and type of any Private Securities to be
included in the Trust Fund for such Series; (ii) certain
characteristics of the Underlying Loans including (A) the
payment features of such Underlying Loans (i.e., whether they
are fixed rate or adjustable rate and whether they provide for
fixed level payments, negative amortization or other payment
features), (B) the approximate aggregate principal amount of
such Underlying Loans which are insured or guaranteed by a
governmental entity, (C) the servicing fee or range of
servicing fees with respect to such Underlying Loans, (D) the
minimum and maximum stated maturities of such Underlying Loans
at origination, (E) the lien priority of such Underlying
Loans, and (F) the delinquency status and year of origination
of such Underlying Loans; (iii) the maximum original
term-to-stated maturity of the Private Securities; (iv) the
weighted average term-to-stated maturity of the Private
Securities; (v) the pass-through or certificate rate or ranges
thereof for the Private Securities; (vi) the sponsor or
depositor of the Private Securities (the "PS Sponsor"), the
servicer of the Private Securities (the "PS Servicer") and the
trustee of the Private Securities (the "PS Trustee"); (vii)
certain characteristics of Credit Enhancement, if any, such as
reserve funds, insurance policies, letters of credit or
guarantees, relating to the Mortgage Loans underlying the
Private Securities, or to such Private Securities themselves;
(viii) the terms on which the Underlying Loans may, or are
required to, be repurchased prior to stated maturity; (ix) the
terms on which substitute Underlying Loans may be delivered to
replace those initially deposited with the PS Trustee; and (x)
a description of the limited purpose and business of the
issuer of the Private Securities, the availability of public
information concerning such issuer and market information with
respect to the Private Securities. See "THE TRUST
FUNDS--Additional Information" herein.
B. Collection and Distribution
Accounts....................................All payments on or with respect to the Primary Assets for a
Series will be remitted directly to an account (the
"Collection Account") to be established for such Series with
the Trustee or
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the Servicer, in the name of the Trustee. The Trustee shall be
required to apply a portion of the amount in the Collection
Account, together with reinvestment earnings from eligible
investments specified in the related Prospectus Supplement, to
the payment of certain amounts payable to the Servicer under
the related Agreement and any other person specified in the
Prospectus Supplement, and to deposit a portion of the amount
in the Collection Account into a separate account (the
"Distribution Account") to be established for such Series,
each in the manner and at the times established in the related
Prospectus Supplement. The amounts deposited in such
Distribution Account will be available for (i) application to
the payment of principal of and interest on such Series of
Securities on the next Distribution Date, (ii) the making of
adequate provision for future payments on certain Classes of
Securities and (iii) any other purpose specified in the
related Prospectus Supplement. After applying the funds in the
Collection Account as described above, any funds remaining in
the Collection Account may be paid over to the Servicer, the
Depositor, any provider of Credit Enhancement with respect to
such Series (a "Credit Enhancer") or any other person entitled
thereto in the manner and at the times established in the
related Prospectus Supplement.
C. Pre-Funding and Capitalized Interest
Accounts....................................A Trust Fund may include one or more segregated trust accounts
(each, a "Pre-Funding Account") established and maintained
with the Trustee for the related Series. On the closing date
for such Series, a portion of the proceeds of the sale of the
Securities of such Series (such amount, the "Pre-Funded
Amount") will be deposited in the Pre-Funding Account and may
be used to purchase additional Primary Assets during the
period of time specified in the related Prospectus Supplement
(the "Pre-Funding Period"). If any Pre-Funded Amount remains
on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the manner
specified in the related Prospectus Supplement to prepay the
Notes and/or the Certificates of the applicable Series. If a
Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust
Fund during the Pre-Funding Period is less than the original
Pre-Funded Amount, the Holders of the Securities of the
related Series will receive a prepayment of principal as and
to the extent described in the related Prospectus Supplement.
Any such principal prepayment may adversely affect the yield
to maturity of the applicable Securities.
If a Pre-Funding Account is established, (a) the Pre-Funding
Period will not exceed 90 days from the related closing date,
(b) the additional Primary Assets to be acquired during the
Pre-Funding Period will be subject to the same representations
and warranties and satisfy the same eligibility requirements
as the Primary Assets included in the related Trust Fund on
the closing date, subject to such exceptions as are expressly
stated in such Prospectus Supplement, (c) the Pre-Funding
Amount
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will not exceed 25% of the principal amount of the Securities
issued pursuant to a particular offering and (d) prior to the
investment of the Pre-Funded Amount in additional Primary
Assets, such Pre-Funded Amount will be invested in one or more
"Eligible Investments" specified in the related Agreement and
described herein under "THE TRUST FUNDS -- Collection and
Distribution Accounts." Any Eligible Investment must mature no
later than the Business Day prior to the next Distribution
Date. "Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banking institutions
or trust companies in New York, New York or the principal
place of business of the Trustee are closed.
If a Pre-Funding Account is established, one or more
segregated trust accounts (each, a "Capitalized Interest
Account") may be established and maintained with the Trustee
for the related Series. On the closing date for such Series, a
portion of the proceeds of the sale of the Securities of such
Series will be deposited in the Capitalized Interest Account
and used to fund the excess, if any, of (x) the sum of (i) the
amount of interest accrued on the Securities of such Series
and (ii) certain fees or expenses during the Pre-Funding
Period such as trustee fees and credit enhancement fees, over
(y) the amount of interest available therefor from the Primary
Assets in the Trust Fund. Any amounts on deposit in the
Capitalized Interest Account at the end of the Pre-Funding
Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus
Supplement. See "THE TRUST FUNDS--Pre-Funding Account" herein.
Credit Enhancement...................................If stated in the Prospectus Supplement relating to a Series,
the Depositor will obtain an irrevocable letter of credit,
surety bond, certificate insurance policy, insurance policy
or other form of credit support (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the
Holders of such Series and any other person specified in
such Prospectus Supplement from an institution (a "Credit
Enhancer") acceptable to the rating agency or agencies
identified in the related Prospectus Supplement as rating
such Series of Securities (collectively, the "Rating
Agency") for the purposes specified in such Prospectus
Supplement. The Credit Enhancement will support the
payments on the Securities and may be used for other
purposes, to the extent and under the conditions specified
in such Prospectus Supplement. See "CREDIT ENHANCEMENT"
herein. Credit Enhancement for a Series may include one or
more of the following types of Credit Enhancement, or such
other type of Credit Enhancement specified in the related
Prospectus Supplement.
A. Subordinate Securities......................Credit Enhancement for a Series may consist of one or more
Classes of Subordinate Securities. The rights of Holders of
such Subordinate Securities to receive distributions on any
Distribution Date will be subordinate in right and priority
to the rights of holders of Senior Securities of the Series,
but
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only to the extent described in the related Prospectus
Supplement.
B. Insurance...................................Credit Enhancement for a Series may consist of special hazard
insurance policies, bankruptcy bonds and other types of
insurance supporting payments on the Securities.
C. Reserve Funds...............................If stated in the Prospectus Supplement, the Depositor may
deposit cash, a letter or letters of credit, short-term
investments, or other instruments acceptable to the Rating
Agency in one or more reserve funds to be established in the
name of the Trustee (each a "Reserve Fund"), which will be
used by the Trustee to make required payments of principal
of or interest on the Securities of such Series, to make
adequate provision for future payments on such Securities or
for any other purpose specified in the Agreement, with
respect to such Series, to the extent that funds are not
otherwise available. In the alternative or in addition to
such deposit, a Reserve Fund for a Series may be funded
through application of all or a portion of the excess cash
flow from the Primary Assets for such Series, to the extent
described in the related Prospectus Supplement.
D. Minimum Principal Payment
Agreement...................................If stated in the Prospectus Supplement relating to a Series
of Securities, the Depositor will enter into a minimum
principal payment agreement (the "Minimum Principal Payment
Agreement") with an entity meeting the criteria of the
Rating Agency, pursuant to which such entity will provide
funds in the event that aggregate principal payments on the
Primary Assets for such Series are not sufficient to make
certain payments. See "CREDIT ENHANCEMENT--Minimum
Principal Payment Agreement" herein.
E. Deposit Agreement...........................If stated in the Prospectus Supplement, the Depositor and
the Trustee will enter into a guaranteed investment contract
or an investment agreement (the "Deposit Agreement")
pursuant to which all or a portion of amounts held in the
Collection Account, the Distribution Account or in any
Reserve Fund will be invested with the entity specified in
such Prospectus Supplement. The Trustee will be entitled to
withdraw amounts so invested, plus interest at a rate equal
to the Assumed Reinvestment Rate, in the manner specified in
the Prospectus Supplement. See "CREDIT ENHANCEMENT--Deposit
Agreement" herein.
Servicing............................................The Servicer will be responsible for servicing, managing and
making collections on the Mortgage Loans and/or Contracts
for a Series. In addition, the Servicer may act as
custodian and be responsible for maintaining custody of the
Mortgage Loans and/or Contracts and related documentation on
behalf of the Trustee. Advances with respect to delinquent
payments of principal or interest on a Mortgage Loan and/or
Contracts will be made by the Servicer only to the extent
described in the related Prospectus Supplement. Such
advances will be intended to provide liquidity only and the
related Prospectus
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Supplement will specify the extent to which they are
reimbursable to the Servicer from scheduled payments of
principal and interest, late collections, or from the proceeds
of liquidation of the related Mortgage Loans and/or Contracts
or from other recoveries relating to such Mortgage Loan or
Contract (including any insurance proceeds or payments from
other credit support). In performing these functions, the
Servicer will exercise the same degree of skill and care that
it customarily exercises with respect to similar receivables
or Mortgage Loans and/or Contracts owned or serviced by it.
Under certain limited circumstances, the Servicer may resign
or be removed, in which event either the Trustee or a
third-party servicer will be appointed as successor servicer.
The Servicer will receive a periodic fee as servicing
compensation (the "Servicing Fee") and may, as specified
herein and in the related Prospectus Supplement, receive
certain additional compensation. See "SERVICING OF MORTGAGE
LOANS -- Servicing Compensation and Payment of Expenses"
herein.
Material Federal Income
Tax Consequences.....................................Securities of each series offered hereby will, for federal
income tax purposes, constitute either (i) interests ("Grantor
Trust Securities") in a Trust treated as a grantor trust under
applicable provisions of the Code, (ii) "regular interests"
("REMIC Regular Securities") or "residual interests" ("REMIC
Residual Securities") in a Trust treated as a real estate
mortgage investment conduit ("REMIC") (or, in certain
instances, containing one or more REMICs) under Sections 860A
through 860G of the Code, (iii) debt issued by an Issuer
("Debt Securities") (iv) interests in an Issuer which is
treated as a partnership ("Partnership Interests"), or (v)
"regular interests" ("FASIT Regular Securities"), "high-yield
interests" ("FASIT High-Yield Securities") or an ownership
interest ("FASIT Ownership Security") in a Trust treated as a
financial asset securitization investment conduit ("FASIT")
(or, in certain circumstances containing one or more FASITs)
under Sections 860H through 860L of the Code. In the event
that FASIT securities are issued, any revolving period, or
addition or substitution of collateral provisions otherwise
available by means of the FASIT election will be restricted so
as to conform to the requirements of REMICs.
Dewey Ballantine LLP, special tax counsel to the Depositor,
will render an opinion upon issuance of a series of Securities
which will be filed with the Commission as an exhibit to a
post-effective amendment or in a current report on Form 8-K.
Investors are urged to consult their tax advisors and to
review "Material Federal Income Tax Consequences" herein and
in the related Prospectus Supplement.
ERISA Considerations.................................A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully review with its own
legal advisors whether the purchase or holding of Securities
could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. A
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violation of the prohibited transaction rules may generate
excise tax and other liabilities under ERISA and the Code. If
the Securities offered are Certificates, an individual
prohibited transaction exemption issued by the Department of
Labor to various underwriters may exempt the purchase, holding
and resale of such Certificates. In addition, Prohibited
Transaction Class Exemption 83-1 may exempt the sale or
exchange of the Certificates. If the Securities offered are
Notes which are treated as indebtedness without substantial
equity features for purposes of ERISA, various Department of
Labor Class Exemptions may exempt the purchase and holding of
such Notes, and each purchaser and transferee of such Notes
may be required to represent and warrant that such an
exemption is applicable to its purchase and holding of the
Notes. See "ERISA CONSIDERATIONS" herein.
Legal Investment.....................................The related Prospectus Supplement will state whether or not
the Securities of each Series offered by this Prospectus and
the related Prospectus Supplement will constitute "mortgage
related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Investors whose
investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for
them. See "LEGAL INVESTMENT" herein.
Use of Proceeds......................................The net proceeds from the sale of each Series will be
applied to one or more of the following purposes: (i) to
the acquisition of the related Primary Assets, (ii) to repay
indebtedness which has been incurred to obtain funds to
acquire such Primary Assets, (iii) to establish any Reserve
Funds described in the related Prospectus Supplement and
(iv) to pay costs of structuring and issuing such
Securities, including the costs of obtaining Credit
Enhancement, if any. The acquisition of the Primary Assets
for a Series may be effected by an exchange of Securities
with the Originator of such Primary Assets. See "USE OF
PROCEEDS" herein.
Ratings..............................................It will be a requirement for issuance of any Series that the
Securities offered by this Prospectus and the related
Prospectus Supplement be rated by at least one Rating Agency
in one of its four highest applicable rating categories.
The rating or ratings applicable to Securities of each
Series offered hereby and by the related Prospectus
Supplement will be as set forth in the related Prospectus
Supplement. A securities rating should be evaluated
independently of similar ratings on different types of
securities. A securities rating is not a recommendation to
buy, hold or sell securities and does not address the effect
that the rate of prepayments on Mortgage Loans, Contracts or
Underlying Loans relating to Private Securities, as
applicable, for a Series may have on the yield to investors
in the Securities of such Series. See "RISK
FACTORS--Ratings Are Not Recommendations" herein.
Absence of Market....................................The Securities will be a new issue of securities with no
established trading market. The Issuer does not expect to
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apply for listing of the Securities on any national
securities exchange or quote the Securities in the automated
quotation system of a registered securities association.
The Underwriter(s) specified in the related Prospectus
Supplement expects to make a secondary market in the
Securities, but has no obligation to do so. See "RISK
FACTORS" herein.
Risk Factors........................................ There are material risks associated with an investment in the
Securities. For a discussion of all material factors that
should be considered by prospective investors in the
Securities, see "RISK FACTORS" herein and in the related
Prospectus Supplement.
16
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RISK FACTORS
For a discussion of all material risk factors that could make the
offering of the Securities speculative or one of high risk, Investors should
consider the following factors and "Risk Factors" in the related Prospectus
Supplement.
An Investment in Any Security May Be an Illiquid Investment, which May Result in
the Holder Holding such Investment to Maturity.
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Holders with liquidity of
investment or will continue for the life of the Securities of such Series. The
Underwriter(s) specified in the related Prospectus Supplement expects to make a
secondary market in the Securities, but has no obligation to do so.
The Assets of the Trust Fund, as Well as Any Applicable Credit Enhancement, Will
Be Limited and, if such Assets and/or Credit Enhancement Become Insufficient to
Service the Related Securities, Losses May Result.
The Securities of a Series will be payable solely from the assets of
the Trust Fund for such Securities. There will be no recourse to the Depositor
or any other person for any default on the Notes or any failure to receive
distributions on the Certificates. Further, at the times and to the extent set
forth in the related Prospectus Supplement, certain Primary Assets and/or any
balance remaining in the Collection Account or Distribution Account immediately
after making all payments due on the Securities of such Series and other
payments specified in the related Prospectus Supplement, may be promptly
released or remitted to the Depositor, the Servicer, the Credit Enhancer or any
other person entitled thereto and will no longer be available for making
payments to Holders. Consequently, Holders of Securities of each Series must
rely solely upon payments with respect to the Primary Assets and the other
assets constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any Credit Enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
Holders of Notes will be required under the Indenture to proceed only
against the Primary Assets and other assets constituting the related Trust Fund
in the case of a default with respect to such Notes and may not proceed against
any assets of the Depositor. There is no assurance that the market value of the
Primary Assets or any other assets for a Series will at any time be equal to or
greater than the aggregate principal amount of the Securities of such Series
then outstanding, plus accrued interest thereon. Moreover, upon an event of
default under the Indenture for a Series of Notes and a sale of the assets in
the Trust Fund or upon a sale of the assets of a Trust Fund for a Series of
Certificates, the Trustee, the Servicer, if any, the Credit Enhancer and any
other service provider specified in the related Prospectus Supplement generally
will be entitled to receive the proceeds of any such sale to the extent of
unpaid fees and other amounts owing to such persons under the related Agreement
prior to distributions to Holders of Securities. Upon any such sale, the
proceeds thereof may be insufficient to pay in full the principal of and
interest on the Securities of such Series.
The only obligations, if any, of the Depositor with respect to the
Securities of any Series will be pursuant to certain representations and
warranties. See "THE AGREEMENTS--Assignment of Primary Assets" herein.
Credit Enhancement Will Be Limited in Amount and Scope of Coverage and May Not
be Sufficient to Cover Losses.
Although any Credit Enhancement is intended to reduce the risk of
delinquent payments or losses to Holders entitled to the benefit thereof, the
amount of such Credit Enhancement will be limited and will decline and could be
depleted under certain circumstances prior to the payment in full of the related
Series of Securities, and as a result Holders may suffer losses. Furthermore,
such Credit Enhancement may provide only very limited coverage as to certain
types of losses and may provide no coverage as to certain other types of losses.
Generally, Credit Enhancements do not directly or indirectly guarantee to the
holders of Securities, any specific rate of prepayment. See "CREDIT ENHANCEMENT"
herein.
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The Timing of Principal Payments May Adversely Affect the Yield to Maturity of
the Securities.
The yield to maturity experienced by a Holder of Securities may be
affected by the rate of payment of principal of the Mortgage Loans or Underlying
Loans relating to the Private Securities, as applicable. The timing of principal
payments of the Securities of a Series will be affected by a number of factors,
including the following: (i) the extent of prepayments of the Mortgage Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable;
(ii) the manner of allocating principal payments among the Classes of Securities
of a Series as specified in the related Prospectus Supplement; (iii) the
exercise by the party entitled thereto of any right of optional termination;
(iv) liquidations due to defaults and (v) repurchases of Mortgage Loans,
Contracts or Underlying Loans due to conversion of adjustable-rate loans ("ARM
Loans") to fixed-rate loans or breaches of the related Originator's or
Servicer's representations and warranties). See "DESCRIPTION OF THE
SECURITIES--Weighted Average Life of Securities.".
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate. See "DESCRIPTION OF THE SECURITIES--Payments of
Interest."
Prepayments May Adversely Affect the Yield to Maturity of the Securities.
The yield to maturity of the Securities of each series may be adversely
affected by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans and/or Contracts. The yield to maturity on interest-only
Private Securities or Private Securities purchased at premiums or discounted to
par will be extremely sensitive to the rate of prepayments on the related
Mortgage Loans and/or Contracts. In addition, the yield to maturity on certain
other types of classes of Securities, including certain classes in a series
including more than one class of Securities, may be relatively more sensitive to
the rate of prepayment on the related Mortgage Loans and/or Contracts than other
classes of Securities.
The Mortgage Loans and/or Contracts may be prepaid in full or in part
at any time; however, a prepayment penalty or premium may be imposed in
connection therewith. Unless so specified in the related Prospectus Supplement,
such penalties will not be property of the related Trust. The rate of
prepayments of the Mortgage Loans and/or Contracts cannot be predicted and is
influenced by a wide variety of economic, social and other factors, including
prevailing mortgage market interest rates, the availability of alternative
financing, local and regional economic conditions and homeowner mobility.
Therefore, no assurance can be given as to the level of prepayments that a Trust
will experience.
Prepayments may result from mandatory prepayments relating to unused
monies held in Pre-Funding Accounts, if any, voluntary early payments by
borrowers (including payments in connection with refinancings of the related
senior Mortgage Loan or Loans and/or Contracts), sales of Mortgaged Properties
subject to "due-on-sale" provisions and liquidations due to default, as well as
the receipt of proceeds from physical damage, credit life and disability
insurance policies. In addition, repurchases or purchases from a Trust of
Mortgage Loans and/or Contracts or substitution adjustments required to be made
under the Pooling and Servicing Agreement will have the same effect on the
Securityholders as a prepayment of such Mortgage Loans and/or Contracts. The
related Prospectus Supplement will specify whether any or all of the Mortgage
Loans contain "due-on-sale" provisions.
Collections on the Mortgage Loans and/or Contracts may vary due to the
level of incidence of delinquent payments and of prepayments. Collections on the
Mortgage Loans and/or Contracts may also vary due to seasonal purchasing and
payment habits of borrowers.
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As a Result of Optional Redemption or Repurchase or Auction Sale, Holders Could
Be Fully Paid Significantly Earlier than Would Otherwise Be the Case.
One or more Classes of Securities of any Series may be subject to
optional redemption or repurchase, in whole or in part, on or after such time as
the aggregate outstanding principal amount of the Primary Assets is less than
the amount or percentage specified in the related Agreement, (such amount or
percentage not to exceed 20% of the aggregate principal balance of the Primary
Assets as of the Cut-off Date for that Series). Neither the Trust nor the
Holders will have any continuing liability under such optional redemption or
repurchase. If the optional termination is not exercised, then one or more
Classes of Securities may be subject to early retirement by an auction sale. See
"THE AGREEMENTS--Termination" herein. The risk of reinvesting unscheduled
distributions resulting from redemption or repurchase of the Securities will be
borne by the Holders. See "DESCRIPTION OF THE SECURITIES--Optional Redemption,
Purchase or Termination." The optional termination and mandatory termination
described herein are the only circumstances in which the Securities could be
retired earlier than would be the case if the Trust were allowed to go to term.
Mortgage Loans with Balloon and Non-Traditional Payment Methods May Create
Greater Default Risk.
A portion of the aggregate principal balance of the Mortgage Loans at
any time may be Balloon Loans that provide for the payment of the unamortized
principal balance of such Mortgage Loan in a single payment at maturity Such
Balloon Loans provide for equal monthly payments, consisting of principal and
interest, generally based on a 30-year amortization schedule, and a single
payment of the remaining balance of the Balloon Loan generally 5, 7, 10, or 15
years after origination. Amortization of a Balloon Loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Depositor does not have any information regarding the default
history or prepayment history of payments on Balloon Loans. Because borrowers of
Balloon Loans are required to make substantial single payments upon maturity, it
is possible that the default risk associated with the Balloon Loans is greater
than that associated with fully-amortizing Mortgage Loans.
Other types of loans that may be included in the Trust Fund may involve
additional uncertainties not present in traditional types of loans. For example,
certain of the Mortgage Loans may provide for escalating or variable payments by
the borrower under the Mortgage Loan, as to which the borrower is generally
qualified on the basis of the initial payment amount. In some instances the
borrower's income may not be sufficient to enable them to continue to make their
loan payments as such payments increase and thus the likelihood of default will
increase. The Depositor does not have any information regarding the default
history or prepayment history of payments on these non-traditional loans
Junior Liens May Experience Higher Rates of Delinquencies and Losses.
If the Mortgages in a Trust Fund are primarily junior liens subordinate
to the rights of the mortgagee under the related senior mortgage or mortgages,
the proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such junior mortgage only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, a junior mortgagee may not
foreclose on the Mortgaged Property securing a junior mortgage unless it
forecloses subject to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages to the senior mortgagees at or prior
to the foreclosure sale or undertake the obligation to make payments on the
senior mortgages in the event the mortgagor is in default thereunder. The Trust
Fund will not have any source of funds to satisfy the senior mortgages or make
payments due to the senior mortgagees.
Property Values May Decline, Leading to Higher Losses.
There are several factors that could adversely affect the value of
Mortgaged Properties such that the outstanding balance of the related Mortgage
Loan, together with any senior financing on the Mortgaged Properties, would
equal or exceed the value of the Mortgaged Properties. Among the factors that
could adversely affect the value of the Mortgaged Properties are an overall
decline in the residential real estate market in the areas in which the
Mortgaged Properties are located or a decline in the general condition of the
Mortgaged Properties as a result of failure of borrowers to maintain adequately
the Mortgaged Properties or of natural disasters that are not necessarily
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covered by insurance, such as earthquakes and floods. Any such decline could
extinguish the value of a junior interest in a Mortgaged Property before having
any effect on the related senior interest therein. If such a decline occurs, the
actual rates of delinquencies, foreclosure and losses on the junior loans could
be higher than those currently experienced in the mortgage lending industry in
general.
Geographic Concentration of Mortgaged Properties May Result in Higher Losses, if
Particular Regions Experience Downturns.
Certain geographic regions from time to time will experience weaker
regional economic conditions and housing markets than will other regions, and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans generally. The Mortgage Loans underlying certain Series of Securities may
be concentrated in such regions, and such concentrations may present risk
considerations in addition to those generally present for similar mortgage loan
asset-backed securities without such concentrations. Information with respect to
geographic concentration of Mortgaged Properties that is known at the time of
the offering will be specified in the related Prospectus Supplement.
Pre-Funding May Adversely Affect Investment.
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
Each additional Primary Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and the related agreements. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or Credit Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Primary Asset were included as part
of the initial Trust Fund, the credit quality of such assets would be consistent
with the initial rating of each Class of Securities of such Series. Following
the transfer of additional Primary Assets to the Trust, the aggregate
characteristics of the Primary Assets then held in the Trust may vary from those
of the initial Primary Assets of such Trust. As a result, the additional Primary
Assets may adversely affect the performance of the related Securities
The ability of a Trust to invest in additional Primary Assets during
the related Pre-Funding Period will be dependant on the ability of the
Originator to originate or acquire Primary Assets that satisfy the requirements
for transfer to the Trust Fund. The ability of the Originator to originate or
acquire such Primary Assets will be affected by a variety of social and economic
factors, including the prevailing level of market interest rates, unemployment
levels and consumer perceptions of general economic conditions.
Environmental Conditions on the Mortgaged Property May Give Rise to Liability.
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
Mortgaged Property may give rise to a lien on the Mortgaged Property to assure
the costs of clean-up. In several states, such a lien has priority over the lien
of an existing mortgage or owner's interest against such Mortgaged Property. In
addition, under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), a
lender may be liable, as an "owner" or "operator," for costs of addressing
releases or threatened releases of hazardous substances that require remedy at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior owner. A lender also risks
such liability on foreclosure of the Mortgaged Property.
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Security Interests in the Manufactured Homes may not be perfected and the Trust
Fund may not realize upon the full amount due under the related Contract.
Each Contract is secured by a security interest in a Manufactured Home
together with, in the case of land secured contracts, the real estate on which
the related Manufactured home is located (such Contracts, the "Land Secured
Contracts"). Perfection of security interests in the Manufactured Homes and
enforcement of rights to realize upon the value of the Manufactured Homes as
collateral for the Contracts are subject to a number of federal and state laws,
including the Uniform Commercial Code (the "UCC") as adopted in the states in
which the Manufactured Homes are located and such states' certificate of title
statutes, but generally not their real estate laws. Under such federal and state
laws, a number of factors may limit the ability of a holder of a perfected
security interest in Manufactured Homes to realize upon such Manufactured Homes
or may limit the amount realized to less than the amount due under the related
Contract.
In addition, because of the expense and administrative inconvenience
involved, the seller of the Manufactured Home ("Seller") may not amend any
certificates of the title related to any Manufactured Home to change the
lienholder specified therein to the Trustee, and may not execute any transfer
instrument (including, among other instruments, UCC-3 assignments) relating to
any Manufactured Home in favor of the Trustee or note thereon the Trustee's
interest. Such amendment would require, consistent with the law of the related
State, filings at the state or county level for each Contract. As a result, the
Seller will remain the lienholder on the certificate of title relating to the
Manufactured Home. In some states, in the absence of such an amendment,
execution or notation, the assignment to the Trustee of the security interest in
the Manufactured Homes located therein may not be effective or such security
interest may not be perfected. If any otherwise effectively assigned security
interest in favor of the Trustee is not perfected, such assignment of the
security interest to the Trustee may not be effective against creditors of the
Seller to the extent it continues to be specified as lienholder on any
certificate of title or as secured party on any UCC filing, or against a trustee
in bankruptcy of the Seller.
Each Contract (other than a Land Secured Contract) will be "chattel
paper" as defined in the UCC in effect in the jurisdiction in which the related
Manufactured Home was located at origination. Under the UCC as in effect in each
such jurisdiction, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related Agreement,
the Trustee will have possession of the Contracts. In addition, the Seller will
make appropriate filings of UCC-1 financing statements in the office of the
Secretary of State of the state where its principal place of business is located
to give notice of the Trustee's ownership of the Contracts. The Trustee's
interest in the Contracts could, through the fraud or negligence of the Trustee,
be defeated if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment.
Further, because of the expenses and administrative inconvenience
involved, the assignment of mortgages or deeds of trust to the Trustee may not
be recorded with respect to the mortgages or deeds of trust securing each Land
Secured Contract. Recordation of such assignments would require the Seller to
retain counsel in the respective state, and make the appropriate filing at the
local level. The failure to record the assignments to the Trustee of the
mortgage securing Land Secured Contracts may result in the sale of such
Contracts or the Trustee's rights in the land secured by the mortgage being
ineffective against creditors of the Seller or against a trustee in bankruptcy
of the Seller or against a subsequent purchaser of such Contracts from the
Seller, without notice of the sale to the Trustee.
State and Federal Credit Protection Laws May Limit Collection of Principal and
Interest on the Mortgage Loans.
Applicable state laws generally regulate interest rates and other
charges and require certain disclosures. In addition, other state laws, public
policy and general principles of equity relating to the protection of consumers,
unfair and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Mortgage Loans.
The Mortgage Loans may also be subject to Federal laws, including: (i)
the Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Mortgage
Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; and (iii)
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the Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience.
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and
principles may limit the ability of the Servicer to collect all or part of the
principal of or interest on the Mortgage Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the owner of
the Mortgage Loan to damages and administrative enforcement.
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS" herein.
Ratings Are Not Recommendations. A Reduction in the Rating of Any Credit
Enhancer Would Likely Adversely Impact the Rating of the Securities.
It will be a condition to the issuance of a Series of Securities that
they be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating would be based
on, among other things, the adequacy of the value of the Primary Assets and any
Credit Enhancement with respect to such Series. Such rating should not be deemed
a recommendation to purchase, hold or sell Securities, inasmuch as it does not
address market price or suitability for a particular investor.
A Reduction in the Rating of Any Credit Enhancer Would Likely Adversely Impact
the Rating of the Securities.
There is also no assurance that any such rating will remain in effect
for any given period of time or may not be lowered or withdrawn entirely by the
Rating Agency if in its judgment circumstances in the future so warrant. In
addition to being lowered or withdrawn due to any erosion in the adequacy of the
value of the Primary Assets, such rating might also be lowered or withdrawn,
among other reasons, because of an adverse change in the financial or other
condition of a Credit Enhancer or a change in the rating of such Credit
Enhancer's long term debt.
ERISA May Restrict the Acquisition, Ownership and Disposition of Securities.
Generally, ERISA applies to investments made by benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of Securities. See "ERISA
CONSIDERATIONS" herein.
DESCRIPTION OF THE SECURITIES
General
Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Issuer and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to separate agreements (each, a "Pooling and Servicing
Agreement" or a "Trust Agreement") among the Depositor, the Servicer, if the
Series relates to Mortgage Loans and/or Contracts, and the Trustee. A form of
Pooling and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. A Series may consist of both
Notes and Certificates.
The Originator may agree to reimburse the Depositor for certain fees
and expenses of the Depositor incurred in connection with the offering of the
Securities.
The following summaries describe certain provisions in the Agreements
common to each Series of Securities. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreements and the Prospectus Supplement relating to each
Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
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Each Series of Securities will consist of one or more Classes of
Securities, one or more of which may be compound interest securities, variable
interest securities, PAC securities, zero coupon securities, principal only
securities, interest only securities or participating securities. A Series may
also include one or more Classes of subordinate securities. The Securities of
each Series will be issued only in fully registered form, without coupons, in
the authorized denominations for each Class specified in the related Prospectus
Supplement. Upon satisfaction of the conditions, if any, applicable to a Class
of a Series, the transfer of the Securities may be registered and the Securities
may be exchanged at the office of the Trustee specified in the Prospectus
Supplement without the payment of any service charge other than any tax or
governmental charge payable in connection with such registration of transfer or
exchange. One or more Classes of a Series may be available in book-entry form
only.
Payments of principal of and interest on a Series of Securities will be
made on the Distribution Dates specified in the Prospectus Supplement relating
to such Series by check mailed to Holders of such Series, registered as such at
the close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer (at
the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by
the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Payments with respect to the Primary Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other Credit Enhancement
will be deposited into the Collection Account. Such amounts may be net of
certain amounts payable to the related Servicer and any other person specified
in the Prospectus Supplement. Such amounts thereafter will be deposited into the
Distribution Account and will be available to make payments on the Securities of
such Series on the next Distribution Date. See "THE TRUST FUNDS--Collection and
Distribution Accounts" herein.
Payments of Interest
The Securities of each Class by their terms entitled to receive
interest will bear interest from the date and at the rate per annum specified,
or calculated in the method described in the related Prospectus Supplement.
Interest on such Securities of a Series will be payable on the Distribution Date
specified in the related Prospectus Supplement. The rate of interest on
Securities of a Series may be variable or may change with changes in the annual
percentage rates of the Mortgage Loans, Contracts or Underlying Loans relating
to the Private Securities, as applicable included in the related Trust Fund
and/or as prepayments occur with respect to such Mortgage Loans, Contracts or
Underlying Loans, as applicable. Principal Only Securities may not be entitled
to receive any interest distributions or may be entitled to receive only nominal
interest distributions. Any interest on Zero Coupon Securities that is not paid
on the related Distribution Date will accrue and be added to the principal
thereof on such Distribution Date.
Interest payable on the Securities on a Distribution Date will include
all interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
Payments of Principal
On each Distribution Date for a Series, principal payments will be made
to the Holders of the Securities of such Series on which principal is then
payable, to the extent set forth in the related Prospectus Supplement. Such
payments will be made in an aggregate amount determined as specified in the
related Prospectus Supplement and will be allocated among the respective Classes
of a Series in the manner, at the times and in the priority (which may, in
certain cases, include allocation by random lot) set forth in the related
Prospectus Supplement.
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Final Scheduled Distribution Date
The Final Scheduled Distribution Date with respect to each Class of
Notes is the date no later than which the principal thereof will be fully paid
and with respect to each Class of a Series of Certificates will be the date on
which the entire aggregate principal balance of such Class is expected to be
reduced to zero, in each case calculated on the basis of the assumptions
applicable to such Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date for each Class of a Series will be specified
in the related Prospectus Supplement. Since payments on the Primary Assets will
be used to make distributions in reduction of the outstanding principal amount
of the Securities, it is likely that the actual final Distribution Date of any
such Class will occur earlier, and may occur substantially earlier, than its
Final Scheduled Distribution Date.
Furthermore, with respect to a Series of Certificates, as will be
further described in the related Prospectus Supplement, as a result of
delinquencies, defaults and liquidations of the Primary Assets in the Trust
Fund, the actual final Distribution Date of any Certificate may occur later than
its Final Scheduled Distribution Date. No assurance can be given as to the
actual prepayment experience with respect to a Series. See "Weighted Average
Life of the Securities" below.
Optional Redemption, Purchase or Termination
One or more Classes of Securities of any Series may be subject to
optional redemption or repurchase, in whole or in part, on any Distribution Date
by the related Originator, Servicer or Credit Enhancer or an affiliate thereof.
Such redemption or repurchase may occur or on or after a date specified in the
related Prospectus Supplement, or on or after such time as the aggregate
outstanding principal amount of the Securities or Primary Assets, is less than a
percentage not to exceed 20% of the aggregate principal balance of the Primary
Assets as of the Cut-off Date for that Series. Notice of such redemption,
purchase or termination must be given by the Depositor or the Trustee prior to
the related date. The redemption, purchase or repurchase price (which would not
be less than an amount necessary to pay all principal and interest on the
securities outstanding) will be set forth in the related Prospectus Supplement.
In the event that a REMIC election has been made, the Trustee shall receive a
satisfactory opinion of counsel that the optional redemption, purchase or
termination will be conducted so as to constitute a "qualified liquidation"
under Section 860F of the Code. The risk of reinvesting unscheduled
distributions resulting form prepayments of the Securities will be borne by the
Holders. Neither the Trust nor the Holders will have any continuing liability
under such optional redemption or repurchase.
In addition, the Trustee, the Servicer or certain other entities
specified in the related Prospectus Supplement may be required to effect early
retirement of a series of Securities by soliciting competitive bids for the
purchase of the related Primary Assets or otherwise, under other circumstances
and in the manner specified in "THE AGREEMENTS--Termination " herein.
Weighted Average Life of the Securities
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Securities of a Class will be influenced by the rate at which the amount
financed under Primary Assets included in the Trust Fund for a Series is paid.
Such repayment may be in the form of scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to
a prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans or Underlying Loans relating to the Private Securities, as
applicable, included in the related Trust Fund are made at rates corresponding
to various percentages of the prepayment standard or model specified in such
Prospectus Supplement.
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There is, however, no assurance that prepayment of the Mortgage Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable,
included in the related Trust Fund will conform to any level of any prepayment
standard or model specified in the related Prospectus Supplement. The rate of
principal prepayments on pools of loans may be influenced by a variety of
factors, including job related factors such as transfers, layoffs or promotions
and personal factors such as divorce, disability or prolonged illness. Economic
conditions, either generally or within a particular geographic area or industry,
also may affect the rate of principal prepayments. Demographic and social
factors may influence the rate of principal prepayments in that some borrowers
have greater financial flexibility to move or refinance than do other borrowers.
The deductibility of mortgage interest payments, servicing decisions and other
factors also affect the rate of principal prepayments. As a result, there can be
no assurance as to the rate or timing of principal prepayments of the Mortgage
Loans or Underlying Loans either from time to time or over the lives of such
Mortgage Loans or Underlying Loans.
The rate of prepayments of conventional housing loans and other
receivables has fluctuated significantly in recent years. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans, Contracts or Underlying Loans relating to the Private
Securities, as applicable, for a Series, such loans are likely to prepay at
rates higher than if prevailing interest rates remain at or above the interest
rates borne by such loans. In this regard, it should be noted that the Mortgage
Loans, Contracts or Underlying Loans, as applicable, for a Series may have
different interest rates. In addition, the weighted average life of the
Securities may be affected by the varying maturities of the Mortgage Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable.
If any Mortgage Loans, Contracts or Underlying Loans relating to the Private
Securities, as applicable, for a Series have actual terms-to-stated maturity of
less than those assumed in calculating the Final Scheduled Distribution Date of
the related Securities, one or more Classes of the Series may be fully paid
prior to their respective Final Scheduled Distribution Date, even in the absence
of prepayments and a reinvestment return higher than the Assumed Reinvestment
Rate.
THE TRUST FUNDS
General
The Notes of each Series will be secured by the pledge of the assets of
the related Trust Fund, and the Certificates of each Series will represent
interests in the assets of the related Trust Fund. The Trust Fund of each Series
will include assets acquired from the Originator composed of (i) the Primary
Assets, (ii) any Credit Enhancement, (iii) any Mortgaged Property that secured a
Mortgage Loan but which is acquired by foreclosure or deed in lieu of
foreclosure or repossession and (iv) any Manufactured Home which initially
secured a Contract and which is acquired by repossession and (v) the amount, if
any, initially deposited in the Collection Account or Distribution Account for a
Series as specified in the related Prospectus Supplement. A maximum of 5% (by
Cut-off Date Principal Balance) of the aggregate Primary Assets that are
included in a Trust Fund as such Trust Fund will be constituted at the closing
date will deviate from the characteristics that are described in the related
Prospectus Supplement.
The Securities will be non-recourse obligations secured by the related
Trust Fund. Holders of a Series of Notes may only proceed against such
collateral securing such Series of Notes in the case of a default with respect
to such Series of Notes and may not proceed against any assets of the Depositor
or the related Trust Fund not pledged to secure such Notes.
The Primary Assets for a Series will be acquired by the related Trust
Fund from the related Originator, or may be acquired in the open market or in
privately negotiated transactions. Mortgage Loans and/or Contracts relating to a
Series will be serviced by the Servicer, which may be the Originator, specified
in the related Prospectus Supplement, pursuant to a Pooling and Servicing
Agreement, with respect to a Series of Certificates or a servicing agreement
(each, a "Servicing Agreement") between the Trust Fund and Servicer, with
respect to a Series of Notes.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series of Notes, the Indenture and the Servicing Agreement, as the
context requires.
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A Trust Fund relating to a Series of Securities may be a business trust
formed under the laws of the state specified in the related Prospectus
Supplement pursuant to a trust agreement (each, a "Trust Agreement") between the
Depositor and the trustee of such Trust Fund specified in the related Prospectus
Supplement
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Primary Assets and other assets contemplated
herein and in the related Prospectus Supplement and the proceeds thereof,
issuing Securities and making payments and distributions thereon and certain
related activities. No Trust Fund is expected to have any source of capital
other than its assets and any related Credit Enhancement.
Primary Assets included in the Trust Fund for a Series may consist of
any combination of Mortgage Loans, Contracts and Private Securities, to the
extent and as specified in the related Prospectus Supplement. Some of the
Mortgage Loans and/or Contracts may be delinquent to the extent and as specified
in the related Prospectus Supplement. The percentage of those Mortgage Loans
and/or Contracts which are delinquent shall not exceed 10% of the aggregate
principal balance of the Primary Assets as of the Cut-off Date for that Series.
The following is a brief description of the Mortgage Loans and/or Contracts
expected to be included in the related Trusts.
The Mortgage Loans
Mortgage Loans. The Primary Assets for a Series may consist, in whole
or in part, of loans (the "Mortgage Loans") secured by mortgages on one- to
four-family residential housing ("Single Family Properties"), including
condominium units ("Condominium Units") and cooperative dwellings ("Cooperative
Dwellings") which may be subordinated to other mortgages on the same Mortgaged
Property. The Mortgage Loans may have fixed interest rates or adjustable
interest rates and may provide for other payment characteristics as described
below and in the related Prospectus Supplement.
[The Mortgage Loans will consist of what are commonly referred to as
"purchase money" loans, as distinguished from "home equity" loans. Both of these
concepts refer to the use of proceeds made by the related borrower, rather than
to any legal or other documentary differences between the two types of loans,
except that "home equity" loans are usually (but not always) secured by
mortgages which are in a subordinate lien position while "purchase money" loans
are usually (but not always) secured by mortgages which are in a senior lien
position, and "home equity" loans are typically (but not always) shorter in
maturity than "purchase money" loans (i.e., fifteen rather than thirty years).
The Mortgage Loans, in addition to being secured by mortgages on real estate,
may also be secured by "fixtures" treated as personal property under local state
law. Although fixtures may turn up more frequently in the case of loans in which
the proceeds are used to fund home improvements, fixtures as a part of the
collateral package may be a part of either a "home equity" or "purchase money"
loan.]
[A "purchase money" mortgage is a loan the proceeds of which are used
to purchase the related mortgaged property; the proceeds of a "home equity" loan
are not applied to the purchase of the related mortgaged property.]
The Mortgage Loans may be (i) "conventional" loans, that is, they will
not be insured or guaranteed by any governmental agency, (ii) insured by the
Federal Housing Authority ("FHA") or (iii) partially guaranteed by the Veteran's
Administration, as specified in the related Prospectus Supplement. The Mortgage
Loans may be either "closed-end" loans (i.e., loans which do not permit the
related borrower to obtain the proceeds of future advances) or "open-end" loans
(i.e., loans structured as lines of credit, which permit the related borrower,
subject to a maximum dollar amount, to obtain more than one advance of
proceeds). The Mortgage Loans will be secured by first, second or more junior
liens on fee simple or leasehold interests in one- to four-family residential
properties. The principal and interest on the Mortgage Loans included in the
Trust for a Series of Securities will be payable either on the first day of each
month or on different scheduled days throughout each month, and the interest
will be calculated either on a simple interest, actuarial method or "Rule of
78s" method, as described herein and in the related Prospectus Supplement. When
a full principal prepayment is paid on a Mortgage Loan during a month, the
Mortgagor is generally charged interest only on the days of the month actually
elapsed up to the date of such prepayment, at a daily interest rate that is
applied to the principal amount of the Mortgage Loan so prepaid.
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Payment Terms. The payment terms of the Mortgage Loans to be included
in a Trust for a Series will be described in the related Prospectus Supplement
and may include any of the following features of combinations thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index (which will be
specified in the related Prospectus Supplement), a rate that is fixed
for a period of time or under certain circumstances and is followed by
an adjustable rate, a rate that otherwise varies from time to time, or
a rate that is convertible from and adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of such limitations.
Accrued interest may be deferred and added to the principal of a
Mortgage Loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. Mortgage Loans may
provide for the payment of interest at a rate lower than the specified
Loan Rate for a period of time of for the life of the Mortgage Loan,
and the amount of any difference may be contributed from funds supplied
by the seller of the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service
basis to fully amortize the Mortgage Loan over its term, may be
calculated on the basis of an assumed amortization schedule that is
significantly longer than the original term to maturity or on an
interest rate that is different from the Loan Rate or may not be
amortized during all or a portion of the original term. Payment of all
or a substantial portion of the principal may be due on maturity.
Principal may include interest that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Monthly Payments of principal and interest may be
fixed for the life of the Mortgage Loan, may increase over a specified
period of time or may change from period to period. Mortgage Loans may
include limits on periodic increases or decreases in the amount of
Monthly Payments and may include maximum or minimum amounts of Monthly
Payments.
(d) Prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of the Mortgage Loan or
may decline over time, and may be prohibited for the life of the
Mortgage Loan or for certain periods. Certain Mortgage Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection with any such
subsequent prepayment. Other Mortgage Loans may permit prepayments
without payment of a fee unless the prepayment occurs during specified
time periods. The Mortgage Loans may include "due on sale" clauses
which permit the mortgagee to demand payment of the entire Mortgage
Loan in connection with the sale or certain transfers of the related
Mortgaged Property. Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting standards of the Originator.
Amortization of the Mortgage Loans. The Mortgage Loans will provide for
payments that are allocated to principal and interest according to either the
actuarial method (an "Actuarial Mortgage Loan"), the simple interest method (a
"Simple Interest Mortgage Loan") or the "Rule of 78s" method (a "Rule of 78s
Mortgage Loan"), as set forth in the related Prospectus Supplement. The related
Prospectus Supplement will set forth whether any of the Mortgage Loans will
provide for deferred interest or negative amortization.
An Actuarial Mortgage Loan provides for payments in level monthly
installments (except, in the case of a Balloon Loan, the final payment)
consisting of interest equal to one-twelfth of the applicable Loan Rate times
the unpaid principal balance, with the remainder of such payment applied to
principal.
A Simple Interest Mortgage Loan provides for the amortization of the
amount financed under such Mortgage Loan over a series of equal Monthly Payments
(except, in the case of a Balloon Loan, the final payment). Each Monthly Payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Mortgage Loan being multiplied by the
stated Loan Rate and further multiplied by a fraction, the numerator of which is
the number of days in the period elapsed since the preceding payment of interest
was made and the denominator of which is the number of days in the annual period
for which interest accrues on such Mortgage Loan. As payments are received under
a Simple Interest Mortgage Loan, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if a borrower pays a fixed monthly
installment on a Simple Interest Mortgage Loan before its
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scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater. However,
the next succeeding payment will result in an allocation of a greater amount to
interest if such payment is made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Mortgage
Loan is made on or prior to its scheduled due date, the principal balance of the
Mortgage Loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date, the Mortgage Loan will amortize more slowly than scheduled.
If a Simple Interest Mortgage Loan is prepaid, the borrower is required to pay
interest only to the date of prepayment.
Certain of the Mortgage Loans contained in a Trust may be loans insured
under the FHA Title I credit insurance program created pursuant to Sections 1
and 2(a) of the National Housing Act of 1934 (the "Title I Program"). Under the
Title I Program, the FHA is authorized and empowered to insure qualified lending
institutions against losses on eligible loans. The Title I Program operates as a
coinsurance program in which the FHA insures up to 90% of certain losses
incurred on an individual insured loan, including the unpaid principal balance
of the loan, but only to the extent of the insurance coverage available in the
lender's FHA insurance coverage reserve account. The owner of the loan bears the
uninsured loss on each loan.
The Mortgaged Properties will include Single Family Property (i.e.,
one-to four-family residential housing, including Condominium Units and
Cooperative Dwellings) The Mortgaged Properties may consist of detached
individual dwellings, individual condominiums, townhouses, duplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
Each Single Family Property will be located on land owned in fee simple by the
borrower or on land leased by the borrower for a term at least equal to the term
of the related Mortgage. Attached dwellings may include owner-occupied
structures where each borrower owns the land upon which the unit is built, with
the remaining adjacent land owned in common or dwelling units subject to a
proprietary lease or occupancy agreement in a cooperatively owned apartment
building.
The related Prospectus Supplement will specify whether or not Mortgages
on Cooperative Dwellings consist of a lien on the shares issued by such
Cooperative Dwelling and the proprietary lease or occupancy agreement relating
to such Cooperative Dwelling.
The aggregate principal balance of Mortgage Loans secured by Mortgaged
Properties that are owner-occupied will be disclosed in the related Prospectus
Supplement. The sole basis for a representation that a given percentage of the
Mortgage Loans are secured by Single Family Property that is owner-occupied will
be either (i) the making of a representation by the Mortgagor at origination of
the Mortgage Loan either that the underlying Mortgaged Property will be used by
the Mortgagor for a period of at least six months every year or that the
Mortgagor intends to use the Mortgaged Property as a primary residence, or (ii)
a finding that the address of the underlying Mortgaged Property is the
Mortgagor's mailing address as reflected in the Servicer's records. To the
extent specified in the related Prospectus Supplement, the Mortgaged Properties
may include non-owner occupied investment properties and vacation and second
homes.
The initial Combined Loan-to-Value Ratio of a Mortgage Loan is computed
in the manner described in the related Prospectus Supplement, taking into
account the amounts of any related senior loans.
Additional Information. The selection criteria which will apply with
respect to the Mortgage Loans, including, but not limited to, the Combined
Loan-to-Value Ratios or Loan-to-Value Ratios, as applicable, original terms to
maturity and delinquency information, will be specified in the related
Prospectus Supplement.
The Mortgage Loans for a Series may include Mortgage Loans that do not
amortize their entire principal balance by their stated maturity in accordance
with their terms and require a balloon payment of the remaining
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principal balance at maturity, as specified in the related Prospectus
Supplement. The Mortgage Loans for a Series may include loans that do not have a
specified stated maturity.
The related Prospectus Supplement for each Series will provide
information with respect to the Mortgage Loans that are Primary Assets as of the
Cut-off Date, including, among other things, and to the extent relevant: (a) the
aggregate unpaid principal balance of the Mortgage Loans; (b) the range and
weighted average Loan Rate on the Mortgage Loans, and, in the case of adjustable
rate loans, the range and weighted average of the current Loan Rates and the
Lifetime Rate Caps, if any; (c) the range and average outstanding principal
balance of the Loans; (d) the weighted average original and remaining
term-to-stated maturity of the Mortgage Loans and the range of original and
remaining terms-to-stated maturity, if applicable; (e) the range and weighted
average of Combined Loan-to-Value Ratios or Loan-to-Value Ratios for the
Mortgage Loans, as applicable; (f) the percentage (by outstanding principal
balance as of the Cut-off Date) of Mortgage Loans that accrue interest at
adjustable or fixed interest rates; (g) any special hazard insurance policy or
bankruptcy bond or other Credit Enhancement relating to the Mortgage Loans; (h)
the geographic distribution of any Mortgaged Properties securing the Mortgage
Loans; (i) the percentage of Mortgage Loans (by principal balance as of the
Cut-off Date) that are secured by Single Family Mortgaged Properties, shares
relating to Cooperative Dwellings, Condominium Units, investment property and
vacation or second homes; (j) the lien priority of the Mortgage Loans; (k) year
of origination of the Mortgage Loans; and (l) the delinquency status of Mortgage
Loans, including the duration and history of such delinquencies and the
percentage of the of Mortgage Loans (by principal balance as of the Cut-off
Date) that are delinquent. The related Prospectus Supplement will also specify
any other limitations on the types or characteristics of Mortgage Loans for a
Series.
If specific information respecting the Mortgage Loans is not known at
the time the related series of Securities initially is offered, information of
the nature described above will be provided in the Prospectus Supplement, and
specific information will be set forth in a report on Form 8-K to be filed with
the Commission within fifteen days after the initial issuance of such
Securities. A copy of the Pooling and Servicing Agreement with respect to each
Series of Securities will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the Trustee specified in the related
Prospectus Supplement. A schedule of the Mortgage Loans relating to such Series
will be attached to the Pooling and Servicing Agreement delivered to the Trustee
upon delivery of the Securities.
The Contracts
Contracts. Each Pool of Contracts in a Trust Fund ("Contract Pool")
will consist of conventional manufactured housing installment sales contracts
and installment loan agreements (collectively, the "Contracts") originated by a
manufactured housing dealer in the ordinary course of business and purchased by
the Seller. Each Contract will be secured by Manufactured Homes (as defined
below), each of which will be located in any of the fifty states or the District
of Columbia. The Contracts will be fully amortizing and will bear interest at a
fixed or adjustable annual percentage rate (the "APR" or "Contract Rate"). The
Contract Pool may include Contracts with respect to which a Fixed Retained Yield
has been retained, in which event references herein to Contracts and payments
thereon shall mean the Contracts exclusive of such Fixed Retained Yield. The
Prospectus Supplement for a Series will specify whether there will be any Fixed
Retained Yield in any Contract, and if so, the owner thereof. A "Fixed Retained
Yield" in a Contract represents a specified portion of the interest payable
thereon.
The Seller of the Contracts will represent that the Manufactured Homes
securing the Contracts consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of [this] paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter."
Manufactured Homes, unlike site-built homes, generally depreciate in
value. Consequently, at any time after origination it is possible, especially in
the case of Contracts with high Loan-to-Value Ratios at origination, that
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the market value of a Manufactured Home may be lower than the principal amount
outstanding under the related Contract.
The Prospectus Supplement for each Series will set forth certain
characteristics of the related Contracts, which may include the aggregate
principal balance of the Contracts in the Contract Pool underlying such Series
as of the Cut-Off Date for such Series (the "Cut-Off Date Aggregate Principal
Balance"), the range of original terms to maturity of the Contracts in the
Contract Pool, the weighted average remaining term to stated maturity at the
Cut-Off Date of such Contracts, the earliest and latest origination dates of
such Contracts, the range of Contract Rates and net contract rates borne by such
Contracts ("Net Contract Rates"), the weighted average Net Contract Rate at the
Cut-Off Date of such Contracts, the range of such Contracts which had
Loan-to-Value Ratios at the time of origination of the Contracts and the highest
outstanding principal balance at origination of any such Contract.
The "Loan-to-Value Ratio" is the ratio, expressed as a percentage, of
the principal amount of the Contract outstanding at the origination of such loan
divided by the fair market value of the Manufactured Home. The fair market value
of the Manufactured Home securing any Contract is, unless otherwise specified in
the applicable Prospectus Supplement, either (x) the appraised value of the
related Manufactured Home determined in an appraisal obtained by the originator
at origination and (y) the sale price for such property, plus, in either case,
sales and other taxes and, to the extent financed, filing and recording fees
imposed by law, premiums for related insurance and prepaid finance charges. A
maximum of 5% (by Cut-Off Date Aggregate Principal Balance) of the aggregate
Contracts that are included in a Trust Fund will deviate from the
characteristics that are described in the related Prospectus Supplement.
The Contracts in a Trust Fund will generally have monthly payments due
on the first of each month (each, a "Due Date") and will be fully-amortizing
Contracts. Contracts may have Due Dates which occur on a date other than the
first of each month. The Contract Pools may include adjustable rate Contracts
that provide for payment adjustments to be made less frequently than adjustments
in the Contract Rates. Each adjustment in the Contract Rate which is not made at
the time of a corresponding adjustment in payments (and which adjusted amount of
interest is not paid currently on a voluntary basis by the obligor) will result
in a decrease (if the Contract Rate rises) or an increase (if the Contract Rate
declines) in the rate of amortization of the Contract. Moreover, such payment
adjustments on the Contracts may be subject to certain limitations, as specified
in the Prospectus Supplement, which may also affect the rate of amortization on
the Contract. As a result of such provisions, the amount of interest accrued in
any month may equal or exceed the scheduled monthly payment on the Contract. In
any such month, no principal would be payable on the Contract, and if the
accrued interest exceeded the scheduled monthly payment, such excess interest
due would become "Deferred Interest" that is added to the principal balance of
the Contract. Deferred Interest will bear interest at the Contract Rate until
paid. If such limitations prevent the payments from being sufficient to amortize
fully the Contract by its stated maturity date, a lump sum payment equal to the
remaining unpaid principal balance will be due on such stated maturity date.
The geographic distribution of Manufactured Homes will be set forth in
the Prospectus Supplement. Each Prospectus Supplement will set forth the
percentage of the Cut-Off Date Aggregate Principal Balance of any Contracts in
the Contract Pool which are secured by Manufactured Homes which have become
permanently affixed to real estate. Each Prospectus Supplement will also set
forth the percentage of the Cut-Off Date Aggregate Principal Balance of the
Contracts in the related Contract Pool representing the refinancing of existing
mortgage indebtedness.
If specific information respecting the Contracts to be included in a
Trust Fund is not known to the Sponsor at the time the Securities of a Series
are initially offered, more general information of the nature described above
will be provided in the Prospectus Supplement and final specific information
will be set forth in a Current Report on Form 8-K to be available to investors
on the date of issuance thereof and to be filed with the Commission promptly
after the initial issuance of such Securities.
Private Securities
General. Primary Assets for a Series may consist, in whole or in part,
of Private Securities which include pass-through certificates representing
beneficial interests in loans of the type that would otherwise be eligible to be
Mortgage Loans and/or Contracts (the "Underlying Loans") or (b) collateralized
obligations secured by Underlying
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Loans. Such pass-through certificates or collateralized obligations will have
previously been (a) offered and distributed to the public pursuant to an
effective registration statement and not purchased as part of the original
distribution or (b) acquired in a transaction not involving any public offering
from a person who is not an affiliate of the issuer of such securities at the
time of transfer (nor an affiliate thereof at any time during the three
preceding months); provided a period of three years elapsed since the later of
the date the securities were acquired from the issuer or an affiliate thereof.
Although individual Underlying Loans may be insured or guaranteed by the United
States or an agency or instrumentality thereof, they need not be, and Private
Securities themselves will not be so insured or guaranteed.
Private Securities will have been issued pursuant to a pooling and
servicing agreement, a trust agreement or similar agreement (a "PS Agreement").
The seller/servicer of the Underlying Loans will have entered into the PS
Agreement with the trustee under such PS Agreement (the "PS Trustee"). The PS
Trustee or its agent, or a custodian, will possess the Underlying Loans.
Underlying Loans will be serviced by a servicer (the "PS Servicer") directly or
by one or more sub-servicers who may be subject to the supervision of the PS
Servicer.
The sponsor of the Private Securities (the "PS Sponsor") will be a
financial institution or other entity engaged generally in the business of
lending; a public agency or instrumentality of a state, local or federal
government; or a limited purpose corporation organized for the purpose of, among
other things, establishing trusts and acquiring and selling loans to such
trusts, and selling beneficial interests in such trusts. The PS Sponsor may be
an affiliate of the Depositor. The obligations of the PS Sponsor will generally
be limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Additionally, although the Underlying Loans
may be guaranteed by an agency or instrumentality of the United States, the
Private Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Securities on the dates specified in the related Prospectus Supplement. The
Private Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal and interest
distributions will be made on the Private Securities by the PS Trustee or the PS
Servicer. The PS Sponsor or the PS Servicer may have the right to repurchase the
Underlying Loans after a certain date or under other circumstances specified in
the related Prospectus Supplement.
The Underlying Loans may be fixed rate, level payment, fully amortizing
loans or adjustable rate loans or loans having balloon or other irregular
payment features. Such Underlying Loans will be secured by mortgages on
Mortgaged Properties.
Credit Support Relating to Private Securities. Credit support in the
form of Reserve Funds, subordination of other private securities issued under
the PS Agreement, guarantees, letters of credit, cash collateral accounts,
insurance policies or other types of credit support may be provided with respect
to the Underlying Loans or with respect to the Private Securities themselves.
The type, characteristics and amount of credit support will be a function of
certain characteristics of the Underlying Loans and other factors and will have
been established for the Private Securities on the basis of requirements of the
nationally recognized statistical rating organization that rated the Private
Securities.
Additional Information. The Prospectus Supplement for a Series for
which the Primary Assets include Private Securities will specify (such
disclosure may be on an approximate basis and will be as of the date specified
in the related Prospectus Supplement), to the extent relevant and to the extent
such information is reasonably available to the Depositor and the Depositor
reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Private Securities to be included
in the Trust Fund for such Series; (ii) certain characteristics of the
Underlying Loans including (A) the payment features of such Underlying Loans
(i.e., whether they are fixed rate or adjustable rate and whether they provide
for fixed level payments or other payment features), (B) the approximate
aggregate principal balance, if known, of such Underlying Loans insured or
guaranteed by a governmental entity, (C) the servicing fee or range of servicing
fees with respect to the Underlying Loans, (D) the minimum and maximum stated
maturities of such Underlying Loans at origination, (E) the lien priority of
such Underlying Loans, and (F) the delinquency status and year of origination of
such Underlying Loans; (iii) the maximum original term-to-stated maturity of the
Private Securities; (iv) the weighted average term-to-stated maturity of the
Private Securities; (v) the pass-through or certificate rate or ranges thereof
for the Private Securities;
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(vi) the PS Sponsor, the PS Servicer (if other than the PS Sponsor) and the PS
Trustee for such Private Securities; (vii) certain characteristics of credit
support if any, such as Reserve Funds, insurance policies, letters of credit or
guarantees relating to such Mortgage Loans underlying the Private Securities or
to such Private Securities themselves; (viii) the terms on which Underlying
Loans may, or are required to, be purchased prior to their stated maturity or
the stated maturity of the Private Securities; and (ix) the terms on which
Underlying Loans may be substituted for those originally underlying the Private
Securities.
If information of the nature described above representing the Private
Securities is not known to the Depositor at the time the Securities are
initially offered, approximate or more general information of the nature
described above will be provided in the Prospectus Supplement and the additional
information, if available, will be set forth in a Current Report on Form 8-K to
be available to investors on the date of issuance of the related Series and to
be filed with the Commission within 15 days of the initial issuance of such
Securities.
Collection and Distribution Accounts
A separate Collection Account will be established by the Trustee or the
Servicer, in the name of the Trustee, for each Series of Securities for receipt
of the amount of cash, if any, specified in the related Prospectus Supplement to
be initially deposited therein by the Depositor, all amounts received on or with
respect to the Primary Assets and any income earned thereon. Certain amounts on
deposit in such Collection Account and certain amounts available pursuant to any
Credit Enhancement will be deposited in a related Distribution Account, which
will also be established by the Trustee for each such Series of Securities, for
distribution to the related Holders. The Trustee may invest the funds in the
Collection and Distribution Accounts in eligible investments maturing, with
certain exceptions, not later, in the case of funds in the Collection Account,
than the day preceding the date such funds are due to be deposited in the
Distribution Account or otherwise distributed and, in the case of funds in the
Distribution Account, than the day preceding the next Distribution Date for the
related Series of Securities. "Eligible Investments" include, among other
investments, obligations of the United States and certain agencies thereof,
federal funds, certificates of deposit, commercial paper, demand and time
deposits and banker's acceptances, certain repurchase agreements of United
States government securities and certain guaranteed investment contracts, in
each case, acceptable to the Rating Agency.
Notwithstanding any of the foregoing, amounts may be deposited and
withdrawn pursuant to any Deposit Agreement or Minimum Principal Payment
Agreement as specified in the related Prospectus Supplement.
Pre-Funding Accounts
A Trust Fund may include one or more segregated trust accounts (each, a
"Pre-Funding Account") established and maintained with the Trustee for the
related Series. On the closing date for such Series, a portion of the proceeds
of the sale of the Securities of such Series (such amount, the "Pre-Funded
Amount") will be deposited in the Pre-Funding Account and may be used to acquire
additional Primary Assets during the period of time specified in the related
Prospectus Supplement (the "Pre-Funding Period"). If any Pre-Funded Amount
remains on deposit in the Pre-Funding Account at the end of the Pre-Funding
Period, such amount will be applied in the manner specified in the related
Prospectus Supplement to prepay the Notes and/or the Certificates of the
applicable Series.
If a Pre-Funding Account is established, (a) the Pre-Funding Period
will not exceed 90 days from the related closing date, (b) the additional
Primary Assets to be acquired during the Pre-Funding Period will be subject to
the same representations and warranties and satisfy the same eligibility
requirements as the Primary Assets included in the related Trust Fund on the
closing date, subject to such exceptions as are expressly stated in such
Prospectus Supplement, (c) the Pre-Funding Amount will not exceed 25% of the
principal amount of the Securities issued pursuant to a particular offering and
(d) prior to the investment of the Pre-Funded Amount in additional Primary
Assets, such Pre-Funded Amount will be invested in one or more Eligible
Investments. Any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a "Capitalized Interest Account") may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on
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the Securities of such Series and (ii) certain fees or expenses during the
Pre-Funding Period, over the amount of interest available therefor from the
Primary Assets in the Trust Fund. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period that are not necessary for
such purposes will be distributed to the person specified in the related
Prospectus Supplement.
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
CREDIT ENHANCEMENT
If stated in the Prospectus Supplement relating to a Series of
Securities, simultaneously with the Depositor's assignment of the Primary Assets
to the Trustee, the Depositor will obtain an irrevocable letter of credit,
surety bond or insurance policy, issue Subordinate Securities or obtain any
other form of credit enhancement or combination thereof (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the Holders of the related
Series or designated Classes of such Series from an institution or by other
means acceptable to the Rating Agency. The Credit Enhancement will support the
payment of principal and interest on the Securities, and may be applied for
certain other purposes to the extent and under the conditions set forth in such
Prospectus Supplement. Credit Enhancement for a Series may include one or more
of the following forms, or such other form as may be specified in the related
Prospectus Supplement. Credit Enhancement may be structured so as to protect
against losses relating to more than one Trust Fund, in the manner described
therein.
Subordinate Securities
Credit Enhancement for a Series may consist of one or more Classes of
Subordinate Securities. The rights of holders of such Subordinate Securities to
receive distributions on any Distribution Date will be subordinate in right and
priority to the rights of Holders of Senior Securities of the Series, but only
to the extent described in the related Prospectus Supplement.
Insurance
Credit Enhancement for a Series may consist of special hazard insurance
policies, bankruptcy bonds and other types of insurance relating to the Primary
Assets, as described below and in the related Prospectus Supplement.
Pool Insurance Policy. The related Prospectus Supplement will describe
any pool insurance policy obtained by the Depositor for the Mortgage Loans
and/or Contracts in the related Trust Fund. The pool insurance policy will cover
any loss (subject to the limitations described in a related Prospectus
Supplement) by reason of default. but will not cover the portion of the
principal balance of any Mortgage Loan that is required to be covered by any
primary mortgage insurance policy. The amount and terms of any such coverage
will be set forth in the related Prospectus Supplement.
Special Hazard Insurance Policy. Although the terms of such policies
vary to some degree, a special hazard insurance policy typically provides that,
where there has been damage to Mortgaged Property securing a defaulted or
foreclosed Mortgage Loan or the Manufactured Home underlying a Contract (title
to which has been acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained with respect to such Mortgaged
Property, or Manufactured Home, or in connection with partial loss resulting
from the application of the coinsurance clause in a standard hazard insurance
policy, the special hazard insurer will pay the lesser of (i) the cost of repair
or replacement of such Mortgaged Property Manufactured Home or (ii) upon
transfer of such Mortgaged Property or
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Manufactured Home to the special hazard insurer, the unpaid principal balance of
such Mortgage Loan or Contract at the time of acquisition of such Mortgaged
Property by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement and certain expenses incurred by the Servicer with
respect to such Mortgaged Property. If the unpaid principal balance plus accrued
interest and certain expenses is paid by the special hazard insurer, the amount
of further coverage under the special hazard insurance policy will be reduced by
such amount less any net proceeds from the sale of such Mortgaged Property or
Manufactured Home. Any amount paid as the cost of repair of such Mortgaged
Property or Manufactured Home will reduce coverage by such amount. Special
hazard insurance policies typically do not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, flood (if
the Mortgaged Property is in a federally designated flood area), chemical
contamination and certain other risks.
Restoration of the Mortgaged Property or replacement of the
Manufactured Home with the proceeds described under (i) above is expected to
satisfy the condition under any pool insurance policy that such Mortgaged
Property be restored or Manufactured Home replaced before a claim under such
pool insurance policy may be validly presented with respect to the defaulted
Mortgage Loan or Contract secured by such Mortgaged Property or Manufactured
Home, as applicable. The payment described under (ii) above will render
unnecessary presentation of a claim in respect of such Mortgage Loan or Contract
under any pool insurance policy. Therefore, so long as such pool insurance
policy remains in effect, the payment by the special hazard insurer of the cost
of repair or of the unpaid principal balance of the related Mortgage Loan or
Contract plus accrued interest and certain expenses will not affect the total
insurance proceeds paid to Holders of the Securities, but will affect the
relative amounts of coverage remaining under the special hazard insurance policy
and pool insurance policy.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the Mortgaged Property securing the
related Mortgage Loan or the Manufactured Home securing the Contract at an
amount less than the then-outstanding principal balance of such Mortgage Loan or
Contract. The amount of the secured debt could be reduced to such value, and the
holder of such Mortgage Loan or Contract thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan or
Contract exceeds the value so assigned to the Mortgaged Property or the
Manufactured Home by the bankruptcy court. In addition, certain other
modifications of the terms of a Mortgage Loan or Contract can result from a
bankruptcy proceeding. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS" herein. If
so provided in the related Prospectus Supplement, the Depositor or other entity
specified in the related Prospectus Supplement will obtain a bankruptcy bond or
similar insurance contract (the "bankruptcy bond") covering losses resulting
from proceedings with respect to borrowers under the Bankruptcy Code. The
bankruptcy bond will cover certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a
Mortgage Loan or Contract or a reduction by such court of the principal amount
of a Mortgage Loan or Contract and will cover certain unpaid interest on the
amount of such a principal reduction from the date of the filing of a bankruptcy
petition.
The bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement for all Mortgage Loans and/or
Contracts in the Trust Fund for such Series. Such amount will be reduced by
payments made under such bankruptcy bond in respect of such Mortgage Loans
and/or Contracts, and will not be restored.
Reserve Funds
The Depositor may deposit into one or more funds to be established with
the Trustee as part of the Trust Fund for such Series or for the benefit of any
Credit Enhancer with respect to such Series (the "Reserve Funds") cash, a letter
or letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of the Rating Agency rating any Series of the
Securities in the amount specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, a Reserve Fund for a Series may be
funded over time through application of all or a portion of the excess cash flow
from the Primary Assets for such Series, to the extent described in the related
Prospectus Supplement. If applicable, the initial amount of the Reserve Fund and
the Reserve Fund maintenance requirements for a Series of Securities will be
described in the related Prospectus Supplement.
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Amounts withdrawn from any Reserve Fund will be applied by the Trustee
to make payments on the Securities of a Series, to pay expenses, to reimburse
any Credit Enhancer or for any other purpose, in the manner and to the extent
specified in the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments maturing no later than the day specified in the related
Prospectus Supplement.
Minimum Principal Payment Agreement
If stated in the Prospectus Supplement relating to a Series of
Securities, the Depositor will enter into a Minimum Principal Payment Agreement
with an entity meeting the criteria of the Rating Agency pursuant to which such
entity will provide certain payments on the Securities of such Series in the
event that aggregate scheduled principal payments and/or prepayments on the
Primary Assets for such Series are not sufficient to make certain payments on
the Securities of such Series, as provided in the Prospectus Supplement.
Deposit Agreement
The Depositor and the Trustee for such Series of Securities will enter
into a Deposit Agreement with the entity specified in such Prospectus Supplement
on or before the sale of such Series of Securities. The purpose of a Deposit
Agreement would be to accumulate available cash for investment so that such
cash, together with income thereon, can be applied to future distributions on
one or more Classes of Securities. The Prospectus Supplement for a Series of
Securities pursuant to which a Deposit Agreement is used will contain a
description of the terms of such Deposit Agreement.
SERVICING OF MORTGAGE LOANS
General
Customary servicing functions with respect to Mortgage Loans and/or
Contracts comprising the Primary Assets in the Trust Fund will be provided by
the Servicer directly pursuant to the related Servicing Agreement or Pooling and
Servicing Agreement, as the case may be, with respect to a Series of Securities.
Collection Procedures; Escrow Accounts
The Servicer will make reasonable efforts to collect all payments
required to be made under the Mortgage Loans and/or Contracts and will,
consistent with the terms of the related Agreement for a Series and any
applicable Credit Enhancement, follow such collection procedures as it follows
with respect to comparable loans held in its own portfolio. Consistent with the
above, the Servicer may, in its discretion, (i) waive any assumption fee, late
payment charge, or other charge in connection with a Mortgage Loan or Contract
and (ii) to the extent provided in the related Agreement arrange with an obligor
a schedule for the liquidation of delinquencies by extending the dates on which
the related payments (the "Scheduled Payments") are due (the "Due Dates") on
such Mortgage Loan or Contract.
The Servicer, to the extent permitted by law, will establish and
maintain escrow or impound accounts ("Escrow Accounts") with respect to Mortgage
Loans and/or Contracts in which payments by obligors to pay taxes, assessments,
mortgage and hazard insurance premiums, and other comparable items will be
deposited. Mortgage Loans and/or Contracts may not require such payments under
the loan related documents, in which case the Servicer would not be required to
establish any Escrow Account with respect to such Mortgage Loans and/or
Contracts. Withdrawals from the Escrow Accounts are to be made to effect timely
payment of taxes, assessments and mortgage and hazard insurance, to refund to
obligors amounts determined to be overages, to pay interest to obligors on
balances in the Escrow Account to the extent required by law, to repair or
otherwise protect the Mortgaged Property securing the related Mortgage Loan or
Manufactured Home securing the related Contract and to clear and terminate such
Escrow Account. The Servicer will be responsible for the administration of the
Escrow Accounts and generally will make advances to such accounts when a
deficiency exists therein.
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Deposits to and Withdrawals from the Collection Account
The Trustee or the Servicer will establish a separate account (the
"Collection Account") in the name of the Trustee. The Collection Account will be
an account maintained (i) at a depository institution, the long-term unsecured
debt obligations of which at the time of any deposit therein are rated by each
Rating Agency rating the Securities of such Series at levels satisfactory to
each Rating Agency or (ii) in an account or accounts the deposits in which are
insured to the maximum extent available by the Federal Deposit Insurance
Corporation ("FDIC") or which are secured in a manner meeting requirements
established by each Rating Agency.
The funds held in the Collection Account may be invested, pending
remittance to the Trustee, in Eligible Investments. The Servicer will be
entitled to receive as additional compensation any interest or other income
earned on funds in the Collection Account.
The Servicer, the Depositor, the Trustee or the Originator, as
appropriate, will deposit into the Collection Account for each Series on the
Business Day following the Closing Date any amounts representing Scheduled
Payments due after the related Cut-off Date but received by the Servicer on or
before the Closing Date, and thereafter, within two business days after the date
of receipt thereof, the following payments and collections received or made by
it (other than in respect of principal of and interest on the related Primary
Assets due on or before such Cut-off Date):
(i) All payments on account of principal, including
prepayments, on such Primary Assets;
(ii) All payments on account of interest on such Primary
Assets after deducting therefrom, at the discretion of the Servicer but
only to the extent of the amount permitted to be withdrawn or withheld
from the Collection Account in accordance with the related Agreement,
the Servicing Fee in respect of such Primary Assets;
(iii) All amounts received by the Servicer in connection with
the liquidation of Primary Assets or property acquired in respect
thereof, whether through foreclosure sale, repossession or otherwise,
including payments in connection with such Primary Assets received from
the obligor, other than amounts required to be paid or refunded to the
obligor pursuant to the terms of the applicable loan documents or
otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in
the discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Collection Account in accordance
with the related Agreement, the Servicing Fee, if any, in respect of
the related Primary Asset;
(iv) All proceeds under any title insurance, hazard insurance
or other insurance policy covering any such Primary Asset, other than
proceeds to be applied to the restoration or repair of the related
Mortgaged Property or Manufactured Home or released to the obligor in
accordance with the related Agreement;
(v) All amounts required to be deposited therein from any
applicable Reserve Fund for such Series pursuant to the related
Agreement;
(vi) All Advances made by the Servicer required pursuant to
the related Agreement; and
(vii) All repurchase prices of any such Primary Assets
repurchased by the Depositor, the Servicer or the Originator pursuant
to the related Agreement.
The Servicer may be permitted, from time to time, to make withdrawals
from the Collection Account for each Series for the following purposes:
(i) to reimburse itself for Advances for such Series made by
it pursuant to the related Agreement; the Servicer's right to reimburse
itself is limited to amounts received on or in respect of particular
Mortgage Loans and/or Contracts (including, for this purpose,
Liquidation Proceeds and amounts representing proceeds of insurance
policies covering the related Mortgaged Property or Manufactured
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Home, as applicable) which represent late recoveries of Scheduled
Payments respecting which any such Advance was made;
(ii) to the extent provided in the related Agreement, to
reimburse itself for any Advances for such Series that the Servicer
determines in good faith it will be unable to recover from amounts
representing late recoveries of Scheduled Payments respecting which
such Advance was made or from Liquidation Proceeds or the proceeds of
insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for
liquidation expenses and for amounts expended by it in good faith in
connection with the restoration of damaged Mortgaged Property or
Manufactured Home and, in the event deposited in the Collection Account
and not previously withheld, and to the extent that Liquidation
Proceeds after such reimbursement exceed the outstanding principal
balance of the related Mortgage Loan or Contract, together with accrued
and unpaid interest thereon to the Due Date for such Mortgage Loan next
succeeding the date of its receipt of such Liquidation Proceeds, to pay
to itself out of such excess the amount of any unpaid Servicing Fee and
any assumption fees, late payment charges, or other charges on the
related Mortgage Loan or Contract;
(iv) in the event it has elected not to pay itself the
Servicing Fee out of the interest component of any Scheduled Payment,
late payment or other recovery with respect to a particular Mortgage
Loan or Contract prior to the deposit of such Scheduled Payment, late
payment or recovery into the Collection Account, to pay to itself the
Servicing Fee, as adjusted pursuant to the related Agreement, from any
such Scheduled Payment, late payment or such other recovery, to the
extent permitted by the related Agreement;
(v) to reimburse itself for expenses incurred by and
recoverable by or reimbursable to it pursuant to the related Agreement;
(vi) to pay to the applicable person with respect to each
Primary Asset or Mortgaged Properties acquired through or in lieu of
foreclosure (each, an "REO Property") acquired in respect thereof that
has been repurchased or removed from the Trust Fund by the Depositor,
the Servicer or the Originator pursuant to the related Agreement, all
amounts received thereon and not distributed as of the date on which
the related repurchase price was determined;
(vii) to make payments to the Trustee of such Series for
deposit into the Distribution Account, if any, or for remittance to the
Holders of such Series in the amounts and in the manner provided for in
the related Agreement; and
(viii) to clear and terminate the Collection Account pursuant
to the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
Advances and Limitations Thereon
The related Prospectus Supplement will describe the circumstances, if
any, under which the Servicer will make Advances with respect to delinquent
payments on Mortgage Loans and/or Contracts. The Servicer will be obligated to
make Advances, and such obligation may be limited in amount, or may not be
activated until a certain portion of a specified Reserve Fund is depleted.
Advances are intended to provide liquidity and, except to the extent specified
in the related Prospectus Supplement, not to guarantee or insure against losses.
Accordingly, any funds advanced are recoverable by the Servicer out of amounts
received on particular Mortgage Loans and/or Contracts which represent late
recoveries of principal or interest, proceeds of insurance policies or
Liquidation Proceeds respecting which any such Advance was made. If an Advance
is made and subsequently determined to be nonrecoverable from late collections,
proceeds of insurance policies, or Liquidation Proceeds from the related
Mortgage Loan or Contract, the Servicer may be entitled to reimbursement from
other funds in the Collection Account or Distribution Account, as the case may
be, or from a specified Reserve Fund as applicable, to the extent specified in
the related Prospectus Supplement.
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Maintenance of Insurance Policies and other Servicing Procedures
Standard Hazard Insurance; Flood Insurance. The related Prospectus
Supplement will specify the extent to which the Servicer will be required to
maintain or to cause the obligor on each Mortgage Loan or Contract to maintain a
standard hazard insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is customary in
the state in which the related Mortgaged Property or Manufactured Home is
located. The standard hazard insurance policies will provide for coverage at
least equal to the applicable state standard form of fire insurance policy with
extended coverage for property of the type securing the related Mortgage Loans
and/or Contracts. In general, the standard form of fire and extended coverage
policy will cover physical damage to or destruction of, the related Mortgaged
Property or Manufactured Home caused by fire, lightning, explosion, smoke,
windstorm, hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Because the standard hazard insurance
policies relating to the Mortgage Loans and/or Contracts will be underwritten by
different hazard insurers and will cover Mortgaged Properties and Manufactured
Homes located in various states, such policies will not contain identical terms
and conditions. The basic terms, however, generally will be determined by state
law and generally will be similar. Most such policies typically will not cover
any physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), nuclear reaction, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in certain cases, vandalism. The
foregoing list is merely indicative of certain kinds of uninsured risks and is
not intended to be all inclusive. Uninsured risks not covered by a special
hazard insurance policy or other form of Credit Enhancement will adversely
affect distributions to Holders. When a Mortgaged Property securing a Mortgage
Loan is located in a flood area identified by HUD pursuant to the Flood Disaster
Protection Act of 1973, as amended, the Servicer will be required to cause flood
insurance to be maintained with respect to such Mortgaged Property, to the
extent available.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans or Manufactured Home Securing a Contract typically will
contain a "coinsurance" clause which, in effect, will require the insured at all
times to carry hazard insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the Mortgaged Property or Manufactured Home,
including the improvements on any Mortgaged Property or Manufactured Home, in
order to recover the full amount of any partial loss. If the insured's coverage
falls below this specified percentage, such clause will provide that the hazard
insurer's liability in the event of partial loss will not exceed the greater of
(i) the actual cash value (the replacement cost less physical depreciation) of
the Mortgaged Property or Manufactured Home, including the improvements, if any,
damaged or destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such Mortgaged Property or
Manufactured Home and improvements. Since the amount of hazard insurance to be
maintained on the improvements securing the Mortgage Loans and Manufactured
Homes declines as the principal balances owing thereon decrease, and since the
value of the Mortgaged Properties or Manufactured Home will fluctuate in value
over time, the effect of this requirement in the event of partial loss may be
that hazard insurance proceeds will be insufficient to restore fully the damage
to the affected Mortgaged Property or Manufactured Home.
Generally, coverage will be in an amount at least equal to the greater
of (i) the amount necessary to avoid the enforcement of any co-insurance clause
contained in the policy or (ii) the outstanding principal balance of the related
Mortgage Loan or Contract. The Servicer may also maintain on REO Property that
secured a defaulted Mortgage Loan and that has been acquired upon foreclosure,
deed in lieu of foreclosure, or repossession, a standard hazard insurance policy
in an amount that is at least equal to the maximum insurable value of such REO
Property. No earthquake or other additional insurance will be required of any
obligor or will be maintained on REO Property acquired in respect of a defaulted
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and shall require such additional insurance.
Any amounts collected by the Servicer under any such policies of
insurance (other than amounts to be applied to the restoration or repair of the
Mortgaged Property or Manufactured Home, released to the obligor in accordance
with normal servicing procedures or used to reimburse the Servicer for amounts
to which it is entitled to reimbursement) will be deposited in the Collection
Account. In the event that the Servicer obtains and maintains a blanket policy
insuring against hazard losses on all of the Mortgage Loans and/or Contracts,
written by an insurer then acceptable to each Rating Agency which assigns a
rating to such Series, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a standard hazard insurance policy for
each Loan or related REO
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Property. This blanket policy may contain a deductible clause, in which case the
Servicer will be required, in the event that there has been a loss that would
have been covered by such policy absent such deductible clause, to deposit in
the Collection Account the amount not otherwise payable under the blanket policy
because of the application of such deductible clause.
Realization upon Defaulted Mortgage Loans
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Mortgaged
Properties securing the related Mortgage Loans or possession of the Manufactured
Homes securing the Contracts as come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure, repossession or other conversion,
the Servicer will follow such practices and procedures as it deems necessary or
advisable and as are normal and usual in its servicing activities with respect
to comparable loans serviced by it. However, the Servicer will not be required
to expend its own funds in connection with any foreclosure or repossession or
towards the restoration of the Mortgaged Property or Manufactured Home unless it
determines that (i) such restoration, repossession or foreclosure will increase
the Liquidation Proceeds in respect of the related Mortgage Loan or Contract
available to the Holders after reimbursement to itself for such expenses and
(ii) such expenses will be recoverable by it either through Liquidation Proceeds
or the proceeds of insurance. Notwithstanding anything to the contrary herein,
in the case of a Trust Fund for which a REMIC election has been made, the
Servicer will be required to liquidate any Mortgaged Property acquired through
foreclosure within two years after the acquisition of the beneficial ownership
of such Mortgaged Property. While the holder of a Mortgaged Property acquired
through foreclosure can often maximize its recovery by providing financing to a
new purchaser, the Trust Fund, if applicable, will have no ability to do so and
neither the Servicer nor the Depositor will be required to do so.
The Servicer may arrange with the obligor on a defaulted Mortgage Loan
or Contract a modification of such Mortgage Loan or Contract (a "Modification")
to the extent provided in the related Prospectus Supplement. Such Modifications
may only be entered into if they meet the underwriting policies and procedures
employed by the Servicer in servicing receivables for its own account and meet
the other conditions set forth in the related Prospectus Supplement.
Enforcement of Due-On-Sale Clauses
When any Mortgaged Property is about to be conveyed by the obligor, the
Servicer may, to the extent it has knowledge of such prospective conveyance and
prior to the time of the consummation of such conveyance, exercise its rights to
accelerate the maturity of the related Mortgage Loan under the applicable
"due-on-sale" clause, if any, unless it reasonably believes that such clause is
not enforceable under applicable law or if the enforcement of such clause would
result in loss of coverage under any primary mortgage insurance policy. In such
event, the Servicer is authorized to accept from or enter into an assumption
agreement with the person to whom such Mortgaged Property has been or is about
to be conveyed, pursuant to which such person becomes liable under the Mortgage
Loan and pursuant to which the original obligor is released from liability and
such person is substituted as the obligor and becomes liable under the Mortgage
Loan. Any fee collected in connection with an assumption will be retained by the
Servicer as additional servicing compensation. The terms of a Mortgage Loan may
not be changed in connection with an assumption.
Servicing Compensation and Payment of Expenses
The Servicer will be entitled to a periodic fee as servicing
compensation (the "Servicing Fee") in an amount to be determined as specified in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, the Servicer
will be entitled to servicing compensation in the form of assumption fees, late
payment charges and similar items, or excess proceeds following disposition of
Mortgaged Property in connection with defaulted Mortgage Loans or Manufactured
Homes in connection with a defaulted Contract, as will be further specified in
the related Prospectus Supplement,.
The Servicer may pay certain expenses incurred in connection with the
servicing of the Mortgage Loans, including, without limitation, the payment of
the fees and expenses of the Trustee and independent accountants,
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payment of insurance policy premiums and the cost of credit support, if any, and
payment of expenses incurred in preparation of reports to Holders.
When an obligor makes a principal prepayment in full between Due Dates
on the related Mortgage Loan or Contract, the obligor will generally be required
to pay interest on the amount prepaid only to the date of prepayment. If and to
the extent provided in the related Prospectus Supplement in order that one or
more Classes of the Holders of a Series will not be adversely affected by any
resulting shortfall in interest, the amount of the Servicing Fee may be reduced
to the extent necessary to include in the Servicer's remittance to the Trustee
for deposit into the Distribution Account an amount equal to one month's
interest on the related Mortgage Loan or Contract (less the Servicing Fee). If
the aggregate amount of such shortfalls in a month exceeds the Servicing Fee for
such month, a shortfall to Holders may occur.
The Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Mortgage Loans or
Contracts. The related Holders will suffer no loss by reason of such expenses to
the extent expenses are covered under related insurance policies or from excess
Liquidation Proceeds. If claims are either not made or paid under the applicable
insurance policies or if coverage thereunder has been exhausted, the related
Holders will suffer a loss to the extent that Liquidation Proceeds, after
reimbursement of the Servicer's expenses, are less than the outstanding
principal balance of and unpaid interest on the related Mortgage Loan or
Contract which would be distributable to Holders. In addition, the Servicer will
be entitled to reimbursement of expenditures incurred by it in connection with
the restoration of property securing a defaulted Mortgage Loan or Contract, such
right of reimbursement being prior to the rights of the Holders to receive any
related proceeds of insurance policies, Liquidation Proceeds or amounts derived
from other Credit Enhancement. The Servicer is generally also entitled to
reimbursement from the Collection Account for Advances.
The rights of the Servicer to receive funds from the Collection Account
for a Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, may be subordinate to the
rights of Holders of such Series as set forth in the related Agreement.
Evidence as to Compliance
The applicable Agreement for each Series will provide that each year, a
firm of independent public accountants will furnish a statement to the Trustee
to the effect that such firm has examined certain documents and records relating
to the servicing of the Mortgage Loans and/or Contracts by the Servicer and
that, on the basis of such examination, such firm is of the opinion that the
servicing has been conducted in compliance with such Agreement, except for (i)
such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement.
The applicable Agreement for each Series will also provide for delivery
to the Trustee for such Series of an annual statement signed by an officer of
the Servicer to the effect that the Servicer has fulfilled its obligations under
such Agreement throughout the preceding calendar year.
Certain Matters Regarding the Servicer
The Servicer for each Series will be identified in the related
Prospectus Supplement. The Servicer may be an affiliate of the Depositor and may
have other business relationships with the Depositor and its affiliates.
If an event of default ("Event of Default") occurs under either a
Servicing Agreement or a Pooling and Servicing Agreement, the Servicer may be
replaced by the Trustee or a successor Servicer. Such Events of Default and the
rights of the Trustee upon such a default under the Agreement for the related
Series will be substantially similar to those described under "THE AGREEMENTS--
Events of Default; Rights Upon Events of Default--Pooling and Servicing
Agreement; Servicing Agreement" herein.
The related Agreement will specify the circumstances under which the
Servicer may assign its rights and delegate its duties and obligations
thereunder for each Series, which generally will require that the successor
Servicer accepting such assignment or delegation (i) services similar loans in
the ordinary course of its business, (ii)
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is reasonably satisfactory to the Trustee for the related Series, (iii) has a
net worth of not less than the amount specified in the related Prospectus
Supplement, (iv) would not cause any Rating Agency's rating of the Securities
for such Series in effect immediately prior to such assignment, sale or transfer
to be qualified, downgraded or withdrawn as a result of such assignment, sale or
transfer and (v) executes and delivers to the Trustee an agreement, in form and
substance reasonably satisfactory to the Trustee, which contains an assumption
by such Servicer of the due and punctual performance and observance of each
covenant and condition to be performed or observed by the Servicer under the
related Agreement from and after the date of such agreement. No such assignment
will become effective until the Trustee or a successor Servicer has assumed the
servicer's obligations and duties under the related Agreement. To the extent
that the Servicer transfers its obligations to a wholly-owned subsidiary or
affiliate, such subsidiary or affiliate need not satisfy the criteria set forth
above; however, in such instance, the assigning Servicer will remain liable for
the servicing obligations under the related Agreement. Any entity into which the
Servicer is merged or consolidated or any successor corporation resulting from
any merger, conversion or consolidation will succeed to the Servicer's
obligations under the related Agreement provided that such successor or
surviving entity meets the requirements for a successor Servicer set forth
above.
Except to the extent otherwise provided therein, each Agreement will
provide that neither the Servicer, nor any director, officer, employee or agent
of the Servicer, will be under any liability to the related Trust Fund, the
Depositor or the Holders for any action taken or for failing to take any action
in good faith pursuant to the related Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any breach of warranty or representations made under such
Agreement or the failure to perform its obligations in compliance with any
standard of care set forth in such Agreement, or liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder. Each Agreement will further provide that the
Servicer and any director, officer, employee or agent of the Servicer is
entitled to indemnification from the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Securities, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, the related
Agreement will provide that the Servicer is not under any obligation to appear
in, prosecute or defend any legal action which is not incidental to its
servicing responsibilities under such Agreement which, in its opinion, may
involve it in any expense or liability. The Servicer may, in its discretion,
undertake any such action which it may deem necessary or desirable with respect
to the related Agreement and the rights and duties of the parties thereto and
the interests of the Holders thereunder. In such event the legal expenses and
costs of such action and any liability resulting therefrom may be expenses,
costs, and liabilities of the Trust Fund and the Servicer may be entitled to be
reimbursed therefor out of the Collection Account.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the related Agreements.
Assignment of Primary Assets
General. At the time of issuance of the Securities of a Series, the
Originator will transfer, convey and assign to the Trust Fund all right, title
and interest of the Originator in the Primary Assets and other property to be
transferred to the Trust Fund for a Series. Such assignment will include all
principal and interest due on or with respect to the Primary Assets after the
Cut-off Date specified in the related Prospectus Supplement (except for any
interests in the Trust Fund retained by the Depositor or its affiliate
("Retained Interests")). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
Assignment of Mortgage Loans. The Depositor will, as to each Mortgage
Loan, deliver or cause to be delivered to the Trustee, or, as specified in the
related Prospectus Supplement a custodian on behalf of the Trustee (the
"Custodian"), the Mortgage Note endorsed without recourse to the order of the
Trustee or in blank, the original Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public
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recording office, in which case a copy of such Mortgage will be delivered,
together with a certificate that the original of such Mortgage was delivered to
such recording office) and an assignment of the Mortgage in recordable form. The
Trustee or the Custodian will hold such documents in trust for the benefit of
the Holders.
With respect to Mortgage Loans secured by Mortgages and to the extent
described in the related Prospectus Supplement, the Depositor will, at the time
of issuance of the Securities, cause assignments to the Trustee of the Mortgages
relating to the Mortgage Loans for a Series to be recorded in the appropriate
public office for real property records, except in states where, in the opinion
of counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in the related Mortgage Loans. The Depositor will cause
such assignments to be so recorded within the time after issuance of the
Securities as is specified in the related Prospectus Supplement, in which event,
the Agreement may require the Originator to repurchase from the Trustee any
Mortgage Loan the related Mortgage of which is not recorded within such time, at
the price described below with respect to repurchases by reason of defective
documentation. The related Prospectus Supplement will specify whether or not the
enforcement of the repurchase obligation would constitute the sole remedy
available to the Holders or the Trustee for the failure of a Mortgage to be
recorded.
Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the related Agreement (the "Loan Schedule"). Such Loan Schedule will
specify with respect to each Mortgage Loan: the original principal amount and
unpaid principal balance as of the Cut-off Date; the current interest rate; the
current Scheduled Payment of principal and interest; the maturity date, if any,
of the related Mortgage Note; if the Mortgage Loan is an adjustable rate
Mortgage Loan, the Lifetime Rate Cap, if any, and the current index.
Assignment of Private Securities. The Depositor will cause Private
Securities to be registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its nominee or correspondent) will have
possession of any certificated Private Securities. The related Prospectus
Supplement will specify whether or not the Trustee will be in possession of or
be assignee of record of any underlying assets for a Private Security. See "THE
TRUST FUNDS--Private Securities" herein. Each Private Security will be
identified in a schedule appearing as an exhibit to the related Agreement (the
"Certificate Schedule"), which will specify the original principal amount,
outstanding principal balance as of the Cut-off Date, annual pass-through rate
or interest rate and maturity date for each Private Security conveyed to the
Trust Fund. In the Agreement, the Depositor will represent and warrant to the
Trustee regarding the Private Securities: (i) that the information contained in
the Certificate Schedule is true and correct in all material respects; (ii)
that, immediately prior to the conveyance of the Private Securities, the
Depositor had good title thereto, and was the sole owner thereof (subject to any
Retained Interest); (iii) that there has been no other sale by it of such
Private Securities; and (iv) that there is no existing lien, charge, security
interest or other encumbrance (other than any Retained Interest) on such Private
Securities.
Repurchase and Substitution of Non-Conforming Primary Assets. If any
document required to be in the file relating to the Primary Assets delivered by
the Depositor to the Trustee (or Custodian) is found by the Trustee within a
period not to exceed 90 days of the execution of the related Agreement (or
promptly after the Trustee's receipt of any document permitted to be delivered
after the Closing Date) to be defective in any material respect and the
Depositor or Originator does not cure such defect within a period not to exceed
90 days, the Depositor or Originator will, not later than a period not to exceed
90 days after the Trustee's notice to the Depositor or the Originator, as the
case may be, of the defect, repurchase the related Primary Asset or any property
acquired in respect thereof from the Trustee at a price generally equal to, (a)
the lesser of (i) the outstanding principal balance of such Primary Asset and
(ii) the Trust Fund's federal income tax basis in the Primary Asset and (b)
accrued and unpaid interest to the date of the next scheduled payment on such
Primary Asset at the rate set forth in the related Agreement, provided, however,
the purchase price shall not be limited in (i) above to the Trust Fund's federal
income tax basis if the repurchase at a price equal to the outstanding principal
balance of such Primary Asset will not result in any prohibited transaction tax
under Section 860F(a) of the Code.
The Depositor or Originator, as the case may be, may, rather than
repurchase the Primary Asset as described above, remove such Primary Asset from
the Trust Fund (the "Deleted Primary Asset") and substitute in its place one or
more other Primary Assets (each, a "Qualifying Substitute Primary Asset")
provided, however, that (i) with respect to a Trust Fund for which no REMIC
election is made, such substitution must be effected within 120 days of the date
of initial issuance of the Securities and (ii) with respect to a Trust Fund for
which a REMIC election is made, after a specified time period, the Trustee must
have received a satisfactory opinion of counsel that such
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substitution will not cause the Trust Fund to lose its status as a REMIC or
otherwise subject the Trust Fund to a prohibited transaction tax.
Any Qualifying Substitute Primary Asset will have, on the date of
substitution, (i) an outstanding principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Primary Asset (the amount of any
shortfall to be deposited to the Collection Account in the month of substitution
for distribution to Holders), (ii) an interest rate not less than the interest
rate of the Deleted Primary Asset, (iii) a remaining term-to-stated maturity not
greater than that of the Deleted Primary Asset, and will comply with all of the
representations and warranties set forth in the applicable Agreement as of the
date of substitution.
The above-described cure, repurchase or substitution obligations
constitute the sole remedies available to the Holders or the Trustee for a
material defect in a document for a Primary Asset.
The Depositor or another entity will make representations and
warranties with respect to Primary Assets for a Series. If the Depositor or such
entity cannot cure a breach of any such representations and warranties in all
material respects within the time period specified in the related Prospectus
Supplement after notification by the Trustee of such breach, and if such breach
is of a nature that materially and adversely affects the value of such Primary
Asset, the Depositor or such entity is obligated to repurchase the affected
Primary Asset or, if provided in the related Prospectus Supplement, provide a
Qualifying Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations,
if any, of the responsible originator or Originator of such Primary Assets. See
"SPECIAL CONSIDERATIONS--Limited Assets" herein.
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Agreement for such
Series to institute any proceeding with respect to such Agreement, unless such
Holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Securities evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
Reports to Holders
The Trustee or other entity specified in the related Prospectus
Supplement will prepare and forward to each Holder on each Distribution Date, or
as soon thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
(i) the amount of principal distributed to Holders of the
related Securities and the outstanding principal balance of such
Securities following such distribution;
(ii) the amount of interest distributed to Holders of the
related Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included
in such distribution, (b) any remaining overdue accrued interest with
respect to such Securities or (c) any current shortfall in amounts to
be distributed as accrued interest to Holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining overdue
principal amounts with respect to such Securities, (c) any current
shortfall in receipt of scheduled principal payments on the related
Primary Assets or (d) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding principal balances of such
Securities;
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(v) the amount received under any related Credit Enhancement,
and the remaining amount available under such Credit Enhancement;
(vi) the amount of any delinquencies with respect to payments
on the related Primary Assets;
(vii) the book value of any REO Property acquired by the
related Trust Fund; and
(viii) such other information as specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each Holder of record at any time
during such calendar year (a) the aggregate of amounts reported pursuant to (i),
(ii), and (iv)(d) above for such calendar year and (b) such information
specified in the related Agreement to enable Holders to prepare their tax
returns including, without limitation, the amount of original issue discount
accrued on the Securities, if applicable. Information in the Distribution Date
and annual statements provided to the Holders will not have been examined and
reported upon by an independent public accountant. However, the Servicer will
provide to the Trustee a report by independent public accountants with respect
to the Servicer's servicing of the Mortgage Loans. See "SERVICING OF MORTGAGE
LOANS --Evidence as to Compliance" herein.
A Series of Securities or one or more Classes of such Series may be
issued in book-entry form. In such event, owners of beneficial interests in such
Securities will not be considered Holders and will not receive such reports
directly from the Trustee. The Trustee will forward such reports only to the
entity or its nominee which is the registered holder of the global certificate
which evidences such book-entry securities. Beneficial owners will receive such
reports from the participants and indirect participants of the applicable
book-entry system in accordance with the practices and procedures of such
entities.
Events of Default; Rights Upon Event of Default
Pooling and Servicing Agreement; Servicing Agreement. Events of Default
under the Pooling and Servicing Agreement for each Series of Certificates
relating to Mortgage Loans and/or Contracts generally include (i) any failure by
the Servicer to deposit amounts in the Collection Account and Distribution
Account to enable the Trustee to distribute to Holders of such Series any
required payment, which failure continues unremedied for the number of days
specified in the related Prospectus Supplement after the giving of written
notice of such failure to the Servicer by the Trustee for such Series, or to the
Servicer and the Trustee by the Holders of such Series evidencing not less than
25% of the aggregate voting rights of the Securities for such Series, (ii) any
failure by the Servicer duly to observe or perform in any material respect any
other of its covenants or agreements in the applicable Agreement which continues
unremedied for the number of days specified in the related Prospectus Supplement
after the giving of written notice of such failure to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Holders of such Series
evidencing not less than 25% of the aggregate voting rights of the Securities
for such Series, and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
The related Agreement will specify the circumstances under which the
Trustee of the Holders of Securities may remove the Servicer upon the occurrence
and continuance of an Event of Default thereunder relating to the servicing of
Mortgage Loans and/or Contracts (other than its right to recovery of other
expenses and amounts advanced pursuant to the terms of such Agreement which
rights the Servicer will retain under all circumstances), whereupon the Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under such Agreement and will be entitled to reasonable servicing compensation
not to exceed the applicable servicing fee, together with other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in such Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth specified in
the related Prospectus Supplement to act as successor Servicer under the
provisions of the applicable Agreement. The successor Servicer would be entitled
to reasonable servicing compensation in an amount not to exceed the Servicing
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Fee as set forth in the related Prospectus Supplement, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise, as provided in such Agreement.
During the continuance of any Event of Default of a Servicer under an
Agreement for a Series of Securities, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Holders of such Series, and Holders of
Securities evidencing not less than 51% of the aggregate voting rights of the
Securities for such Series may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Holders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
therein or thereby. The Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the nonassenting Holders.
Indenture. Events of Default under the Indenture for each Series of
Notes generally include: (i) a default in the payment of any principal of or
interest on any Note of such Series, which continues for the period of time
specified in the related Prospectus Supplement; (ii) failure to perform any
other covenant of the Depositor or the Trust Fund in the Indenture which
continues for the period of time specified in the related Prospectus Supplement
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by the
Depositor or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within the period of time specified in the
related Prospectus Supplement after notice thereof is given in accordance with
the procedures described in the related Prospectus Supplement; (iv) certain
events of bankruptcy, insolvency, receivership or liquidation of the Depositor
or the Trust Fund; or (v) any other Event of Default provided with respect to
Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series are Zero
Coupon Securities, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the Holders of a
majority in aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, unless (a) the Holders of 100% of the then aggregate outstanding amount of
the Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for
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the enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of Notes of such Series, unless such Holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the Holders of a majority of the
then aggregate outstanding amount of the Notes of such Series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes of such Series, and the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
The Trustee
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor or the Servicer. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents will have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee will continue to be responsible for its duties and obligations under
the Agreement.
Duties of the Trustee
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any Primary Asset or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the Holders
or the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the Holders in an
Event of Default. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the Agreement, or in the exercise of any of its rights or powers, if it
has reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
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Resignation of Trustee
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) if the Trustee ceases to be eligible to continue as such
under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
Holders of Securities evidencing over 50% of the aggregate voting rights of the
Securities in the Trust Fund upon written notice to the Trustee and to the
Depositor. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
Amendment of Agreement
The Agreement for each Series of Securities may be amended by the
Depositor, the Servicer (with respect to a Series relating to Mortgage Loans
and/or Contracts), and the Trustee with respect to such Series, without notice
to or consent of the Holders (i) to cure any ambiguity, (ii) to correct any
defective provisions or to correct or supplement any provision therein, (iii) to
add to the duties of the Depositor, the Trust Fund or Servicer, (iv) to add any
other provisions with respect to matters or questions arising under such
Agreement or related Credit Enhancement, (v) to add or amend any provisions of
such Agreement as required by a Rating Agency in order to maintain or improve
the rating of the Securities (it being understood that none of the Depositor,
the Originator, the Servicer or Trustee is obligated to maintain or improve such
rating), or (vi) to comply with any requirements imposed by the Code; provided
that any such amendment except pursuant to clause (vi) above will not adversely
affect in any material respect the interests of any Holders of such Series, as
evidenced by an opinion of counsel. Any such amendment except pursuant to clause
(vi) of the preceding sentence shall be deemed not to adversely affect in any
material respect the interests of any Holder if the Trustee receives written
confirmation from each Rating Agency rating such Securities that such amendment
will not cause such Rating Agency to reduce the then current rating thereof. The
Agreement for each Series may also be amended by the Trustee, the Servicer, if
applicable, and the Depositor with respect to such Series with the consent of
the Holders possessing not less than 66 2/3% of the aggregate outstanding
principal amount of the Securities of such Series or, if only certain Classes of
such Series are affected by such amendment, 66 2/3% of the aggregate outstanding
principal amount of the Securities of each Class of such Series affected
thereby, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Agreement or modifying in any
manner the rights of Holders of such Series; provided, however, that no such
amendment may (a) reduce the amount or delay the timing of payments on any
Security without the consent of the Holder of such Security; or (b) reduce the
aforesaid percentage of the aggregate outstanding principal amount of Securities
of each Class, the Holders of which are required to consent to any such
amendment without the consent of the Holders of 100% of the aggregate
outstanding principal amount of each Class of Securities affected thereby.
Voting Rights
The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series.
List of Holders
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the Agreement, which request is accompanied by a copy of the communication which
such Holders propose to transmit, the Trustee will afford such Holders access
during business hours to the most recent list of Holders of that Series held by
the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Holders.
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Form of Securities
The Securities in each Series will either be issued as physical
certificates or in uncertificated book-entry form. Physical certificates
("Physical Certificates") in fully registered form only in the denominations
specified in the related Prospectus Supplement, and will be transferable and
exchangeable at the corporate trust office of the registrar of the Securities
(the "Security Registrar") named in the related Prospectus Supplement. No
service charge will be made for any registration of exchange or transfer of
Securities, but the Trustee may require payment of a sum sufficient to cover any
tax or other government charge.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be issued in uncertificated book-entry form
("Book-Entry Securities"), and will be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code
("UCC") and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system also is
available to others such as brokers, dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participant").
Under a book-entry format, Holders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of the Securities registered in the name of Cede, as nominee of DTC,
may do so only through Participants and Indirect Participants. In addition, such
Holders will receive all distributions of principal of and interest on the
Securities from the Trustee through DTC and its Participants. Under a book-entry
format, Holders will receive payments after the related Payment Date because,
while payments are required to be forwarded to Cede, as nominee for DTC, on each
such date, DTC will forward such payments to its Participants, which thereafter
will be required to forward such payments to Indirect Participants or Holders.
Unless and until Physical Securities are issued, it is anticipated that the only
Holder will be Cede, as nominee of DTC, and that the beneficial holders of
Securities will not be recognized by the Trustee as Holders under the Pooling
and Servicing Agreement. The beneficial holders of such Securities will only be
permitted to exercise the rights of Holders under the Pooling and Servicing
Agreement indirectly through DTC and its Participants who in turn will exercise
their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. Participants and Indirect Participants with which Holders have
accounts with respect to their Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Holders. Accordingly, although Holders will not process Securities,
the rules provide a mechanism by which Holders will receive distributions and
will be able to transfer their interests.
Unless and until Physical Certificates are issued, Holders who are not
Participants may transfer ownership of Securities only through Participants by
instructing such Participants to transfer Securities, by book-entry transfer,
through DTC for the account of the purchasers of such Securities, which account
is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of Securities
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the respective Participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Holder to
pledge Securities to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Securities may be limited
due to the lack of a Physical Certificate for such Securities.
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DTC in general advises that it will take any action permitted to be
taken by a Holder under a Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account with DTC the related Securities are
credited. Additionally, DTC in general advises that it will take such actions
with respect to specified percentages of the Holders only at the direction of
and on behalf of Participants whose holdings include current principal amounts
of outstanding Securities that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Securities to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Securities.
Any Securities initially registered as Physical Certificates in the
name of Cede, as nominee of DTC, will be issued in fully registered,
certificated form to Holders or their nominees, rather than to DTC or its
nominee only under the events specified in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement. Upon the
occurrence of any of the events specified in the related Pooling and Servicing
Agreement and the Prospectus Supplement, DTC will be required to notify all
Participants of the availability through DTC of Physical Certificates. Upon
surrender by DTC of the securities representing the Securities and instruction
for re-registration, the Trustee will take the Securities in the form of
Physical Certificates, and thereafter the Trustee will recognize the holders of
such Physical Certificates as Holders. Thereafter, payments of principal of and
interest on the Securities will be made by the Trustee directly to Holders in
accordance with the procedures set forth herein and in the Pooling and Servicing
Agreement. The final distribution of any Security (whether Physical Certificates
or Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to Holders.
REMIC Administrator
For any Series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the Trust Fund may be performed by a REMIC administrator, who may be
an affiliate of the Depositor.
Termination
Pooling and Servicing Agreement; Trust Agreement. The obligations
created by the Pooling and Servicing Agreement or Trust Agreement for a Series
will terminate upon the distribution to Holders of all amounts distributable to
them pursuant to such Agreement after the earlier of (i) the later of (a) the
final payment or other liquidation of the last Primary Asset remaining in the
Trust Fund for such Series and (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure or repossession in respect of any
Primary Asset; (ii) the repurchase, as described below, by the Servicer or other
entity specified in the related Prospectus Supplement from the Trustee for such
Series of all Primary Assets and other property at that time subject to such
Agreement; or (iii) the mandatory termination of the Trust by the Trustee, the
Servicer or certain other entities specified in the related Prospectus
Supplement by soliciting competitive bids for the purchase of the Primary Assets
of the related Trust Fund
Repurchase of the Remaining Primary Assets. The Agreement for each
Series may permit, but not require, the Servicer or other entity specified in
the related Prospectus Supplement to purchase from the Trust Fund for such
Series all remaining Primary Assets at a price equal to 100% of the aggregate
Principal Balance of such Primary Assets plus, with respect to any property
acquired in respect of a Primary Asset, if any, the outstanding Principal
Balance of the related Primary Asset at the time of foreclosure, less, in either
case, related unreimbursed Advances (in the case of the Primary Assets, only to
the extent not already reflected in the computation of the aggregate Principal
Balance of such Primary Assets) and unreimbursed expenses (that are reimbursable
pursuant to the terms of the Pooling and Servicing Agreement) plus, in either
case, accrued interest thereon at the weighted average rate on the related
Primary Assets through the last day of the Due Period in which such repurchase
occurs; provided, however, that if an election is made for treatment as a REMIC
under the Code, the repurchase price may equal the greater of (a) 100% of the
aggregate Principal Balance of such Primary Assets, plus accrued interest
thereon at the applicable net rates on the Primary Assets through the last day
of the month of such repurchase and (b) the aggregate fair market value of such
Primary Assets plus the fair market value of any property acquired in respect of
a Primary Asset and remaining in the Trust Fund. The exercise of such right will
effect early retirement of the Securities of such Series, but such entity's
right to so purchase is subject to the aggregate Principal Balance of the
Primary Assets
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at the time of repurchase being less than a fixed percentage, to be set forth in
the related Prospectus Supplement, of the aggregate Principal Balance of the
Primary Assets as of the Cut-off Date.
Mandatory Termination; Auction Sale. The Trustee, the Servicer or the
related Originator may be required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase of the related Trust
Estate.
The mandatory termination may take the form of an auction sale. Within
a certain period following the failure of the holder of the optional termination
right to exercise such right, the required party shall solicit bids for the
purchase of all Mortgage Loans remaining in the Trust. In the event that
satisfactory bids (which would not be less than an amount necessary to pay all
principal and interest on the securities outstanding) are received as specified
in the related Agreement, the net sale proceeds will be distributed to Holders,
in the same order of priority as collections received in respect of the Mortgage
Loans and/or Contracts. If satisfactory bids are not received, such party shall
decline to sell the Mortgage Loans and/or Contracts and shall not be under any
obligation to solicit any further bids or otherwise negotiate any further sale
of the Mortgage Loans and/or Contracts. Such sale and consequent termination of
the Trust must constitute a "qualified liquidation" of each REMIC established by
the Trust under Section 860F of the Internal Revenue Code of 1986, as amended,
including, without limitation, the requirement that the qualified liquidation
takes place over a period not to exceed 90 days.
In no event, however, will the trust created by the Agreement continue
beyond the expiration of 21 years from the death of the last survivor of certain
persons identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Agreement to each
Holder, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency specified in the notice of
termination. The Depositor or another entity may effect an optional termination
of the Trust Fund under the circumstances described in such Prospectus
Supplement. See "DESCRIPTION OF THE SECURITIES--Optional Redemption, Purchase or
Termination" herein.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
Mortgage Loans and Contracts, which are general in nature. Because certain of
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor reflect the laws
of any particular state, nor encompass the laws of all states in which the
properties securing the Mortgage Loans are situated.
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General
The Mortgage Loans will be represented by a Note and an accompanying
Mortgage. Pursuant to the Note, the related borrower is personally liable to
repay the indebtedness evidenced by the Mortgage Loan; pursuant to the Mortgage,
such indebtedness is secured by a lien on the related Mortgaged Property.
Enforcement of the Note
Pursuant to the Note, the related borrower is personally liable to
repay the indebtedness evidenced by the Mortgage Loan. In certain states, the
lender on a note secured by a lien on real property has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the related property
security. Consequently, the practical effect of the election requirement, in
those states permitting such election, is that lenders will usually proceed
against the property first rather than bringing a personal action against the
borrower on the Note.
Certain states have imposed statutory prohibitions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, including California, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the amount due to
the lender and the net amount realized upon the public sales of the real
property. In the case of a Mortgage Loan secured by a property owned by a trust
where the Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a deed of trust,
even if obtainable under applicable law, may be of little value to the mortgagee
or beneficiary if there are no trust assets against which such deficiency
judgment may be executed. Other statutes require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the borrower. Finally, in certain other states, statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure to the
excess of the outstanding debt over the fair value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or mortgagee from obtaining a large deficiency judgment against the
former borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a
monetary default in respect of a loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original loan
payment schedule even though the lender accelerated the loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a loan
default by paying arrearages over a number of years.
Court with federal bankruptcy jurisdiction also have indicated that the
terms of a loan secured by property of the debtor may be modified. These courts
have allowed modifications that include reducing the amount of each monthly
payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Certain states have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes for the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, lender have
been required to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disabilities.
In other cases, such courts have limited the right of the lender to foreclose if
the default under the loan
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is not monetary, such as the borrower failing to adequately maintain the
property or the borrower executing a second deed of trust affecting the
property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
loans by numerous federal and some state consumer protection laws. These laws
include, by example, the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes and state laws, such a s the
California Fair Debt Collection Practices Act. These laws and regulations impose
specific statutory liabilities upon lenders who originate loans and fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
Security Interests
Real Estate Mortgages. The Mortgage Loans for a Series will be secured
by either mortgages or deeds of trust or deeds to secure debt depending upon the
prevailing practice in the state in which the Mortgaged Property subject to a
Mortgage Loan is located. The filing of a mortgage, deed of trust or deed to
secure debt creates a lien or title interest upon the real property covered by
such instrument and represents the security for the repayment of an obligation
that is customarily evidenced by a promissory note. It is not prior to the lien
for real estate taxes and assessments or other charges imposed under
governmental police powers and may also be subject to other liens pursuant to
the laws of the jurisdiction in which the Mortgaged Property is located.
Priority with respect to such instruments depends on their terms, the knowledge
of the parties to the mortgage and generally on the order of recording with the
applicable state, county or municipal office. There are two parties to a
mortgage, the mortgagor, who is the borrower/property owner or the land trustee
(as described below), and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three parties because title to
the Mortgaged Property is held by a land trustee under a land trust agreement of
which the borrower/property owner is the beneficiary; at origination of a
Mortgage Loan, the borrower executes a separate undertaking to make payments on
the mortgage note. A deed of trust transaction normally has three parties: The
trustor, who is the borrower/property owner; the beneficiary, who is the lender;
and the trustee, a third-party grantee. Under a deed of trust, the trustor
grants the Mortgaged Property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the
obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
Foreclosure on Mortgages. Foreclosure of a mortgage is generally
accomplished by judicial action. Generally, the action is initiated by the
service of legal pleadings upon all parties having an interest of record in the
real property. Delays in completion of the foreclosure occasionally may result
from difficulties in locating necessary parties defendant. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming and expensive. After the completion of a
judicial foreclosure proceeding, the court may issue a judgment of foreclosure
and appoint a receiver or other officer to conduct the sale of the Mortgaged
Property. In some states, mortgages may also be foreclosed by advertisement,
pursuant to a power of sale provided in the mortgage. Foreclosure of a mortgage
by advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
nonjudicial trustee's sale under a specific provision in the deed of trust which
authorizes the trustee to sell the Mortgaged Property upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an interest in the real property, including any junior lienholders. If
the deed of trust is not reinstated within any applicable cure period, a notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the Mortgaged Property
and sent to all parties having an interest of record in the Mortgaged Property.
The trustor, borrower, or any person having a junior encumbrance on the real
estate, may,
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during a reinstatement period, cure the default by paying the entire amount in
arrears plus the costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the Mortgaged Property, recorded and sent to all parties
having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical condition of the Mortgaged Property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
Mortgaged Property at a foreclosure sale. Rather, it is common for the lender to
purchase the Mortgaged Property from the trustee or referee for an amount which
may be equal to the unpaid principal amount of the mortgage note secured by the
mortgage or deed of trust plus accrued and unpaid interest and the expenses of
foreclosure, in which event the mortgagor's debt will be extinguished or the
lender may purchase for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a judgment is
available. Thereafter, subject to the right of the borrower in some states to
remain in possession during the redemption period, the lender will assume the
burdens of ownership, including obtaining hazard insurance, paying taxes and
making such repairs at its own expense as are necessary to render the Mortgaged
Property suitable for sale. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the sale
of the Mortgaged Property. Depending upon market conditions, the ultimate
proceeds of the sale of the Mortgaged Property may not equal the lender's
investment in the Mortgaged Property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the trustor or mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the Mortgaged
Property from the foreclosure sale. The right of redemption should be
distinguished from the equity of redemption, which is a non-statutory right that
must be exercised prior to the foreclosure sale. In some states, redemption may
occur only upon payment of the entire principal balance of the loan, accrued
interest and expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed Mortgaged Property. The exercise of a right of
redemption would defeat the title of any purchaser at a foreclosure sale, or of
any purchaser from the lender subsequent to foreclosure or sale under a deed of
trust. Consequently the practical effect of a right of redemption is to force
the lender to retain the Mortgaged Property and pay the expenses of ownership
until the redemption period has run. In some states, there is no right to redeem
Mortgaged Property after a trustee's sale under a deed of trust.
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Junior Mortgages; Rights of Senior Mortgages. The Mortgage Loans
comprising or underlying the Primary Assets included in the Trust Fund for a
Series will be secured by mortgages or deeds of trust which may be second or
more junior mortgages to other mortgages held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the Holders), as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
under the senior mortgage, including the prior rights of the senior mortgagee to
receive hazard insurance and condemnation proceeds and to cause the Mortgaged
Property securing the Mortgage Loan to be sold upon default of the mortgagor,
thereby extinguishing the junior mortgagee's lien unless the junior mortgagee
asserts its subordinate interest in the Mortgaged Property in foreclosure
litigation and, possibly, satisfies the defaulted senior mortgage. A junior
mortgagee may satisfy a defaulted senior loan in full and, in some states, may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the Mortgaged Property are damaged or destroyed by fire or
other casualty, or in the event the Mortgaged Property is taken by condemnation,
the mortgagee or beneficiary under underlying senior mortgages will have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the senior mortgages. Proceeds in excess
of the amount of senior mortgage indebtedness, in most cases, may be applied to
the indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the Mortgaged Property and, when due,
all encumbrances, charges and liens on the Mortgaged Property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on the
Mortgaged Property, to maintain and repair the Mortgaged Property and not to
commit or permit any waste thereof, and to appear in and defend any action or
proceeding purporting to affect the Mortgaged Property or the rights of the
mortgagee under the mortgage. Upon a failure of the mortgagor to perform any of
these obligations, the mortgagee is given the right under certain mortgages to
perform the obligation itself, at its election, with the mortgagor agreeing to
reimburse the mortgagee for any sums expended by the mortgagee on behalf of the
mortgagor. All sums so expended by the mortgagee become part of the indebtedness
secured by the mortgage.
Due-On-Sale Clauses in Mortgage Loans. Due-on-sale clauses permit the
lender to accelerate the maturity of the loan if the borrower sells or
transfers, whether voluntarily or involuntarily, all or part of the real
Mortgaged Property securing the loan without the lender's prior written consent.
The enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases, typically involving single family
residential mortgage transactions, their enforceability has been limited or
denied. In any event, the Garn-St. Germain Depository Institutions Act of 1982
(the "Garn-St. Germain Act") preempts state constitutional, statutory and case
law that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain
exceptions. As a result, due-on-sale clauses have become generally enforceable
except in those states whose legislatures exercised their authority to regulate
the enforceability of such clauses with respect to loans that were (i)
originated or assumed during the "window period" under the Garn-St. Germain Act
which ended in all cases not later than October 15, 1982, and (ii) originated by
lenders other than national banks, federal savings institutions and federal
credit unions. The Federal Home Loan Mortgage Corporation ("FHLMC") has taken
the position in its published mortgage servicing standards that, out of a total
of eleven "window period states," five states (Arizona, Michigan, Minnesota, New
Mexico and Utah) have enacted statutes extending, on various terms and for
varying periods, the prohibition on enforcement of due-on-sale clauses with
respect to certain categories of window period loans. Also, the Garn-St. Germain
Act does "encourage" lenders to permit assumption of loans at the original rate
of interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
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Enforceability of Prepayment and Late Payment Fees. Forms of notes,
mortgages and deeds of trust used by lenders may contain provisions obligating
the borrower to pay a late charge if payments are not timely made, and in some
circumstances may provide for prepayment fees or penalties if the obligation is
paid prior to maturity. In certain states, there are or may be specific
limitations, upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. Late
charges and prepayment fees are typically retained by servicers as additional
servicing compensation.
Equitable Limitations on Remedies. In connection with lenders' attempts
to realize upon their security, courts have invoked general equitable
principles. The equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive actions to
determine the causes of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other cases,
courts have limited the right of a lender to realize upon his security if the
default under the security agreement is not monetary, such as the borrower's
failure to adequately maintain the Mortgaged Property or the borrower's
execution of secondary financing affecting the Mortgaged Property. Finally, some
courts have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under security agreements receive notices in addition to
the statutorily-prescribed minimums. For the most part, these cases have upheld
the notice provisions as being reasonable or have found that, in cases involving
the sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family loans may be prepaid in full or in part
without penalty. The regulations of the Office of Thrift Supervision (the "OTS")
prohibit the imposition of a prepayment penalty or equivalent fee for or in
connection with the acceleration of a loan by exercise of a due-on-sale clause.
A mortgagee to whom a prepayment in full has been tendered may be compelled to
give either a release of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment, particularly with respect to
loans having higher mortgage rates, may increase the likelihood of refinancing
or other early retirements of such loans.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations shall not apply to certain types of
residential first loans originated by certain lenders after March 31, 1980.
Similar federal statutes were in effect with respect to loans made during the
first three months of 1980. The OTS, as successor to the Federal Home Loan Bank
Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Tide V. Tide V authorizes any state
to reimpose interest rate limits by adopting, before April 1, 1983, a state law,
or by certifying that the voters of such state have voted in favor of any
provision, constitutional or otherwise, which expressly rejects an application
of the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V.
Security Interests in Personal Property and Fixtures. A portion of each
Mortgaged Property may consist of property which is "personal property" or a
"fixture" under local state law. This will most commonly occur when the proceeds
of the related Mortgage Loan were applied to property improvements, although any
Mortgaged Property may have some personal property components. A financing
statement generally is not required to be filed to perfect a purchase money
security interest in consumer goods. Such purchase money security interests are
assignable. In general, a purchase money security interest grants to the holder
a security interest that has priority over a conflicting security interest in
the same collateral and the proceeds of such collateral. However, to the extent
that the collateral subject to a purchase money security interest becomes a
fixture, in order for the related purchase money security interest to take
priority over a conflicting interest in the fixture, the holder's interest in
such personal property must generally be perfected by a timely fixture filing.
In general, under the Uniform Commercial Code (the "UCC"), a security interest
does not exist under the UCC in ordinary building material incorporated into an
improvement on land. Contracts that finance lumber, bricks, other types of
ordinary building material or other goods that are deemed
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to lose such characterization, upon incorporation of such materials into the
related property, will not be secured by a purchase money security interest in
the personal property being financed.
Enforcement of Security Interest in Personal Property. So long as the
personal property has not become subject to the real estate law, a creditor can
repossess such property securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgement from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgements, and in many cases
the defaulting borrower would have no assets with which to pay a judgement.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgement.
Consumer Protection Laws. The so-called "Holder-in-Due-Course" rule of
the Federal Trade Commission is intended to defeat the ability of the transferor
of a consumer credit contract which is the seller of goods which gave rise to
the transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
General -- Contracts
General
As a result of the assignment of the Contracts to the Trustee, the
Trust Fund will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) and will assume the obligations of the
obligee under the Contracts. Each Contract evidences both (a) the obligation of
the obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Servicer will transfer
physical possession of the Contracts to the Trustee or a designated custodian or
may retain possession of the Contracts as custodian for the Trustee. In
addition, the Servicer will make an appropriate filing of a UCC-1 financing
statement in the appropriate states to give notice of the Trustee's ownership of
the Contracts. Unless otherwise specified in the related Prospectus Supplement,
the Contracts will not be stamped or marked otherwise to reflect their
assignment from the Sponsor to the Trustee. Therefore, if through negligence,
fraud or otherwise, a subsequent purchaser were able to take physical possession
of the Contracts without notice of such assignment, the Trustee's interest in
Contracts could be defeated.
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Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some non-title states, perfection pursuant
to the provisions of the UCC is required. The Servicer may effect such notation
or delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional sales contract is
registered. In the event the Servicer fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC, in
a few states), the securityholders may not have a first priority security
interest in the Manufactured Home securing a Contract. As manufactured homes
have become larger and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the secured party must file either a "fixture filing" under the provisions
of the UCC or a real estate mortgage under the real estate laws of the state
where the home is located. These filings must be made in the real estate records
office of the county where the home is located. Substantially all of the
Contracts contain provisions prohibiting the borrower from permanently attaching
the Manufactured Home to its site. So long as the borrower does not violate this
agreement, a security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the Manufactured Home which is prior
to the security interest originally retained by the Seller and transferred to
the Sponsor. With respect to a Series of Securities and if so described in the
related Prospectus Supplement, the Servicer may be required to perfect a
security interest in the Manufactured Home under applicable real estate laws.
The Servicer will represent that at the date of the initial issuance of the
related Securities it has obtained a perfected first priority security interest
by proper notation or delivery of the required documents and fees with respect
to substantially all of the Manufactured Homes securing the Contracts.
The Sponsor will cause the security interests in the Manufactured Homes
to be assigned to the Trustee on behalf of the securityholders. Unless otherwise
specified in the related Prospectus Supplement, neither the Sponsor nor the
Trustee will amend the Certificates of title to identify the Trustee or the
Trust Fund as the new secured party, and neither the Sponsor nor the Servicer
will deliver the Securities of title to the Trustee or note thereon the interest
of the Trustee. Accordingly, the Servicer (or the seller) which continue to be
named as the secured party on the certificate of title relating to the
Manufactured Homes. In many states, such assignment is an effective conveyance
of such security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Sponsor's rights
as the secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest in the Manufactured Home might not be effective or perfected
or that, in the absence of such notation or delivery to the Trustee, the
assignment of the security interest in the Manufactured Home might not be
effective against creditors of the Servicer (or the Seller) or a trustee in
bankruptcy of the Servicer (or the Seller).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Servicer (or
the Seller) on the certificate of title or delivery of the required documents
and fees will be sufficient to protect the securityholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home. If there are any Manufactured Homes
as to which the security interest assigned to the Trustee is not perfected, such
security interest would be subordinate to, among others, subsequent purchasers
for value of Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee as the new secured party
on the certificate of title that, through fraud or negligence, the security
interest of the Securityholders could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
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Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and not
re-register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security interest
in the Manufactured Home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien, the
Servicer would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the Trustee
would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing conditional sales contracts, the Servicer takes steps to effect such
re-perfection upon receipt of notice of registration or information from the
obligor as to relocation. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the Trustee (or
its custodian) must surrender possession of the certificate of title or the
Servicer will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
manufactured housing conditional sales contract before release of the lien.
Under the Pooling and Servicing Agreement, the Servicer is obligated to take
steps, at the Servicer's expense, as are necessary to maintain perfection of
security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufacturer Home and liens for personal property taxes take priority over a
perfected security interest. The Seller will represent in the Pooling and
Servicing Agreement that it has no knowledge of any such liens with respect to
any Manufactured Home securing payment on any Contract. However, such liens
could arise at any time during the term of a Contract. No notice will be given
to the Trustee or Securityholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by repossession
and resale of the Manufactured Homes securing such defaulted Contracts. So long
as the Manufactured Home has not become subject to the real estate law, a
creditor can repossess a Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without breach
of the peace) or, in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
Contract must give the debtor a number of days' notice, which varies from 10 to
30 days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the unit
so that the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the debted thereunder.
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The effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a Contract; however,
the obligor also may be able to asset the rule to set off remaining amounts due
as a defense against a claim brought by the Trustee against such obligor.
Numerous other federal and state consumer protection laws impose requirements
applicable to the origination and lending pursuant to the Contracts, including
the Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code. In
the case of some of these laws, the failure to comply with their provisions may
affect the enforceability of the related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to.
In the case of a transfer of a Manufactured Home after which the
Servicer desires to accelerate the maturity of the related Contract, the
Servicer's ability to do so will depend on the enforceability under state law of
the "due-on-sale" clause. The Garn-St Germain Depository Institutions Act of
1982 preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of "due-on-sale" clauses applicable to the Manufactured
Homes. Consequently, in some states the Servicer may be prohibited from
enforcing a "due-on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to the
following conditions, state usury limitations shall not apply to any loan which
is secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading to
repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, and state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The Seller will represent that all of the Contracts comply with applicable usury
law.
Formaldehyde Litigation with Respect to Contracts
A number of lawsuits have been brought in the United States alleging
personal injury from exposure to the chemical formaldehyde, which is preset in
many building materials, including such components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits were brought against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. Sponsor is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
The holder of any Contract secured by a Manufactured Home with respect
to which a formaldehyde claim has been successfully asserted may be liable to
the obligor for the amount paid by the obligor on the related Contract and may
be unable to collect amounts still due under the Contract. The successful
assertion of such claim constitutes a breach of a representation or warranty of
the person specified in the related Prospectus Supplement, and the
Securityholders would suffer a loss only to the extent that (i) such person
breached its obligation to repurchase the Contract in the event an obligor is
successful in asserting such a claim, and (ii) such person, the Servicer or the
Trustee were unsuccessful in asserting any claim of contribution or subrogation
on behalf of the Securityholders against the manufacturer or other persons who
were directly liable to the plaintiff for the damages. Typical products
liability insurance policies held by manufacturers and component suppliers of
manufactured homes may not cover liabilities arising from formaldehyde in
manufactured housing, with the result that recoveries
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from such manufacturers, suppliers or other persons may be limited to their
corporate assets without the benefit of insurance.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum, on obligations (including Mortgage Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors and if, in the opinion of the court,
the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a
Mortgage Loan included in a Trust Fund for a Series is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, none of the Trust Fund, the
Servicer, the Depositor nor the Trustee will be required to advance such
amounts, and any loss in respect thereof may reduce the amounts available to be
paid to the Holders of the Securities of such Series. Any shortfalls in interest
collections on Mortgage Loans, Contracts or Underlying Loans relating to the
Private Securities, as applicable, included in a Trust Fund for a Series
resulting from application of the Soldiers' and Sailors' Civil Relief Act of
1940 will be allocated in the manner set forth in the related Agreement.
THE DEPOSITOR
General
The Depositor was incorporated in the State of North Carolina. in
December 1997, and is a wholly-owned subsidiary of First Union National Bank, a
national banking association with its headquarters in Charlotte, North Carolina.
The Depositor's principal executive offices are located at One First Union
Center, 301 S. College Street, Charlotte, North Carolina 28288-0630. Its
telephone number is (704) 373-6611.
The Depositor will not engage in any activities other than to
authorize, issue, sell, deliver, purchase and invest in (and enter into
agreements in connection with), and/or to engage in the establishment of one or
more trusts which will issue and sell, bonds, notes, debt or equity securities,
obligations and other securities and instruments ("Depositor Securities")
collateralized or otherwise secured or backed by, or otherwise representing an
interest in, among other things, receivables or pass-through certificates, or
participations or certificates of participation or beneficial ownership in one
or more pools of receivables, and the proceeds of the foregoing, that arise in
connection with loans secured by certain first or junior mortgages on real
estate or manufactured housing and any and all other commercial transactions and
commercial, sovereign, student or consumer loans or indebtedness and, in
connection therewith or otherwise, purchasing, acquiring, owning, holding,
transferring, conveying, servicing, selling, pledging, assigning, financing and
otherwise dealing with such receivables, pass-through certificates, or
participations or certificates of participation or beneficial ownership. Article
Third of the Depositor's Certificate of Incorporation limits the Depositor's
activities to the above activities and certain related activities, such as
credit enhancement with respect to such Depositor Securities, and to any
activities incidental to and necessary or convenient for the accomplishment of
such purposes.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Securities will be
applied to one or more of the following purposes: (i) to acquire the related
Primary Assets, (ii) to repay indebtedness which has been incurred to obtain
funds to acquire such Primary Assets, (iii) to establish any Reserve Funds
described in the related Prospectus Supplement and (iv) to pay costs of
structuring and issuing such Securities, including the costs of obtaining Credit
Enhancement, if any. The acquisition of the Primary Assets for a Series may be
effected by an exchange of Securities with the Originator of such Primary
Assets.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the material anticipated
federal income tax consequences to investors of the purchase, ownership and
disposition of the Securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors are urged to consult their own tax advisors
in determining the particular federal, state and local consequences to them of
the purchase, ownership and disposition of the Securities.
The following discussion addresses securities of five general types:
(i) securities ("Grantor Trust Securities") representing interests in a trust (a
"Grantor Trust") which the Company will covenant not to elect to have treated as
a real estate mortgage investment conduit ("REMIC") or a financial asset
securitization investment trust ("FASIT"); (ii) securities ("REMIC Securities")
representing interests in a trust, or a portion thereof, which the Company will
covenant to elect to have treated as a REMIC under sections 860A through 860G of
the Internal Revenue Code of 1986, as amended (the "Code"); (iii) securities
("Debt Securities") that are intended to be treated for federal income tax
purposes as indebtedness secured by the underlying loans; (iv) securities
("Partnership Interests") representing interests in a trust (a "Partnership")
that is intended to be treated as a partnership under the Code; and (v)
securities ("FASIT Securities") representing interests in a trust, or portion
thereof, which the Company will covenant to elect to have treated as a FASIT
under sections 860H through 860L of the Code. The Prospectus Supplement for each
series of Securities will indicate whether a REMIC or FASIT election (or
elections) will be made for the related trust and, if a REMIC or FASIT election
is to be made, will identify all "regular interests" and "residual interests" in
the REMIC or all "regular interests," "high-yield interests" or the "ownership
interest" in the FASIT.
The Taxpayer Relief Act of 1997 adds provisions to the Code that
require the recognition of gain upon the "constructive sale of an appreciated
financial position." A constructive sale of an appreciated financial position
occurs if a taxpayer enters into certain transactions or series of such
transactions with respect to a financial instrument that have the effect of
substantially eliminating the taxpayer's risk of loss and opportunity for gain
with respect to the financial instrument. These provisions apply only to Classes
of Securities that do not have a principal balance.
Grantor Trust Securities
With respect to each series of Grantor Trust Securities, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that the related Grantor Trust will be classified as a grantor trust
and not as a partnership or an association taxable as a corporation. Such
opinion shall be attached on Form 8-K to be filed with the Commission within
fifteen days after the initial issuance of such Securities or filed with the
Commission as a post-effective amendment to the Prospectus. Accordingly, each
beneficial owner of a Grantor Trust Security will generally be treated as the
owner of an interest in the Mortgage Loans and/or Contracts included in the
Grantor Trust.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans and/or Contracts constituting the related Grantor Trust, together
with interest thereon at a pass-through rate, will be referred to as a "Grantor
Trust Fractional Interest Security." A Grantor Trust Security representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans and/or Contracts constituting the related Grantor Trust and
interest paid to the beneficial owners of Grantor Trust Fractional Interest
Securities issued with respect to such Grantor Trust will be referred to as a
"Grantor Trust Strip Security."
Taxation of Beneficial Owners of Grantor Trust Securities
Beneficial owners of Grantor Trust Fractional Interest Securities
generally will be required to report on their federal income tax returns their
respective shares of the income from the Mortgage Loans and/or Contracts
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(including amounts used to pay reasonable servicing fees and other expenses but
excluding amounts payable to beneficial owners of any corresponding Grantor
Trust Strip Securities) and, subject to the limitations described below, will be
entitled to deduct their shares of any such reasonable servicing fees and other
expenses. If a beneficial owner acquires a Grantor Trust Fractional Interest
Security for an amount that differs from its outstanding principal amount, the
amount includible in income on a Grantor Trust Fractional Interest Security may
differ from the amount of interest distributable thereon. See "Discount and
Premium," below. Individuals holding a Grantor Trust Fractional Interest
Security directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to the extent
that the aggregate of such beneficial owner's miscellaneous itemized deductions
exceeds 2% of such beneficial owner's adjusted gross income. Further, beneficial
owners (other than corporations) subject to the alternative minimum tax may not
deduct miscellaneous itemized deductions in determining alternative minimum
taxable income.
Beneficial owners of Grantor Trust Strip Securities generally will be
required to treat such Securities as "stripped coupons" under section 1286 of
the Code. Accordingly, such a beneficial owner will be required to treat the
excess of the total amount of payments on such a Security over the amount paid
for such Security as original issue discount and to include such discount in
income as it accrues over the life of such Security. See "--Discount and
Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the beneficial owner's
income as it accrues (regardless of the beneficial owner's method of
accounting), as described below under "--Discount and Premium." The coupon
stripping rules will not apply, however, if (i) the pass-through rate is no more
than 100 basis points lower than the gross rate of interest payable on the
underlying Mortgage Loans and/or Contracts and (ii) the difference between the
outstanding principal balance on the Security and the amount paid for such
Security is less than 0.25% of such principal balance times the weighted average
remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security
(equal to the difference between the amount realized on the sale and the
adjusted basis of such Grantor Trust Security) will be capital gain or loss,
except to the extent of accrued and unrecognized market discount, which will be
treated as ordinary income, and in the case of banks and other financial
institutions except as provided under section 582(c) of the Code. The adjusted
basis of a Grantor Trust Security will generally equal its cost, increased by
any income reported by the Originator (including original issue discount and
market discount income) and reduced (but not below zero) by any previously
reported losses, any amortized premium and by any distributions of principal.
Grantor Trust Reporting
The Trustee will furnish to each beneficial owner of a Grantor Trust
Fractional Interest Security with each distribution a statement setting forth
the amount of such distribution allocable to principal on the underlying
Mortgage Loans and/or Contracts and to interest thereon at the related interest
rate. In addition, within a reasonable time after the end of each calendar year,
based on information provided by the Master Servicer, the Trustee will furnish
to each beneficial owner during such year such customary factual information as
the Master Servicer deems necessary or desirable to enable beneficial owners of
Grantor Trust Securities to prepare their tax returns and will furnish
comparable information to the Internal Revenue Service (the "IRS") as and when
required to do so by law.
REMIC Securities
If provided in a related Prospectus Supplement, an election will be
made to treat a Trust as a REMIC under the Code. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each series
of Securities for which such an election is made, Dewey Ballantine LLP, special
tax counsel to the Company, will deliver its opinion to the Company that,
assuming compliance with the Pooling and Servicing Agreement, the trust will be
treated as a REMIC for federal income tax purposes. A Trust for which a REMIC
election is made will
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be referred to herein as a "REMIC Trust." The Securities of each class will be
designated as "regular interests" in the REMIC Trust except that a separate
class will be designated as the "residual interest" in the REMIC Trust. The
Prospectus Supplement for each series of Securities will state whether
Securities of each class will constitute a regular interest (a REMIC Regular
Security) or a residual interest (a REMIC Residual Security). Such opinion shall
be attached on Form 8-K to be filed with the Commission within fifteen days
after the initial issuance of such Securities or filed with the Commission as a
post-effective amendment to the Prospectus.
A REMIC Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances
described below. See "--Taxes on a REMIC Trust." Generally, the total income
from the Mortgage Loans in a REMIC Trust will be taxable to the beneficial
owners of the Securities of that series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC Regulations") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
Special Tax Attributes
REMIC Regular Securities and REMIC Residual Securities will be "regular
or residual interests in a REMIC" within the meaning of section
7701(a)(19)(C)(xi) of the Code and "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code. If at any time during a calendar year less
than 95% of the assets of a REMIC Trust consist of "qualified mortgages" (within
the meaning of section 860G(a)(3) of the Code) then the portion of the REMIC
Regular Securities and REMIC Residual Securities that are qualifying assets
under those sections during such calendar year may be limited to the portion of
the assets of such REMIC Trust that are qualified mortgages. Similarly, income
on the REMIC Regular Securities and REMIC Residual Securities will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of section 856(c)(3)(B) of the Code, subject to the same limitation as
set forth in the preceding sentence. For purposes of applying this limitation, a
REMIC Trust should be treated as owning the assets represented by the qualified
mortgages. The assets of the Trust Estate will include, in addition to the
Mortgage Loans, payments on the Mortgage Loans held pending distribution on the
REMIC Regular Securities and REMIC Residual Securities and any reinvestment
income thereon. REMIC Regular Securities and REMIC Residual Securities held by a
financial institution to which section 585, 586 or 593 of the Code applies will
be treated as evidences of indebtedness for purposes of section 582(c)(1) of the
Code. REMIC Regular Securities will also be qualified mortgages with respect to
other REMICs.
Taxation of Beneficial Owners of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the
REMIC Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Settlement Date") and not as ownership interests in the
REMIC Trust or its assets. beneficial owners of REMIC Regular Securities that
otherwise report income under a cash method of accounting will be required to
report income with respect to such Securities under an accrual method. For
additional tax consequences relating to REMIC Regular Securities purchased at a
discount or with premium, see "--Discount and Premium," below.
Taxation of Beneficial Owners of REMIC Residual Securities
Daily Portions. Except as indicated below, a beneficial owner of a
REMIC Residual Security for a REMIC Trust generally will be required to report
its daily portion of the taxable income or net loss of the REMIC Trust for each
day during a calendar quarter that the beneficial owner owned such REMIC
Residual Security. For this purpose, the daily portion shall be determined by
allocating to each day in the calendar quarter its ratable portion of the
taxable income or net loss of the REMIC Trust for such quarter and by allocating
the amount so allocated among the Residual beneficial owners (on such day) in
accordance with their percentage interests on such day. Any amount included in
the gross income or allowed as a loss of any Residual beneficial owner by virtue
of this paragraph will be treated as ordinary income or loss.
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The requirement that each beneficial owner of a REMIC Residual Security
report its daily portion of the taxable income or net loss of the REMIC Trust
will continue until there are no Securities of any class outstanding, even
though the beneficial owner of the REMIC Residual Security may have received
full payment of the stated interest and principal on its REMIC Residual
Security.
The Trustee will provide to beneficial owners of REMIC Residual
Securities of each series of Securities (i) such information as is necessary to
enable them to prepare their federal income tax returns and (ii) any reports
regarding the Securities of such series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net
loss of a REMIC Trust will be the income from the qualified mortgages it holds
and any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications. The
first modification is that a deduction will be allowed for accruals of interest
(including any original issue discount, but without regard to the investment
interest limitation in section 163(d) of the Code) on the REMIC Regular
Securities (but not the REMIC Residual Securities), even though REMIC Regular
Securities are for non-tax purposes evidences of beneficial ownership rather
than indebtedness of a REMIC Trust. Second, market discount or premium equal to
the difference between the total stated principal balances of the qualified
mortgages and the basis to the REMIC Trust therein generally will be included in
income (in the case of discount) or deductible (in the case of premium) by the
REMIC Trust as it accrues under a constant yield method, taking into account the
"Prepayment Assumption" (as defined in the Related Prospectus Supplement, see
"--Discount and Premium--Original Issue Discount," below). The basis to a REMIC
Trust in the qualified mortgages is the aggregate of the issue prices of all the
REMIC Regular Securities and REMIC Residual Securities in the REMIC Trust on the
Settlement Date. If, however, a substantial amount of a class of REMIC Regular
Securities or REMIC Residual Securities has not been sold to the public, then
the fair market value of all the REMIC Regular Securities or REMIC Residual
Securities in that class as of the date of the Prospectus Supplement should be
substituted for the issue price.
Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "--Taxes on a REMIC Trust--Prohibited Transactions"
below) will be taken into account. Fourth, a REMIC Trust generally may not
deduct any item that would not be allowed in calculating the taxable income of a
partnership by virtue of section 703(a)(2) of the Code. Finally, the limitation
on miscellaneous itemized deductions imposed on individuals by section 67 of the
Code will not be applied at the REMIC Trust level to any servicing and guaranty
fees. (See, however, "--Pass-Through of Servicing and Guaranty Fees to
Individuals" below.) In addition, under the REMIC Regulations, any expenses that
are incurred in connection with the formation of a REMIC Trust and the issuance
of the REMIC Regular Securities and REMIC Residual Securities are not treated as
expenses of the REMIC Trust for which a deduction is allowed. If the deductions
allowed to a REMIC Trust exceed its gross income for a calendar quarter, such
excess will be a net loss for the REMIC Trust for that calendar quarter. The
REMIC Regulations also provide that any gain or loss to a REMIC Trust from the
disposition of any asset, including a qualified mortgage or "permitted
investment" (as defined in section 860G(a)(5) of the Code) will be treated as
ordinary gain or loss.
A beneficial owner of a REMIC Residual Security may be required to
recognize taxable income without being entitled to receive a corresponding
amount of cash. This could occur, for example, if the qualified mortgages are
considered to be purchased by the REMIC Trust at a discount, some or all of the
REMIC Regular Securities are issued at a discount, and the discount included as
a result of a prepayment on a Mortgage Loan that is used to pay principal on the
REMIC Regular Securities exceeds the REMIC Trust's deduction for unaccrued
original issue discount relating to such REMIC Regular Securities. Taxable
income may also be greater in earlier years because interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Securities, may increase over time as the earlier classes of REMIC
Regular Securities are paid, whereas interest income with respect to any given
Mortgage Loan expressed as a percentage of the outstanding principal amount of
that Mortgage Loan, will remain constant over time.
Basis Rules and Distributions. A beneficial owner of a REMIC Residual
Security has an initial basis in its Security equal to the amount paid for such
REMIC Residual Security. Such basis is increased by amounts included in the
income of the beneficial owner and decreased by distributions and by any net
loss taken into account with respect to such REMIC Residual Security. A
distribution on a REMIC Residual Security to a beneficial owner is not included
in gross income to the extent it does not exceed such beneficial owner's basis
in the REMIC Residual
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Security (adjusted as described above) and, to the extent it exceeds the
adjusted basis of the REMIC Residual Security, shall be treated as gain from the
sale of the REMIC Residual Security.
A beneficial owner of a REMIC Residual Security is not allowed to take
into account any net loss for any calendar quarter to the extent such net loss
exceeds such beneficial owner's adjusted basis in its REMIC Residual Security as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss disallowed by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC Residual Security.
Excess Inclusions. Any excess inclusions with respect to a REMIC
Residual Security are subject to certain special tax rules. With respect to a
beneficial owner of a REMIC Residual Security, the excess inclusion for any
calendar quarter is defined as the excess (if any) of the daily portions of
taxable income over the sum of the "daily accruals" for each day during such
quarter that such REMIC Residual Security was held by such beneficial owner. The
daily accruals are determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Security at the beginning of the calendar quarter and 120% of the
"federal long-term rate" in effect on the Settlement Date, based on quarterly
compounding, and properly adjusted for the length of such quarter. For this
purpose, the adjusted issue price of a REMIC Residual Security as of the
beginning of any calendar quarter is equal to the issue price of the REMIC
Residual Security, increased by the amount of daily accruals for all prior
quarters and decreased by any distributions made with respect to such REMIC
Residual Security before the beginning of such quarter. The issue price of a
REMIC Residual Security is the initial offering price to the public (excluding
bond houses and brokers) at which a substantial number of the REMIC Residual
Securities was sold. The federal long-term rate is a blend of current yields on
Treasury securities having a maturity of more than nine years, computed and
published monthly by the IRS.
In general, beneficial owners of REMIC Residual Securities with excess
inclusion income cannot offset such income by losses from other activities. For
beneficial owners that are subject to tax only on unrelated business taxable
income (as defined in section 511 of the Code), an excess inclusion of such
beneficial owner is treated as unrelated business taxable income. With respect
to variable contracts (within the meaning of section 817 of the Code), a life
insurance company cannot adjust its reserve to the extent of any excess
inclusion, except as provided in regulations. The REMIC Regulations indicate
that if a beneficial owner of a REMIC Residual Security is a member of an
affiliated group filing a consolidated income tax return, the taxable income of
the affiliated group cannot be less than the sum of the excess inclusions
attributable to all residual interests in REMICs held by members of the
affiliated group. For a discussion of the effect of excess inclusions on certain
foreign investors that own REMIC Residual Securities, see "--Foreign Investors"
below.
The Treasury Department also has the authority to issue regulations
that would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
how significant value would be determined for these purposes. If no such rule is
applicable, excess inclusions should be calculated as discussed above.
In the case of any REMIC Residual Securities that are held by a real
estate investment trust, the aggregate excess inclusions with respect to such
REMIC Residual Securities reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of section 857(b)(2) of the
Code, excluding any net capital gain) will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Security as if held directly by such
shareholder. Similar rules will apply in the case of regulated investment
companies, common trust funds and certain cooperatives that hold a REMIC
Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A
beneficial owner of a REMIC Residual Security who is an individual will be
required to include in income a share of any servicing and guaranty fees. A
deduction for such fees will be allowed to such beneficial owner only to the
extent that such fees, along with certain of such beneficial owner's other
miscellaneous itemized deductions exceed 2% of such beneficial owner's adjusted
gross income. In addition, a beneficial owner of a REMIC Residual Security may
not be able to deduct any portion of such fees in computing such beneficial
owner's alternative minimum tax liability. A beneficial owner's share of such
fees will generally be determined by (i) allocating the amount of such expenses
for each calendar quarter on a
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pro rata basis to each day in the calendar quarter, and (ii) allocating the
daily amount among the beneficial owners in proportion to their respective
holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to
100% of the net income derived from "prohibited transactions." In general, a
prohibited transaction means the disposition of a qualified mortgage other than
pursuant to certain specified exceptions, the receipt of investment income from
a source other than a Mortgage Loan or certain other permitted investments, the
receipt of compensation for services, or the disposition of an asset purchased
with the payments on the qualified mortgages for temporary investment pending
distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax
on a REMIC equal to 100% of the value of any property contributed to the REMIC
after the "startup day" (generally the same as the Settlement Date). Exceptions
are provided for cash contributions to a REMIC (i) during the three month period
beginning on the startup day, (ii) made to a qualified reserve fund by a
beneficial owner of a residual interest, (iii) in the nature of a guarantee,
(iv) made to facilitate a qualified liquidation or clean-up call, and (v) as
otherwise permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of three years, with
a possible extension. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
General. Except as provided below, if a Regular or REMIC Residual
Security is sold, the seller will recognize gain or loss equal to the difference
between the amount realized in the sale and its adjusted basis in the Security.
The adjusted basis of a REMIC Regular Security generally will equal the cost of
such Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distributions on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"--Discount and Premium." The adjusted basis of a REMIC Residual Security is
determined as described above under "--Taxation of Beneficial Owners of REMIC
Residual Securities--Basis Rules and Distributions." Except as provided in the
following paragraph or under section 582(c) of the Code, any such gain or loss
will be capital gain or loss, provided such Security is held as a "capital
asset" (generally, property held for investment) within the meaning of section
1221 of the Code.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the beneficial owner of a REMIC Regular Security had
income accrued at a rate equal to 110% of the "applicable federal rate"
(generally, an average of current yields on Treasury securities) as of the date
of purchase over (ii) the amount actually includible in such beneficial owner's
income. In addition, gain recognized on such a sale by a beneficial owner of a
REMIC Regular Security who purchased such a Security at a market discount would
also be taxable as ordinary income in an amount not exceeding the portion of
such discount that accrued during the period such Security was held by such
beneficial owner, reduced by any market discount includible in income under the
rules described below under "--Discount and Premium."
If a beneficial owner of a REMIC Residual Security sells its REMIC
Residual Security at a loss, the loss will not be recognized if, within six
months before or after the sale of the REMIC Residual Security, such beneficial
owner purchases another residual interest in any REMIC or any interest in a
taxable mortgage pool (as defined in section 7701(i) of the Code) comparable to
a residual interest in a REMIC. Such disallowed loss would be allowed upon the
sale of the other residual interest (or comparable interest) if the rule
referred to in the preceding sentence
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does not apply to that sale. While this rule may be modified by Treasury
regulations, no such regulations have yet been published.
Transfers of REMIC Residual Securities. Section 860E(e) of the Code
imposes a substantial tax, payable by the transferor (or, if a transfer is
through a broker, nominee, or other middleman as the transferee's agent, payable
by that agent) upon any transfer of a REMIC Residual Security to a disqualified
organization and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any
state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(other than certain taxable instrumentalities), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas, or any organization (other than a farmers' cooperative) that is exempt
from federal income tax, unless such organization is subject to the tax on
unrelated business income. Moreover, an entity will not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that (i) residual
interests in such entity are not held by disqualified organizations and (ii)
information necessary for the application of the tax described herein will be
made available. Restrictions on the transfer of a REMIC Residual Security and
certain other provisions that are intended to meet this requirement are
described in the Pooling and Servicing Agreement, and will be discussed more
fully in the related Prospectus Supplement relating to the offering of any REMIC
Residual Security. In addition, a pass-through entity (including a nominee) that
holds a REMIC Residual Security may be subject to additional taxes if a
disqualified organization is a record-holder therein. A transferor of a REMIC
Residual Security (or an agent of a transferee of a REMIC Residual Security, as
the case may be) will be relieved of such tax liability if (i) the transferee
furnishes to the transferor (or the transferee's agent) an affidavit that the
transferee is not a disqualified organization, and (ii) the transferor (or the
transferee's agent) does not have actual knowledge that the affidavit is false
at the time of the transfer. Similarly, no such tax will be imposed on a
pass-through entity for a period with respect to an interest therein owned by a
disqualified organization if (i) the record-holder of such interest furnishes to
the pass-through entity an affidavit that it is not a disqualified organization,
and (ii) during such period, the pass-through entity has no actual knowledge
that the affidavit is false.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership holds
a Residual Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by section 860E(e) of the Code. An exception to this
tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below in "--Foreign Investors--Grantor
Trust Securities and REMIC Regular Securities") will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. A REMIC Residual Security would be treated
as constituting a noneconomic residual interest unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
REMIC Residual Security is no less than the product of the present value of the
"anticipated excess inclusions" with respect to such Security and the highest
corporate rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the applicable REMIC Trust in an amount sufficient to satisfy the liability
for income tax on any "excess inclusions" at or after the time when such
liability accrues. Anticipated excess inclusions are the excess inclusions that
are anticipated to be allocated to each calendar quarter (or portion thereof)
following the transfer of a REMIC Residual Security, determined as of the date
such Security is transferred and based on events that have occurred as of that
date and on the Prepayment Assumption. See "--Discount and Premium" and
"--Taxation of Beneficial Owners of REMIC Residual Securities--Excess
Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of
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the taxable income of the REMIC Trust). A transferor is presumed not to have
improper knowledge if (i) the transferor conducts, at the time of a transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they come due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future; and (ii) the transferee makes certain representations to the
transferor in the affidavit relating to disqualified organizations discussed
above. Transferors of a REMIC Residual Security should consult with their own
tax advisors for further information regarding such transfers.
Reporting and Other Administrative Matters. For purposes of the
administrative provisions of the Code, each REMIC Trust will be treated as a
partnership and the beneficial owners of REMIC Residual Securities will be
treated as partners. The Trustee will prepare, sign and file federal income tax
returns for each REMIC Trust, which returns are subject to audit by the IRS.
Moreover, within a reasonable time after the end of each calendar year, the
Trustee will furnish to each beneficial owner that received a distribution
during such year a statement setting forth the portions of any such
distributions that constitute interest distributions, original issue discount,
and such other information as is required by Treasury regulations and, with
respect to beneficial owners of REMIC Residual Securities in a REMIC Trust,
information necessary to compute the daily portions of the taxable income (or
net loss) of such REMIC Trust for each day during such year. The Trustee will
also act as the tax matters partner for each REMIC Trust, either in its capacity
as a beneficial owner of a REMIC Residual Security or in a fiduciary capacity.
Each beneficial owner of a REMIC Residual Security, by the acceptance of its
REMIC Residual Security, agrees that the Trustee will act as its fiduciary in
the performance of any duties required of it in the event that it is the tax
matters partner.
Each beneficial owner of a REMIC Residual Security is required to treat
items on its return consistently with the treatment on the return of the REMIC
Trust, unless the beneficial owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Trust. The IRS may assert a deficiency
resulting from a failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC Trust level.
Termination
In general, no special tax consequences will apply to a beneficial
owner of a REMIC Regular Security upon the termination of a REMIC Trust by
virtue of the final payment or liquidation of the last Mortgage Loan remaining
in the Trust Estate. If a beneficial owner of a REMIC Residual Security's
adjusted basis in its REMIC Residual Security at the time such termination
occurs exceeds the amount of cash distributed to such beneficial owner in
liquidation of its interest, although the matter is not entirely free from
doubt, it would appear that the beneficial owner of the REMIC Residual Security
is entitled to a loss equal to the amount of such excess.
Debt Securities
General
With respect to each series of Debt Securities, Dewey Ballantine LLP,
special tax counsel to the Company, will deliver its opinion to the Company that
the Securities will be classified as debt secured by the related Mortgage Loans
and/or Contracts. Consequently, the Debt Securities will not be treated as
ownership interests in the Mortgage Loans and/or Contracts or the Trust.
Beneficial owners will be required to report income received with respect to the
Debt Securities in accordance with their normal method of accounting. For
additional tax consequences relating to Debt Securities purchased at a discount
or with premium, see "--Discount and Premium," below.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general, Debt
Securities will not possess such special tax attributes. Investors to whom such
attributes are important should consult their own tax advisors regarding
investment in Debt Securities.
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Sale or Exchange
If a beneficial owner of a Debt Security sells or exchanges such
Security, the beneficial owner will recognize gain or loss equal to the
difference, if any, between the amount received and the beneficial owner's
adjusted basis in the Security. The adjusted basis in the Security generally
will equal its initial cost, increased by any original issue discount or market
discount previously included in the seller's gross income with respect to the
Security and reduced by the payments previously received on the Security, other
than payments of qualified stated interest, and by any amortized premium.
In general (except as described in "--Discount and Premium--Market
Discount," below), except for certain financial institutions subject to section
582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security
recognized by an investor who holds the Security as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Security has been held for more
than one year.
Partnership Interests
With respect to each series of Partnership Interests, Dewey Ballantine
LLP, special tax counsel to the Company, will deliver its opinion to the Company
that the trust will be treated as a partnership and not an association taxable
as a corporation for federal income tax purposes. Such opinion shall be attached
on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Securities or filed with the Commission as a
post-effective amendment to the Prospectus. Accordingly, each beneficial owner
of a Partnership Interest will generally be treated as the owner of an interest
in the Mortgage Loans and/or Contracts.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general,
Partnership Interests will not possess such special tax attributes. Investors to
whom such attributes are important should consult their own tax advisors
regarding investment in Partnership Interests.
Taxation of Beneficial Owners of Partnership Interests
If the Trust is treated as a partnership for Federal Income Tax
Purposes, the Trust will not be subject to federal income tax. Instead, each
beneficial owner of a Partnership Interest will be required to separately take
into account an allocable share of income, gains, losses, deductions, credits
and other tax items of the Trust. These partnership allocations are made in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents).
The Trust's assets will be the assets of the partnership. The Trust's
income will consist primarily of interest and finance charges earned on the
underlying Mortgage Loans. The Trust's deductions will consist primarily of
interest accruing with respect to any indebtedness issued by the Trust,
servicing and other fees, and losses or deductions upon collection or
disposition of the Trust's assets.
In certain instances, the Trust could have an obligation to make
payments of withholding tax on behalf of a beneficial owner of a Partnership
Interest. (See "Backup Withholding" and "Foreign Investors" below).
Substantially all of the taxable income allocated to a beneficial owner
of a Partnership Interest that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
Under section 708 of the Code, the Trust will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Trust are sold or exchanged within a 12-month period. Under the
final regulations issued on May 9, 1997 if such a termination occurs, the Trust
is deemed to contribute all of its assets and liabilities to a newly formed
partnership in exchange for a partnership interest. Immediately thereafter,
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the terminated partnership distributes interests in the new partnership to the
purchasing partner and remaining partners in proportion to their interests in
liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests
Generally, capital gain or loss will be recognized on a sale or
exchange of Partnership Interests in an amount equal to the difference between
the amount realized and the seller's tax basis in the Partnership Interests
sold. A beneficial owner of a Partnership Interest's tax basis in a Partnership
Interest will generally equal the beneficial owner's cost increased by the
beneficial owner's share of Trust income (includible in income) and decreased by
any distributions received with respect to such Partnership Interest. In
addition, both the tax basis in the Partnership Interest and the amount realized
on a sale of a Partnership Interest would take into account the beneficial
owner's share of any indebtedness of the Trust. A beneficial owner acquiring
Partnership Interests at different prices may be required to maintain a single
aggregate adjusted tax basis in such Partnership Interest, and upon sale or
other disposition of some of the Partnership Interests, allocate a portion of
such aggregate tax basis to the Partnership Interests sold (rather than
maintaining a separate tax basis in each Partnership Interest for purposes of
computing gain or loss on a sale of that Partnership Interest).
Any gain on the sale of a Partnership Interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the Trust would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a Partnership Interest is required to recognize an aggregate amount of income
over the life of the Partnership Interest that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Partnership Interest. If a beneficial
owner sells its Partnership Interest at a profit or loss, the transferee will
have a higher or lower basis in the Partnership Interests than the transferor
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an election under section 754 of
the Code.
Partnership Reporting Matters
The Owner Trustee is required to (i) keep complete and accurate books
of the Trust, (ii) file a partnership information return (IRS Form 1065) with
the IRS for each taxable year of the Trust and (iii) report each beneficial
owner of a Partnership Interest's allocable share of items of Trust income and
expense to beneficial owners and the IRS on Schedule K-1. The Trust will provide
the Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Partnership Interests.
Generally, beneficial owners of a Partnership Interests must file tax returns
that are consistent with the information return filed by the Trust or be subject
to penalties unless the beneficial owner of a Partnership Interest notifies the
IRS of all such inconsistencies.
Under section 6031 of the Code, any person that holds Partnership
Interests as a nominee at any time during a calendar year is required to furnish
the Trust with a statement containing certain information on the nominee, the
beneficial owners and the Partnership Interests so held. Such information
includes (i) the name, address and taxpayer identification number of the nominee
and (ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, and international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and (z)
certain information on Partnership Interests that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and financial
institutions that hold Partnership Interests through a nominee are required to
furnish directly to the Trust information as to themselves and their ownership
of Partnership Interests. A clearing agency registered under section 17A of the
Exchange Act is not required to furnish any such information statement to the
Trust. Nominees, brokers and financial institutions that fail to provide the
Trust with the information described above may be subject to penalties.
The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
beneficial owner of a Partnership Interests, and, under certain circumstances, a
beneficial owner of a Partnership Interest may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also
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result in an audit of the beneficial owner of a Partnership Interest's
returns and adjustments of items note related to the income and losses of the
Trust.
FASIT Securities
If provided in a related Prospectus Supplement, an election will be
made to treat the Trust as a FASIT within the meaning of Code Section 860L(a).
Qualification as a FASIT requires ongoing compliance with certain conditions.
With respect to each series of Securities for which an election is made, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that, assuming compliance with the Pooling and Servicing Agreement,
the trust will be treated as a FASIT for federal income tax purposes. A Trust
for which a FASIT election is made will be referred to herein as a "FASIT
Trust." The Securities of each class will be designated as "regular interests"
or "high-yield regular interests" in the FASIT Trust except that one separate
class will be designated as the "ownership interest" in the FASIT Trust. The
Prospectus Supplement for each series of Securities will state whether
Securities of each class will constitute either a regular interest or a
high-yield regular interest (a FASIT Regular Security) or an ownership interest
(a FASIT Ownership Security). Such opinion shall be attached on Form 8-K to be
filed with the Commission within fifteen days after the initial issuance of such
Securities or filed with the Commission as a post-effective amendment to the
Prospectus.
Special Tax Attributes
FASIT Securities held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Sections 856(c)(5)(A) and
856(c)(6) and interest on the FASIT Regular Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the FASIT Trust and the income
thereon would be so treated. FASIT Regular Securities held by a domestic
building and loan association will be treated as "regular interest[s] in a
FASIT" under Code Section 7701(a)(19)(C)(xi), but only in the proportion that
the FASIT Trust holds "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v). If at all times 95% or more of the assets of the FASIT Trust
or the income thereon qualify for the foregoing treatments, the FASIT Regular
Securities will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(A), payments of principal and interest on a
Mortgage Loan that are reinvested pending distribution to holders of FASIT
Regular Securities should qualify for such treatment. FASIT Regular Securities
held by a regulated investment company will not constitute "government
securities" within the meaning of Code Section 851(b)(4)(A)(i). FASIT Regular
Securities held by certain financial institutions will constitute an "evidence
of indebtedness" within the meaning of Code Section 582(c)(1).
Taxation of Beneficial Owners of FASIT Regular Securities
A FASIT Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances as
described below. The FASIT Regular Securities generally will be treated for
federal income tax purposes as newly-originated debt instruments. In general,
interest, original issue discount ("OID") and market discount on a FASIT Regular
Security will be treated as ordinary income to the beneficial owner, and
principal payments (other than principal payments that do not exceed accrued
market discount) on an FASIT Regular Security will be treated as a return of
capital to the extent of the beneficial owner's basis allocable thereto.
Beneficial owners must use the accrual method of accounting with respect to
FASIT Regular Securities, regardless of the method of accounting otherwise used
by such beneficial owners. See discussion of "Discount and Premium" below.
In order for the FASIT Trust to qualify as a FASIT, there must be
ongoing compliance with the requirements set forth in the Code. The FASIT must
fulfill an asset test, which requires that substantially all the assets of the
FASIT, as of the close of the third calendar month beginning after the "Startup
Day" (which for purposes of this discussion is the date of the initial issuance
of the FASIT Securities) and at all times thereafter, must consist of cash or
cash equivalents, certain debt instruments (other than debt instruments issued
by the owner of the FASIT or a related party) and hedges (and contracts to
acquire the same), foreclosure property and regular interests in another FASIT
or in a REMIC. Based on identical statutory language applicable to REMICs, it
appears that the "substantially all" requirement should be met if at all times
the aggregate adjusted basis of the nonqualified assets is
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less than one percent of the aggregate adjusted basis of all the FASIT's assets.
The FASIT provisions of the Code (sections 860H through 860L) also require the
FASIT ownership interest and certain "high-yield regular interests" (described
below) to be held only by certain fully taxable domestic corporations.
Permitted debt instruments must bear interest, if any, at a fixed or
qualified variable rate. Permitted hedges include interest rate or foreign
currency notional principal contracts, letters of credit, insurance, guarantees
of payment default and similar instruments to be provided in regulations, and
which are reasonably required to guarantee or hedge against the FASIT's risks
associated with being the obligor on interests issued by the FASIT. Foreclosure
property is real property acquired by the FASIT in connection with the default
or imminent default of a qualified mortgage, provided the Depositor had no
knowledge or reason to know as of the date such asset was acquired by the FASIT
that such a default had occurred or would occur.
In addition to the foregoing requirements, the various interests in a
FASIT also must meet certain requirements. All of the interests in a FASIT must
be either of the following: (a) one or more classes of regular interests or (b)
a single class of ownership interest. A regular interest is an interest in a
FASIT that is issued on or after the Startup Day with fixed terms, is designated
as a regular interest, and (i) unconditionally entitles the holder to receive a
specified principal amount (or other similar amount), (ii) provides that
interest payments (or other similar amounts), if any, at or before maturity
either are payable based on a fixed rate or a qualified variable rate, (iii) has
a stated maturity of not longer than 30 years, (iv) has an issue price not
greater than 125% of its stated principal amount, and (v) has a yield to
maturity not greater than 5 percentage points higher than the related applicable
Federal rate (as defined in Code section 1274(d)). In order to meet the 30 year
maturity requirement, the FASIT Regular Securities will be retired and replaced,
to the extent then-outstanding, with new regular interests on the 30th
anniversary of the date of issuance of the FASIT Regular Securities. A regular
interest that is described in the preceding sentence except that if fails to
meet one or more of requirements (i), (ii) (iv) or (v) is a "high-yield regular
interest." A high-yield regular interest that fails requirement (ii) must
consist of a specified, nonvarying portion of the interest payments on the
permitted assets, by reference to the REMIC rules. An ownership interest is an
interest in a FASIT other than a regular interest that is issued on the Startup
Day, is designated an ownership interest and is held by a single, fully-taxable,
domestic corporation. An interest in a FASIT may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the ownership interest in
the FASIT, and are dependent on the absence of defaults or delinquencies on
permitted assets lower than reasonably expected returns on permitted assets,
unanticipated expenses incurred by the FASIT or prepayment interest shortfalls.
If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as a FASIT during any taxable year, the Code
provides that the entity or applicable potion thereof will not be treated as a
FASIT thereafter. In this event, any entity that holds Mortgage Loans and is the
obligor with respect to debt obligations with two or more maturities, such as
the Trust Fund, may be treated as a separate association taxable as a
corporation, and the FASIT Regular Securities may be treated as equity interests
therein. The legislative history to the FASIT Provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all regular interests and their reissuance. If the resulting instruments would
be treated as equity under general tax principles, cancellation of debt income
may result.
Taxes on a FASIT Trust
Income from certain transactions by a FASIT, called prohibited
transactions, are taxable to the holder of the ownership interest in a FASIT at
a 100% rate. Prohibited transactions generally include (i) the disposition of a
permitted asset other than for (a) foreclosure, default, or imminent default of
a qualified mortgage, (b) bankruptcy or insolvency of the FASIT, (c) a qualified
(complete) liquidation, (d) substitution for another permitted debt instrument
or distribution of the debt instrument to the holder of the ownership interest
to reduce overcollateralization, but only if a principal purpose of acquiring
the debt instrument which is disposed of was not the recognition of gain (or the
reduction of a loss) on the withdrawn asset as a result of an increase in the
market value of the asset after its acquisition by the FASIT or (e) the
retirement of a Class of FASIT regular interests; (ii) the receipt of income
from nonpermitted assets; (iii) the receipt of compensation for services; or
(iv) the receipt of any income derived from a loan originated by the FASIT. It
is unclear the extent to which tax on such transactions
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could be collected from the FASIT Trust directly under the applicable statutes
rather than from the holder of the FASIT Residual Security.
DUE TO THE COMPLEXITY OF THESE RULES, THE ABSENCE OF TREASURY
REGULATIONS AND THE CURRENT UNCERTAINTY AS TO THE MANNER TO THEIR APPLICATION TO
THE TRUST AND TO HOLDERS OF FASIT SECURITIES, IT IS PARTICULARLY IMPORTANT THAT
POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT
OF THEIR ACQUISITION OWNERSHIP AND DISPOSITION OF THE FASIT REGULAR SECURITIES.
Discount and Premium
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a beneficial owner's income as it accrues
(regardless of the beneficial owner's regular method of accounting) using a
constant yield method; (ii) market discount is treated as ordinary income and
must be included in a beneficial owner's income as principal payments are made
on the Security (or upon a sale of a Security); and (iii) if a beneficial owner
so elects, premium may be amortized over the life of the Security and offset
against inclusions of interest income. These tax consequences are discussed in
greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original
issue discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The issue price of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
Remittance Period and the Settlement Date. The stated redemption price at
maturity of a Security that has a notional principal amount or receives
principal only or that is or may be an Accrual Security is equal to the sum of
all distributions to be made under such Security. The stated redemption price at
maturity of any other Security is its stated principal amount, plus an amount
equal to the excess (if any) of the interest payable on the first Payment Date
over the interest that accrues for the period from the Settlement Date to the
first Payment Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25% of the stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a Security is apparently computed for this purpose as the sum, for all
distributions included in the stated redemption price at maturity of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the Settlement Date until the date on which each such
distribution is expected to be made under the assumption that the Mortgage Loans
prepay at the rate specified in the related Prospectus Supplement (the
"Prepayment Assumption") by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the Security's
stated redemption price at maturity. If original issue discount is treated as
zero under this rule, the actual amount of original issue discount must be
allocated to the principal distributions on the Security and, when each such
distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer
Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor
Trust Securities for tax years beginning after August 5, 1997. Under these rules
(described in greater detail below), (i) the amount and rate of accrual of
original issue discount on each series of Securities will be based on (x) the
Prepayment Assumption, and (y) in the case of a Security calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains equal to the value of that rate on the
Settlement Date, and (ii) adjustments will be made in the amount of discount
accruing in each taxable year in which the actual prepayment rate differs from
the Prepayment Assumption.
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Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Depositor anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The
Depositor makes no representation, however, that the Mortgage Loans for a given
series will prepay at the rate reflected in the Prepayment Assumption for that
series or at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Securities.
Each beneficial owner must include in gross income the sum of the
"daily portions" of original issue discount on its Security for each day during
its taxable year on which it held such Security. For this purpose, in the case
of an original beneficial owner, the daily portions of original issue discount
will be determined as follows. A calculation will first be made of the portion
of the original issue discount that accrued during each "accrual period." The
Trustee will supply, at the time and in the manner required by the IRS, to
beneficial owners, brokers and middlemen information with respect to the
original issue discount accruing on the Securities. The Trustee will report
original issue discount based on accrual periods of no longer than one year
either (i) beginning on a payment date (or, in the case of the first such
period, the Settlement Date) and ending on the day before the next payment date
or (ii) beginning on the next day following a payment date and ending on the
next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity, over (ii) the adjusted
issue price of such Security at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding sentence will
be calculated based on (i) the yield to maturity of the Security, calculated as
of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a
Security calling for a variable rate of interest, an assumption that the value
of the index upon which such variable rate is based remains the same as its
value on the Settlement Date over the entire life of such Security. The adjusted
issue price of a Security at any time will equal the issue price of such
Security, increased by the aggregate amount of previously accrued original issue
discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of such negative
amounts. The legislative history to section 1272(a)(6) indicates that such
negative amounts may be used to offset subsequent positive accruals but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Beneficial owners of
such Securities should consult their own tax advisors concerning the treatment
of such negative accruals.
A subsequent purchaser of a Security that purchases such Security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A beneficial owner that purchases a Security at a market discount, that
is, at a purchase price less than the remaining stated redemption price at
maturity of such Security (or, in the case of a Security with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Security, and recognize
ordinary income to the extent such distribution does not exceed the
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aggregate amount of accrued market discount on such Security not previously
included in income. With respect to Securities that have unaccrued original
issue discount, such market discount must be included in income in addition to
any original issue discount. A beneficial owner that incurs or continues
indebtedness to acquire a Security at a market discount may also be required to
defer the deduction of all or a portion of the interest on such indebtedness
until the corresponding amount of market discount is included in income. In
general terms, market discount on a Security may be treated as accruing either
(i) under a constant yield method or (ii) in proportion to remaining accruals of
original issue discount, if any, or if none, in proportion to remaining
distributions of interest on the Security, in any case taking into account the
Prepayment Assumption. The Trustee will make available, as required by the IRS,
to beneficial owners of Securities information necessary to compute the accrual
of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased such Security (a "Premium Security") at a premium.
Such a purchaser need not include in income any remaining original issue
discount and may elect, under section 171(c)(2) of the Code, to treat such
premium as "amortizable bond premium." If a beneficial owner makes such an
election, the amount of any interest payment that must be included in such
beneficial owner's income for each period ending on a Payment Date will be
reduced by the portion of the premium allocable to such period based on the
Premium Security's yield to maturity. Such premium amortization should be made
using constant yield principles. If such election is made by the beneficial
owner, the election will also apply to all bonds the interest on which is not
excludible from gross income ("fully taxable bonds") held by the beneficial
owner at the beginning of the first taxable year to which the election applies
and to all such fully taxable bonds thereafter acquired by it, and is
irrevocable without the consent of the IRS. If such an election is not made, (i)
such a beneficial owner must include the full amount of each interest payment in
income as it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Security and, when each such distribution is
received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal
in comparison to the distributions of interest thereon. It is possible that the
IRS or the Treasury Department may issue guidance excluding such Securities from
the rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, section 1272(a)(6) of the Code
would govern the accrual of such original issue discount, but a beneficial owner
would recognize substantially the same income in any given period as would be
recognized if an election were made under section 171(c)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Securities, the Trustee intends to furnish
tax information to beneficial owners of such Securities in accordance with the
rules described in the preceding paragraph.
Special Election
For any Security acquired on or after April 4, 1994, a beneficial owner
may elect to include in gross income all "interest" that accrues on the Security
by using a constant yield method. For purposes of the election, the term
"interest" includes stated interest, acquisition discount, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount and unstated interest as adjusted by any amortizable bond premium or
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acquisition premium. A beneficial owner should consult its own tax advisor
regarding the time and manner of making and the scope of the election and the
implementation of the constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The Internal Revenue Service recently issued final regulations (the
"Withholding Regulations"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective January 1, 1999, although valid
withholding certificates that are held on December 31, 1998 remain valid until
the earlier of December 31, 1999 or the due date of expiration of the
certificate under the rules as currently in effect.
Foreign Investors
The Withholding Regulations would require, in the case of Securities
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. See "--Backup Withholding" above. A look-through rule
would apply in the case of tiered partnerships. Non-U.S. Persons should consult
their own tax advisors regarding the application to them of the Withholding
Regulations.
Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security, Debt Security or a
REMIC Regular Security to, or on behalf of, a beneficial owner that is not a
U.S. Person generally will be exempt from U.S. federal income and withholding
taxes. The term "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate that
is subject to U.S. federal income tax regardless of the source of its income, or
a trust if a court within the United States can exercise primary supervision
over its administration and at least one United States fiduciary has the
authority to control all substantial decisions of the trust. This exemption is
applicable provided (a) the beneficial owner is not subject to U.S. tax as a
result of a connection to the United States other than ownership of the
Security, (b) the beneficial owner signs a statement under penalties of perjury
that certifies that such beneficial owner is not a U.S. Person, and provides the
name and address of such beneficial owner, and (c) the last U.S. Person in the
chain of payment to the beneficial owner receives such statement from such
beneficial owner or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. Beneficial owners should be
aware that the IRS might take the position that this exemption does not apply to
a beneficial owner that also owns 10% or more of the REMIC Residual Securities
of any REMIC trust, or to a beneficial owner that is a "controlled foreign
corporation" described in section 881(c)(3)(C) of the Code.
REMIC Residual Securities and FASIT Ownership Securities
Amounts distributed to a beneficial owner of a REMIC Residual Security
that is a not a U.S. Person generally will be treated as interest for purposes
of applying the 30% (or lower treaty rate) withholding tax on income that is not
effectively connected with a U.S. trade or business. Temporary Treasury
Regulations clarify that amounts not constituting excess inclusions that are
distributed on a REMIC Residual Security or a FASIT Ownership Security to a
beneficial owner that is not a U.S. Person generally will be exempt from U.S.
federal income and withholding tax, subject to the same conditions applicable to
distributions on Grantor Trust Securities, Debt Securities and REMIC Regular
Securities, as described above, but only to the extent that the obligations
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directly underlying the REMIC or FASIT Trust that issued the REMIC Residual
Security or FASIT Ownership Security (e.g., Mortgage Loans or regular interests
in another REMIC or FASIT) were issued after July 18, 1984. In no case will any
portion of REMIC or FASIT income that constitutes an excess inclusion be
entitled to any exemption from the withholding tax or a reduced treaty rate for
withholding. See "--REMIC Securities--Taxation of Beneficial Owners of REMIC
Residual Securities--Excess Inclusions" herein.
Partnership Interests
Depending upon the particular terms of the Trust Agreement and Sale and
Servicing Agreement, a Trust may be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to non-U.S. persons. If the Trust is considered to be engaged in a trade
or business in the United States for such purposes and the Trust is treated as a
partnership, the income of the Trust distributable to a non-U.S. person would be
subject to federal withholding tax. Also, in such cases, a non-U.S. beneficial
owner of a Partnership Interest that is a corporation may be subject to the
branch profits tax. If the Trust is notified that a beneficial owner of a
Partnership Interest is a foreign person, the Trust may withhold as if it were
engaged in a trade or business in the United States in order to protect the
Trust from possible adverse consequences of a failure to withhold. A foreign
holder generally would be entitled to file with the IRS a claim for refund with
respect to withheld taxes, taking the position that no taxes were due because
the Trust was not in a U.S. trade or business.
FASIT Regular Securities
Certain "high-yield" FASIT Regular Securities may not be sold to or
beneficially owned by Non-U.S. Persons. Any such purported transfer will be null
and void and, upon the Trustee's discovery of any purported transfer in
violation of this requirement, the last preceding owner of such high-yield FASIT
Regular Securities will be restored to ownership thereof as completely as
possible. Such last preceding owner will, in any event, be taxable on all income
with respect to such high-yield FASIT Regular Securities for federal income tax
purposes. The Pooling and Servicing Agreement will provide that, as a condition
to transfer of a high-yield FASIT Regular Security, the proposed transferee must
furnish an affidavit as to its status as a U.S. Person and otherwise as a
permitted transferee.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences," potential investors should consider
the state and local income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in the
Securities.
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan (a "Plan") and certain individual
retirement arrangements from engaging in certain transactions involving "plan
assets" with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the Plan, unless a statutory or
administrative exemption applies to the transaction. ERISA and the Code also
prohibit generally certain actions involving conflicts of interest by persons
who are fiduciaries of such Plans or arrangements. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons. In addition, investments by Plans are
subject to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
Employee benefit plans that are governmental plans (as defined in Section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in Securities without regard to the ERISA considerations discussed
below, subject to the provisions of
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other applicable federal, state and local law. Any such plan which is qualified
and exempt from taxation under Section 401(a) and 501(a) of the Code, however,
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan
(including an individual retirement arrangement) that purchased Securities, if
the assets of the Trust were deemed to be assets of the Plan. Under a regulation
(the "Plan Assets Regulation") issued by the United States Department of Labor
(the "DOL"), the assets of the Trust would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquired an equity
interest in the Trust and none of the exceptions contained in the Plan Assets
Regulation were applicable. An "equity interest" is defined under the Plan
Assets Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. In addition, in John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank, 510 U.S. 86 (1993), the United States Supreme Court ruled that
assets held in an insurance company's general account may be deemed to be "plan
assets" for ERISA purposes under certain circumstances. Therefore, in the
absence of an exemption, the purchase, sale or holding of a Security by a Plan
(including certain individual retirement arrangements) subject to Section 406 of
ERISA or Section 4975 of the Code might result in prohibited transactions and
the imposition of excise taxes and civil penalties.
CERTIFICATES
The DOL has issued to various underwriters individual prohibited
transaction exemptions (the "Underwriter Exemptions"), which generally exempt
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise
taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain
transactions with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of secured receivables, secured loans and other secured obligations that meet
the conditions and requirements of the Underwriter Exemptions. The Underwriter
Exemptions will only be available for Securities that are Certificates.
Among the conditions that must be satisfied in order for the
Underwriter Exemptions to apply to offered certificates are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least
as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust;
(3) the certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the three
highest generic rating categories from Standard & Poor's,
Moody's, Duff & Phelps Credit Rating Co. ("D&P") or Fitch;
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the
certificates represents not more than reasonable compensation
for underwriting the certificates; the sum of all payments
made to and retained by the originators and the sponsor
pursuant to the assignment of the loans to the trust estate
represents not more than the fair market value of such loans;
the sum of all payments made to and retained by any servicer
represents not more than reasonable compensation for such
person's services under the pooling and servicing agreement
and reimbursement of such person's reasonable expenses in
connection therewith;
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933; and
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(7) in the event that all of the obligations used to fund the
trust have not been transferred to the trust on the closing
date, additional obligations of the types specified in the
prospectus supplement and/or pooling and servicing agreement
having an aggregate value equal to no more than 25% of the
total principal amount of the certificates being offered by
the trust may be transferred to the trust, in exchange for
amounts credited to the account funding the additional
obligations, within a funding period of no longer than 90 days
or 3 months following the closing date.
The trust estate must also meet the following requirements:
(i) the corpus of the trust estate must consist solely of assets
of the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of
Standard & Poor's, Moody's, Fitch or D&P for at least one year
prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans
for at least one year prior to the Plan's acquisition of
certificates.
Moreover, the Underwriter Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Depositor, the
Underwriters, the Trustee, the Master Servicer, any other servicer, any obligor
with respect to Mortgage Loans included in the Trust Estate constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the Trust Estate, or any affiliate of such parties (the "Restricted Group").
In addition to the Underwriter Exemptions, the DOL has issued
Prohibited Transaction Class Exemption ("PTCE") 83-1 which provides an exemption
for certain transactions involving the sale or exchange of certain residential
mortgage pool pass-through certificates by Plans and for transactions in
connection with the servicing and operation of the mortgage pool.
NOTES
The Underwriter Exemptions will not be available for Securities which
are Notes. However, if the Notes are treated as indebtedness without substantial
equity features, the Trust's assets would not be deemed assets of a Plan. If the
Notes are treated as having substantial equity features, the purchase, holding
and resale of the Notes could result in a transaction that is prohibited under
ERISA or the Code. The acquisition or holding of the Notes by or on behalf of a
Plan could nevertheless give rise to a prohibited transaction, if such
acquisition and holding of Notes by or on behalf of a Plan were deemed to be a
prohibited loan to a party in interest with respect to such Plan. Certain
exemptions from such prohibited transaction rules could be applicable to the
purchase and holding of Notes by a Plan, depending on the type and circumstances
of the plan fiduciary making the decision to acquire such Notes. Included among
these exemptions are: PTCE 84-14, regarding certain transactions effected by
"qualified professional asset managers"; PTCE 90-1, regarding certain
transactions entered into by insurance company pooled separate accounts; PTCE
91-38, regarding certain transactions entered into by bank collective investment
funds; PTCE 95-60, regarding certain transactions entered into by insurance
company general accounts; and PTCE 96-23, regarding certain transactions
effected by "in-house asset managers". Each purchaser and each transferee of a
Note that is treated as debt for purposes of the Plan Assets Regulation may be
required to represent and warrant that its
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purchase and holding of such Note will be covered by one of the exemptions
listed above or by another Department of Labor Class Exemption.
CONSULTATION WITH COUNSEL
The Prospectus Supplement for each series of Securities will provide
further information which Plans should consider before purchasing the offered
Securities. A Plan fiduciary considering the purchase of Securities should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other ERISA issues and their potential
consequences. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio. The sale of Securities to a Plan is in no respect a
representation by the Sponsor or the Underwriters that this investment meets all
relevant requirements with respect to investments by Plans generally or any
particular Plan or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
The related Prospectus Supplement will describe whether or not the
Securities will constitute "mortgage-related securities" within the meaning of
SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for them.
PLAN OF DISTRIBUTION
The Depositor may offer each Series of Securities through First Union
Capital Markets, a division of Wheat First Securities, Inc. ("First Union") or
one or more other firms that may be designated at the time of each offering of
such Securities. The participation of First Union in any offering will comply
with Schedule E to the bylaws of the National Association of Securities Dealers,
Inc. The Prospectus Supplement relating to each Series of Securities will set
forth the specific terms of the offering of such Series of Securities and of
each Class within such Series, the names of the underwriters, the purchase price
of the Securities, the proceeds to the Depositor from such sale, any securities
exchange on which the Securities may be listed, and, if applicable, the initial
public offering prices, the discounts and commissions to the underwriters and
any discounts and concessions allowed or reallowed to certain dealers. The place
and time of delivery of each Series of Securities will also be set forth in the
Prospectus Supplement relating to such Series. First Union is an affiliate of
the Depositor.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed
upon for the Depositor by Dewey Ballantine LLP, New York, New York or such other
counsel identified in the related Prospectus Supplement.
FINANCIAL INFORMATION
The Depositor has determined that its financial statements are not
material to the offering made hereby.
A new Trust will be formed to own the Primary Assets and to issue each
Series of Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities
other than those described herein. Accordingly, no financial statements with
respect to such Trusts will be included in this Prospectus or any Prospectus
Supplement.
A Prospectus Supplement and the related Form 8-K (which will be
incorporated by reference to the Registration Statement) may contain financial
statements of the related Credit Enhancer, if any.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. The definitions may vary from those in the related
Agreement for a Series and the related Agreement for a Series generally provides
a more complete definition of certain of the terms. Reference should be made to
the related Agreement for a Series for a more compete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date specified in the related Prospectus
Supplement.
"Advance" means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Mortgage Loan and for any other
purposes in servicing such Mortgage Loan.
"Agreement" means, with respect to a Series of Certificates, the
Pooling and Servicing Agreement or Trust Agreement, and, with respect to a
Series of Notes, the Indenture and the Servicing Agreement, as the context
requires.
"Appraised Value" means, with respect to property securing a Mortgage
Loan, the lesser of the appraised value determined in an appraisal obtained at
origination of the Mortgage Loan or sales price of such property at such time.
"Asset Group" means, with respect to the Primary Assets and other
assets comprising the Trust Fund of a Series, a group of such Primary Assets and
other assets having the characteristics described in the related Prospectus
Supplement.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Available Distribution Amount" means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other fund
or account) eligible for distribution to Holders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States
Code 101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the City of New York or in the city
or cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
"Certificate" means the Asset-Backed Certificates.
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities of such Series
are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Primary Assets.
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"Combined Loan-to-Value Ratio" means, with respect to a Mortgage Loan,
the ratio determined as set forth in the related Prospectus Supplement taking
into account the amounts of any related senior loans on the related Mortgaged
Property.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which
all or a portion of the interest accrued thereon is added to the principal
balance of such Security on each Distribution Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on the
Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Condominium" means a form of ownership of real property wherein each
owner is entitled to the exclusive ownership and possession of his or her
individual Condominium Unit and also owns a proportionate undivided interest in
all parts of the Condominium Building (other than the individual Condominium
Units) and all areas or facilities, if any, for the common use of the
Condominium Units.
"Condominium Association" means the person(s) appointed or elected by
the Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a
group of buildings whether or not attached to each other, located on property
subject to Condominium ownership.
"Condominium Loan" means a Mortgage Loan secured by a Mortgage on a
Condominium Unit (together with its appurtenant interest in the common
elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Cooperative" means a corporation owned by tenant-stockholders who,
through the ownership of stock, shares or membership securities in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units and which is described in Section 216
of the Code.
"Cooperative Dwelling" means an individual housing unit in a building
owned by a Cooperative.
"Cooperative Loan" means a housing loan made with respect to a
Cooperative Dwelling and secured by an assignment by the borrower
(tenant-stockholder) or security interest in shares issued by the applicable
Cooperative.
"Credit Enhancement" means the credit enhancement for a Series, if any,
specified in the related Prospectus Supplement.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
"Deferred Interest" means the excess of the interest accrued on the
outstanding principal balance of a Mortgage Loan during a specified period over
the amount of interest required to be paid by an obligor on such Mortgage Loan
on the related Due Date.
"Deposit Agreement" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
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"Depositor" means Residential Asset Funding Corporation
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
"Distribution Date" means, with respect to a Series or Class of
Securities, each date specified as a distribution date for such Series or Class
in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"Credit Enhancer" means the provider of the Credit Enhancement for a
Series specified in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Mortgage Loan, into which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
required to be paid to the mortgagee are deposited.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of
Notes of a Series, the date no later than which principal thereof will be fully
paid and with respect to a Class of Certificates of a Series, the date after
which no Certificates of such Class will remain outstanding, in each case based
on the assumptions set forth in the related Prospectus Supplement.
"FNMA" means the Federal National Mortgage Association.
"Holder" means the person or entity in whose name a Security is
registered.
"Home Improvements" means the home improvements financed by a Mortgage
Loan.
"HUD" means the United States Department of Housing and Urban
Development.
"Indenture" means the indenture relating to a Series of Notes between
the Trust Fund and the Trustee.
"Insurance Policies" means certain mortgage insurance, hazard insurance
and other insurance policies required to be maintained with respect to Mortgage
Loans.
"Insurance Proceeds" means amount paid by the insurer under any of the
Insurance Policies covering any Mortgage Loan or Mortgaged Property.
"Interest Only Securities" means a Class of Securities entitled solely
or primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
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"IRS" means the Internal Revenue Service.
"Lifetime Rate Cap" means the lifetime limit if any, on the Loan Rate
during the life of each adjustable rate Mortgage Loan.
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Mortgage Loan, net of liquidation expenses.
"Loan Rate" means the interest rate borne by a Mortgage Loan.
"Loan-to-Value Ratio" means, with respect to a Mortgage Loan, the ratio
determined as set forth in the related Prospectus Supplement.
"Minimum Rate" means the lifetime minimum Loan Rate during the life of
each adjustable rate Loan.
"Minimum Principal Payment Agreement" means a minimum principal payment
agreement with an entity meeting the criteria of the Rating Agencies.
"Modification" means a change in any term of a Mortgage Loan.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgaged Property" means residential properties securing a Mortgage
Loan.
"Mortgage Loan" means a loan secured by a Mortgaged Property.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Mortgage Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"1986 Act" means the Tax Reform Act of 1986.
"Notes" means the Asset-Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"PAC" ("Planned Amortization Class Securities") means a Class of
Securities of a Series on which payments of principal are made in accordance
with a schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
"Participating Securities" means Securities entitled to receive
payments of principal and interest and an additional return on investment as
described in the related Prospectus Supplement.
"Pass-Through Security" means a security representing an undivided
beneficial interest in a pool of assets, including the right to receive a
portion of all principal and interest payments relating to those assets.
"Pay Through Security" means Regular Interest Securities and certain
Debt Securities that are subject to acceleration due to prepayment on the
underlying Primary Assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
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"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Depositor, the Servicer
(if such Series relates to Mortgage Loans) and the Trustee.
"Primary Assets" means the Private Securities, the Mortgage Loans, as
the case may be, which are included in the Trust Fund for such Series. A Primary
Asset refers to a specific Private Security or Mortgage Loan, as the case may
be.
"Principal Balance" means, with respect to a Primary Asset and as of a
Due Date, the original principal amount of the Primary Asset, plus the amount of
any Deferred Interest added to such principal amount, reduced by all payments,
both scheduled or otherwise, received on such Primary Asset prior to such Due
Date and applied to principal in accordance with the terms of the Primary Asset.
"Principal Only Securities" means a Class of Securities entitled solely
or primarily to distributions of principal and identified as such in the
Prospectus Supplement.
"Private Security" means a participation or pass-through certificate
representing a fractional, undivided interest in Underlying Loans or
collateralized obligations secured by Underlying Loans.
"PS Agreement" means the pooling and servicing agreement, indenture,
trust agreement or similar agreement pursuant to which a Private Security is
issued.
"PS Servicer" means the servicer of the Underlying Loans.
"PS Sponsor" means, with respect to Private Securities, the sponsor or
depositor under a PS Agreement.
"PS Trustee" means the trustee designated under a PS Agreement.
"Qualified Insurer" means a mortgage guarantee or insurance company
duly qualified as such under the laws of the states in which the Mortgaged
Properties are located duly authorized and licensed in such states to transact
the applicable insurance business and to write the insurance provided.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Securities upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the
related Prospectus Supplement for a Series for which a REMIC election is made,
to serve as administrator of the Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be in
effect from time to time.
"REO Property" means real property which secured a defaulted Mortgage
Loan, beneficial ownership of which has been acquired upon foreclosure, deed in
lieu of foreclosure, repossession or otherwise.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the related Agreement.
"Residual Interest" means a residual interest in a REMIC.
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"Retained Interest" means, with respect to a Primary Asset, the amount
or percentage specified in the related Prospectus Supplement which is not
included in the Trust Fund for the related Series.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the borrower on a Primary Asset.
"Securities" means the Notes or the Certificates.
"Originator" means the originator or acquiror of the Primary Assets to
the Depositor identified in the related Prospectus Supplement for a Series.
"Senior Securityholder" means a holder of a Senior Security.
"Senior Securities" means a Class of Securities as to which the
holders' rights to receive distributions of principal and interest are senior to
the rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicer" means, with respect to a Series relating to Mortgage Loans,
the Person if any, designated in the related Prospectus Supplement to service
Mortgage Loans for that Series, or the successors or assigns of such Person.
"Single Family Property" means property securing a Mortgage Loan
consisting of one-to four-family attached or detached residential housing,
including Cooperative Dwellings.
"Stripped Securities" means Pass-Through Securities representing
interests in Primary Assets with respect to which all or a portion of the
principal payments have been separated from all or a portion of the interest
payments.
"Subordinate Securityholder" means a Holder of a Subordinate Security.
"Subordinated Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
"Trustee" means the trustee under the applicable Agreement and its
successors.
"Trust Fund" means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including, without
limitation, the Primary Assets (except any Retained Interests), all amounts in
the Distribution Account Collection Account or Reserve Funds, distributions on
the Primary Assets (net of servicing fees), and reinvestment earnings on such
net distributions and any Credit Enhancement and all other property and interest
held by or pledged to the Trustee pursuant to the related Agreement for such
Series.
"UCC" means the Uniform Commercial Code.
"Underlying Loans" means loans of the type eligible to be Mortgage
Loans underlying or securing Private Securities.
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<PAGE>
"Variable Interest Security" means a Security on which interest accrues
at a rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
"Zero Coupon Security" means a Security entitled to receive payments of
principal only.
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<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS.........................................................5
RISK FACTORS.................................................................17
DESCRIPTION OF THE SECURITIES................................................23
THE TRUST FUNDS..............................................................26
CREDIT ENHANCEMENT...........................................................34
SERVICING OF MORTGAGE LOANS..................................................36
THE AGREEMENTS...............................................................42
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS......................................51
THE DEPOSITOR................................................................61
USE OF PROCEEDS..............................................................61
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.....................................62
STATE TAX CONSIDERATIONS.....................................................78
ERISA CONSIDERATIONS.........................................................79
LEGAL INVESTMENT.............................................................81
PLAN OF DISTRIBUTION.........................................................81
LEGAL MATTERS................................................................82
FINANCIAL INFORMATION........................................................82
GLOSSARY OF TERMS............................................................83
i
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
Actuarial Mortgage Loan..................................................28
Agreement.................................................................6
APR......................................................................30
ARM Loans................................................................19
Balloon Loan.............................................................10
bankruptcy bond..........................................................35
Book-Entry Securities....................................................49
Business Day.............................................................13
Capitalized Interest Account.............................................13
Cede.....................................................................49
CERCLA...................................................................21
Certificate Schedule.....................................................43
Certificates...........................................................1, 6
Class.....................................................................3
Code.....................................................................62
Collection Account.......................................................12
Combined Loan-to-Value Ratio.............................................10
Commission................................................................4
Condominium Units........................................................27
Contract Rate............................................................30
Contracts................................................................30
Cooperative Dwellings....................................................27
Credit Enhancement.......................................................13
Credit Enhancer..........................................................12
Current Interest Rates...................................................10
Custodian................................................................43
Cut-Off Date..............................................................9
Cut-Off Date Aggregate Principal Balance.................................31
D&P......................................................................80
Debt Securities......................................................15, 62
Deferred Interest........................................................31
Deleted Primary Asset....................................................44
Deposit Agreement........................................................14
Depositor.................................................................1
Depositor Securities.....................................................61
Distribution Account.....................................................12
Distribution Date.........................................................3
DOL......................................................................79
Due Date.................................................................31
Eligible Investments.................................................13, 33
ERISA....................................................................16
Escrow Accounts..........................................................36
Event of Default.........................................................41
Exchange Act..............................................................5
FASIT................................................................16, 62
FASIT High-Yield Securities..............................................15
FASIT Ownership Security.................................................15
FASIT Regular Securities.................................................15
FASIT Securities.........................................................62
FDIC.....................................................................37
FHA......................................................................27
i
<PAGE>
FHLMC....................................................................55
Final Scheduled Distribution Date.........................................7
First Union..............................................................81
fully taxable bonds......................................................76
Garn-St. Germain Act.....................................................55
Grantor Trust............................................................62
Grantor Trust Securities.................................................15
Holders...................................................................4
Indenture................................................................23
Indirect Participant.....................................................49
IRS......................................................................63
Issuer....................................................................6
Lifetime Rate Caps.......................................................10
Liquidation Proceeds.....................................................37
Loan Rate................................................................10
Loan Schedule............................................................43
Loan-to-Value Ratio..................................................10, 31
Minimum Principal Payment Agreement......................................14
Modification.............................................................40
Mortgage Loans.....................................................1, 9, 27
Notes..................................................................1, 6
Notional Amount...........................................................7
Originator................................................................1
OTS......................................................................56
Owner Trust...............................................................6
Owner Trustee.............................................................7
PAC.......................................................................6
Participants.............................................................49
Partnership..............................................................62
Partnership Interests................................................15, 62
Physical Certificates....................................................49
Plan.....................................................................79
Plan Assets Regulation...................................................79
Pool......................................................................1
Pooling and Servicing Agreement..........................................23
Pre-Funded Amount........................................................12
Pre-Funding Account......................................................12
Pre-Funding Period.......................................................12
Premium Security.........................................................76
Prepayment Assumption....................................................74
Primary Assets............................................................1
Prospectus Supplements....................................................1
PS Agreement.............................................................32
PS Servicer..............................................................11
PS Sponsor...............................................................11
PS Trustee...............................................................11
PTCE.....................................................................80
Qualifying Substitute Primary Asset......................................44
Rating Agency............................................................14
REMIC................................................................15, 62
REMIC Regular Securities.................................................15
REMIC Regulations........................................................64
REMIC Residual Securities................................................15
REMIC Securities.........................................................62
REO Property.............................................................38
Reserve Fund.............................................................14
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<PAGE>
Restricted Group.........................................................80
Retained Interests.......................................................43
Rule of 78s Mortgage Loan................................................28
Securities................................................................1
Security Registrar.......................................................49
Series....................................................................1
Servicer..................................................................1
Servicing Agreement......................................................26
Servicing Fee............................................................15
Settlement Date..........................................................64
Simple Interest Mortgage Loan............................................28
Single Family Properties.................................................27
SMMEA....................................................................16
Title I Program..........................................................29
Title V..............................................................56, 60
Trust Agreement...........................................................6
Trust Fund................................................................1
Trustee................................................................6, 7
UCC..................................................................49, 57
Underlying Loans.........................................................11
Underwriter Exemptions...................................................79
iii
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.............................................. $295
Printing expenses................................................................................ 35,000
Accounting fees and expenses..................................................................... 30,000
Legal fees and expenses.......................................................................... 200,000
Fees and expenses (including legal fees) for qualifications under state securities laws.......... 10,000
Trustee's fees and expenses...................................................................... 5,000
Rating Agency fees and expenses.................................................................. 40,000
Miscellaneous.................................................................................... 200,000
-------
Total............................................................................................ $520,295
========
</TABLE>
All amounts except the Securities and Exchange Commission registration
fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the revised North Carolina Business
Corporation Act (the "NCBCA") contain specific provisions relating to
indemnification of directors and officers of North Carolina corporations. In
general, the statute provides that (i) a corporation must indemnify a director
or officer who is wholly successful in his defense of a proceeding to which he
is a party because of his status as such, unless limited by the articles of
incorporation, and (ii) a corporation may indemnify a director or officer if he
is not wholly successful in such defense, if it is determined as provided in the
statute that the director or officer meets a certain standard of conduct,
provided when a director or officer is liable to the corporation, the
corporation may not indemnify him. The statute also permits a director or
officer of a corporation who is a party to a proceeding to apply to the courts
for indemnification, unless the articles of incorporation provide otherwise, and
the court may order indemnification under certain circumstances set forth in the
statute. The statute further provides that a corporation may in its articles of
incorporation, by contract or by resolution provide indemnification in addition
to that provided by the statute, subject to certain conditions set forth in the
statute.
The Articles of Incorporation of the Registrant provide that the
personal liability of each director of the corporation is eliminated to the
fullest extent permitted by the provisions of the NCBCA, as presently in effect
or as amended. No amendment, modification or repeal of this provision of the
Articles of Incorporation shall adversely affect any right or protection of a
director that exists at the time of such amendment, modification or repeal.
First Union Corporation maintains directors and officers liability
insurance for the benefit of its subsidiaries, which provides coverage of up to
$80,000,000, subject to certain deductible amounts. In general, the policy
insures (i) the Registrant's directors and, in certain cases, its officers
against loss by reason of any of their wrongful acts, and/or (ii) the Registrant
against loss arising from claims against the
4
<PAGE>
directors and officers by reason of their wrongful acts, all subject to the
terms and conditions contained in the policy.
In connection with an agreement between the Registrant and Peter H.
Sorensen, an independent director of the Registrant, the Registrant has agreed
to indemnify and hold harmless Peter H. Sorensen from any and all loss, claim,
damage or cause of action, including reasonable attorneys' fees related thereto
(collectively, "Claims"), incurred by Peter H. Sorensen in the performance of
his duties as a director; provided, however, that Peter H. Sorensen shall not be
so indemnified for such Claims if they arise from his own negligence or willful
misconduct.
Under agreements which may be entered into by the Registrant, certain
controlling persons, directors and officers of the Registrant may be entitled to
indemnification by underwriters and agents who participate in the distribution
of Securities covered by the Registration Statement against certain liabilities,
including liabilities under the Securities Act.
ITEM 16. EXHIBIT SCHEDULE
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(a) Any required financial statements of a provider of credit
enhancement will be included as an appendix to the related
Prospectus Supplement
1.1 Form of Underwriting Agreement between the Registrant and the
Underwriter named therein, relating to the distribution of the
Securities*
3.1 Certificate of Incorporation of Residential Asset Funding
Corporation*
3.2 By-laws of Residential Asset Funding Corporation*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture*
4.3 Form of Sale and Servicing Agreement*
4.4 Form of Mortgage Loan Purchase Agreement*
4.5 Form of Trust Agreement*
5.1 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued *
5.2 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued (contained in Exhibit 5.1)
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters*
23.3 Consent of Dewey Ballantine LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page of this
Registration Statement)
99.1 Form of Prospectus Supplement**
99.2 Form of Prospectus Supplement**
99.3 Form of Prospectus Supplement**
99.4 Form of Prospectus Supplement**
* Filed herewith
** To come in a subsequent filing
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
5
<PAGE>
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high and of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent
change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the registration statement or
any material change to such information in the
registration statement;
provided, however, that paragraphs (i) and (ii) do
not apply if the information required to be included
in the post-effective amendment is contained in
periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
6
<PAGE>
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to
the securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of section 310 of the Trust Indenture Act ("Act") in
accordance with the rules and regulations prescribed by the Commission under
section 305(b)(2) of the Act.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Charlotte, North Carolina on the ________ day of
September, 1998.
RESIDENTIAL ASSET FUNDING CORPORATION
By: /s/
----------------------------------
NAME: Wallace Saunders
TITLE Assistant Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Wallace Saunders his true and lawful
attorney-in-fact and agent, acting alone, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement,
including post-effective amendments, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, and hereby ratifies and confirms all
his said attorney-in-fact and agent, acting alone, or his substitute or
substitutes, may lawfullly do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on September __, 1998.
SIGNATURE TITLE
--------- -----
By: /s/
------------------------- Chairman and President
NAME: Brian E. Simpson
By: /s/
-------------------------- Senior Vice President
NAME:.Carolyn Eskridge
By: /s/
-------------------------- Independent Director
NAME: Peter H. Sorensen
8
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(a) Any required financial statements of a provider of credit
enhancement will be included as an appendix to the related
Prospectus Supplement
1.1 Form of Underwriting Agreement between the Registrant and the
Underwriter named therein, relating to the distribution of the
Securities*
3.1 Certificate of Incorporation of Residential Asset Funding
Corporation*
3.2 By-laws of Residential Asset Funding Corporation*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture*
4.3 Form of Sale and Servicing Agreement*
4.4 Form of Mortgage Loan Purchase Agreement*
4.5 Form of Trust Agreement*
5.1 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued *
5.2 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued (contained in Exhibit 5.1)
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters*
23.3 Consent of Dewey Ballantine LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page of this
Registration Statement)
99.1 Form of Prospectus Supplement**
99.2 Form of Prospectus Supplement**
99.3 Form of Prospectus Supplement**
99.4 Form of Prospectus Supplement**
* Filed herewith
** To come in a subsequent filing
__________________________________
________________ TRUST __________
HOME LOAN ASSET BACKED NOTES, SERIES _______
Class A-1, Class A-2, Class A-3, Class A-4,
Class M-1, Class M-2 and Class B Notes
UNDERWRITING AGREEMENT
___________________________
_______________________________
As Underwriter
_______________________________
_______________________________
Dear Sirs:
Residential Asset Funding Corporation (the "Depositor"), a North Carolina
corporation, has authorized the issuance and sale of _______________ Trust
___________________, Home Loan Asset Backed Notes in the series and classes, in
the respective original principal amounts and with the designations set forth in
Schedule A hereto (the Class A-1, Class A-2, Class A-3, Class A-4, Class M-1,
Class M-2 and Class B Notes, collectively, the "Notes")._______________________
(the "Underwriter") is purchasing all of the Notes at the prices set forth on
Schedule A hereto. The Notes will be issued pursuant to an indenture, to be
dated as of ___________ (the "Indenture"), between _______________ Trust
________________ (the "Trust") and ______________________________, as indenture
trustee (the "Indenture Trustee"). The Depositor has also entered into a trust
agreement, dated as of ___________________ (the "Trust Agreement"), among the
Depositor, as depositor, ________________), _______________________________, as
owner trustee (the "Owner Trustee"), and ____________________________, as
co-owner trustee (the "Co-Owner Trustee"). The Notes will be secured by the
assets of the Trust pursuant to the Indenture. The Notes are described more
fully in Schedule A hereto and in a prospectus supplement furnished to you by
the Depositor. The assets of the Trust will initially include, among other
things, home loans to be transferred on the Closing Date (as defined herein)
(the "Initial Loans") in an amount of approximately $_______________ as of the
close of business on _____________________ (the "Cut-Off Date")
<PAGE>
(the actual aggregate unpaid principal balance of the Initial Loans as of the
Cut-Off Date, the "Original Pool Principal Balance") [and such amounts as may be
held by the Indenture Trustee in the Pre-Funding Account (the "Pre-Funding
Account"), the Capitalized Interest Account (the "Capitalized Interest
Account")] and any other accounts held by the Indenture Trustee for the benefit
of the Noteholders, all pursuant to a sale and servicing agreement, dated as of
________________________ (the "Sale and Servicing Agreement") among the Trust,
as issuer, the Depositor, as depositor, ______________, ("Servicer"), as
servicer, the Depositor, and ___________________________,
________________________, as indenture trustee and co-owner trustee. [On the
Closing Date, approximately $______________________ (as adjusted pursuant to the
immediately following sentence, the "Original Pre-Funded Account Amount") will
be deposited in the name of the Indenture Trustee in the Pre-Funding Account. To
the extent that the Original Pool Principal Balance is more or less than the
amount set forth in the second preceding sentence, the Original Pre-Funded
Amount will be decreased or increased by a corresponding amount provided that
the amount of any such adjustment shall not exceed $________________. It is
intended that additional home loans satisfying the criteria specified in the
Sale and Servicing Agreement (the "Subsequent Loans") will be purchased by the
Trust for inclusion in the Trust from time to time on or before
_______________________ from funds on deposit in the Pre-Funding Account at the
time of execution and delivery of each subsequent transfer agreement (each, a
"Subsequent Transfer Agreement"). Funds in the Capitalized Interest Account will
be applied by the Indenture Trustee and Co-Owner Trustee to cover shortfalls in
interest during the Pre-Funding Period.] Forms of the Indenture and the Sale and
Servicing Agreement have been filed as exhibits to the Registration Statement
(as hereinafter defined).
The Notes are more fully described in the Registration Statement which the
Depositor has furnished to the Underwriter. Capitalized terms used but not
defined herein shall have the meanings given to them in the Sale and Servicing
Agreement.
Pursuant to a loan sale agreement, dated as of __________________ (the
"Loan Sale Agreement") by and between Servicer, as seller and servicer, and the
Depositor, Servicer will transfer to the Depositor all of Servicer's right,
title and interest in and to the unpaid principal balances of the Initial Loans
as of the Cut-Off Date and the collateral securing each Initial Loan. Pursuant
to the Sale and Servicing Agreement, the Depositor will transfer to the Trust
all such right, title and interest in and to the unpaid principal balances of
the Initial Loans as of the Cut-Off Date and the collateral securing each
Initial Loan.
SECTION 1. Representations and Warranties of the Depositor. The Depositor
represents and warrants to, and agrees with you that:
2
<PAGE>
(a) A Registration Statement on Form S-3 (No. ______________________) has
(i) been prepared by the Depositor in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the United States Securities and
Exchange Commission (the "Commission") thereunder, (ii) bee filed with the
Commission under the Securities Act and (iii) become effective under the
Securities Act. Copies of such Registration Statement have been delivered by the
Depositor to the Underwriter. As used in this Agreement, "Effective Time" means
the date and the time as of which such Registration Statement, or the most
recent post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time; "Registration
Statement" means such registration statement, at the Effective Time, including
any documents incorporated by reference therein at such time; "Preliminary
Prospectus" means each prospectus included in such Registration Statement, or
amendments thereof, including a preliminary prospectus supplement which, as
completed, is proposed to be used in connection with the sale of the Notes and
any prospectus filed with the Commission by the Depositor with the consent of
the Underwriter pursuant to Rule 424(a) of the Rules and Regulations; and
"Prospectus" means the final prospectus dated ______________________, as first
supplemented by a prospectus supplement (the "Prospectus Supplement") relating
to the Notes, to be filed with the Commission pursuant to paragraphs (2), (3) or
(5) of Rule 424(b) of the Rules and Regulations. Reference made herein to the
Prospectus shall be deemed to refer to and include any documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Securities Act as of
the date of the Prospectus and any reference to any amendment or supplement to
the Prospectus shall be deemed to refer to and include any document filed under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of such Preliminary Prospectus or the Prospectus, as the case may be, and
incorporated by reference in such Preliminary Prospectus or the Prospectus, as
the case may be, and any reference to and amendment to the Registration
Statement shall be deemed to include any report of the Depositor filed with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act after the
Effective Time that is incorporated by reference in the Registration Statement.
The Commission has not issued any order preventing or suspending the use of the
Preliminary Prospectus or Prospectus. There are no contracts or documents of the
Depositor which are required to be filed as exhibits to the Registration
Statement pursuant to the Securities Act or the Rules and Regulations which have
not been so filed or incorporated by reference therein on or prior to the
Effective Date of the Registration Statement other than such documents or
materials, if any, as the Underwriter delivers to the Depositor pursuant to
Section 8(d) hereof for filing on an Additional Materials 8-K (as defined
below). The conditions
3
<PAGE>
for use of Form S-3, as set forth in the General Instructions thereto, have been
satisfied.
(b) The Registration Statement conforms, and the Prospectus and any further
amendments or supplements to the Registration Statement or the Prospectus will,
when they become effective or are filed with the Commission, as the case may be,
conform in all respects to the requirements of the Securities Act and the Rules
and Regulations. The Registration Statement, as of the Effective Date thereof
and of any amendment thereto, did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus as of its date,
and as amended or supplemented as of the Closing Date, does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading; provided,
however, that no representation or warranty is made as to information contained
in or omitted from the Registration Statement or the Prospectus in reliance upon
and in conformity with written information furnished to the Depositor in writing
by the Underwriter expressly for use therein. The only information furnished by
the Underwriter or on behalf of the Underwriter for use in connection with the
preparation of the Registration Statement or the Prospectus is described in
Section 8(i) hereof.
(c) The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents become effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that no
representation is made as to Computational Materials, Structural Term Sheets and
Collateral Term Sheets (each as defined herein) deemed to be incorporated by
reference in the Prospectus as the result of filing an Additional Materials 8-K
(as defined below) pursuant to the terms hereof except to the extent such
Computational Materials, Structural Term Sheets and Collateral Term Sheets
reflect information furnished by the Depositor to the Underwriter.
4
<PAGE>
(d) Since the respective dates as of which information is given in the
Prospectus, there has not been any material adverse change in the general
affairs, management, financial condition, or results of operations of the
Depositor, otherwise than as set forth or contemplated in the Prospectus as
supplemented or amended as of the Closing Date.
(e) The Depositor has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of North Carolina, is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which its ownership or lease of property or the conduct
of its business requires such qualification, and has all power and authority
necessary to own or hold its properties, to conduct the business in which it is
engaged and to enter into and perform its obligations under this Agreement, the
Loan Purchase Agreement, the Sale and Servicing Agreement and the Trust
Agreement or any Subsequent Transfer Agreement and to cause the Notes to be
issued.
(f) There are no actions, proceedings or investigations pending with
respect to which the Depositor has received service of process before, or
threatened by, any court, administrative agency or other tribunal to which the
Depositor is a party or of which any of its properties is the subject (a) which
if determined adversely to the Depositor would have a material adverse effect on
the business or financial condition of the Depositor, (b) which assert the
invalidity of this Agreement, the Loan Sale Agreement, the Sale and Servicing
Agreement, the Trust Agreement, the Notes, [or any Subsequent Transfer
Agreement,] (c) which seek to prevent the issuance of the Notes or the
consummation by the Depositor of any of the transactions contemplated by the
Sale and Servicing Agreement, the Loan Sale Agreement, the Trust Agreement, this
Agreement [or any Subsequent Transfer Agreement,] as the case may be, or (d)
which might materially and adversely affect the performance by the Depositor of
its obligations under, or the validity or enforceability of, the Sale and
Servicing Agreement, the Loan Sale Agreement, this Agreement, the Trust
Agreement, the Notes [or any Subsequent Transfer Agreement.]
(g) This Agreement has been, and the Sale and Servicing Agreement, the Loan
Sale Agreement, the Trust Agreement [and each Subsequent Transfer Agreement,]
when executed and delivered as contemplated hereby and thereby, will have been,
duly authorized, executed and delivered by the Depositor, and this Agreement
constitutes, and the Sale and Servicing Agreement, the Loan Sale Agreement, the
Trust Agreement [and each Subsequent Transfer Agreement] when executed and
delivered as contemplated herein, will constitute, legal, valid and binding
instruments enforceable against the Depositor in accordance with their
respective terms, subject as to enforceability to (x) applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws
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affecting creditors' rights generally, (y) general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law), and (z) with respect to rights of indemnity under this Agreement,
limitations of public policy under applicable securities laws.
(h) The execution, delivery and performance of this Agreement, the Sale and
Servicing Agreement, the Loan Sale Agreement, the Trust Agreement [and any
Subsequent Transfer Agreement] by the Depositor and the consummation of the
transactions contemplated hereby and thereby, and the issuance and delivery of
the Notes do not and will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Depositor is a party, by which the Depositor is bound or
to which any of the properties or assets of the Depositor or any of its
subsidiaries is subject, which breach or violation would have a material adverse
effect on the business, operations or financial condition of the Depositor, nor
will such actions result in any violation of the provisions of the certificate
of incorporation or by-laws of the Depositor or any statute or any order, rule
or regulation of any court of governmental agency or body having jurisdiction
over the Depositor or any of its properties or assets, which breach or violation
would have a material adverse effect on the business, operations or financial
condition of the Depositor.
(i) The Depositor has no reason to believe that ____________________ are
not independent public accountants with respect to the Depositor as required by
the Securities Act and the Rules and Regulations.
(j) As of the Closing Date, the Notes, the Indenture and the Trust
Agreement will conform in all material respects to the respective descriptions
thereof contained in the Prospectus. As of the Closing Date, the Notes will be
duly and validly authorized and, when duly and validly executed, authenticated
and delivered in accordance with the Indenture, and delivered to you against
payment therefor as provided herein, will be duly and validly issued and
outstanding and entitled to the benefits of the Sale and Servicing Agreement.
The Notes will not be "mortgage related securities," as such term is defined in
the singular in the Exchange Act.
(k) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance and the sale of the Notes to the
Underwriter, or the consummation by the Depositor of the other transactions
contemplated by this Agreement, the Sale and Servicing Agreement, the Loan Sale
Agreement, the Trust Agreement [and any Subsequent Transfer Agreement,] except
such consents,
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approvals, authorizations, registrations or qualifications as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Notes by the Underwriter or as have been obtained.
(l) The Depositor possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus, and the Depositor has not received notice
of any proceedings relating to the revocation or modification of any such
license, certificate, authority or permit which if decided adversely to the
Depositor would, singly or in the aggregate, materially and adversely affect the
conduct of its business, operations or financial condition.
(m) At the time of execution and delivery of the Sale and Servicing
Agreement, the Depositor will: (i) be the sole beneficial owner of the Initial
Loans, free and clear of any lien, mortgage, pledge, charge, encumbrance,
adverse claim or other security interest (collectively, "Liens"); (ii) not have
assigned to any Person any of its right or title in the Initial Loans, in the
Sale and Servicing Agreement or in the Notes being issued pursuant to the
Indenture; and (iii) have the power and authority to sell its interest in the
Initial Loans to the Trust and to sell the Notes to the Underwriter. Upon
execution and delivery of the Sale and Servicing Agreement by the Trust, the
Trust will have acquired beneficial ownership of all of the Depositor's right,
title and interest in and to the Loans. Upon delivery to the Underwriter of the
Notes, the Underwriter will have good title to the Notes, free and clear of any
Liens.
(n) [At the time of execution and delivery of any Subsequent Transfer
Agreement, the Depositor will: (i) be the sole beneficial owner of the
Subsequent Loans, free and clear of any Liens; (ii) not have assigned to any
Person any of its right or title in the Subsequent Loans, in the Sale and
Servicing Agreement or in the Subsequent Transfer Agreement; and (iii) have the
power and authority to sell the Subsequent Loans to the Trust. Upon execution
and delivery of each Subsequent Transfer Agreement by the Trust, the Trust will
have acquired beneficial ownership of all of the Depositor's right, title and
interest in and to the related Subsequent Loans.]
(o) As of the Cut-Off Date, each of the Initial Loans will meet the
eligibility criteria described in the Prospectus and will conform in all
material respects to the descriptions thereof contained in the Prospectus.
(p) [As of any Subsequent Transfer Date, each of the Subsequent Loans will
meet the eligibility criteria described
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in the Prospectus and will conform in all material respects to the descriptions
thereof contained in the Prospectus.]
(q) Neither the Depositor nor the Trust created by the Trust Agreement is
an "investment company" within the meaning of such term under the Investment
Company Act of 1940 (the "1940 Act") and the rules and regulations of the
Commission thereunder
(r) At the Closing Date, the Notes, the Sale and Servicing Agreement and
the Indenture will conform in all material respects to the descriptions thereof
contained in the Prospectus.
(s) At the Closing Date, each of the Senior Notes will have been rated
"[AAA]" by [Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P")], and [Fitch Investors Service, L.P. ("Fitch")], and
"[Aaa]" by [Moody's Investor Service ("Moody's")]; the Class M-1 Notes "[AA]" by
[S&P] and [Fitch] and "[A]" by [Moody's]; the Class M-2 Notes rated "[A]" by
[S&P] and [Fitch] and "[A2]" by [Moody's]; and the Class [B] Notes rated
"[BBB+]" by [S&P] and [Fitch] and "[Baa2]" by [Moody's].
(t) Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of this Agreement, the Sale and Servicing
Agreement, the Loan Sale Agreement, the Trust Agreement and the Notes have been
paid or will be paid at or prior to the Closing Date.
(u) At the Closing Date, each of the representations and warranties of the
Depositor set forth in the Sale and Servicing Agreement and the Loan Sale
Agreement will be true and correct in all material respects.
Any certificate signed by an officer of the Depositor and delivered to the
Underwriter or counsel for the Underwriter in connection with an offering of the
Notes shall be deemed to be a representation and warranty as to the matters
covered thereby to each person to whom the representations and warranties in
this Section 1 are made.
SECTION 1. Purchase and Sale. The commitment of the Underwriter to purchase
the Notes pursuant to this Agreement shall be deemed to have been made on the
basis of the representations and warranties herein contained and shall be
subject to the terms and conditions herein set forth. The Depositor agrees to
instruct the Indenture Trustee to issue the Notes and agrees to sell to the
Underwriter, and the Underwriter agrees (except as provided in Section 10) to
purchase from the Depositor the aggregate principal amount of the Class A-1,
Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B Notes at the
purchase price or prices set forth in Schedule A. The Underwriter may offer the
Notes to certain dealers at such prices less a concession not in excess of
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<PAGE>
the respective amounts set forth in Schedule A. The Underwriter may allow and
such dealer, may re-allow a discount to certain dealers not in excess of the
respective amounts set forth in Schedule A.
SECTION 3. Delivery and Payment. Delivery of and payment for the Notes to
be purchased by the Underwriter shall be made at the offices of ___________or at
such other place as shall be agreed upon by the Underwriter and the Depositor at
10:00 a.m. ______ time on ___________ or at such other time or date as shall be
agreed upon in writing by the Underwriter and the Depositor (such date being
referred to as the "Closing Date"). Payment shall be made to the Depositor by
wire transfer of same day funds payable to the account of the Depositor.
Delivery of the Notes shall be made to the Underwriter for the accounts of the
Underwriter against payment of the purchase price thereof. The Notes shall be in
such authorized denominations and registered in such names as the Underwriter
may request in writing at least two business days prior to the Closing Date. The
Notes will be made available for examination by the Underwriter no later than
2:00 p.m. _______ time on the first business day prior to the Closing Date.
SECTION 4. Offering by the Underwriter. It is understood that, subject to
the terms and conditions hereof, the Underwriter proposes to offer the Notes for
sale to the public as set forth in the Prospectus.
SECTION 5. Covenants of the Depositor. The Depositor agrees as follows:
(a) To prepare the Prospectus in a form approved by the Underwriter
and to file such Prospectus pursuant to Rule 424(b) under the Securities
Act not later than the Commission's close of business on the second
business day following the availability of the Prospectus to the
Underwriter and to make no further amendment or any supplement to the
Registration Statement or to the Prospectus prior to the Closing Date
except as permitted herein; to advise the Underwriter, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective prior to the Closing Date or
any supplement to the Prospectus or any amended Prospectus has been filed
prior to the Closing Date and to furnish the Underwriter with copies
thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Depositor with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of the Prospectus and, for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the Notes to advise the Underwriter promptly of its receipt of
notice of the issuance by the Commission of any stop order or of: (i) any
order preventing or suspending the use of any Preliminary Prospectus or the
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Prospectus; (ii) the suspension of the qualification of the Notes for
offering or sale in any jurisdiction; (iii) the initiation of or threat of
any proceeding for any such purpose; (iv) any request by the Commission for
the amending or supplementing of the Registration Statement or the
Prospectus or for additional information. In the event of the issuance of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, the Depositor promptly shall use its best efforts to obtain
the withdrawal of such order by the Commission.
(b) To furnish promptly to the Underwriter and to counsel for the
Underwriter a signed copy of the Registration Statement as originally filed
with the Commission, and of each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith.
(c) To deliver promptly to the Underwriter such number of the
following documents as the Underwriter shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case including exhibits);
(ii) each Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus; and (iii) any document incorporated by reference
in the Prospectus (including exhibits thereto). If the delivery of a
prospectus is required at any time in connection with the offering or sale
of the Notes, and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the Prospectus or
to file under the Exchange Act any document incorporated by reference in
the Prospectus in order to comply with the Securities Act or the Exchange
Act, the Depositor shall notify the Underwriter and, upon the Underwriter's
request, shall file such document and prepare and furnish without charge to
the Underwriter and to any dealer in securities as many copies as the
Underwriter may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which corrected such statement
or omission or effects such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Depositor or the Underwriter,
be required by the Securities Act or requested by the Commission.
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<PAGE>
(e) The Depositor will (i) cause any Computational Materials or any
Structural Term Sheet (each as defined below in this subsection) with
respect to the Class A-1, Class A-2, Class A-3, Class A-1, Class M-1, Class
M-2 and Class B Notes which are delivered by the Underwriter to the
Depositor to be filed with the Commission on Additional Materials 8-K (as
defined below) at or before the time of filing of the Prospectus pursuant
to Rule 424(b) under the Securities Act and (ii) cause any Collateral Term
Sheet (ac defined below in this subsection) with respect to the Class A-1,
Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B Notes
which are delivered by the Underwriter to the Depositor to be filed with
the Commission on an Additional Materials 8-K within two business days
after the date on which the Underwriter advises the Depositor that such
Collateral Term Sheet was first used; provided, however, that the Depositor
shall have no obligation to file any materials which, in the reasonable
determination of the Depositor after consultation with the Underwriter, (x)
are not required to be filed pursuant to the Kidder Letters and/or the PSA
Letter (each as defined below) or (y) contain any erroneous information or
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; it being understood, however, that the Depositor shall have
no obligation to review or pass upon the accuracy or adequacy of, or to
correct, any Computational Materials, Structural Term Sheets or Collateral
Term Sheets provided by the Underwriter to the Depositor as aforesaid. For
purposes of this subsection (e), (1) the term "Computational Materials"
shall mean those materials delivered by the Underwriter to the Depositor
within the meaning of the no-action letter dated May 20, 1994 issued by the
Division of Corporation Finance of the Commission to Kidder, Peabody
Acceptance Corporation I and certain affiliates and the no-action letter
dated May 27, 1994 issued by the Division of Corporation Finance of the
Commission to the Public Securities Association (together, the "Kidder
Letters") for which the filing of such material is a condition of the
relief granted in such letters, (2) the terms "Structural Term Sheet" and
"Collateral Term Sheet" shall mean those materials delivered by the
Underwriter to the Depositor within the meaning of the no-action letter
dated February 13, 1995 issued by the Division of Corporation Finance of
the Commission to the Public Securities Association (the "PSA Letter") for
which the filing of such material on an Additional Materials 8-K is a
condition of the relief granted in such letter and (3) the term "Additional
Materials 8-K" shall mean a Current Report on Form 8-K used to file
Computational Materials, Structural Term Sheets and/or Collateral Term
Sheets.
(f) To furnish the Underwriter and counsel for the Underwriter, prior
to filing with the Commission, and to obtain the consent of the Underwriter
for the filing of the
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following documents relating to the Notes: any (i) Preliminary Prospectus,
(ii) amendment to the Registration Statement or supplement to the
Prospectus, or document incorporated by reference in the Prospectus, or
(iii) Prospectus pursuant to Rule 424 of the Rules and Regulations.
(g) To make generally available to holders of the Notes as soon as
practicable, but in any event not later than ninety (90) days after the
close of the period covered thereby, a statement of earnings of the Trust
(which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the
Depositor, Rule 158) and covering a period of at least twelve consecutive
months beginning not later than the first day of the first fiscal quarter
following the Closing Date.
(h) To use its best efforts, in cooperation with the Underwriter, to
qualify the Notes for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States or
elsewhere as the Underwriter may designate, and maintain or cause to be
maintained such qualifications in effect for as long as may be required for
the distribution of the Notes; provided, however, that in connection
therewith, the Depositor shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction. The Depositor will file or cause the filing of such
statements and reports as may be required by the laws of each jurisdiction
in which the Notes have been so qualified.
(i) Unless the Underwriter shall otherwise have given its written
consent, no notes or pass-through certificates backed by home equity loans
or other similar securities representing interest in or secured by other
mortgage-related assets originated or owned by the Depositor or the
Servicer shall be publicly offered or sold nor shall the Depositor or the
Servicer enter into any contractual arrangements that contemplate the
public offering or sale of such securities for a period of seven (7)
business days following the commencement of the offering of the Notes to
the public.
(j) So long as the Notes shall be outstanding the Depositor shall
furnish, or cause to be furnished to the Underwriter as soon as such
statements are furnished to the Depositor; (i) the annual statement as to
compliance delivered by the Servicer to the Depositor pursuant to Section
7.4 of the Sale and Servicing Agreement; (ii) the annual statement of a
firm of independent public accountants furnished to the Depositor pursuant
to Section 7.5 of the Sale and Servicing Agreement; and (iii) the monthly
statements furnished by the Indenture Trustee pursuant to Section 6.1 of
the Sale and Servicing Agreement.
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(k) To apply the net proceeds from the sale of the Notes in the manner
set forth in the Prospectus.
SECTION 6. Conditions to the Underwriter's Obligations. The obligations of
the Underwriter to purchase the Notes pursuant to this Agreement are subject to:
(i) the accuracy on and as of the Closing Date of the representations and
warranties on the part of the Depositor herein contained; (ii) the performance
by the Depositor of all of its obligations hereunder; and (iii) the following
conditions as of the Closing Date:
(a) The Underwriter shall have received confirmation of the
effectiveness of the Registration Statement. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission. Any request of the Commission for inclusion
of additional information in the Registration Statement or the Prospectus
shall have been complied with.
(b) The Underwriter shall not have discovered and disclosed to the
Depositor on or prior to the Closing Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact or omits to state a fact which, in the opinion of the
Underwriter and its counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters relating to the
authorization, form and validity of this Agreement, the Sale and Servicing
Agreement, the Loan Sale Agreement, the Trust Agreement, the Notes, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be satisfactory in all respects to the Underwriter and its counsel, and the
Depositor shall have furnished to the Underwriter and its counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) You shall have received from in-house counsel of the Depositor or
an affiliate of the Depositor, a favorable opinion, dated the Closing Date,
in form and substance satisfactory to the Underwriter, to the effect that:
(i) The Depositor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of North Carolina. and has all corporate power and authority necessary
to own or hold its properties and to conduct the business in which it
is engaged and to enter into and perform its obligations under this
Agreement, the Loan Sale
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Agreement, the Sale and Servicing Agreement and the Trust Agreement,
and to cause the Notes to be issued.
(ii) The Depositor is not in violation of its certificate of
incorporation or by-laws or to such counsel's knowledge in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which the Depositor
is a party or by which it or its properties may be bound, which
default might result in any material adverse changes in the financial
condition, earnings, affairs or business of the Depositor or which
might materially and adversely affect the properties or assets, taken
as a whole, of the Depositor.
(iii) This Agreement, the Sale and Servicing Agreement, the Loan
Sale Agreement and the Trust Agreement have been duly authorized,
executed and delivered by the Depositor and the Subsequent Transfer
Agreements have been duly authorized, and when duly executed and
delivered by the Depositor and, assuming the due authorization,
execution and delivery of such agreement, by the other parties
thereto, such agreements constitute, and in the case of any Subsequent
Transfer Agreement will constitute, valid and binding obligations,
enforceable against the Depositor in accordance with their respective
terms, subject as to enforceability to (x) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, (y) general principles
of equity (regardless of whether enforcement is sought in a proceeding
in equity or at law) and (z) with respect to rights of indemnity under
this Agreement, limitations of public policy under applicable
securities laws.
(iv) The execution, delivery and performance of this Agreement,
the Loan Sale Agreement, the Sale and Servicing Agreement, the Trust
Agreement and each Subsequent Transfer Agreement by the Depositor, the
consummation of the transactions contemplated hereby and thereby, and
the issuance and delivery of the Notes to such counsel's knowledge do
not and will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Depositor is a party or by which the
Depositor is bound or to which and of the property or assets of the
Depositor or any of its subsidiaries is subject, which breach or
violation would have a material adverse effect on the business,
operations or financial condition of the Depositor, nor will such
actions result in a violation of the provisions of the certificate of
incorporation or by-laws of the
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Depositor or to such counsel's knowledge any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Depositor or any of its properties or assets,
which breach or violation would have a material adverse effect on the
business, operations or financial condition of the Depositor.
(v) The direction by the Depositor to the Owner Trustee or to
Co-Owner Trustee to execute and direct the Indenture Trustee to
authenticate and deliver the Notes have been duly authorized by the
Depositor.
(vi) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of
the United States is required for the issuance of the Notes, the sale
of the Notes to the Underwriter, or the consummation by the Depositor
of the other transactions contemplated by thi3 Agreement, the Loan
Sale Agreement, the Sale and Servicing Agreement and the Trust
Agreement, except such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Securities Act or state securities or "blue sky" laws in connection
with the purchase and distribution of the Notes by the Underwriter or
as have been previously obtained.
(vii) There are not, to such counsel's knowledge, any actions,
proceedings or investigations pending with respect to which the
Depositor has received service of process before, or threatened by any
court, administrative agency or other tribunal to which the Depositor
is a party or of which any of its properties is the subject: (a)
which, if determined adversely to the Depositor, would have a material
adverse effect on the business, results of operations or financial
condition of the Depositor; (b) which assert the invalidity of the
Sale and Servicing Agreement, the Loan Sale Agreement, the Trust
Agreement or the Notes; (c) seeking to prevent the issuance of the
Notes or the consummation by the Depositor of any of the transactions
contemplated by the Sale and Servicing Agreement, the Loan Sale
Agreement, the Trust Agreement or this Agreement, as the case may be;
or (d) which might materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or
enforceability of the Sale and Servicing Agreement, the Loan Sale
Agreement, the Trust Agreement, this Agreement or the Notes.
(viii) The statements set forth in the Basic Prospectus under the
captions "Summary of Terms --
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Depositor" and "The Depositor" provide a fair and accurate summary of
the matters addressed therein.
(e) __________________ shall have furnished to the Underwriter their
written opinion, as special counsel to the Depositor, addressed to the
Underwriter and dated the Closing Date, in form and substance satisfactory
to the Underwriter, to the effect that:
(i) The conditions to the use by the Depositor of a registration
statement on Form S-3 under the Securities Act, as set forth in the
General Instructions to Form S-3, have been satisfied with respect to
the Registration Statement and the Prospectus.
(ii) The Registration Statement and any amendments thereto have
become effective under the Securities Act; to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and not withdrawn and no
proceedings for that purpose have been instituted or threatened and
not terminated; and the Registration Statement, the Prospectus and
each amendment or supplement thereto, as of their respective effective
or issue dates (other than the financial and statistical information
contained therein, as to which such counsel need express no opinion),
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Rules and Regulations.
(iii) To the best of such counsel's knowledge, there are no
material contracts, indentures or other documents of a character
required to be described or referred to in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration
Statement other than those described or referred to therein or filed
or incorporated by reference as exhibits thereto.
(iv) The statements set forth in the Basic Prospectus under the
captions "Description of the Securities" and "The Agreements" and in
the Prospectus Supplement under the captions "Description of the
Notes" to the extent such statements purport to summarize certain
provisions of the Notes, the Sale and Servicing Agreement, the
Indenture, and the Trust Agreement are fair and accurate in all
material respects.
(v) The statements set forth in the Prospectus under the captions
"ERISA Considerations" and "Certain Material Federal Income Tax
Consequences" and in the Prospectus Supplement under the captions
"ERISA Considerations" and "Certain Federal Income Tax Consequences,"
to the extent that they constitute
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<PAGE>
matters of federal law, provide a fair and accurate summary of such
law or conclusions.
(vi) The Indenture has been duly qualified under the Trust
Indenture Act of 1939, as amended, and neither the Depositor nor the
Trust is required to be registered under the 1940 Act, as amended.
(vii) Neither the Depositor nor the Trust is an "investment
company" or under the "control" of an "investment company" as such
terms are defined in the 1940 Act.
(viii) The Notes, when executed, authenticated and delivered in
accordance with the Trust Agreement and the Indenture, will be validly
issued, will be entitled to the benefits of the Indenture and will
conform to the description thereof contained in the Prospectus.
Such counsel shall also have furnished to the Underwriter a written
statement, addressed to the Underwriter and dated the Closing Date, in form and
substance satisfactory to the Underwriter, to the effect that no facts have come
to the attention of such counsel which lead them to believe that: (a) the
Registration Statement, at the time such Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading (except as to financial or statistical data
contained in the Registration Statement); or (b) the Prospectus, as of its date
and as of the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
(f) The Underwriter shall have received the favorable opinion, dated
the Closing Date, of [______________,] special counsel to the Depositor,
addressed to the Depositor and satisfactory to [Moody's Investors Service
("Moody's")], [Fitch Investors Service, L.P. ("Fitch")] and the
Underwriter, with respect to certain matters relating to the transfer of
the Initial Loans, [together with amounts on deposit in the Pre-Funding
Account and the Capitalized Interest Account,] from the Depositor to the
Trust, and such counsel shall have consented to the reliance on such
opinion by [Moody's], [Fitch] and the Underwriter as though such opinion
had been addressed to each such party.
(g) _________________________, special counsel to the Depositor and
the Servicer, shall have furnished to the Underwriter their written
opinion, addressed to the Underwriter and the Depositor and dated the
Closing Date, in form and substance satisfactory to the Underwriter, to the
effect that:
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(i) The Depositor has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the
State of North Carolina and has duly authorized all actions
contemplated hereby to be taken by
(ii) The Depositor has full power and authority to the Loans to
the Trustee as contemplated in the Sale and Servicing Agreement.
(iii) The Servicer has been duly chartered and is validly
existing and in good standing as a federal savings bank under the laws
of the United States and has duly authorized all actions contemplated
hereby to be taken by it.
(iv) The Servicer has full power and authority to transfer the
Loans to the Depositor as contemplated in the Loan Sale Agreement and
to serve in its capacity as servicer of the Loans as contemplated in
the Sale and Servicing Agreement.
(v) The Sale and Servicing Agreement, the Loan Sale Agreement and
the Trust Agreement have been duly authorized, executed and delivered
by the Depositor or the Servicer, as applicable, and, assuming the due
authorization, execution and delivery of such agreements by the other
parties thereto, constitute the legal, valid and binding agreements of
the Depositor or the Servicer, as applicable, enforceable against the
Depositor or the Servicer, as applicable, in accordance with their
terms respective, subject as to enforceability to (x) bankruptcy,
insolvency, reorganization, moratorium, receivership or other similar
laws now or hereafter in effect relating to creditors' rights
generally and (y) the qualification that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion, with respect to
such remedies, of the court before which any proceedings with respect
thereto may be brought.
(vi) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body
having jurisdiction over the Depositor or the Servicer is required for
the consummation by the Depositor or the Servicer, as applicable, of
the transactions contemplated by the Sale and Servicing Agreement, the
Loan Sale Agreement and the Trust Agreement, except such consents,
approvals, authorizations, registrations and qualifications as have
been obtained.
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(vii) Neither (A) the execution, delivery or performance by the
Depositor of the Sale and Servicing Agreement, the Loan Sale Agreement
or the Trust Agreement and the transactions contemplated therein, nor
(B) the execution, delivery or performance by the Servicer of the Sale
and Servicing Agreement or the Loan Sale Agreement and the
transactions contemplated therein, including the transfer of the
Initial Loans by the Servicer to the Depositor (1) conflict with or
result in a breach of, or constitute a default under, (a) any term or
provision of the formation documents of the Depositor or the Servicer,
as applicable; (b) any term or provision of any material agreement,
deed of trust, mortgage loan agreement, contract, instrument or
indenture, or other agreement to which the Depositor or the Servicer,
as applicable, is a party or is bound or to which any of the property
or assets of the Depositor or the Servicer, as applicable, or any of
its subsidiaries is subject; (c) to the best of such firm's knowledge
without independent investigation any order, judgment, writ,
injunction or decree of any court or governmental authority having
jurisdiction over the Depositor or the Servicer, as applicable; or (d)
any law, rule or regulations applicable to the Depositor or the
Servicer, or (B) to the best of such firm's knowledge without
independent investigation, results in the creation or imposition of
any lien, charge or encumbrance upon the Trust Estate.
(viii) [Each Subsequent Transfer Agreement at the time of its
execution and delivery will be sufficient to convey all of the
Depositor's right, title and interest in the Subsequent Loans to the
Trust and following the consummation of the transaction contemplated
by each Subsequent Transfer Agreement, the transfer of the Subsequent
Loans by the Depositor to the Trust will be a sale thereof.]
(ix) There are, to the best of such counsel's knowledge without
independent investigation, no actions, proceedings or investigations
pending with respect to which the Depositor or the Servicer, as
applicable, has received service of process before, or threatened
against the Depositor or the Servicer, as applicable, by any court:,
administrative agency or other tribunal (a) contesting the validity of
the Sale and Servicing Agreement, the Loan Sale Agreement, the Trust
Agreement or the Notes, (b) seeking to prevent the consummation of any
of the transactions contemplated by the Sale and Servicing Agreement
or (c) which would materially and adversely affect the performance by
the Depositor or the Servicer, as applicable, of its obligations
under, or the validity or enforceability of the Sale and Servicing
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Agreement, the Loan Sale Agreement, or the Trust Agreement.
Such counsel shall also have furnished to the Underwriter a written
statement, addressed to the Underwriter and dated the Closing Date, in form and
substance satisfactory to the Underwriter, to the effect that facts have come to
the attention on such counsel which had thereto believe that the information
contained in the Prospectus Supplement under the headings "SUMMARY-Servicer,"
"-Company", and "[NAME OF SERVICER", as of its date and on the Closing Date,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
(h) The Underwriter shall have received the favorable opinion, dated
the Closing Date, of _____________________ special counsel to the Depositor
and the Servicer, addressed to the Depositor and satisfactory to [Moody's],
[Fitch] and the Underwriter, with respect to certain matters relating to
(i) the transfer of the Initial Loans from the Servicer to the Depositor
and (ii) the transfer of the Initial Loans from the Depositor to the
Trustee, [together with amounts on deposit in the Pre-Funding Account and
the Capitalized Interest Account,] and such counsel shall have consented to
the reliance on such opinion by [Moody's], [Fitch] and the Underwriter as
though such opinion had been addressed to each such party.
(i) The Underwriter shall have received the favorable opinion of
counsel to the Trust and the Owner Trustee, dated the Closing Date,
addressed to the Underwriter and in form and scope satisfactory to the
Underwriter and counsel to the Underwriter, to the effect that:
(i) The Owner Trustee is a banking corporation, duly incorporated
and validly existing under the laws of the State of Delaware. and has
the power and authority to enter into, and to take all action required
of it under, the Trust Agreement and the Indenture.
(ii) Each of the Trust Agreement, the Sale and Servicing
Agreement and the Indenture Agreement has been duly authorized,
executed and delivered by the Trust or the Owner Trustee, as
applicable, and, assuming due authorization, execution and delivery
thereof by the other parties thereto, constitutes a valid and binding
obligation of the Trust or the Owner Trustee, as the case may be,
enforceable against the Trust or the Owner Trustee, as the case may
be, in accordance with their respective terms, subject, as to
enforceability, to limitations of bankruptcy, insolvency, moratorium,
fraudulent conveyance and other laws relating to or affecting
creditors' rights generally and court
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decisions with respect thereto, and to general principles of equity.
(iii) The Notes have been duly authorized and executed by the
Trust, and when duly authenticated pursuant to the Indenture and
delivered to and paid for by the purchase as thereof, will be legal,
valid and binding obligations of the Trust, enforceable against the
Trust, in accordance with their terms, and will be entitled to the
benefits of the Indenture.
(iv) The execution and delivery by the Owner Trustee of the Sale
and Servicing Agreement and the performance by the Owner Trustee of
its terms do not conflict with or result in a violation of (A) any law
or regulation of the United States of America or the State of
Delaware. governing the banking or trust powers of the Trustee or (B)
the charter or by-laws of the Trustee.
(v) No approval, authorization, or other action by, or filing
with, any governmental authority of the United States of America or
the State of North Carolina having jurisdiction over the banking or
trust powers of the Trustee is required in connection with the
execution and. delivery by the Owner Trustee of the Sale and Servicing
Agreement, or the performance by the Owner Trustee of the transactions
contemplated by the Sale and Servicing Agreement.
(j) The Underwriter shall have received the favorable opinion of
counsel to the Indenture Trustee and Co-Owner Trustee, dated the Closing
Date, addressed to the Underwriter and in form and scope satisfactory to
the Underwriter and counsel to the Underwriter, to the effect that:
(i) The Indenture Trustee and Co-Owner Trustee is a national
banking association duly organized, validly existing and in good
standing under the laws of the United States.
(ii) The Indenture Trustee is duly eligible and qualified to act
as Indenture Trustee under the Indenture and the applicable provisions
of the Trust Indenture Act of 1934, as amended.
(iii) The Co-Owner Trustee is duly eligible and qualified to act
as Co-Owner Trustee under the Trust Agreement.
(iv) Each of the Trust Agreement, the Sale and Servicing
Agreement and the Indenture has been authorized, executed and
delivered by the Indenture Trustee or the Co-Owner Trustee, as
applicable, and
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assuming the due authorization, execution and delivery thereof by the
other parties thereto, constitutes a legal, valid and binding
agreement of the Indenture Trustee or Co-Owner Trustee, as applicable,
enforceable against the Indenture Trustee or Co-Owner Trustee, as
applicable, in accordance with their respective terms.
(v) The Notes have been duly and validly authenticated by the
Indenture Trustee and delivered upon the order of the Trust.
(vi) Neither the execution and authentication of the Notes by the
Indenture Trustee nor the execution, delivery and performance of the
Indenture and the Sale and Servicing Agreement by the Indenture
Trustee or Co- Owner Trustee, as applicable, conflict with or result
in a violation of (A) any law or regulation of the United States of
America giving the banking or trust powers of the Indenture Trustee
and Co-Owner Trustee, or (B) the articles of association of the
Indenture and Co-Owner Trustee.
(vii) No approval, authorization or other action by, or filing
with, any governmental authority of the United States of America
having jurisdiction over the banking or trust powers of the Indenture
Trustee and Co-Owner Trustee is required in connection with the
authentication and delivery of the Notes by the Indenture Trustee and
the execution and delivery by the Indenture Trustee or Co-Owner
Trustee, as applicable, of the Indenture and the Sale and Servicing
Agreement or the performance by the Indenture Trustee or Owner
Trustee, as applicable, of the transactions contemplated by the
Indenture or the Sale and Servicing Agreement.
(k) The Underwriter shall have received the favorable opinion or
opinions, dated the date of the Closing Date, of counsel for the
Underwriter, with respect to the enforceability of this Agreement and such
other related matters as the Underwriter may reasonably require.
(l) The Depositor shall have furnished to the Underwriter a
certificate, dated the Closing Date and signed by the Chairman of the
Board, the President or a Vice President of the Depositor, stating as it
relates to each such entity:
(i) The representations and warranties made by the Depositor, as
applicable, in this Agreement, and the Sale and Servicing Agreement
(excluding the representations and warranties relating to the Home
Loans), as applicable, are true and correct as of the Closing Date;
and the Depositor has complied with all
22
<PAGE>
agreements contained herein which are to have been complied with on or
prior to the Closing Date.
(ii) Nothing has come to his or her attention that would lead
such officer to believe that the Registration Statement or the
Prospectus includes any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein not
misleading.
(iii) There has been no amendment or other document filed
affecting the Certificate of Incorporation or bylaws of the Depositor
since _________________ and no such amendment has been authorized. No
event has occurred since _______________, _______ which has affected
the good standing of such entities under the laws of the State of
________________.
(iv) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of such entities from _____________________.
In addition to the foregoing, the certificate of the Depositor shall state
that the representations and warranties set forth in Sections l(d), (e), (f),
(g), (h), (l), (m), (p) and (q) hereof are made by the Depositor and are true as
to the Depositor as though such representations and warranties were fully set
forth in such certificate.
(m) The Owner Trustee and the Indenture Trustee and Co-Owner Trustee,
as applicable, shall have furnished to the Underwriter a certificate of the
Trustee, signed by one or more duly authorized officers of such entities,
dated the Closing Date, as to the due authorization, execution and delivery
of the Sale and Servicing Agreement by the Owner Trustee and the Indenture
Trustee and Co-Owner Trustee and the Indenture by the Indenture Trustee and
the acceptance by the Owner Trustee and Co-Owner Trustee and by the
Indenture Trustee, as applicable, of the respective trusts created thereby
and the due authentication and delivery of the Notes by the Trustee
thereunder and such other matters as the Underwriter shall reasonably
request.
(n) The Depositor shall have furnished to the Underwriter such further
information, certificates and documents as the Underwriter may reasonably
have requested not less than three full business days prior to the Closing
Date.
(o) Prior to the Closing Date, ________________ shall have been
furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Notes as herein
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<PAGE>
contemplated and related proceedings or in order to evidence the accuracy
and completeness of any of the representations and warranties, or the
fulfillment of any of the conditions, herein contained, and all proceedings
taken by the Depositor in connection with the issuance and sale of the
Notes as herein contemplated shall be satisfactory in form and substance to
the Underwriter and counsel for the Underwriter.
(p) Subsequent to the execution and delivery of this Agreement none of
the following shall have occurred: (i) trading in securities generally on
the New York Stock Exchange, the American Stock Exchange or the
over-the-counter market shall have been suspended or minimum prices shall
have been established on either of such exchanges or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction; (ii) a banking moratorium shall
have been declared by federal or state authorities; (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation of hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the United States; or
(iv) there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of international
conditions on the financial markets of the United States shall be such) as
to make it in each of the instances set forth in clauses (i), (ii, (iii)
and (iv) herein, in the reasonable judgment of the Underwriter, impractical
or inadvisable to proceed with the public offering or delivery of the Notes
on the terms and in the manner contemplated in the Prospectus.
(q) The Underwriter shall have received from [Deloitte & Touche LLP],
a letter dated the date hereof and satisfactory in form and substance to
the Underwriter and its counsel, on the effect that they have performed
certain specified procedures, all of which have been agreed to by the
Underwriter, as a result of which they determined that certain information
of an accounting, financial or statistical nature set forth in the
Prospectus Supplement agrees with the records of the Depositor and the
Servicer excluding any questions of legal interpretation. The Underwriter
shall have received from [Deloitte & Touche, LLP], a letter dated the
Closing Date and satisfactory in form and substance to the Underwriter and
its counsel, confirming as of such date the information set forth in the
letter provided pursuant to this clause (q).
If any condition specified in this Section 6 shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriter by notice to the Depositor at any time at or prior to the Closing
Date, and such termination shall be without liability of any party to any other
party except as provided in Section 7.
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<PAGE>
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriter.
SECTION 7. Payment of Expenses. The Depositor agrees to pay: (a) the costs
incident to the authorization, issuance, sale and delivery of the Notes and any
taxes payable in connection therewith; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto; (c) the costs of distributing
the Registration Statement as originally filed and each amendment thereto and
any post-effective amendments thereof (including, in each case, exhibits), the
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, or any document incorporated by reference therein, all as provided
in this Agreement; (d) the costs of reproducing and distributing this Agreement;
(e) the fees and expenses of qualifying the Notes under the securities laws of
the several jurisdictions as provided in Section 5(h) hereof and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriter); (f) any fees charged by securities
rating service, for rating the Notes; and (g) all other costs and expenses
incident to the performance of the obligations of the Depositor (including costs
and expenses of your counsel); provided that, except as provided in this Section
7, the Underwriter shall part their own costs and expenses, including the costs
and expenses of their counsel, any transfer taxes on the Notes which they may
sell and the expenses of advertising any offering of the Notes made by the
Underwriter, and the Underwriter shall pay the cost: of any accountants' comfort
letters relating to any Computational Materials, Structural Term Sheets or
Collateral Term Sheets (each as defined in Section 5(e) hereof).
If this Agreement is terminated by the Underwriter in accordance with the
provisions of Section 6 or Section 10, the Depositor shall cause the Underwriter
to be reimbursed for all reasonable out-of-pocket expenses, including fees and
disbursements of ______________________, counsel for the Underwriter.
SECTION 8. Indemnification and Contribution. (a) The Depositor agrees to
indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and sales of the
Notes), to which the Underwriter or any such controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereof or supplement
25
<PAGE>
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (iii) any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus, or any amendment thereof or supplement
thereto, or (iv) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading and
shall reimburse the Underwriter and each such controlling person promptly upon
demand for any legal or other expenses reasonably incurred by the Underwriter or
such controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Depositor shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in the Prospectus,
or any amendment thereof or supplement thereto, or the Registration Statement,
or any amendment thereof or supplement thereto, in reliance upon and in
conformity with written information furnished to the Depositor on behalf of the
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Depositor may otherwise have
to the Underwriter or any controlling person of the Underwriter. The only
information furnished by the Underwriter or on behalf of the Underwriter for use
in connection with the preparation of the Registration Statement or the
Prospectus is described in Section 8(i) hereof.
(b) The Underwriter agrees to indemnify and hold harmless the
Depositor, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Depositor
within the meaning of Section 15 of the Securities Act against any and all
loss, claim, damage or liability, or any action in respect thereof, to
which the Depositor or any such director, officer or controlling person may
become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereof or
supplement thereto, (ii) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, (iii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus, or any
amendment thereof or supplement thereto, or (iv) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, but in each case only to the
extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance
26
<PAGE>
upon and in conformity with written information furnished to the Depositor
by or on behalf of the Underwriter specifically for inclusion therein, and
shall reimburse the Depositor and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the Depositor
or any director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which the
Underwriter may otherwise have to the Depositor or any such director,
officer or controlling person. The only information furnished by the
Underwriter or on behalf of the Underwriter for use in connection with the
preparation of the Registration Statement or the Prospectus is described in
Section 8(i) hereof.
(c) Promptly after receipt by any indemnified party under this Section
8 of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify an indemnifying party
shall not relieve it from any liability which it may have under this
Section 8 except to the extent it has been materially prejudiced by such
failure and, provided further, that the failure to notify any indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, except to the extent provided in the
next following paragraph, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
Any indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment
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<PAGE>
of such counsel it is advisable for such indemnified party to employ separate
counsel; or (iii) the indemnifying party has failed to assume the defense of
such action and employ counsel reasonably satisfactory to the indemnified party,
in which case, if such indemnified party notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party, it being
understood, however, the indemnifying party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to one local counsel per jurisdiction) at any time for
all such indemnified parties, which firm shall be designated in writing by the
Underwriter, if the indemnified parties under this Section 8 consist of the
Underwriter or any of its controlling persons, or the Depositor, if the
indemnified parties under this Section 8 consist of the Depositor or any of the
Depositor's directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section 8(a) and (b), shall use its best efforts to cooperate with
the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
Notwithstanding the foregoing paragraph, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than thirty (30)
days after receipt by such indemnifying party of the aforesaid reque3t and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement.
(d) The Underwriter agrees to provide the Depositor for filing with
the Commission on an Additional Materials 8-K (i) no later than two (2)
Business Days prior to the day on which the Prospectus Supplement is
required to be filed pursuant to Rule 424 with a copy of any Computational
Materials and Structural Term Sheets (each as defined in Section 5(e)
hereof) distribute by the Underwriter and (ii) no later than one (1)
business day after first use with a copy of any
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Collateral Term Sheets (as defined in Section 5(e) hereof) distributed by
the Underwriter.
(e) The Underwriter agrees, assuming all Depositor-Provided
Information (as defined in Section 8(g)) is accurate and complete in all
material respects, to indemnify and hold harmless the Depositor, each of
the Depositor's officers and directors an each person who controls the
Depositor within the meaning of Section 15 of the Securities Act against
any and all losses, claims, damages or liabilities, joint or several, to
which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement of a
material fact contained in the Computational Materials, Structural Term
Sheets and Collateral Term Sheets provided by the Underwriter and agrees to
reimburse each such indemnified party for any legal or other expenses
reasonably incurred by him, her or it in connection with investigating or
defending or preparing to defend any such loss, claim, damage, liability or
action as such expenses are incurred. The obligations of the Underwriter
under this Section 8(e) shall be in addition to any liability which the
Underwriter may otherwise have.
The procedures set forth in Section 8(c) shall be equally applicable to
this Section 8(e).
(f) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), (b) or (e) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Depositor on the one hand
and the Underwriter on the other from the offering of the related Notes or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law or if the indemnified party failed to give the notice
required under Section 8(c), in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Depositor on the one hand and the
Underwriter on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations.
The relative benefits of the Underwriter and the Depositor shall be deemed
to be in such proportion as the total net proceeds from the offering (before
deducting expenses) received by the Depositor bear to the total underwriting
discounts and commissions
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<PAGE>
received by the related Underwriter from time to time in negotiated sales of the
related Notes.
The relative fault of the Underwriter and the Depositor shall be determined
by reference to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Depositor or by the Underwriter, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission and other equitable
considerations.
The Depositor and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this Section 8(i) were to be determined
by pro rata allocation (even if the Underwriter were treated as one entity for
such purposes) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 8(f)
shall be deemed to include, for purposes of this Section 8(f), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
For purposes of this Section 8, in no case shall the Underwriter be
responsible for any amount in excess of (x) the amount received by the
Underwriter in connection with its resale of the Notes over (y) the amount paid
by the Underwriter to the Depositor for the Notes by the Underwriter hereunder.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(g) For purposes of this Section 8 the terms "Computational
Materials", "Structural Term Sheets" and "Collateral Term Sheets" mean such
portion, if any, of the information delivered to the Depositor by the
Underwriter pursuant to Section 8(d) for filing with the Commission on an
Additional Materials 8-K as:
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference through an
Additional Materials 8-K; and
(ii) does not constitute Depositor-Provided Information.
"Depositor-Provided Information" means the information and data set forth
on any computer tape (or other electronic or printed medium) furnished to the
Underwriter by or on behalf of the Depositor concerning the assets comprising
the Trust.
30
<PAGE>
(h) The Depositor agrees to indemnify each indemnified party referred
to in Section 8(a) hereof with respect to Depositor-Provided Information to
the same extent as the indemnity granted under such section. The procedures
set forth in Section 8(c) shall be equally applicable to this Section 8(h).
(i) The Underwriter confirms that the information set forth in the
fourth and sixth paragraphs of page i of the Prospectus Supplement, the
information regarding the Underwriter set forth under the caption "Method
of Distribution" in the Prospectus Supplement and the Computational
Materials, Structural Term Sheets and Collateral Term Sheets (excluding in
each case Depositor-Provided Information) are correct, and the parties
hereto acknowledge that such information constitutes the only information
furnished in writing by or on behalf of the Underwriter for use in
connection with the preparation of the Registration Statement or the
Prospectus.
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Depositor submitted pursuant hereto
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter or controlling persons
thereof, or by or on behalf of the Depositor and shall survive delivery of any
Notes to the Underwriter.
SECTION 10. Termination of Agreement. The Underwriter may terminate this
Agreement immediately upon notice to the Depositor, at any time at or prior to
the Closing Date if any of the events or conditions described in Section 6(r) of
this Agreement shall occur and be continuing. In the event of any such
termination, the covenant set forth in Section 5(g), the provisions of Section
7, the indemnity agreement set forth in Section 8, and the provisions of
Sections 9 and 15 shall remain in effect.
SECTION 11. Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
A. if to the Underwriter, shall be delivered or sent by mail, telex or
facsimile transmission to ________________________________
________________________________________________________________________,
Attention:___________________________________________________________ (Fax:
_____________________);
B. if to the Depositor, shall be delivered or sent by mail, telex or
facsimile transmission to care of [ADDRESS OF DEPOSITOR] (Fax:
_____________________);
SECTION 12. Persons Entitled to the Benefit of this Agreement. This
Agreement shall inure to the benefit of and be
31
<PAGE>
binding upon the Underwriter and the Depositor and their respective successors.
This Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that the representations, warranties, indemnities and
agreements contained in this Agreement shall also be deemed to be for the
benefit of the person or persons, if any, who control the Underwriter within the
meaning of Section 15 of the Securities Act, and for the benefit of directors of
the Depositor, officers of the Depositor who have signed the Registration
Statement and any person controlling the Depositor within the meaning of Section
15 of the Securities Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this Section
12, any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
SECTION 13. Survival. The respective indemnities, representations,
warranties and agreements of the Depositor and the Underwriter contained in this
Agreement, or made by or on behalf of them, respectively, pursuant to the shall
survive the delivery of and payment for the Notes and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
SECTION 14. Definition of the Term "Business Day". For purposes of this
Agreement, "Business Day" means any day on which the New York Stock Exchange is
open for trading.
SECTION 15. Governing Law; Submission to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York without giving effect to the conflict of law rules thereof.
The parties hereto hereby submit to the jurisdiction of the United States
District Court for the Southern District of New York and any court in the State
of New York located in the City and County of New York, and appellate court from
any thereof, in any action, suit or proceeding brought against it or in
connection with this Agreement or any of the related documents or the
transactions contemplated hereunder or for recognition or enforcement of any
judgment, and the parties hereto hereby agree that all claims in respect of any
such action or proceeding may be heard or determined in New York State court or,
to the extent permitted by law, in such federal court.
SECTION 16. Counterparts. This Agreement may be executed in counterparts
and, if executed in more than one counterpart, the executed counterparts shall
each be deemed to be an original but all such counterparts shall together
constitute one and the same instrument.
SECTION 17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
32
<PAGE>
If the foregoing correctly sets forth the agreement between the Depositor
and the Underwriter, please indicate your acceptance in the space provided for
the purpose below.
Very truly yours,
____________________________
____________________________
By:_________________________
Name: _____________________
Title: _____________________
CONFIRMED AND ACCEPTED, as
of the date first above written:
____________________________________
Acting on its own behalf and
the Underwriter referred to in
the foregoing Agreement
By:_________________________
Name: _____________________
Title: _____________________
33
<PAGE>
SCHEDULE A
HOME LOAN ASSET BACKED NOTES,
Class A-1 _____% Loan Asset Backed Notes
Principal Price to Public Underwriting Discount
- - --------- --------------- -------------------
$ % %
Class A-2 _____% Loan Asset Backed Notes
Principal Purchase Price Underwriting Discount
- - --------- -------------- --------------------
$ % %
Class A-3 _____% Loan Asset Backed
Principal Purchase Price Underwriting Discount
- - --------- -------------- --------------------
$ % %
Class A-_____% Loan Asset Backed Notes
Principal Purchase Price Underwriting Discount
- - --------- -------------- --------------------
$ % %
Class M-1 _____% Loan Asset Backed Notes
Principal Purchase Price Underwriting Discount
- - --------- -------------- --------------------
$ % %
Class M-2 _____% Loan Asset Backed Notes
Principal Purchase Price Underwriting Discount
- - --------- -------------- --------------------
$ % %
Class B _____% Loan Asset Backed Notes
Principal Purchase Price Underwriting Discount
- - --------- -------------- --------------------
$ % %
Class Selling Reallowance
Concession Discount
---------- --------
A-1 % %
A-2 % %
A-3 % %
A-4 % %
M-1 % %
M-2 % %
B % %
Exhibit 3.1
State of North Carolina
Department of the Secretary of State
ARTICLES OF AMENDMENT
BUSINESS CORPORATION
Pursuant to ss. 55-10-06 of the General Statutes of North Carolina, the
undersigned corporation does hereby submit the following Articles of Amendment
for the purpose of amending its Articles of Incorporation.
1. The name of the corporation is: Home Equity Securitization Corp.
--------------------------------------------
2. The text of each amendment adopted is as follows (State below or attach):
The Articles of Incorporation of the corporation is hereby amended by
striking out Article 1. thereof and by substituting in lieu of said Article
the following new Article:
1. The name of the corporation is Residential Asset Funding Corporation.
3. If an amendment provides for an exchange, reclassification, or cancellation
of issued shares, provisions for implementing the amendment, if not contained
in the amendment itself, are as follows:
4. The date of adoption of each amendment was as follows:
September 24, 1998
5. (Check either a, b, c, or d, whichever is applicable)
a. _____ The amendment(s) was (were) duly adopted by the incorporators
prior to the issuance of shares.
b. _____ The amendment(s) was (were) duly adopted by the board of
directors prior to the issuance of shares.
c. _____ The amendment(s) was (were) duly adopted by the board of
directors without shareholder action as shareholder action was
not required because (set forth a brief explanation of why
shareholder action was not required)__________________________
______________________________________________________________
______________________________________________________________
d. XX The amendment(s) was (were) approved by shareholder action, and
---- such shareholder approval was obtained as required by Chapter
55 of the North Carolina General Statutes.
<PAGE>
6. These articles will be effective upon filing, unless a delayed time and date
is specified:
___________________________________________________________________________
This the 24th day of September , 1998
---- ------------- --
HOME EQUITY SECURITIZATION CORP.
-------------------------------------
Name of Corporation
ROBERT L. ANDERSEN
-------------------------------------
Signature
Robert L. Andersen, Senior Vice President
-----------------------------------------
Type or Print Name and Title
NOTES:
1. Filing fee is $50. This document and one exact or conformed copy of these
articles must be filed with the Secretary of State.
(Revised July 1994)
CORPORATIONS DIVISION
<PAGE>
State of North Carolina
Department of the Secretary of State
ARTICLES OF INCORPORATION
Pursuant to GS55-2-02 of the General Statutes of North Carolina, the undersigned
does hereby submit these Articles of Incorporation for the purpose of forming a
business corporation.
1. The name of the corporation is:
Home Equity Securitization Corp.
--------------------------------
2. The number of shares the corporation is authorized to issue is: 100
------
These shares shall be: (check either a or b)
a. [XX] all of one class, designated as common stock or
b. [ ] divided into classes or series within a class as provided in
the attached schedule, with the information required by NCGS
SS55-6-01.
3. The street address and county of the initial registered office of the
corporation is:
Number and street: 327 Hillsborough Street
City, State, Zip Code: Raleigh, NC 27603
County: Wake
4. The mailing address if different from the street address is:
Same
5. The name of the initial registered agent is:
Corporation Service Company
6. Any provisions which the corporation elected to include are attached.
7. The name and address of the incorporator are as follows:
Christine J. Gates
------------------
1013 Centre Road
Wilmington, DE 19805
8. These articles will be effective upon filing, unless a date and/or time
is specified: _______________________
This twenty fourth of December, 1997.
HOME EQUITY SECURITIZATION CORP.
-------------------------------------
/s/ CHRISTINE J. GATES
----------------------
Christine J. Gates
Incorporator
<PAGE>
ADDITIONAL PROVISIONS TO THE ARTICLES OF INCORPORATION
OF
HOME EQUITY SECURITIZATION CORP.
1. The limited purposes of the corporation are to engage in the
following activities:
A. To acquire, own, hold, service, sell, transfer, assign, pledge,
finance, refinance, and otherwise deal with and in: (i) loans, installment sale
agreements, credit agreements or similar instruments or agreements secured by
mortgages, deeds of trust or similar instruments creating first or junior
priority liens on, or security interests in, fee leasehold or other interests in
residential real property, whether or not completed or performing or shares
issued by corporations or partnerships formed for the purpose of cooperative
ownership of any such real property, together with all related personal property
(collectively, "Mortgage Loans"); (ii) certificates, participation interests or
other instruments (including Notes and Certificates, as defined below) that
evidence interests in, or that are secured by, Mortgage Loans, Notes or
Certificates (collectively, "MBS"); and (iii) any property or rights in
property, or agreements or rights in agreements, pertaining to or securing
Mortgage Loans or MBS (collectively, together with the Mortgage Loans and MBS,
"Mortgage Assets");
B. To authorize, offer, issue, sell, transfer or deliver, or
participate in the authorization, offering, issuance, sale, transfer or delivery
of, participation certificates or other evidence of interests in, among other
assets, Mortgage Assets ("Certificates");
C. To authorize, offer, issue, sell, transfer or deliver, bonds, notes
or other evidence of indebtedness secured by Mortgage Assets ("Notes"),
provided, however, that the corporation shall have no liability on any Notes
except to the extent of the Mortgage Assets securing such Notes and any
customary indemnification and repurchase obligations;
D. To hold, and enjoy all of the rights and privileges as a holder of,
any of the Notes of Certificates;
E. To negotiate, authorize, execute, deliver, assume the obligation
under, and perform, any agreement or instrument or document relating to the
activities set forth in paragraphs A through D above, including, but not limited
to, any trust agreement, sales and servicing agreement, pooling and servicing
agreement, indenture, reimbursement agreement, credit support agreement,
mortgage loan purchase agreement, indemnification agreement, placement agreement
or underwriting agreement; and
F. To engage in any activity and to exercise any powers permitted to
corporations under the laws of the State of North Carolina that are related or
incidental to the foregoing and necessary, suitable or convenient to accomplish
the foregoing.
<PAGE>
2. The corporation shall at all times have a least one (1) director
(the "Independent Director") who is not (i) a director, officer or employee of
any affiliate of the corporation other than a special purpose affiliate; (ii) a
person related to any director, officer or employee of any affiliate of the
corporation other than a special purpose affiliate; (iii) a holder (directly or
indirectly) of more than 5% of any voting securities of any affiliate of the
corporation; or (iv) a person related to a holder (directly or indirectly) of
more than 5% of any voting securities of any affiliate of the corporation.
For the purposes of these articles of incorporation, including
particularly this provision, the following terms shall have the meanings given
below.
(i) An "affiliate" of a specified person shall mean that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the specified person.
(ii) The term "control" (including the terms "controlling,"
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise; provided, however, that a person shall
not be deemed to control another person solely because he or she is a director
of such other person.
(iii) The term "person" shall mean any individual,
partnership, firm, corporation, limited liability company, association, trust,
unincorporated organization or other entity, as well as any syndicate or group
deemed to be a person pursuant to Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
(iv) The term "special purpose affiliate" shall mean an
affiliate of the corporation (a) that does not control the corporation, (b) that
is organized pursuant to a certificate of incorporation or comparable instrument
(the "charter") that requires there to be at least one director or comparable
member of the governing body of such affiliate who meets a test for
independence set forth in the charter and without whose affirmative vote certain
specified actions may not be undertaken by such affiliate and (c) that is
authorized to engage in only a limited range of activities.
3. Without the unanimous vote of the members of the board of directors
of the corporation, the corporation shall not (i) dissolve or liquidate, in
whole or in part, or institute proceedings to be adjudicated bankrupt or
insolvent; (ii) consent to the institution of bankruptcy or insolvency
proceedings against it; (iii) file a petition seeking or consent to
reorganization relief under any applicable federal or state law relating to
bankruptcy; (iv) consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the corporation or a
substantial part of its property; (v) admit in writing its inability to pay its
debts generally as they become due; or (vi) take any corporate action in
<PAGE>
furtherance of the notions set forth in clauses (i) through (v) of this
provision.
4. These articles of incorporation or any provisions hereof may be
amended, altered or repealed in any particular only pursuant to a unanimous vote
of the full board of directors and the Independent Director must specifically
approve and authorize such amendment, alteration or repeal.
5. The corporation shall be operated observing the following
principles:
A. The corporation's assets will not be commingled with those of any
affiliate of the corporation;
B. The corporation will maintain separate corporate records and books
of account from those of any affiliate of the corporation;
C. The corporation has provided and will provide for its operating
expenses and liabilities from its own funds; and
D. The corporation will engage in transactions with affiliates only on
terms and conditions comparable to transactions as they would be undertaken on
an arm's length basis with unaffiliated persons.
6. The corporation shall not issue, assume, pledge or guarantee any
liability, other than administrative expenses of the corporation, unless such
liability is approved in writing by the nationally recognized statistical rating
agencies that have rated any outstanding Notes or Certificates.
7. The personal liability of each director of the corporation is
eliminated to the fullest extent permitted by the provisions of the Business
Corporation Act of the State of North Carolina, as presently in effect or as the
same may hereafter from time to time be in effect. No amendment, modification or
repeal of this provision shall adversely affect any right or protection of a
director that exists at the time of such amendment, modification or repeal.
BY-LAWS OF
HOME EQUITY SECURITIZATION CORP.
--------------------
ARTICLE I.
OFFICES
Section 1. Principal office. The principal office of the corporation
shall be located at Charlotte in Mecklenburg County, North Carolina.
Section 2. Registered office. The registered office of the corporation
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
Section 3. Other offices. The corporation may have offices at such
other places, either within or without the State of North Carolina, as the Board
of Directors may designate or as the affairs of the corporation may require from
time to time.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. Place of meetings. All meetings of shareholders shall be
held at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall be designated on the
notice of the meeting or agreed upon by a majority of the shareholders entitled
to vote thereat.
Section 2. Annual meetings. The annual meeting of shareholders shall be
held on the third Tuesday in April of each year for the purpose of electing
directors of the corporation and for the transaction of such other business as
may be properly brought before the meeting. If the day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day.
Section 3. Substitute annual meeting. If the annual meeting shall not
be held on the day designated by these by-laws, a substitute annual meeting may
be called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special meetings. Special meetings of the shareholders may
be called at any time by the President, Secretary, or Board of Directors of the
corporation, or by the written request of the holders of not less than one-tenth
of all the shares entitled to vote at the meeting.
Section 5. Notice of meetings. Written or printed notice stating the
time and place of the meeting shall be delivered not less than ten nor more than
fifty days before the date of any shareholders' meeting, either personally or by
mail, by or at the direction of the President, the
<PAGE>
Secretary, or other person or persons calling the meeting, to each shareholder
of record entitled to vote at such meeting; provided that such notice must be
given not less than twenty days before the date of any meeting at which a merger
or consolidation is to be considered. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the record of shareholders of the
corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called; but,
in the case of an annual or substitute annual meeting, the notice of meeting
need not specifically state the business to be transacted thereat unless such a
statement is required by the provisions of the North Carolina Business
Corporation Act.
When a meeting is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. When a
meeting is adjourned for less than thirty days in any one adjournment, it is not
necessary to give any notice of the adjourned meeting other than by announcement
at the meeting at which the adjournment is taken.
Section 6. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders, except that at a substitute
annual meeting of shareholders the number of shares there represented either in
person or by proxy, even though less than a majority, shall constitute a quorum
for the purpose of such meeting.
The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote of the
majority of the shares voting on the motion to adjourn; and at any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the original meeting.
Section 7. Proxies. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact. A proxy is not valid after the expiration of
eleven months from the date of its execution, unless the person executing it
specifies therein the length of time for which it is to continue in force, or
limits its use to a particular meeting, but no proxy shall be valid after ten
years from the date of its execution.
Section 8. Voting of shares. Subject to the provisions of Section 4 of
Article III, each outstanding share entitled to vote shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders.
Except in the election of directors as governed by the provisions of
Section 3 of Article III, the vote of a majority of the shares voted on any
matter at a meeting of shareholders at which
2
<PAGE>
a quorum is present shall be the act of the shareholders on that matter, unless
the vote of a greater number is required by law or by the charter or by-laws of
the corporation.
Shares of its own stock owned by the corporation, directly or
indirectly, through a subsidiary corporation or otherwise, shall not be voted
and shall not be counted in determining the total number of shares entitled to
vote, except that shares held in a fiduciary capacity may be voted and shall be
counted to the extent provided by law.
Section 9. Informal action by shareholders. Any action which may be
taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the persons who would be entitled to vote upon such action at a meeting, and
filed with the Secretary of the corporation to be kept as part of the corporate
records.
ARTICLE III.
BOARD OF DIRECTORS
Section 1. General powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 2. Number, term and qualification. The number of directors
constituting the Board of Directors shall not be less than one (1) nor more than
seven (7) as may be fixed from time to time by resolution duly adopted by the
shareholders or by the Board of Directors of the corporation. Each director
shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been elected and qualified.
Directors need not be residents of the State of North Carolina or shareholders
of the corporation.
The corporation shall at all times have at least one (1) director (the
"Independent Director") who is not (i) a director, officer or employee of any
affiliate of the corporation other than a special purpose affiliate; (ii) a
person related to any director, officer or employee of any affiliate of the
corporation other than a special purpose affiliate; (iii) a holder (directly or
indirectly) of more than 5% of any voting securities of any affiliate of the
corporation; or (iv) a person related to a holder (directly or indirectly) of
more than 5% of any voting securities of any affiliate of the corporation.
For the purposes of this Section 2 of this Article III, the terms
"affiliate", "control", "person" and "special purpose affiliate" shall have the
meanings ascribed to them in Article 4 of the charter of the corporation.
Section 3. Election of directors. Except as provided in Section 6 of
this Article III, the directors shall be elected at the annual meeting of
shareholders; and those persons who receive the highest number of votes shall be
deemed to have been elected. If any shareholder so demands, the election of
directors shall be by ballot.
Section 4. Cumulative voting. Every shareholder entitled to vote at an
election of directors shall have the right to vote the number of shares standing
of record in his name for as
3
<PAGE>
many persons as there are directors to be elected and for whose election he has
a right to vote, or to cumulate his votes by giving one candidate as many votes
as the number of such directors multiplied by the number of his shares shall
equal, or by distributing such votes on the same principle among any number of
such candidates. This right of cumulative voting shall not be exercised unless
some shareholder or proxyholder announces in open meeting, before the voting for
the directors starts, his intention so to vote cumulatively; and if such
announcement is made, the chair shall declare that all shares entitled to vote
have the right to vote cumulatively and shall thereupon grant a recess of not
less than one nor more than four hours, as he shall determine, or of such other
period of time as is unanimously then agreed upon.
Section 5. Removal. Any director may be removed at any time with or
without cause by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors. However, unless
the entire Board is removed, an individual director shall not be removed when
the number of shares voting against the proposal for removal would be sufficient
to elect a director is such shares could be voted cumulatively at an annual
election. If any directors are so removed, new directors may be elected at the
same meeting.
Section 6. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
even though less than a quorum, or by the sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase in
the authorized number of directors shall be filled only by election at an annual
meeting or at a special meeting of shareholders called for that purpose.
Section 7. Chairperson of board. There may be a chairperson of the
Board of Directors elected by the directors from their number at any meeting of
the Board. The chairperson shall preside at all meetings of the Board of
Directors and perform such other duties as may be directed by the Board.
Section 8. Compensation. The Board of Directors may compensate
directors for their services as such and may provide for the payment of any or
all expenses incurred by directors in attending regular and special meetings of
the Board.
ARTICLE IV.
MEETINGS OF DIRECTORS
Section 1. Regular meetings. A regular meeting of the Board of
Directors shall be held immediately after, and at the same place as, the annual
meeting of shareholders. In addition, the Board of Directors may provide, by
resolution, the time and place, either within or without the State of North
Carolina, for the holding of additional regular meetings. Any one or more
members of the Board of Directors may participate in a meeting of the Board by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time, and
participation by such means shall constitute presence in person at such meeting.
Section 2. Special meetings. Special meetings of the Board of Directors
may be called
4
<PAGE>
by or at the request of the President or any two directors. Such a meeting may
be held either within or without the State of North Carolina, as fixed by the
person or persons calling the meeting.
Section 3. Notice of meetings. Regular meetings of the Board of
Directors may be held without notice. The person or persons calling a special
meeting of the Board of Directors shall, at least two days before the meeting,
give notice thereof by any usual means of communication. Such notice need not
specify the purpose for which the meeting is called.
Section 4. Waiver of notice. Any director may waive notice of any
meeting. The attendance by a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
Section 5. Quorum. A majority of the number of directors in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors.
Section 6. Manner of acting. Except as otherwise provided in these
fixed by these by-laws, the act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
Section 7. Presumption of assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his contrary vote is recorded or his dissent is otherwise entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 8. Informal action by directors. Action taken by a majority of
the directors without a meeting is nevertheless Board action if written consent
to the action in question is signed by all the directors and filed with the
minutes of the proceedings of the Board, whether done before or after the action
so taken.
ARTICLE V.
OFFICERS
Section 1. Officers of the corporation. The officers of the corporation
shall consist of a President, a Secretary, a Treasurer and such Vice-Presidents,
Assistant Secretaries, Assistant Treasurers, and other officers as the Board of
Directors may from time to time elect. Any two or more offices may be held by
the same person, but no officer may act in more than one capacity where action
of two or more officers is required.
Section 2. Election and term. The officers of the corporation shall be
elected by the Board of Directors or in such other manner as may be approved by
the Board of Directors, and
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each officer shall hold office until his death, resignation, retirement,
removal, or disqualification or until his successor shall have been elected and
qualified.
Section 3. Compensation of officers. The compensation of all officers
of the corporation shall be fixed by the Board of Directors or in such other
manner as may be approved by the Board of Directors and no officer shall serve
the corporation in any other capacity and receive compensation therefor unless
such additional compensation is authorized by the Board of Directors.
Section 4. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed with or without cause or for any reason
whatsoever.
Section 5. Bonds. The corporation may require any officer, agent, or
employee of the corporation to give bond to the corporation, with sufficient
sureties, conditioned on the faithful performance of the duties of his
respective office or position, and to comply with such other conditions as may
from time to time be required by the corporation.
Section 6. Officers acting as Assistant Secretaries. Notwithstanding
anything contained in these by-laws, any Vice President (including any Senior
Vice President or any Assistant Vice President) shall have, by virtue of his
office, and by authority of these by-laws, the authority, from time to time, to
act as an Assistant Secretary of the corporation, and to such extent, said
officers are appointed to the office of Assistant Secretary.
ARTICLE VI.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. The corporation shall issue and deliver to each shareholder a
certificate or certificates representing all fully paid shares owned by him.
Certificates shall be signed by the President or a Vice President and by the
Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer and
may be sealed with the seal of the corporation or a facsimile thereof. The
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the corporation itself or its employee. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
date of issue. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number and class of shares and the date
of issue, shall be entered on the stock transfer books of the corporation.
Section 2. Transfer of shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and on surrender
for cancellation of the certificate for such shares with proper endorsement on
the
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certificate or on a separate accompanying document together with such evidence
of the payment of transfer taxes and compliance with such other provisions of
law as the corporation or its transfer agent may require.
Section 3. Lost certificate. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
corporation claimed to have been lost or destroyed, upon receipt of an affidavit
of such fact from the person claiming the certificate of stock to have been lost
or destroyed. When authorizing such issue of a new certificate, the Board of
Directors shall require that the owner of such lost or destroyed certificate, or
his legal representative, give the corporation a bond in such sum as the Board
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate claimed to have been lost or
destroyed, except where the Board of Directors by resolution finds that in the
judgment of the directors the circumstances justify omission of a bond.
Section 4. Closing transfer books and fixing record date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period but not to exceed, in any
case, fifty days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such record date in any case to be not more than fifty days, and
in case of a meeting of shareholders, not less than ten days, immediately
preceding the date on which the particular action, requiring such determination
of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired.
Section 5. Holder of record. The corporation may treat as absolute
owner of shares the person in whose name the shares stand of record on its books
just as if that person had full competency, capacity and authority to exercise
all rights of ownership irrespective of any knowledge or notice to the contrary
or any description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights of any other
person appearing upon its record or upon the share certificate except that any
person furnishing to the
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corporation proof of his appointment as a fiduciary shall be treated as if he
were a holder of record of the shares evidenced by such certificate.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. The Board of Directors may from time to time
declare, and the corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of its charter.
Section 2. Seal. The corporate seal of the corporation shall consist of
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal is hereby adopted as the
corporate seal of the corporation.
Section 3. Waiver of notice. Whenever any notice is required to be
given to any shareholder or director by law, by the charter or by these by-laws,
a waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be equivalent to
the giving of such notice.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors, and in the absence of any action on the matter,
the fiscal year shall be the calendar year.
Section 5. Amendments. Except as otherwise provided herein, these
by-laws may be amended or repealed and new bylaws may be adopted by the
affirmative vote of a majority of the directors then holding office at any
regular or special meeting of the Board of Directors.
The Board of Directors shall have no power to adopt a by-law: (1)
prescribing quorum or voting requirements for action by shareholders or
directors different from those prescribed by law; or (2) classifying and
staggering the election of directors.
No by-law adopted or amended by the shareholders shall be amended or
repealed by the Board of Directors, except to the extent that such by-law
expressly authorizes its amendment or repeal by the Board of Directors.
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HOME EQUITY SECURITIZATION CORP.
CORPORATE SEAL
<PAGE>
EXHIBIT 4.1
FORM OF POOLING AND SERVICING AGREEMENT
<PAGE>
POOLING AND SERVICING AGREEMENT
Dated as of ___________________
by and among
Residential Asset Funding Corporation
(Depositor)
and
-----------------
(Servicer)
and
----------------
(Trustee)
___________________ Trust _____
Mortgage Pass-Through Certificates,
Series _____
Class A and Class R and the Additional Certificate
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I DEFINITIONS.............................................................................................2
Section 1.1 Certain Defined Terms..............................................................2
Section 1.2 Provisions of General Application.................................................41
ARTICLE II ESTABLISHMENT OF THE TRUST SALE AND CONVEYANCE OF THE TRUST FUND......................................43
Section 2.1 Sale and Conveyance of Trust Fund; Priority and Subordination of
Ownership Interests; Establishment of the Trust...................................43
Section 2.2 Possession of Mortgage Files; Access to Mortgage Files............................43
Section 2.3 Delivery of Mortgage Loan Documents...............................................44
Section 2.4 Acceptance by Trustee of the Trust Fund; Certain Substitutions;
Certification by Trustee..........................................................47
Section 2.5 Designations under REMIC Provisions; Designation of Startup Date..................50
Section 2.6 Execution of Certificates.........................................................50
Section 2.7 Application of Principal and Interest.............................................50
Section 2.8 Grant of Security Interest........................................................51
Section 2.9 Further Assurances; Powers of Attorney............................................51
Section 2.10 Conveyance of the Subsequent Mortgage Loans.......................................52
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................57
Section 3.1 Representations of the Servicer...................................................57
Section 3.2 Representations, Warranties and Covenants of the Depositor........................59
Section 3.3 Purchase and Substitution.........................................................60
Section 3.4 Servicer Covenants................................................................62
ARTICLE IV THE CERTIFICATES......................................................................................63
Section 4.1 The Certificates..................................................................63
Section 4.2 Registration of Transfer and Exchange of Certificates.............................63
Section 4.3 Mutilated, Destroyed, Lost or Stolen Certificates.................................71
Section 4.4 Persons Deemed Owners.............................................................71
ARTICLE V ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS.....................................................72
Section 5.1 Appointment of the Servicer.......................................................72
Section 5.2 Subservicing Agreements Between the Servicer and Subservicers.....................75
Section 5.3 Collection of Certain Mortgage Loan Payments; Collection Account..................76
Section 5.4 Permitted Withdrawals from the Collection Account and Trustee Collection
Account...........................................................................78
Section 5.5 Payment of Taxes, Insurance and Other Charges.....................................80
Section 5.6 Maintenance of Casualty Insurance.................................................81
Section 5.7 Servicer Account..................................................................82
Section 5.8 Fidelity Bond; Errors and Omissions Policy........................................82
Section 5.9 Collection of Taxes, Assessments and Other Items..................................83
</TABLE>
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<S> <C> <C>
Section 5.10 Periodic Filings with the Securities and Exchange Commission; Additional
Information.......................................................................83
Section 5.11 Enforcement of Due-on-Sale Clauses; Assumption Agreements.........................84
Section 5.12 Realization upon Defaulted Mortgage Loans.........................................85
Section 5.13 Trustee to Cooperate; Release of Mortgage Files...................................87
Section 5.14 Servicing Fee; Servicing Compensation.............................................88
Section 5.15 Reports to the Trustee; Collection Account Statements.............................89
Section 5.16 Annual Statement as to Compliance.................................................89
Section 5.17 Annual Independent Public Accountants' Servicing Report...........................90
Section 5.18 Reports to be Provided by the Servicer............................................90
Section 5.19 Adjustment of Servicing Compensation in Respect of Prepaid Mortgage Loans.........91
Section 5.20 Periodic Advances.................................................................91
Section 5.21 Indemnification; Third Party Claims...............................................92
Section 5.22 Maintenance of Corporate Existence and Licenses; Merger or Consolidation
of the Servicer...................................................................93
Section 5.23 Assignment of Agreement by Servicer; Servicer Not to Resign.......................93
Section 5.24 Servicer Purchase of Certain Mortgage Loans.......................................94
ARTICLE VI DISTRIBUTIONS AND PAYMENTS............................................................................95
Section 6.1 Establishment of Certificate Account, Additional Certificate Account,
Capitalized Interest Account and Pre-Funding Account; Deposits to the
Certificate Account, the Additional Certificate Account, Capitalized
Interest Account and the Pre-Funding Account......................................95
Section 6.2 Permitted Withdrawals From the Certificate Account and The Additional
Certificate Account...............................................................97
Section 6.3 Collection of Money...............................................................98
Section 6.4 The Reserve Account and the Certificate Insurance Policies........................98
Section 6.5 Distributions....................................................................101
Section 6.6 Investment of Accounts...........................................................104
Section 6.7 Reports by Trustee...............................................................105
Section 6.8 Additional Reports by Trustee and by Servicer....................................108
Section 6.9 Compensating Interest............................................................108
Section 6.10 Effect of Payments by the Certificate Insurer; Subrogation.......................108
Section 6.11 Pre-Funding Account..............................................................109
Section 6.12 Capitalized Interest Account.....................................................109
ARTICLE VII DEFAULT.............................................................................................111
Section 7.1 Events of Default................................................................111
Section 7.2 Trustee to Act; Appointment of Successor.........................................112
Section 7.3 Waiver of Defaults...............................................................115
Section 7.4 Mortgage Loans, Trust Fund and Accounts Held for Benefit of the
Certificate Insurer..............................................................115
ARTICLE VIII TERMINATION........................................................................................116
</TABLE>
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<TABLE>
<S> <C> <C>
Section 8.1 Termination......................................................................116
Section 8.2 Additional Termination Requirements..............................................118
Section 8.3 Accounting Upon Termination of Servicer..........................................119
ARTICLE IX THE TRUSTEE..........................................................................................120
Section 9.1 Duties of Trustee................................................................120
Section 9.2 Certain Matters Affecting the Trustee............................................125
Section 9.3 Not Liable for Certificates or Mortgage Loans....................................127
Section 9.4 Trustee May Own Certificates.....................................................127
Section 9.5 Trustee's Fees and Expenses; Indemnity...........................................127
Section 9.6 Eligibility Requirements for Trustee.............................................128
Section 9.7 Resignation and Removal of the Trustee...........................................128
Section 9.8 Successor Trustee................................................................129
Section 9.9 Merger or Consolidation of Trustee...............................................130
Section 9.10 Appointment of Co-Trustee or Separate Trustee....................................130
Section 9.11 Tax Returns; Old Interest Reporting..............................................132
Section 9.12 Retirement of Certificates.......................................................132
ARTICLE X MISCELLANEOUS PROVISIONS..............................................................................133
Section 10.1 Limitation on Liability of the Depositor and the Servicer........................133
Section 10.2 Acts of Certificateholders; Certificateholders' Rights...........................133
Section 10.3 Amendment or Supplement..........................................................134
Section 10.4 Recordation of Agreement.........................................................135
Section 10.5 Duration of Agreement............................................................135
Section 10.6 Notices..........................................................................135
Section 10.7 Severability of Provisions.......................................................135
Section 10.8 No Partnership...................................................................136
Section 10.9 Counterparts.....................................................................136
Section 10.10 Successors and Assigns...........................................................136
Section 10.11 Headings.........................................................................136
Section 10.12 The Certificate Insurer Default..................................................136
Section 10.13 Third Party Beneficiary..........................................................136
Section 10.14 Intent of the Parties............................................................136
Section 10.15 Appointment of Tax Matters Person................................................137
Section 10.16 GOVERNING LAW CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL......................137
</TABLE>
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<PAGE>
EXHIBITS
EXHIBIT A-1 Specimen Class A-1 Certificate Insurance Policy
EXHIBIT A-2 Specimen Group II Certificate Insurance Policy
EXHIBIT B-1 Specimen Class A-1 Certificate
EXHIBIT B-2 Specimen Class A-2 Certificate
EXHIBIT B-3 Specimen Class A-3 Certificate
EXHIBIT B-4 Specimen Class A-4 Certificate
EXHIBIT B-5 Specimen Class R Certificate
EXHIBIT B-6 Specimen Additional Certificate
EXHIBIT C Contents of Mortgage File
EXHIBIT D Mortgage Loan Schedule
EXHIBIT E Trustee's Certificate as to Mortgage Files
EXHIBIT F Form of Initial Certification of Trustee
EXHIBIT G Form of Final Certification of Trustee
EXHIBIT H Form of Request for Release of Mortgage Files
EXHIBIT I Form of Transfer Affidavit and Agreement
EXHIBIT J Form of Transferor's Certificate
EXHIBIT K Form of ERISA Investment Representation Letter
EXHIBIT L Delinquency Collection Policies and Procedures
EXHIBIT M Form of Officer's Certificate of the Seller: Prepaid Loans
EXHIBIT N Form of Transferee's Letter
EXHIBIT O Form of Subsequent Transfer Agreement
EXHIBIT P Specimen Letters of Credit
EXHIBIT Q Instructions Regarding Letters of Credit
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This Pooling and Servicing Agreement, relating to ___________________ Trust
_____, dated as of ___________________ by and among Residential Asset Funding
Corporation, a North Carolina corporation, in its capacity as depositor of the
Trust (the "Depositor"), _________________, a ___________ corporation, in its
capacity as servicer (the "Servicer"), and ________________, a banking
corporation organized under the laws of the State of ________________, in its
capacity as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Depositor wishes to establish a trust which provides for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution of the trust estate;
WHEREAS, the Depositor also wishes to provide for the issuance from time to
time of a separate certificate (the "Additional Certificate") representing
interests in Additional Balances (as herein defined), the rights with respect to
which will be determined pursuant to this Agreement;
WHEREAS, the Servicer has agreed to service the Mortgage Loans, which
constitute the principal assets of the trust estate;
WHEREAS, ________________ is willing to serve in the capacity of Trustee
hereunder; and
WHEREAS, ________________ (the "Certificate Insurer") is intended to be a
third-party beneficiary of this Agreement and is hereby recognized by the
parties hereto to be a third-party beneficiary of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Depositor, the Servicer and the Trustee hereby agree as
follows:
ARTICLE I
Definitions
Section 1.1 Certain Defined Terms. Whenever used herein the following words
and phrases, unless the context otherwise requires, shall have the following
meanings.
"Accepted Servicing Practices" shall mean the Servicer's normal servicing
practices in servicing and administering mortgage loans for its own account,
which in general will conform to the mortgage servicing practices of prudent
mortgage lending institutions which service for their own account mortgage loans
of the same type as the Mortgage Loans in the jurisdictions in which the related
Mortgaged Properties are located and will give due consideration to the
Certificate
<PAGE>
Insurer's and the Certificateholders' reliance on the Servicer; provided,
further, that with respect to any Mortgage Loan for which the related Monthly
Payment has not been received by the related Due Date, Accepted Servicing
Practices shall also include the policies and procedures set forth in the
Delinquency Collection Policies and Procedures.
"Account" shall mean any Eligible Account established hereunder.
"Accrual Period" shall mean (i) with respect to the Class A-1 Certificates
and any Remittance Date, the period commencing on the 15th day of the month
immediately preceding the month in which such Remittance Date occurs or, in the
case of the first Remittance Date, the Closing Date, and ending on the 14th day
of the month in which such Remittance Date occurs and (ii) with respect to the
Group II Certificates and any Remittance Date, the period commencing on the 1st
day of the month immediately preceding the month in which such Remittance Date
occurs and ending on the last day of the month immediately preceding the month
in which such Remittance Date occurs.
"Addition Notice" shall mean, with respect to the transfer of Subsequent
Mortgage Loans to the Trust pursuant to Section 2.10 of this Agreement, notice,
which shall be given not later than five Business days prior to the related
Subsequent Transfer Date, of the Depositor's designation of Subsequent Mortgage
Loans to be sold to the Trust and (stating separately for the HELOCs and the
HELs) the aggregate principal balance and the weighted average Mortgage Interest
Rate and Gross Margin, if any, of such Subsequent Mortgage Loans. Such Addition
Notice shall include an electronic data file in a form agreeable to the Trustee
and the Certificate Insurer.
"Additional Balance" shall mean any amounts added, from time to time, to
the principal balance of a HELOC after the Cut-Off Date as a result of the
Mortgagor on the related Mortgage Note exercising the right to borrow additional
amounts under such Mortgage Loan.
"Additional Balance Factor" shall mean, as of any date of determination,
and for any HELOC, the quotient of the Additional Balance of such HELOC and the
Principal Balance of such HELOC.
"Additional Certificate" shall mean the certificate in the form of Exhibit
B-6 issued hereunder representing an undivided interest in the Trust Fund in an
amount equal to the Additional Balances of the HELOCs. The identification of
such Additional Balances shall be indicated, from time to time, on one or more
amended Mortgage Loan Schedules delivered from time to time that shall specify
that the interest in such Additional Balances has been assigned to the
Additional Certificate.
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"Additional Certificate Account" shall mean the Additional Certificate
Account(s) established in accordance with Section 6.1(b) hereof and maintained
by the Trustee.
"Additional Certificate Allocation" shall mean with respect to any payment
on, or monies collected in respect of, a HELOC, the sum of (a) Interest
Collections less the REMIC Daily Interest, plus (b) with respect to the
Principal Collections other than Liquidation Proceeds, zero, until the Trust
Balance of the related Mortgage Loan is reduced to zero, and thereafter, all
Principal Collections with respect to such Mortgage Loan, plus (c) with respect
to Liquidation Proceeds the product of such Liquidation Proceeds and the
Additional Balance Factor applicable to such HELOC plus (d) with respect to
daily interest or investment earnings on proceeds, collections, recoveries or
other amounts received in respect of a particular Mortgage Loan and on deposit
in the Collection Account or Trustee Collection Account, the product of such
day's interest or investment earnings and the Additional Balance Factor for such
HELOC.
"Additional Certificateholders" shall include any Holder of an Additional
Certificate.
"Additional Loan Group" shall mean the segregated pool of Additional
Balances. The Additional Loan Group shall be a sub-trust of the Trust. The
Additional Loan Group shall not be part of the _____ REMIC.
"Administrative Costs" shall mean with respect to any Remittance Date, the
sum of the Trustee Fee, the applicable Certificate Insurance Premium Amount and
the Servicing Fee for such Remittance Date.
"Adverse REMIC Event" shall have the meaning set forth in Section 5.1(c).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" shall mean this Pooling and Servicing Agreement, including the
Exhibits hereto, as amended or supplemented from time to time in accordance
herewith.
"Aggregate Trust Balance" shall mean the aggregated sum of the Trust
Balances of each of the Mortgage Loans as of any date of determination.
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"Aggregate HEL Trust Balance" shall mean the aggregated sum of the Trust
Balances of each of the HELs as of any date of determination.
"Aggregate HELOC Trust Balance" shall mean the aggregated sum of the Trust
Balance of each of the HELOCs as of any date of determination.
"Appraised Value" shall mean the appraised value of any Mortgaged Property,
based upon the appraisal made at the time the related Mortgage Loan is
originated.
"Assignment of Mortgage" shall mean, with respect to each Mortgage Loan, an
assignment of the Mortgage, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the Mortgage to the Trustee
for the benefit of the Certificateholders, the Certificate Insurer and the
Additional Certificateholder.
"Authorized Denominations" shall mean, in the case of the Class A
Certificates, $_____ or integral multiples of $_____ in excess thereof;
provided, however, that one Class A-1 Certificate, one Class A-2 Certificate,
one Class A-3 Certificate and one Class A-4 Certificate each is issuable in a
denomination equal to an amount less than $_____ such that the aggregate
denomination of all Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates or Class A-4 Certificates, as the case may be, shall be equal to
the applicable Original Class A-1 Principal Balance, Original Class A-2
Principal Balance, Original Class A-3 Principal Balance or Original Class A-4
Principal Balance and, in the case of Additional Certificate, in any
denomination necessary to reflect the then outstanding Additional Balances.
"Available Amount" shall mean each of the Group I Available Amount and the
Group II Available Amount.
"Available Funds Excess" shall have the meaning ascribed thereto in Section
6.5.
"Business Day" shall mean any day other than (a) a Saturday or Sunday, or
(b) a day on which banking institutions in the States of or ________________ are
authorized or obligated by law or executive order to be closed.
"Capitalized Interest Account" shall mean the Account created pursuant to
Section 6.1(c) hereof.
"Capitalized Interest Deposit Amount" shall mean for any Remittance Date
the sum of (i) the amount by which the product of (a) the sum of the Class A-1
Pass-Through Rate, the Class A-1 Premium Percentage and the rate at which the
Trustee Fee is calculated and (b) the Group I Pre-Funded Amount as of the
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<PAGE>
first day of the related Remittance Period exceeds investment earnings, if any
on the Group I Pre-Funded Amount and (ii) the amount by which the product of (a)
the sum of the Weighted Average Group II Pass-Through Rate, the Group II Premium
Percentage and the rate at which the Trustee Fee is calculated and (b) the Group
II Pre-Funded Amount as of the first day of the related Remittance Period
exceeds investment earnings, if any on the Group II Pre-Funded Amount; provided,
that such amount shall not exceed the difference between (i) the amount
necessary to make the allocations, disbursements and transfers required under
Sections 6.5(a)(i) - (vi) and (ii) the amount on deposit in the Certificate
Account on such Remittance Date.
"Capitalized Interest Requirement" shall mean the sum of the Group I
Capitalized Interest Requirement and the Group II Capitalized Interest
Requirement.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980.
"Certificate" shall mean any Series _____ Class A Certificate or Series
_____ Class R Certificate executed by the Trustee on behalf of the Trust Fund
and authenticated by the Trustee.
"Certificate Account" shall mean the Certificate Account established in
accordance with Section 6.1(a) hereof and maintained by the Trustee.
"Certificateholder" shall mean, except as provided in Article X, each
Person in whose name a Certificate is registered in the Certificate Register,
except that, solely for the purposes of giving any consent (except any consent
required to be obtained pursuant to Section 10.2), waiver, request or demand
pursuant to this Agreement, any Certificate registered in the name of the
Servicer or any Subservicer or the Seller, or any Affiliate of any of them,
shall be deemed not to be outstanding and the undivided interest in the related
REMIC evidenced thereby shall not be taken into account in determining whether
the requisite percentage of Certificates necessary to effect any such consent,
waiver, request or demand has been obtained. For purposes of any consent,
waiver, request or demand of Certificateholders pursuant to this Agreement, upon
the Trustee's request, the Servicer and the Seller shall provide to the Trustee
a notice identifying any of their respective Affiliates or the Affiliates of any
Subservicer that is a Certificateholder as of the date(s) specified by the
Trustee in such request. Any Certificates on which payments are made under
either Certificate Insurance Policy shall be deemed to be outstanding and held
by the Certificate Insurer to the extent of such payment.
"Certificate Insurance Agreement" shall mean that certain agreement between
the Certificate Insurer, the Depositor and the parties named therein.
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<PAGE>
"Certificate Insurance Policy" shall mean each of the Class A-1 Certificate
Insurance Policy and the Group II Certificate Insurance Policy.
"Certificate Insurance Premium Amount" shall mean each of the Class A-1
Certificate Insurance Premium Amount and the Group II Certificate Insurance
Premium Amount.
"Certificate Insurer" shall be ________________, a stock insurance company
organized and created under the laws of the State of ________________, and any
successors thereto.
"Certificate Insurer Default" shall mean the failure, and continuance of
such failure, by the Certificate Insurer to make a payment required under the
Certificate Insurance Policy in accordance with its terms.
"Certificate Register" shall have the meaning described in Section 4.2(a).
"Civil Relief Act" shall mean the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended.
"Class" shall mean any designated Class of Certificates of this Series or
of any new Series issued hereunder.
"Class A Certificate" shall mean any Class A-1 Certificate, any Class A-2
Certificate, any Class A-3 Certificate or any Class A-4 Certificate.
"Class A-1 Certificate" shall mean any Certificate designated as a "Class
A-1 Certificate" on the face thereof, in the form of Exhibit B-1 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-1 Certificateholder" shall mean a Holder of a Class A-1
Certificate.
"Class A-1 Certificate Insurance Policy" shall mean the certificate
guaranty insurance policy no., and all endorsements thereto dated the Closing
Date, issued by the Certificate Insurer for the benefit of the Class A-1
Certificateholders, a copy of which is attached hereto as Exhibit A-1. The
Certificate Insurance Policy shall not benefit the Additional Certificate.
"Class A-1 Certificate Insurance Premium Amount" shall mean, the product of
the Class A-1 Premium Percentage and the Class A-1 Principal Balance for the
related Remittance Date.
"Class A-1 Credit Enhancement Distribution Amount" shall mean the excess,
if any, of the Class A-1 Formula Distribution Amount over the Group I Available
Amount.
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"Class A-1 Distribution Amount" shall mean, with respect to the Class A-1
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-1 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iii) and (iv) hereof, which amount shall be the lesser of (a) the Class
A-1 Formula Distribution Amount for such Remittance Date and (b) the amount
(including any applicable portion of any Insured Payment) available for
distribution on account of the Class A-1 Certificates for such Remittance Date.
"Class A-1 Final Scheduled Maturity Date" shall mean the _____________
Remittance Date.
"Class A-1 Formula Distribution Amount" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date, the sum of (a) the Class A-1
Interest Distribution Amount for such Remittance Date plus (b) the amount
described in clause (b) of the definition of Class A-1 Principal Distribution
Amount for such Remittance Date plus (c) any Class A-1 Formula Distribution
Amount remaining unpaid from any prior Remittance Date.
"Class A-1 Insured Payment" shall mean, the sum of (i) with respect to any
Remittance Date, the related Deficiency Amount plus (ii) any unpaid Preference
Amount.
"Class A-1 Interest Distribution Amount" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-1 Pass-Through Rate during the Accrual Period
on the Class A-1 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-1 Pass-Through Rate" shall be equal to _____%, in the case of the
first Remittance Date, and with respect to each Remittance Date thereafter,
shall be equal to a per annum rate (calculated on the basis of actual days
elapsed divided by 360) equal to the lesser of (a) the sum of (i) LIBOR on the
Interest Determination Date plus (ii)_____%, and (b) the Weighted Average Rate
Cap.
"Class A-1 Premium Percentage" shall have the meaning assigned thereto in
the Certificate Insurance Agreement.
"Class A-1 Principal Balance" shall mean, as of any date of determination,
the Original Class A-1 Principal Balance less any amount distributed with
respect to principal on the Class A-1 Certificates on all prior Remittance
Dates.
"Class A-1 Principal Distribution Amount" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date, the lesser of:
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(a) the excess of the Group I Available Amount, plus any Class A-1
Insured Payment over the Class A-1 Interest Distribution Amount; and
(b) the sum, without duplication, of:
(1) that portion of all scheduled installments of principal in
respect of the HELOCs allocable to the Trust Balances of such HELOCs
which is received (or advanced) during the related Due Period together
with all unscheduled recoveries of principal (including Prepayments,
Curtailments and Deficient Valuations) allocable to the Trust Balances
of such HELOCs actually collected by the Servicer during the prior
calendar month,
(2) the Trust Balance of each HELOC that either was, effective on
such Remittance Date, repurchased by the Seller or by the Depositor or
purchased by the Servicer during the preceding Due Period, but only to
the extent the amount equal to such Trust Balance is actually received
by the Trustee,
(3) any Substitution Adjustment amounts delivered by the
Depositor on the related Remittance Date in connection with a
substitution of a HELOC, to the extent such Substitution Adjustments
are actually received by the Trustee,
(4) with respect to each HELOC that became a Liquidated Mortgage
Loan during the prior calendar month, the Trust Balance of such HELOC
immediately prior to the time when such HELOC became a Liquidated
Mortgage Loan,
(5) any amount allocated to Group I remaining on deposit in the
Pre-Funding Account at the end of the Pre-Funding Period, and
(6) the proceeds received by the Trust Fund following any
termination of the _____ REMIC carried out in accordance with a plan
of complete liquidation pursuant to Section 8.2 hereof or pursuant to
the optional termination of any of the Trust Fund, the _____ REMIC or
Group I by either the Servicer or Certificate Insurer in accordance
with Section 8.1 hereof, up to the then outstanding Class A-1
Principal Balance.
"Class A-2 Certificate" shall mean any Certificate designated as a "Class
A-2 Certificate" on the face thereof, in the form of Exhibit B-2 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-2 Certificateholder" shall mean a Holder of a Class A-2
Certificate.
"Class A-2 Distribution Amount" shall mean, with respect to the Class A-2
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-2
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Certificates on such Remittance Date pursuant to Sections 6.5(a)(iii) and (iv)
hereof, which amount shall be the lesser of (a) the portion of the Group II
Formula Distribution Amount allocable to the Class A-2 Certificates for such
Remittance Date and (b) the amount (including any applicable portion of any
Insured Payment) available for distribution on account of the Class A-2
Certificates for such Remittance Date.
"Class A-2 Final Scheduled Maturity Date" shall mean the ______________
Remittance Date.
"Class A-2 Interest Distribution Amount" shall mean, with respect to the
Class A-2 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-2 Pass-Through Rate during the Accrual Period
on the Class A-2 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-2 Pass-Through Rate" with respect to any Remittance Date, will be
equal to a _____% per annum rate (calculated on the basis of an assumed month of
30 days and an assumed year of 360 days).
"Class A-2 Principal Balance" shall mean, as of any date of determination,
the Original Class A-2 Principal Balance less any Group II Principal
Distribution Amount distributed with respect to principal on the Class A-2
Certificates on all prior Remittance Dates.
"Class A-3 Certificate" shall mean any Certificate designated as a "Class
A-3 Certificate" on the face thereof, in the form of Exhibit B-3 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-3 Certificateholder" shall mean a Holder of a Class A-3
Certificate.
"Class A-3 Distribution Amount" shall mean, with respect to the Class A-3
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-3 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iii) and (iv) hereof, which amount shall be the lesser of (a) the portion
of the Group II Formula Distribution Amount allocable to the Class A-3
Certificates for such Remittance Date and (b) the amount (including any
applicable portion of any Insured Payment) available for distribution on account
of the Class A-3 Certificates for such Remittance Date.
"Class A-3 Final Scheduled Maturity Date" shall mean the _____________
Remittance Date.
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"Class A-3 Interest Distribution Amount" shall mean, with respect to the
Class A-3 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-3 Pass-Through Rate during the Accrual Period
on the Class A-3 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-3 Pass-Through Rate" with respect to any Remittance Date, will be
equal to a _____% per annum rate (calculated on the basis of an assumed month of
30 days and an assumed year of 360 days).
"Class A-3 Principal Balance" shall mean, as of any date of determination,
the Original Class A-3 Principal Balance less any Group II Principal
Distribution Amounts distributed with respect to principal on the Class A-3
Certificates on all prior Remittance Dates.
"Class A-4 Certificate" shall mean any Certificate designated as a "Class
A-4 Certificate" on the face thereof, in the form of Exhibit B-4 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-4 Certificateholder" shall mean a Holder of a Class A-4
Certificate.
"Class A-4 Distribution Amount" shall mean, with respect to the Class A-4
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-4 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iii) and (iv) hereof, which amount shall be the lesser of (a) the portion
of the Group II Formula Distribution Amount allocable to the Class A-4
Certificates for such Remittance Date and (b) the amount (including any
applicable portion of any Insured Payment) available for distribution on account
of the Class A-4 Certificates for such Remittance Date.
"Class A-4 Final Scheduled Maturity Date" shall mean the ________________
Remittance Date.
"Class A-4 Interest Distribution Amount" shall mean, with respect to the
Class A-4 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-4 Pass-Through Rate during the Accrual Period
on the Class A-4 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-4 Pass-Through Rate", with respect to any Remittance Date prior to
the date on which the sum of the Class A-2 Principal Balance, the Class A-3
Principal Balance and the
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Class A-4 Principal Balance is less than _____% of the sum of (i) the aggregate
Trust Balances of the Mortgage Loans in Group II as of the Cut-Off Date and (ii)
the Original Group II Prefunded Amount, will be equal to a _____% per annum
rate, and with respect to any Remittance Date after the next succeeding
Remittance Date , will be equal to a _____% per annum rate (each rate calculated
on the basis of an assumed month of 30 days and an assumed year of 360 days).
"Class A-4 Principal Balance" shall mean, as of any date of determination,
the Original Class A-4 Principal Balance less any Group II Principal
Distribution Amounts distributed with respect to principal on the Class A-4
Certificates on all prior Remittance Dates.
"Class R Certificate" shall mean any Certificate denominated as a Class R
Certificate and subordinate to the Class A Certificates in right of payment to
the extent set forth herein, which Certificate shall be in the form of Exhibit
B-3 hereto.
"Class R Certificateholder" shall mean a Holder of a Class R Certificate.
"Closing Date" shall mean _________________.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collection Account" shall mean the Eligible Account established and
maintained by the Servicer for the benefit of the Certificateholders, the Holder
of the Additional Certificate and the Certificate Insurer pursuant to Section
5.3(a) hereof.
"Combined Loan-to-Value Ratio" shall mean, (i) the sum of (x) any
outstanding first mortgage balance as of the date of origination of the related
Mortgage Loan plus (y) the maximum available credit under the HELOC or the Trust
Balance of the HEL, as applicable as of the Cut-Off Date, divided by (ii) the
Appraised Value of such Mortgaged Property.
"Commission" shall mean the Securities and Exchange Commission.
"Compensating Interest" shall have the meaning defined in Section 6.9
hereof.
"Curtailment" shall mean, with respect to a Mortgage Loan, any payment of
principal received during a Due Period as part of a payment that is in excess of
the amount of the Monthly Payment due for such Due Period and which is neither
intended to satisfy the Mortgage Loan in full, intended as an advance payment of
an amount due in a subsequent Due Period, nor intended to cure a delinquency.
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"Custodian" shall have the meaning defined in Section 2.2(c).
"Cut-Off Date" shall mean with respect to the Mortgage Loans transferred to
the Trust on the Closing Date, the close of business on ____________ and, with
respect to Subsequent Mortgage Loans transferred to the Trust on any Subsequent
Transfer Date, the last day of the calendar month preceding such Subsequent
Transfer Date.
"Debt Service Reduction" shall mean, with respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan in a proceeding under the Bankruptcy Code, except such a
reduction that constitutes a Deficient Valuation or a permanent forgiveness of
principal.
"Deficiency Amount" shall mean, for any Remittance Date, (i) with respect
to the Class A-1 Certificates and the Class A-1 Insured Payment, the excess of
the Class A-1 Credit Enhancement Distribution Amount over the amount then on
deposit in and available to be withdrawn from the Reserve Account (including
amounts available to be drawn under any Eligible Letter of Credit) on such
Remittance Date and (ii) with respect to the Class A-2 Certificates, the Class
A-3 Certificates, the Class A-4 Certificates and the Group II Insured Payment,
the excess of the Group II Credit Enhancement Distribution Amount over the
amount then on deposit in and available to be withdrawn from the Reserve Account
(including amounts available to be drawn under any Eligible Letter of Credit) on
such Remittance Date.
"Deficient Valuation" shall mean, with respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the United
States Bankruptcy Code.
"Deleted Mortgage Loan" shall mean a Mortgage Loan replaced by a Qualified
Substitute Mortgage Loan or repurchased pursuant to Sections 2.4(b) or 3.3
hereof.
"Delinquency Calculation Amount" means, for any Remittance Date, the sum of
(i) the product of 0.25 and the aggregate Principal Balance of all Mortgage
Loans which are between 30 and 59 days delinquent, (ii) the product of 0.50 and
the aggregate Principal Balance of all Mortgage Loans which are between 60 and
89 days delinquent, and (iii) the aggregate Principal Balance of all Mortgage
Loans which are more than 89 days delinquent.
"Delinquency Collection Policies and Procedures" shall mean the servicing
policies of the Servicer pertaining to delinquent mortgage loans attached hereto
as Exhibit L.
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"Delinquent" shall mean a Mortgage Loan is "delinquent" if any payment due
thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Depositor" shall mean Residential Asset Funding Corporation, a North
Carolina corporation, and any successor thereto.
"Depository" shall mean the Depository Trust Company, ________________,
________________ and any successor Depository hereafter named.
"Determination Date" shall mean the fourth Business Day prior to the
Remittance Date.
"Direct Participant" shall mean any broker-dealer, bank or other financial
institution for which the Depository holds Class A Certificates from time to
time as a securities depositary.
"Due Date" shall mean the fifteenth day of each calendar month.
"Due Period" shall mean, with respect to each Remittance Date, the period
beginning on the opening of business on the first day of the calendar month
preceding the calendar month in which such Remittance Date occurs, and ending at
the close of business on the last day of the calendar month preceding the
calendar month in which such Remittance Date occurs.
"Eligible Account" shall mean either (A) a segregated trust account or
accounts maintained with a depositary institution which is acceptable to the
Certificate Insurer and to each Rating Agency and such trust account shall be
held in (i) the corporate trust account department of such depositary
institution or (ii) an institution with capital and surplus of not less than
$_____, and a minimum unsecured debt rating of BBB by S&P or Baa3 by Moody's or
(B) an account or accounts maintained with an institution acceptable to the
Certificate Insurer and whose deposits are insured by the FDIC, the unsecured
and uncollateralized debt obligations of which institution shall be rated AA or
better by S&P and Aa2 or better by Moody's and the highest short-term rating by
S&P and Moody's, and which is (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution (including the Trustee) duly organized, validly existing and
in good standing under the applicable
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banking laws of any state, (iii) a national banking association duly organized,
validly existing and in good standing under the federal banking laws, (iv) a
principal subsidiary of a bank holding company, or (v) approved in writing by
the Certificate Insurer, S&P and Moody's, having capital and surplus of not less
than $_____, acting in its fiduciary capacity. ________________ and any of its
Affiliates will be prohibited from holding any Eligible Account hereunder.
"Eligible Letter of Credit" shall mean a letter of credit in form,
substance and amount and from a provider acceptable to the Certificate Insurer.
"ERISA" shall have the meaning defined in Section 4.2(i)(x) hereof.
"Event of Default" shall have the meaning described in Section 7.1.
"FDIC" shall mean the Federal Deposit Insurance Corporation and any
successor thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and any
successor thereto.
"Final Subsequent Transfer Date" shall mean with respect to Group I or
Group II the earliest to occur of (i) _____________, (ii) the occurrence of an
Event of Default and (iii) the date upon which the amount on deposit in the
Pre-Funding Account allocated to such Group is less than $_____.
"Fiscal Agent shall mean _________________________.
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"Foreclosure Profits" shall mean, as to any Remittance Date, the excess, if
any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of such Remittance Date over (ii) the sum of the unpaid principal balance
of each such Liquidated Mortgage Loan plus accrued and unpaid interest at the
applicable Mortgage Interest Rate on the unpaid principal balance thereof from
the Due Date to which interest was last paid by the Mortgagor (or, in the case
of a Liquidated Mortgage Loan that had been an REO Mortgage Loan, from the Due
Date to which interest was last deemed to have been paid pursuant to Section
5.12) to the first day of the month following the month in which such Mortgage
Loan became a Liquidated Mortgage Loan.
"Gross Margin" shall mean, as to each HELOC, the fixed percentage set forth
in the related Mortgage Note and indicated in the Mortgage Loan Schedule as the
"Gross Margin," which
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percentage is added to the applicable prime rate on each Interest Adjustment
Date to determine (subject to rounding, any applicable statutory maximum
interest rate, the Lifetime Floor and the Lifetime Cap) the Mortgage Interest
Rate on such HELOC until the next Interest Adjustment Date.
"Group" shall mean each of Group I and Group II.
"Group I" shall mean the segregated pool of Mortgage Loans within the Trust
and the _____ REMIC consisting of the HELOCs. Group I shall be a sub-trust of
the Trust.
"Group I Available Amount" shall mean for any Remittance Date the sum of
(i) the Servicer Remittance Amount for Group I and such Remittance Date plus
(ii) any portion of the Servicer Remittance Amount for Group II not required to
pay the Group II Formula Distribution Amount, the Trustee Fee for Group II or
the Group II Certificate Insurance Premium Amount minus (iii) the Trustee Fee
for Group I and the Class A-1 Certificate Insurance Premium Amount.
"Group I Capitalized Interest Requirement" shall mean, for any Remittance
Date, the product of (i) the Class A-1 Pass Through Rate for the first
Remittance Date plus the Class A-1 Premium Percentage plus the rate at which the
Trustee Fee is calculated minus _____% (ii) the Group I Pre-Funded Amount and
(iii) the quotient of the number of days from such Remittance Date to the
Remittance Date in ____________ and 360.
"Group I Net Available Funds Excess" shall have the meaning assigned in the
Certificate Insurance Agreement.
"Group I Pre-Funded Amount" shall mean the Original Group I Pre-Funded
Amount minus all amounts withdrawn from the Pre-Funding Account or transferred
to the Reserve Account in connection with the transfer of HELOCs to the Trust
Fund on any Subsequent Transfer Date.
"Group II" shall mean the segregated pool of the Mortgage Loans within the
Trust and the _____ REMIC consisting of the HELs. Group II shall be a sub-trust
of the Trust.
"Group II Available Amount" shall mean for any Remittance Date the sum of
(i) the Servicer Remittance Amount for Group II and such Remittance Date plus
(ii) any portion of the Servicer Remittance Amount for Group I not required to
pay the Class A-1 Formula Distribution Amount, the Trustee Fee for Group I or
the Class A-1 Certificate Insurance Premium Amount minus (iii) the Trustee Fee
for Group II and the Group II Certificate Insurance Premium Amount.
"Group II Capitalized Interest Requirement" shall mean, for any Remittance
Date, the product of (i) the Weighted Average Group II Pass-Through Rate plus
the Group II Premium Percentage
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plus the rate at which the Trustee Fee is calculated minus _____%, (ii) the
Group II Pre-Funded Amount and (iii) the quotient of the number of Remittance
Dates from such Remittance Date to the Remittance Date in ______________ and 12.
"Group II Certificate Insurance Policy" shall mean the certificate guaranty
insurance policy no. ______, and all endorsements thereto dated the Closing
Date, issued by the Certificate Insurer for the benefit of the Class A-2
Certificateholders, of the Class A-3 Certificateholders and the Class A-4
Certificateholders, a copy of which is attached hereto as Exhibit A-2. The Group
II Certificate Insurance Policy shall not benefit the Additional Certificate.
"Group II Certificate Insurance Premium Amount" shall mean, the product of
(i) the Group II Premium Percentage and (ii) the sum of the Class A-2 Principal
Balance, Class A-3 Principal Balance and the Class A-4 Principal Balance for the
related Remittance Date.
"Group II Certificates" shall mean each of the Class A-2 Certificates, the
Class A-3 Certificates and the Class A-4 Certificates.
"Group II Credit Enhancement Distribution Amount" shall mean the excess, if
any, of the Group II Formula Distribution Amount over the Group II Available
Amount.
"Group II Formula Distribution Amount" shall mean, with respect to the
Class A-2 Certificates, the Class A-3 Certificates and the Class A-4
Certificates for any Remittance Date, the sum of (a) the Class A-2 Interest
Distribution Amount for such Remittance Date plus (b) the Class A-3 Interest
Distribution Amount for such Remittance Date plus (c) the Class A-4 Interest
Distribution Amount for such Remittance Date plus the amount described in clause
(b) of the definition of Group II Principal Distribution Amount for such
Remittance Date plus (d) any Group II Formula Distribution Amount remaining
unpaid from any prior Remittance Date.
"Group II Insured Payment" shall mean, the sum of (i) with respect to any
Remittance Date, the related Deficiency Amount plus (ii) any unpaid Preference
Amount.
"Group II Net Available Funds Excess" shall have the meaning assigned in
the Certificate Insurance Agreement.
"Group II Pre-Funded Amount" shall mean the Original Group II Pre-Funded
Amount minus all amounts withdrawn from the Pre-Funding Account or transferred
to the Reserve Account in connection with the transfer of HELs to the Trust Fund
on any Subsequent Transfer Date.
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"Group II Premium Percentage" shall have the meaning assigned thereto in
the Certificate Insurance Agreement.
"Group II Principal Distribution Amount" shall mean, with respect to the
Class A-2 Certificates or after the Class A-2 Principal Balance has been reduced
to zero, the Class A-3 Certificates, or after the Class A-3 Principal Balance
has been reduced to zero, the Class A-4 Certificates for any Remittance Date,
the lesser of:
(a) the excess of the Group II Available Amount, plus any Group II
Insured Payment over the sum of the Class A-2 Interest Distribution Amount,
the Class A-3 Interest Distribution Amount and the Class A-4 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(1) that portion of all scheduled installments of principal in
respect of the HELs allocable to the Trust Balances of such HELs which
is received (or advanced) during the related Due Period together with
all unscheduled recoveries of principal (including Prepayments,
Curtailments and Deficient Valuations) allocable to the Trust Balances
of such HELs actually collected by the Servicer during the prior
calendar month,
(2) the Trust Balance of each HEL that either was, effective on
such Remittance Date, repurchased by the Seller or by the Depositor or
purchased by the Servicer during the preceding Due Period, but only to
the extent the amount equal to such Trust Balance is actually received
by the Trustee,
(3) any Substitution Adjustment amounts delivered by the
Depositor on the related Remittance Date in connection with a
substitution of a HEL, to the extent such Substitution Adjustments are
actually received by the Trustee,
(4) with respect to each HEL that became a Liquidated Mortgage
Loan during the prior calendar month, the Trust Balance of such HEL
immediately prior to the time when such HEL became a Liquidated
Mortgage Loan,
(5) any amount allocated to Group II remaining on deposit in the
Pre-Funding Account at the end of the Pre-Funding Period, and
(6) the proceeds received by the Trust Fund following any
termination of the _____ REMIC carried out in accordance with a plan
of complete liquidation pursuant to Section 8.02 hereof or pursuant to
the optional termination of any of the Trust Fund, the _____ REMIC or
Group II by either the Servicer or Certificate Insurer in accordance
with Section 8.1 hereof, up to the sum of the then outstanding Class
A-2 Principal Balance, Class A-3 Principal Balance and Class A-4
Principal Balance.
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"Hazardous Materials" shall mean any dangerous, toxic or hazardous
pollutants, chemical wastes or substances, including, without limitation, those
identified pursuant to CERCLA or any other federal, state or local environmental
related laws now existing or hereafter enacted.
"HEL" shall mean (i) each fixed rate closed end home equity loan identified
on the Mortgage Loan Schedule on the Closing Date, (ii) any additional such
fixed rate home equity closed end loans identified on the Mortgage Loan Schedule
after the Closing Date, as such schedule is amended and supplemented from time
to time to reflect the transfer of the Subsequent Mortgage Loans which are HELs,
the deletion of the Deleted Mortgage Loans which are HELs and the substitution
of Qualified Substitute Mortgage Loans which are HELs for Deleted Mortgage Loans
(iii) each Mortgage Note evidencing any loan referred to in (i) or (ii) above,
including all amounts now or hereafter due under such Mortgage Notes whether
relating to such loans or other loans which may be made from time to time and
(iv) the related Mortgage.
"HELOC" shall mean (i) each adjustable rate home equity revolving credit
line loan identified on the Mortgage Loan Schedule on the Closing Date, (ii) any
additional such home equity revolving credit line loans identified on the
Mortgage Loan Schedule after the Closing Date, as such schedule is amended and
supplemented from time to time to reflect the transfer of the Subsequent
Mortgage Loans which are HELOCs, the deletions of Deleted Mortgage Loans which
are HELOCs and the substitution of Qualified Substitute Mortgage Loans which are
HELOCs for Deleted Mortgage Loans (iii) each Mortgage Note evidencing any credit
line loan referred to in (i), (ii) or (iii) above, including all amounts now or
hereafter due under such Mortgage Notes whether relating to such credit line
loans or other loans which may be made from time to time and (iv) the related
Mortgage.
"Holder" shall mean each Person in whose name a Certificate,
or an Additional Certificate is registered in the Certificate Register, except
that solely for the purposes of giving any consent (except any consent required
to be obtained pursuant to Section 10.2), waiver, request or demand pursuant to
this Agreement, any Certificate, or Additional Certificate registered in the
name of the Servicer or any Subservicer or the Seller, or any Affiliate of any
of them, shall be deemed not to be outstanding and in the case of any
Certificate, the undivided interest in the Trust Fund evidenced thereby shall
not be taken into account in determining whether the requisite percentage of
Certificates necessary to effect any such consent, waiver, request or demand has
been obtained. For purposes of any consent, waiver, request or demand of the
Holders of the Additional Certificate pursuant to this Agreement, upon the
Trustee's request, the Servicer and the Seller shall provide to the Trustee a
notice identifying any of their respective Affiliates or the Affiliates of any
Subservicer that is a Holder
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of an Additional Certificate as of the date(s) specified by the Trustee in such
request.
"Indirect Participant" shall mean any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"Insured Payment" shall mean each of any Class A-1 Insured Payment and any
Group II Insured Payment.
"Insurance Proceeds" shall mean proceeds paid by any insurer pursuant to
any insurance policy covering a Mortgage Loan to the extent such proceeds are
not applied to the restoration of the related Mortgaged Property or released to
the related Mortgagor in accordance with Accepted Servicing Practices.
"Insurance Proceeds" do not include "Insured Payments."
"Interest Adjustment Date" shall mean with respect to a HELOC, the date on
which the Mortgage Interest Rate is or may be adjusted with respect to such
HELOC.
"Interest Collections" shall mean all amounts (including, without
limitation, Monthly Payments (or Periodic Advances in respect thereof) and
Liquidation Proceeds) collected on any Mortgage Loan allocable to interest
pursuant to the terms of the related Mortgage Note, or if no provision for
allocation is made therein, pursuant to the terms hereof.
"Interest Determination Date" shall mean, with respect to any Accrual
Period applicable to the Class A-1 Certificates, the second London Business Day
preceding the first day of such Accrual Period.
"Late Payment Rate" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"LIBOR" shall mean, with respect to any Accrual Period applicable to the
Class A-1 Certificates, the rate determined by the Trustee on the related
Interest Determination Date on the basis of the offered rates of the Reference
Banks for one-month U.S. dollar deposits, as such rates appear on the Reuters
Screen LIBO Page, as of 11:00 a.m. (London time) on such Interest Determination
Date. On each Interest Determination Date, LIBOR for the related Accrual Period
applicable to the Class A-1 Certificates will be established by the Trustee as
follows:
(i) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Due Period shall be
the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of _____%).
(ii) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR
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for the related Due Period shall be the higher of (i) LIBOR as determined
on the previous Interest Determination Date and (ii) the Reserve Interest
Rate.
"Lifetime Cap" shall mean, as to any HELOC, the maximum Mortgage Interest
Rate set forth in the related Mortgage Note and indicated in the Mortgage Loan
Schedule.
"Lifetime Floor" shall mean, as to any HELOC, the minimum Mortgage Interest
Rate set forth in the related Mortgage Note and indicated in the Mortgage Loan
Schedule.
"Liquidated Mortgage Loan" shall mean a Mortgage Loan (i) with respect to
which the related Mortgaged Property has been acquired, liquidated and/or
foreclosed upon by the Servicer or (ii) which the Servicer has elected to write
down the outstanding Principal Balance of such Mortgage Loan that has been
delinquent for a period equal to or greater than 180 days to zero and, in either
case, with respect to which the Servicer determines that all Liquidation
Proceeds which it expects to recover have been recovered.
"Liquidated Loan Loss" shall mean, with respect to any Remittance Date and
Group, the aggregate of the amount of losses with respect to each HELOC in the
case of Group I and each HEL in the case of Group II which became a Liquidated
Mortgage Loan in the Due Period prior to such Remittance Date, equal to the
excess of (i) the unpaid principal balance of each such Liquidated Mortgage
Loan, plus accrued interest thereon in accordance with the amortization schedule
at the time applicable thereto at the applicable Mortgage Interest Rate from the
Due Date as to which interest was last paid with respect thereto through the
last day of the month in which such Mortgage Loan became a Liquidated Mortgage
Loan, over (ii) Net Liquidation Proceeds with respect to such Liquidated
Mortgage Loan.
"Liquidation Expenses" shall mean expenses incurred by the Servicer in
connection with the liquidation of any defaulted Mortgage Loan, REO Mortgage
Loan or REO Property (including, without limitation, legal fees and expenses,
committee or referee fees, and, if applicable, brokerage commissions and
conveyance taxes), any unreimbursed amount expended by the Servicer pursuant to
Sections 5.5, 5.6 and 5.12 respecting the related Mortgage Loan and any
unreimbursed expenditures for real property taxes or for property restoration or
preservation of the related Mortgaged Property. Liquidation Expenses shall not
include any previously incurred expenses in respect of an REO Mortgage Loan
which have been netted against related REO Proceeds.
"Liquidation Proceeds" shall mean amounts received (or in the case of
Liquidated Mortgage Loans written-down by the Servicer, amounts deposited) by
the Servicer (including Insurance Proceeds) in connection with the liquidation
of defaulted or written-down Mortgage Loans or property acquired in respect
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thereof, whether through foreclosure, sale or otherwise, including payments in
connection with such Mortgage Loans received from the Mortgagor, other than
amounts required to be paid to the Mortgagor pursuant to the terms of the
applicable Mortgage or to be applied otherwise pursuant to law.
"Loan Repurchase Price" shall have the meaning defined in Section 2.4(b).
"Loan-to-Value Ratio" or "LTV" shall mean, with respect to any Mortgage
Loan, the fraction, expressed as a percentage, the numerator of which in the
case of a HEL is _____% of the Trust Balance of such Mortgage Loan and in the
case of a HELOC is the maximum available credit with respect to such Mortgage
Loan, in either case, as of the Cut-Off Date, and the denominator of which is
the Appraised Value of the related Mortgaged Property, reduced by the value of
any lien superior to the lien of the Mortgage Loan.
"Local Collection Account" shall mean a Collection Account other than the
Trustee Collection Account.
"London Business Day" shall mean any day in which banks in the City of
London are open and conducting transactions in U.S. dollars.
"Majority Certificateholders" shall mean, with respect to the _____ REMIC,
the Holder or Holders of Class A Certificates evidencing an undivided beneficial
ownership interest in the REMIC in excess of _____% in the aggregate.
"Maturity Date" shall mean the latest possible maturity date as defined in
Section 1.860G-1(a)(4)(iii) of the proposed Treasury regulations, by which the
Certificates representing a regular interest in the _____ REMIC would be reduced
to zero as determined under a hypothetical scenario that assumes, among other
things, that (a) scheduled interest and principal payments on the Mortgage Loans
are received in a timely manner, with no delinquencies or losses, (b) there are
no principal prepayments on the Mortgage Loans, (c) the Seller and the Servicer
will not repurchase any Mortgage Loan and neither the Seller, the Servicer nor
the Certificate Insurer will exercise its option to purchase the Mortgage Loans
and thereby cause a termination of the _____ REMIC, and (d) the HELOCs have an
original term to maturity of 240 months and, on a latest maturing loan basis, a
remaining term to maturity of 240 months and the HELs have an original term of
maturity of 120 months and, on a latest maturing loan basis, a remaining term to
maturity of 120 months.
"Monthly Payment" shall mean, as to any Mortgage Loan (including any REO
Mortgage Loan) and any Due Date, the scheduled payment of principal and interest
due thereon by such Due Date (after adjustment for any Curtailments and
Deficient Valuations occurring prior to such Due Date but before any adjustment
to
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such amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period). With respect to any Monthly Payment made by or on behalf of a Mortgagor
and received by the Servicer, _____% of the principal payment portion of such
Monthly Payment shall be applied to the outstanding Trust Balance until such
Trust Balance shall be reduced to zero; the interest payment portion of such
Monthly Payment shall be appropriately allocated to the Trust Balance and the
Additional Balance of such Mortgage Loan as provided for herein.
"Moody's" shall mean Moody's Investors Service, Inc., a corporation
organized and existing under Delaware law, or any successor thereto and if such
corporation no longer for any reason performs the services of a securities
rating agency, "Moody's" shall be deemed to refer to any other nationally
recognized rating agency designated by the Certificate Insurer.
"Mortgage" shall mean the mortgage, deed of trust or other instrument
creating a lien on the Mortgaged Property to secure the Mortgage Loan.
"Mortgage File" shall include the Mortgage Loan documents described in
Section 2.3 hereof and such documents as are applicable from those listed on
Exhibit C attached hereto.
"Mortgage Interest Rate" shall mean, as to any Mortgage Loan, the per annum
rate at which interest accrues on the unpaid principal balance thereof, as
adjusted from time to time, in the case of a HELOC, in accordance with the
provisions of the related Mortgage Note.
"Mortgage Loan" shall mean each HELOC and each HEL. Unless otherwise
clearly indicated by the context, Mortgage Loan shall be deemed to refer to the
related REO Mortgage Loan and REO Property.
"Mortgage Loan Interest Shortfall" shall mean, with respect to any
Remittance Date, as to any Mortgage Loan, any Prepayment Interest Shortfall for
which no payment of Compensating Interest is paid. "Mortgage Loan Sale
Agreement" shall mean the Mortgage Loan Sale Agreement dated as of
___________________, between ________________, as seller thereunder, and
________________, as purchaser thereunder, as such agreement may be amended,
modified or supplemented from time to time.
"Mortgage Loan Schedule" shall mean the list of the Mortgage Loans
transferred to the Trustee on the Closing Date as part of the Trust Fund and
attached hereto as Exhibit D (and also provided to the Certificate Insurer and
the Trustee on a computer readable magnetic tape or disk) and any Subsequent
Mortgage Loans transferred to the Trustee pursuant to any Subsequent Transfer
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Agreement and attached to such Subsequent Transfer Agreement as an Exhibit (and
also provided to the Certificate Insurer and the Trustee on a computer readable
magnetic tape or disk). The identification of such Mortgage Loans shall be
amended, from time to time, in order to specify the interest in, and allocation
of the Principal Balance of a Mortgage Loan between the Trust Balance of such
Mortgage Loan and any Additional Balance assigned to the Additional
Certificates. The Mortgage Loan Schedule shall set forth at a minimum the
following information as to each Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) whether such Mortgage Loan is a HEL or a HELOC;
(iii) the Principal Balance of the Mortgage Loan and the allocation of
such Principal Balance between the Trust Balance and any Additional Balance
for such Mortgage Loan:
(iv) the city, state and zip code of the Mortgaged Property;
(v) the type of property;
(vi) the current Monthly Payment as of the related Cut-Off Date;
(vii) the original number of months to maturity;
(viii) the scheduled maturity date;
(ix) the Trust Balance of such Mortgage Loan as of the related Cut-Off
Date;
(x) the Loan-to-Value Ratio at origination and the Combined
Loan-to-Value Ratio as of the Cut-Off Date;
(xi) the Mortgage Interest Rate as of the Cut-Off Date;
(xii) with respect to HELOCs, the Gross Margin;
(xiii) with respect to HELOCs, the first possible Interest Adjustment
Date after the Cut-Off Date;
(xiv) with respect to HELOCs, the Lifetime Cap;
(xv) with respect to HELOCs, the Lifetime Floor;
(xvi) the Appraised Value;
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(xvii) the documentation type (as described in the Underwriting
Guidelines);
(xviii) the loan classification (as described in the Underwriting
Guidelines); and
(xix) the lien priority of each Mortgage Loan.
Such "Mortgage Loan Schedule" may consist of multiple reports that collectively
set forth all of the information required, including the aggregate number of
Mortgage Loans and the Aggregate Trust Balance as of the Cut-Off Date. In
addition, a summary of the information regarding the Mortgage Loans shall be
included as a part of the Mortgage Loan Schedule which summary shall include
such consolidated and aggregated information as may be requested by the Trustee
or the Certificate Insurer from time to time.
"Mortgage Note" shall mean the original, executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgaged Property" shall mean the underlying property securing a Mortgage
Loan, consisting of a fee simple estate in a single parcel of land improved by a
Residential Dwelling.
"Mortgaged Property State" shall mean any state in which any Mortgaged
Property is located.
"Mortgagor" shall mean the obligor on a Mortgage Note.
"Net Available Funds Excess" shall mean, as of any Remittance Date, the
excess, if any, of (x) the Available Funds Excess for such Remittance Date over
(y) the Reimbursement Amount for such Remittance Date, but in no event less than
zero.
"Net Foreclosure Profits" shall mean, as to any Remittance Date and Group,
the excess, if any, of (i) the aggregate Foreclosure Profits with respect to
HELOCs in the case of Group I and HELs in the case of Group II and for such
Remittance Date over (ii) the Liquidated Loan Loss with respect to HELOCs in the
case of Group I and HELs in the case of Group II and for such Remittance Date.
"Net Liquidation Proceeds" shall mean, as to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Periodic Advances made by the Servicer. For all purposes of this Agreement, Net
Liquidation Proceeds shall be allocated first to accrued and unpaid interest on
the related Mortgage Loan and then to the unpaid principal balance thereof. Such
Net Liquidation Proceeds shall be applied on a pro rata basis to the outstanding
Trust Balance and the Additional Balance of such Mortgage Loan as provided for
herein.
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"Net Mortgage Interest Rate" shall mean, with respect to each Mortgage Loan
at any time of determination, a rate equal to (i) the Mortgage Interest Rate on
such Mortgage Loan minus (ii) the sum of the rates (computed on an annualized
basis) used to determine the related Administrative Costs. Any regular monthly
computation of interest at such rate shall be based upon annual interest at such
rate on the applicable amount divided by twelve.
"Net REO Proceeds" shall mean, as to any REO Mortgage Loan, REO Proceeds
net of any related expenses of the Servicer.
"_____ REMIC" shall mean segregated pool of assets in Group I and Group II,
consisting of: (a) the Trust Balances of such Mortgage Loans as from time to
time are subject to this Agreement, together with the Mortgage Files relating
thereto and all collections thereon and proceeds thereof, (b) such assets as
from time to time are identified as REO Property of the _____ REMIC and
collections thereon and proceeds thereof, (c) assets deposited in the
Certificate Account and assets deposited in the Reserve Account, including any
such amounts on deposit in the Certificate Account or the Reserve Account
invested in Permitted Investments or available to be drawn under an Eligible
Letter of Credit, (d) the Trustee's rights with respect to the Mortgage Loans
under all insurance policies (other than the Certificate Insurance Policy)
required to be maintained pursuant to this Agreement and any Insurance Proceeds,
(e) with respect to each Mortgage Loan that becomes a Liquidated Mortgage Loan
and the Trust Balance of which has been assigned to the _____ REMIC, Liquidation
Proceeds allocable to such Trust Balance and (f) with respect to each Mortgage
Loan the Trust Balance of which has been assigned to the _____ REMIC, Released
Mortgaged Property Proceeds allocable to such Trust Balance.
"Nonrecoverable Advance" shall mean, with respect to any Mortgage Loan, (a)
any Periodic Advance previously made and not reimbursed from late collections
pursuant to Section 5.4(b), or (b) a Periodic Advance proposed to be made in
respect of a Mortgage Loan or REO Property either of which, in the good faith
business judgment of the Servicer, as evidenced by an Officer's Certificate
delivered to the Certificate Insurer and the Trustee no later than the Business
Day following such determination, would not be ultimately recoverable pursuant
to Section 5.4.
"Officer's Certificate" shall mean a certificate signed by the Chairman of
the Board, the President or a Vice President and the Treasurer, the Secretary or
one of the Assistant Treasurers or Assistant Secretaries of the Seller and/or
the Servicer, or the Depositor, as required by this Agreement.
"Opinion of Counsel" shall mean a written opinion of counsel, who may,
without limitation, be counsel for the Seller, the Servicer, the Trustee, a
Certificateholder or a Certificateholder's prospective transferee or the
Certificate
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Insurer (including except as otherwise provided herein, in-house counsel)
reasonably acceptable to each addressee of such opinion and experienced in
matters relating to the subject of such opinion; except that any opinion of
counsel relating to (a) the qualification of the _____ REMIC as a REMIC or (b)
compliance with the REMIC Provisions must be an opinion of counsel who (i) is in
fact independent of the Seller, the Servicer and the Trustee, (ii) does not have
any direct financial interest or any material indirect financial interest in the
Seller or the Servicer or the Trustee or in an Affiliate thereof, (iii) is not
connected with the Seller or the Servicer or the Trustee as an officer,
employee, director or person performing similar functions and (iv) is reasonably
acceptable to the Certificate Insurer. The Certificate Insurer shall be an
addressee on each Opinion of Counsel relating to, or otherwise affecting, the
Series _____ Certificates.
"Original Class A-1 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-1 Certificates, the aggregate principal balance of the
HELOCs as of the Cut-Off Date together with the Original Group I Pre-Funded
Amount equal to $_____.
"Original Class A-2 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-2 Certificates $_____.
"Original Class A-3 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-3 Certificates $______.
"Original Class A-4 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-4 Certificates $_____.
"Original Group I Pre-Funded Amount" shall mean $______.
"Original Group II Pre-Funded Amount" shall mean $______.
"Outstanding Mortgage Loan" shall mean, as to any Due Date, a Mortgage Loan
(including an REO Mortgage Loan) which has not been prepaid in full prior to
such Due Date, which did not become a Liquidated Mortgage Loan prior to such Due
Date and which was not repurchased by the Seller prior to such Due Date pursuant
to Section 2.4.
"Ownership Interest" shall mean, as to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Owner-Occupied Mortgaged Property" shall mean a Residential Dwelling as to
which (a) the related Mortgagor represented an intent to occupy as such
Mortgagor's primary,
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secondary or vacation residence at the origination of the Mortgage Loan, and (b)
the Seller has no actual knowledge that such Residential Dwelling is not so
occupied.
"Percentage Interest" shall mean, with respect to a Class A-1 Certificate,
Class A-2 Certificate, Class A-3 Certificate or Class A-4 Certificate, the
portion of the total beneficial ownership interest in the related Group
evidenced by such Certificate, expressed as a percentage rounded to four decimal
places, equal to a fraction the numerator of which is the original denomination
of such Certificate and the denominator of which is the Original Class A-1
Principal Balance, the Original Class A-2 Principal Balance, the Original Class
A-3 Principal Balance or the Original Class A-4 Principal Balance as applicable.
With respect to a Class R Certificate, the portion evidenced thereby as stated
on the face of such Certificate. With respect to an Additional Certificate, the
portion of the total beneficial ownership interest in the Additional Balances on
the HELOCs held by the Trust as stated on the face of such Additional
Certificate.
"Periodic Advance" shall mean the aggregate of the advances required to be
made by the Servicer on any Servicer Remittance Date pursuant to Section 5.20
hereof, the amount of any such advances being equal to the sum of: (i) all
Monthly Payments (net of the related Servicing Fee and any amount excluded from
the Servicer Remittance Amount pursuant to clauses (a)-(i) of the definition of
"Servicer Remittance Amount") on the Mortgage Loans that are not received by the
Servicer as of the close of business on the day preceding the related
Determination Date and have not been determined by the Servicer to be
Nonrecoverable Advances, plus (ii) with respect to each REO Property which was
acquired during or prior to the related Due Period and as to which an REO
Disposition did not occur during the related Due Period, an amount equal to the
excess, if any, of (a) interest on the Trust Balance of the related REO Mortgage
Loan at the related Mortgage Interest Rate, net of the Servicing Fee, for the
most recently ended Due Period for the related Mortgage Loan over (b) the net
income from the REO Property transferred to the Certificate Account for such
Remittance Date.
"Permitted Investments" shall mean, as used herein, Permitted Investments
shall include the following:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality thereof,
provided such obligations are backed by the full faith and credit of the
United States and any obligation of, or guaranties by, FHLMC or FNMA (other
than senior debt obligations and mortgage pass-through certificates
guaranteed by FHLMC or FNMA) shall be a Permitted Investment; provided,
that at the time of such investment, such investment is acceptable to the
Certificate Insurer, but excluding any of such securities whose
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terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption;
(b) federal funds and certificates of deposit, time and demand
deposits and banker's acceptances issued by any bank or trust company
incorporated under the laws of the United States or any state thereof and
subject to supervision and examination by federal or state banking
authorities, provided that at the time of such investment or contractual
commitment providing for such investment the short-term debt obligations of
such bank or trust company at the date of acquisition thereof have been
rated A-1 + by S&P and P-1 by Moody's;
(c) commercial paper (having original maturities of not more than 180
days) rated A-1 + by S&P and P-1 by Moody's;
(d) investments in money market funds rated "AAAm" or "AAAm-G" by S&P
and "Aaa" by Moody's; and
(e) investments approved by S&P, Moody's and the Certificate Insurer
in writing delivered to the Trustee;
provided, that each such Permitted Investment shall be a "permitted investment"
within the meaning of Section 860G(a)(5) of the Code and that no instrument
described hereunder shall evidence either the right to receive (x) only interest
with respect to the obligations underlying such instrument or (y) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provided a
yield to maturity at par greater than _____% of the yield to maturity at par of
the underlying obligations; and provided, further, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to stated
maturity.
"Permitted Transferee" shall mean any Person other than (a) the United
States, any State or political subdivision thereof, or any agency or
instrumentality of any of the foregoing, (b) a foreign government, International
Organization or any agency or instrumentality of either of the foregoing, (c) an
organization (except certain farmers' cooperatives described in Section 521 of
the Code) which is exempt from tax imposed by Chapter I of the Code (including
the tax imposed by Section 511 of the Code on unrelated business taxable income)
on any excess inclusions (as defined in Section 860E(c)(1) of the Code) with
respect to any Class R Certificate, (d) rural electric and telephone
cooperatives described in Section 1381(a)(2)(C) of the Code and (e) any other
Person so designated by the Trustee based upon an Opinion of Counsel to the
Trustee and the Certificate Insurer that the transfer of an Ownership Interest
in a Class R Certificate to such Person may cause either (i) the _____ REMIC to
fail to qualify as a REMIC at any time that the Class A Certificates are
outstanding or (ii) the _____ REMIC of the Trust
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Fund or any Person having an Ownership Interest in any Class of Certificates,
other than such Person, to incur a liability for any federal tax imposed under
the Code that would not otherwise be imposed but for the Transfer of an
Ownership Interest in a Class R Certificate to such Person. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in Section 7701 of the Code or successor provisions. A corporation will
not be treated as an instrumentality of the United States or of any State or
political subdivision thereof for these purposes if all of its activities are
subject to tax and, with the exception of FHLMC, a majority of its board of
directors is not selected by such governmental unit.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, national banking association,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" shall have the meaning defined in Section 4.2(i)(x).
"Preference Amount" shall mean any amount previously distributed to a Class
A Certificateholder that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the U.S. Bankruptcy Code as
amended from time to time, in accordance with a final nonappealable order of a
court having competent jurisdiction.
"Preference Claim" shall have the meaning defined in Section 6.4(g).
"Pre-Funding Account" shall mean the account established pursuant to
Section 6.1(c) hereof.
"Pre-Funding Period" shall mean the period from the Closing Date until,
with respect to Group I or Group II, as applicable, the earliest of (i) the date
on which the amount on deposit in the Pre-Funding Account is less than $_____,
(ii) the date on which an Event of Default occurs or (iii) ______________.
"Prepayment Assumption" shall mean a constant prepayment rate of _____%,
used solely for determining the accrual of original issue discount and market
discount on the Certificates for federal income tax purposes.
"Prepayment Interest Shortfall" shall mean, with respect to any Remittance
Date, for each Mortgage Loan that was the subject during the related Due Period
of a Principal Prepayment or Curtailment, an amount equal to the excess, if any,
of (a) 30 days' interest on the Trust Balance of such Mortgage Loan at a per
annum rate equal to the Mortgage Interest Rate (or at such lower rate as may be
in effect for such Mortgage Loan pursuant to application of the Civil Relief
Act, any Deficient Valuation and/or any Debt Service Reduction) minus the rate
at
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which the Servicing Fee is calculated over (b) the amount of interest
actually remitted by the Mortgagor in connection with such Principal Prepayment
or Curtailment less any portion of such interest allocable to any Additional
Balance outstanding on such Mortgage Loan.
"Principal Balance" shall mean, as to any Mortgage Loan and Remittance
Date, the outstanding principal balance of such Mortgage Loan as of the last day
of the Due Period related to such Remittance Date after giving effect to
Principal Prepayments received and payments of principal collected during such
Due Period, Additional Balances drawn in such Due Period, Deficient Valuations
incurred prior to the Due Date in such Due Period and any Curtailments applied
by the Servicer in reduction of the unpaid principal balance of such Mortgage
Loan as of such Due Date.
"Principal Collections" shall mean all amounts collected with respect to a
Mortgage Loan, including, without limitation, Monthly Payments (or Periodic
Advances made in respect thereof), any Loan Repurchase Price and Substitution
Adjustments allocable to principal pursuant to the terms of the related Mortgage
Note, or, if no provision for allocation is made therein, in accordance with the
terms hereof.
"Principal Prepayment" shall mean any payment or other recovery of
principal on a Mortgage Loan equal to the outstanding Principal Balance thereof,
received in advance of the final scheduled Due Date which is not intended as an
advance payment of a Scheduled Monthly Payment. With respect to any Principal
Prepayment made by or on behalf of a Mortgagor and received by the Servicer,
_____% of the principal payment portion of such Principal Prepayment shall be
applied to the outstanding Trust Balance until such Trust Balance shall be
reduced to zero and thereafter to the Additional Balance of such Mortgage Loan
as provided for herein.
"Prospectus Supplement" shall mean the Prospectus Supplement dated
___________, as amended and supplemented, relating to the Class A Certificates
and filed with the Commission in connection with the Registration Statement
heretofore filed or to be filed with the Commission pursuant to Rule 424(b)(2)
or 424(b)(5).
"Purchase and Sale Agreement" shall mean the Purchase and Sale Agreement,
dated as of the date hereof, between the Seller and the Depositor and relating
to the sale of the Mortgage Loans to the Depositor.
"Qualified Appraiser" shall mean an appraiser, duly appointed by the
Servicer, who had no interest, direct or indirect, in the Mortgaged Property or
in any loan made on the security thereof, and whose compensation is not affected
by the approval or disapproval of the Mortgage Loan, and such appraiser
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and the
appraisal made by such appraiser both satisfy the requirements of Title XI of
the Federal Institutions Reform, Recovery and Enforcement Act of 1989 and the
regulations promulgated thereunder, all as in effect on the date the Mortgage
Loan was originated.
"Qualified Mortgage" shall have the meaning set forth from time to time in
the definition of "Qualified Mortgage" at Section 860G(a)(3) of the Code (or any
successor statute thereto).
"Qualified Substitute Mortgage Loan" shall mean a mortgage loan or mortgage
loans which (a) if a home equity line of credit loan, uses or use the prime rate
as its base interest rate and has or have a margin over such base interest rate
and, where applicable, maximum interest rate, at least equal to those applicable
to the Deleted Mortgage Loan for which it is to be substituted, (b) if a closed
end home equity loan, has an interest rate at least equal to the Deleted
Mortgage Loan for which it is to be substituted (c) relates or relate to a
detached one-family residence or to the same type of Residential Dwelling as the
Deleted Mortgage Loan for which it is to be substituted and in each case has or
have the same or a better lien priority as the Deleted Mortgage Loan for which
it is to be substituted and has or have the same occupancy status or is an
Owner-Occupied Mortgaged Property, (d) matures or mature no later than (and not
more than one year earlier than) the Deleted Mortgage Loan for which it is to be
substituted, (e) has or have a Combined Loan-to-Value Ratio or Combined
Loan-to-Value Ratios at the time of such substitution no higher than the
Combined Loan-to-Value Ratio of the Deleted Mortgage Loan for which it is to be
substituted, (f) has or have a principal balance or principal balances (after
application of all payments received on or prior to the date of substitution)
not substantially less and not more than the Trust Balance of the Deleted
Mortgage Loan for which it is to be substituted as of such date, (g) satisfies
or satisfy the criteria set forth from time to time in the definition of
"qualified replacement mortgage" at Section 860G(a)(4) of the Code (or any
successor statute thereto), (h) has or have an applicable borrower or borrowers
with the same or better traditionally ranked credit status as the borrower or
borrowers under the Deleted Mortgage Loan for which it is to be substituted, and
(i) complies or comply as of the date of substitution with each representation
and warranty set forth in Sections 3.1 and 3.2 of the Purchase and Sale
Agreement.
"Rating Agency" shall mean S&P or Moody's.
"Record Date" shall mean, with respect to any Remittance Date, the close of
business on the last day of the calendar month immediately preceding the month
in which such Remittance Date occurs. The Record Date for the first Distribution
Date shall be the Closing Date.
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"Reference Banks" shall mean Bankers Trust Company, Barclay's Bank PLC, The
Bank of Tokyo and National Westminster Bank PLC; provided that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Trustee which are engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (i) with an established place
of business in London, (ii) not controlling, under the control of or under
common control with the Depositor or any affiliate thereof, (iii) whose
quotations appear on the Reuters Screen LIBO Page on the relevant Interest
Determination Date and (iv) which have been designated as such by the Trustee.
"Reimbursement Amount" shall mean, as of any Remittance Date, the sum of
(i) all Insured Payments previously paid by the Certificate Insurer and in each
case not previously repaid to the Certificate Insurer pursuant to Section
6.5(a)(v) hereof plus (ii) interest accrued on such Insured Payments not
previously repaid calculated at the Late Payment Rate from the date such Insured
Payment was paid, plus (iii) any amounts then due and owing to the Certificate
Insurer under the Certificate Insurance Agreement, as certified to the Trustee
by the Certificate Insurer, plus (iv) interest on such amounts at the Late
Payment Rate. The Certificate Insurer shall notify the Trustee and the Depositor
of the amount of any Reimbursement Amount.
"Released Mortgaged Property Proceeds" shall mean, as to any Mortgage Loan,
proceeds received by the Servicer in connection with (a) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(b) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise; which are not
released to the Mortgagor in accordance with applicable law, Accepted Servicing
Practices and this Agreement.
"REMIC" shall mean a "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC Change of Law" shall mean any proposed, temporary or final
regulation, revenue ruling, revenue procedure or other official announcement or
interpretation relating to the REMIC and the REMIC Provisions issued after the
Closing Date.
"REMIC Daily Interest" shall mean, with respect to any payment on a
Mortgage Loan made by or on behalf of the related Mortgagor, the portion of such
payment equal to the aggregate sum of the daily product (calculated for each day
in the Due Period) of (x) the outstanding Trust Balance of such Mortgage Loan on
such day and (y) the Mortgage Interest Rate applicable to such Mortgage Loan.
"REMIC Provisions" shall mean provisions of the federal income tax law
relating to real estate mortgage investment
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conduits, which appear at Sections 860A through 860G of Subchapter M of Chapter
I of the Code, and related provisions, and temporary and final regulations
promulgated thereunder and published rulings, notices and announcements, as the
foregoing may be in effect from time to time.
"Remittance Date" shall mean the 15th day of any month or if such 15th day
is not a Business Day, the first Business Day immediately following, commencing
on ______________.
"REO Disposition" shall mean the final sale by the Servicer of a Mortgaged
Property acquired by the Servicer in foreclosure or by deed in lieu of
foreclosure.
"REO Mortgage Loan" shall mean any Mortgage Loan which is not a Liquidated
Mortgage Loan and as to which the indebtedness evidenced by the related Mortgage
Note is discharged and the related Mortgaged Property is held as part of the
Trust Fund.
"REO Proceeds" shall mean proceeds received in respect of any REO Mortgage
Loan (including, without limitation, proceeds from the rental of the related
Mortgaged Property).
"REO Property" shall have the meaning described in Section 5.12.
"Representation Letter" shall mean letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Certificate Register under the nominee name of
the Depository.
"Request for Release" shall mean a request for release in substantially the
form attached as Exhibit H hereto.
"Required Reserve Account Level" shall be determined in accordance with the
Certificate Insurance Agreement.
"Reserve Account" shall mean that Eligible Account more fully described in
Section 6.4 established by the Servicer for the benefit of the Trust, the
Certificateholders and the Certificate Insurer, from which withdrawals will be
made for the payment of the Class A-1 Credit Enhancement Distribution Amounts,
Group II Credit Enhancement Distribution Amounts and Reimbursement Amounts. The
Reserve Account shall not benefit any Additional Certificate.
"Reserve Interest Rate" shall mean, with respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of _____%) of the one-month U.S. dollar lending rates which
________________ City banks selected by the Trustee are quoting on the relevant
Interest Determination Date to the principal London offices of
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leading banks in the London interbank market or (ii) in the event that the
Trustee can determine no such arithmetic mean, the lowest one-month U.S. dollar
lending rate which ________________ City banks selected by the Trustee are
quoting on such Interest Determination Date to leading European banks.
"Residential Dwelling" shall mean a one -to four-family dwelling, a unit in
a planned unit development, a unit in a condominium development, a townhouse or
a manufactured housing unit which is non-mobile.
"Responsible Officer" shall mean, when used with respect to the Trustee,
any officer assigned to the Corporate Trust Division (or any successor thereto),
including any Vice President, Senior Trust Officer, Trust Officer, Assistant
Trust Officer, any Assistant Secretary, any trust officer or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and to whom, with respect to a particular
matter, such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Seller or
the Servicer, the President or any Vice President, Assistant Vice President, or
any Secretary or Assistant Secretary.
"S&P" shall mean Standard & Poor's Ratings Services, Inc. or any successor
thereto and if such corporation no longer for any reason performs the services
of a securities rating agency, "S&P" shall be deemed to refer to any other
nationally recognized statistical rating organization designated by the
Certificate Insurer.
"Seller" shall mean _____________., a _______corporation.
"Series" shall mean any designated Series of certificates issued hereunder
and governed by this Agreement. When used herein, "this Series" shall refer to
the Mortgage Pass-Through Certificates, Series _____.
"Servicer" shall mean _________________, a ___________ corporation, or any
successor appointed as herein provided.
"Servicer Employees" shall have the meaning as defined in Section 5.8
hereof.
"Servicer Remittance Amount" shall mean, with respect to any Servicer
Remittance Date and a Group, an amount equal to the sum of (i) all unscheduled
collections of principal and interest on the HELOCs in the case of Group I and
the HELs in the case of Group II (including Principal Prepayments, Curtailments,
Net REO Proceeds and Net Liquidation Proceeds, if any, and any amounts deposited
in the Collection Account or Trustee Collection Account in connection with a
repurchase of the HELOCs in the case
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of Group I and the HELs in the case of Group II) collected by the Servicer
during the Due Period and all scheduled Monthly Payments due on the Due Date and
received by the Servicer on or prior to the Business Day preceding the related
Determination Date, plus (ii) all Periodic Advances made by the Servicer with
respect to payments due to be received on the HELOCs in the case of Group I and
HELs in the case of Group II on the related Due Date plus (iii) the amount of
Compensating Interest due with respect to HELOCs in the case of Group I and the
HELs in the case of Group II with respect to the related Due Period, plus (iv)
either (A) for each Remittance Date prior to the Final Subsequent Transfer Date,
the amount transferred to the Certificate Account with respect to such Group
pursuant to Section 6.11 hereof, or (B) for the Remittance Date immediately
following the Final Subsequent Transfer Date, any amount remaining on deposit in
the Pre-Funding Account, plus (v) any other amounts required to be placed in the
Collection Account with respect to HELOCs in the case of Group I and the HELs in
the case of Group II by the Servicer pursuant to this Pooling and Servicing
Agreement but excluding, without duplication, the following:
(a) amounts received on particular HELOCs in the case of Group I and
HELs in the case of Group II as late payments of principal or interest and
respecting which the Servicer has previously made an unreimbursed Periodic
Advance;
(b) the portion of Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances by the Servicer with respect to HELOCs in
the case of Group I and the HELs in the case of Group II;
(c) those portions of each payment of interest on a particular HELOC
in the case of Group I and the HEL in the case of Group II which represent
the Servicing Fee;
(d) that portion of Liquidation Proceeds and REO Proceeds with respect
to HELOCs in the case of Group I and the HELs in the case of Group II which
represents any unpaid Servicing Fee;
(e) all income from Permitted Investments that is held in the
Collection Account for the account of the Servicer;
(f) all amounts in respect of late fees, assumption fees, prepayment
fees and similar fees;
(g) all other amounts which are explicitly reimbursable to the
Servicer hereunder with respect to HELOCs in the case of Group I and the
HELs in the case of Group II, including (i) as provided in Section 5.4
hereof; and (ii) any unreimbursed and accrued Liquidation Expenses;
provided that the exclusion of any such amounts pursuant to this subsection
(g) on a particular Remittance Date shall not thereby create a claim for an
Insured Payment;
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(h) the portion of Net Foreclosure Profits with respect to HELOCs in
the case of Group I and the HELs in the case of Group II representing any
unpaid Servicing Fee; and
(i) All amounts collected with respect to any HELOC allocable to the
Additional Balance of such HELOC pursuant to the definition of "Additional
Certificate Allocation" as set forth herein.
"Servicer Remittance Date" shall mean, with respect to any Remittance Date,
the 14th day of the month in which such Remittance Date occurs, or if such day
is not a Business Day, the first Business Day preceding such 14th day.
"Servicer Account" shall mean the account created and maintained pursuant
to Section 5.7.
"Servicing Advances" shall mean all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance by the Servicer
of its servicing obligations, including, but not limited to, the cost of (a) the
preservation, restoration and protection of the Mortgaged Property, (b) any
enforcement proceedings, including foreclosures, (c) expenditures relating to
the purchase or maintenance of a first or second lien not included in the Trust
Fund on the Mortgaged Property, (d) the management and liquidation of the REO
Property, including reasonable fees paid to any independent contractor in
connection therewith, (e) compliance with the obligations (including
indemnification obligations) under Sections 5.2 (limited solely to the
reasonable and customary out-of-pocket expenses of the Subservicer), 5.5, 5.7,
5.9 or 5.10 (as related to Section 9.5), all of which reasonable and customary
out-of-pocket costs and expenses are reimbursable to the Servicer to the extent
provided in Section 5.4(a) and 5.10.
"Servicing Compensation" shall mean the Servicing Fee and other amounts to
which the Servicer is entitled pursuant to Section 5.14.
"Servicing Fee" shall mean, as to each Mortgage Loan, the annual fee
payable to the Servicer, which is calculated as an amount equal to the product
of (a) _____% per annum, or up to _____% in the event that _________________ is
succeeded by the Trustee or any other successor servicer appointed as herein
provided, and (b) the Principal Balance thereof. Such fee shall be calculated
and payable monthly only on amounts actually received in respect of interest on
such Mortgage Loan and shall be computed on the basis of the same principal
amount and for the period respecting which any related interest payment on a
Mortgage Loan is computed. The Servicing Fee includes any servicing fees owed or
payable to any Subservicer.
"Servicing Officer" shall mean any officer of the Servicer involved in, or
responsible for, the administration and
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servicing of the Mortgage Loans whose name and specimen signature appear on a
list of servicing officers furnished to the Trustee and the Certificate Insurer
by the Servicer, as such list may from time to time be amended.
"Startup Date" shall mean the day designated as such pursuant to Section
2.5 hereof.
"Subsequent Mortgage Loans" shall mean those fixed rate closed end home
equity loans and adjustable rate home equity line of credit loans transferred to
the Trust Fund after the Closing Date as contemplated by Section 2.10 hereof.
"Subsequent Transfer Agreement" shall mean each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Trustee and the
Depositor substantially in the form of Exhibit O hereto, by which Subsequent
Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date" shall mean any date on which Subsequent Mortgage
Loans are transferred to the Trust pursuant to Section 2.10 hereof.
"Subservicer" shall mean any Person with whom the Servicer has entered into
a Subservicing Agreement and who satisfies the requirements set forth in Section
5.2(a) hereof in respect of the qualification of a Subservicer.
"Subservicing Agreement" shall mean any agreement between the Servicer and
any Subservicer relating to subservicing and/or administration of certain
Mortgage Loans as provided in Section 5.2(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
Certificate Insurer.
"Substitution Adjustment" shall mean, as to any date on which a
substitution occurs pursuant to Section 2.4 or 3.3, the amount (if any) by which
the aggregate principal balances (after application of principal payments
received on or before the date of substitution of any Qualified Substitute
Mortgage Loans as of the date of substitution) are less than the aggregate of
the Trust Balances of the related Deleted Mortgage Loans together with 30 days'
interest thereon at the Mortgage Interest Rate.
"Tax Matters Person" shall mean the Person or Persons appointed pursuant to
Section 10.15 from time to time to act as the "tax matters person" (within the
meaning of the REMIC Provisions) of the _____ REMIC.
"Tax Return" shall mean the federal income tax return on Internal Revenue
Service Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income Tax
Return," including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to
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be filed on behalf of the Trust Fund due to its classification as a REMIC under
the REMIC Provisions, together with any and all other information reports or
returns that may be required to be furnished to the Certificateholders or filed
with the Internal Revenue Service or any other governmental taxing authority
under any applicable provision of federal, state or local tax laws.
"Total Expected Losses" shall mean, for any Remittance Date, the sum of the
Liquidated Loan Loss and the Delinquency Calculation Amount.
"Transfer" shall mean any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transfer Affidavit and Agreement" shall have the meaning as defined in
Section 4.2(i)(ii).
"Transferee" shall mean any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"Transferor" shall mean any Person who is disposing by Transfer any
Ownership Interest in a Certificate.
"Trust" shall mean ___________________ Trust _____, the trust created
hereunder.
"Trust Balance" shall mean, with respect to any Mortgage Loan, (i) its
original Trust Balance as shown on the Mortgage Loan Schedule on the Cut-Off
Date minus all payments of or in respect of principal allocated to the Trust
Balance of such Mortgage Loan, or (ii) from and after the date of substitution
of a Qualified Substitute Mortgage Loan for a Deleted Mortgage Loan, the
Principal Balance of the Qualified Substitute Mortgage Loan on the date of such
substitution minus all payments of or in respect of principal allocated to the
Trust Balance of such Mortgage Loan after the date of substitution. On and after
the date upon which a Mortgage Loan becomes a Liquidated Mortgage Loan, the
Trust Balance for such Mortgage Loan shall equal zero.
"Trust Fund" shall mean (a) each Mortgage Loan, including each Subsequent
Mortgage Loan, transferred to the Trust pursuant to the provisions hereof, (b)
all rights of or assigned to the Depositor under the Purchase and Sale Agreement
(and exclusive of any of its obligations), (c) such assets as from time to time
are identified as REO Property and collections thereon and proceeds thereof, (d)
all assets deposited in the Accounts, including any amounts on deposit in the
Collection Account, the Trustee Collection Account, the Additional Certificate
Account, the Certificate Account and the Reserve Account and all amounts in the
Accounts invested in Permitted Investments, (e) the Trustee's rights with
respect to the Mortgage Loans under all insurance policies (other than the
Certificate Insurance Policy) required to be maintained pursuant
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to this Agreement and any Insurance Proceeds, (f) all Liquidation Proceeds and
(g) all Released Mortgaged Property Proceeds and (h) all rights against the
Seller arising under the Purchase and Sale Agreement.
"Trustee" shall mean ________________, or its successor in interest, or any
successor trustee appointed as herein provided.
"Trustee Collection Account" shall mean the Eligible Account established
and maintained by the Trustee for the benefit of the Certificateholders and the
Holders of the Additional Certificate pursuant to Section 5.3(a) hereof.
"Trustee Fee" shall mean, as to any Remittance Date, the fee payable to the
Trustee in respect of its services as Trustee that accrues at a monthly rate
equal to 1/12 of _____% of the Trust Balance of each Mortgage Loan as of the
immediately preceding Due Date.
"Trustee's Mortgage File" shall mean the documents delivered to the Trustee
or its designated agent pursuant to Section 2.3.
"Trustee's Remittance Report" shall have the meaning as defined in Section
6.7.
"Underwriter" shall mean __________________.
"Underwriting Guidelines" shall mean the underwriting guidelines of the
Seller, ________________ and of the Servicer, a copy of which is attached as an
exhibit to the Purchase and Sale Agreement.
"United States Person" shall mean a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States.
"Unpaid REO Amortization" shall mean, as to any REO Mortgage Loan and any
month, the aggregate of the installments of principal and accrued interest
deemed to be due in such month and in any prior months that remain unpaid,
calculated in accordance with Section 5.12.
"Weighted Average Rate Cap" shall mean with respect to the HELOC's and the
Class A-1 Certificates, on any Remittance Date, that maximum interest rate
computed to equal one-twelfth the weighted average Mortgage Interest Rate for
the HELOC's, net of (i) the Class A-1 Premium Percentage, (ii) the rates at
which
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the Servicing Fee and the Trustee's Fee are calculated and (iii) beginning
on the thirteenth Remittance Date, _____%.
"Weighted Average Group II Pass Through Rate" shall mean the sum of (i) the
Class A-2 Pass Through Rate times the Class A-2 Principal Balance divided by the
sum of the Class A-2 Principal Balance, the Class A-3 Principal Balance and the
Class A-4 Principal Balance, (ii) the Class A-3 Pass Through Rate times the
Class A-3 Principal Balance divided by the sum of the Class A-2 Principal
Balance, the Class A-3 Principal Balance and the Class A-4 Principal Balance and
(iii) the Class A-4 Pass Through Rate times the Class A-4 Principal Balance
divided by the sum of the Class A-2 Principal Balance, the Class A-3 Principal
Balance and the Class A-4 Principal Balance.
Section 1.2 Provisions of General Application. (a) All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
(b) The terms defined in this Article include the plural as well as the
singular.
(a) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole. All references to Articles and
Sections shall be deemed to refer to Articles and Sections of this Agreement.
(b) Reference to statutes are to be construed as including all statutory
provisions consolidating, amending or replacing the statute to which reference
is made and all regulations promulgated pursuant to such statutes.
(c) All calculations of interest relating to the Class A-1 Certificates
(other than with respect to the Mortgage Loans, or as otherwise specifically set
forth herein) provided for herein shall be made on the basis of actual days
elapsed divided by a year comprised of 360 days. All calculations of interest
relating to the Group II Certificates (other than with respect to the Mortgage
Loans, or as otherwise specifically set forth herein) provided for herein, shall
be made on the of an assumed year of 360 days consisting of twelve 30 day
months. All calculations of interest with respect to any Mortgage Loan provided
for herein shall be made in accordance with the terms of the related Mortgage
Note and Mortgage or, if such documents do not specify the basis upon which
interest accrues thereon, on the basis of dividing actual days elapsed by a 365
day year.
(d) Any Mortgage Loan payment is deemed to be received on the date such
payment is actually received by the Servicer; provided, however, that for
purposes of calculating distributions on the Certificates prepayments with
respect to any Mortgage Loan are deemed to be received on the date they are
applied in accordance with customary servicing practices consistent with the
terms of the related Mortgage Note and Mortgage to reduce the
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outstanding principal balance of such Mortgage Loan on which interest accrues.
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ARTICLE II
Establishment of the Trust
Sale and Conveyance of the Trust Fund
Section 2.1 Sale and Conveyance of Trust Fund; Priority and Subordination
of Ownership Interests; Establishment of the Trust. (a) The Depositor does
hereby sell, transfer, assign, set over and convey to the Trust for the benefit
of the Certificateholders and the Additional Certificateholder as their
respective interests may, from time to time appear and the Certificate Insurer
without recourse but subject to the provisions in this Section 2.1 and the other
terms and provisions of this Agreement, all of the right, title and interest of
the Depositor in and to the Trust Fund, exclusive of the obligations of the
Depositor, Seller or any other party with respect to the Mortgage Loans. In
connection with such transfer and assignment, and pursuant to Section 2.6 of the
Purchase and Sale Agreement, the Depositor does hereby also irrevocably
transfer, assign, set over and otherwise convey to the Trustee all of its rights
(exclusive of its obligations) under the Purchase and Sale Agreement, including,
without limitation, its right to exercise the remedies created by Sections 2.5
and 3.4 of the Purchase and Sale Agreement for breaches of representations and
warranties, agreements and covenants of the Seller contained in Sections 3.1 and
3.2 of the Purchase and Sale Agreement.
(b) The rights of the Certificateholders and the Additional
Certificateholder to receive payments with respect to the Mortgage Loans in
respect of the Certificates and the Additional Certificates and all ownership
interests of the Certificateholders, shall be as set forth in this Agreement. In
this regard, all rights of the Class R Certificateholders to receive payments in
respect of the Class R Certificates, are subject and subordinate to the
preferential rights of the Class A Certificateholders to receive payments in
respect of the Class A Certificates and to the Certificate Insurer's rights to
receive the Reimbursement Amount. In accordance with the foregoing, the
ownership interest of the Class R Certificateholders in amounts deposited in the
Certificate Account or the Reserve Account from time to time shall not vest
unless and until such amounts are distributed in respect of the Class R
Certificates in accordance with the terms of this Agreement.
(a) The Depositor does hereby establish, pursuant to the further provisions
of this Agreement and the laws of the State of ________________, an express
trust to be known, for convenience, as "___________________ Trust _____" and
does hereby appoint ________________ as Trustee in accordance with the
provisions of this Agreement.
Section 2.2 Possession of Mortgage Files; Access to Mortgage Files. (a)
Upon the issuance of the Certificates and any Additional Certificates, the
ownership of each Mortgage Note,
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the Mortgage and the contents of the related Mortgage File related to each
Mortgage Loan is vested in the Trustee for the benefit of the Certificateholders
and the Additional Certificateholders and the Certificate Insurer, as their
respective interests may, from time to time, appear.
(b) Pursuant to Section 2.4 of the Purchase and Sale Agreement, the
Depositor has delivered or caused to be delivered the Trustee's Mortgage File
related to each Mortgage Loan to the Trustee.
(a) The Trustee may enter into a custodial agreement pursuant to which the
Trustee will appoint a custodian (a "Custodian") to hold the Mortgage Files in
trust for the benefit of the Trustee; provided, however, that the custodian so
appointed shall in no event be the Depositor or the Servicer or any Person known
to a Responsible Officer of the Trustee to be an Affiliate of any of them.
(b) The Custodian shall afford the Depositor, the Certificate Insurer and
the Servicer reasonable access to all records and documentation regarding the
Mortgage Loans relating to this Agreement, such access being afforded at
customary charges, upon reasonable request and during normal business hours at
the offices of the Custodian.
Section 2.3 Delivery of Mortgage Loan Documents. (a) In connection with
each conveyance pursuant to Section 2.1, 2.2 or 2.10 hereof, the Depositor has
delivered or does hereby agree to deliver or cause to be delivered to the
Trustee the Certificate Insurance Policy and each of the following documents for
each Mortgage Loan sold by the Seller to the Depositor and sold by the Depositor
to the Trust Fund:
(i) The original Mortgage Note, endorsed by the holder of record
without recourse in the following form: "Pay to the order of ___________,
without recourse" and signed in the name of an authorized officer of the
holder of record, ________________, and if by the Seller, by an authorized
officer;
(ii) The original Mortgage with evidence of recording indicated
thereon; provided, however, that if such Mortgage has not been returned
from the applicable recording office, then such recorded Mortgage shall be
delivered when so returned;
(iii) An assignment of the original Mortgage, in suitable form for
recordation in the jurisdiction in which the related Mortgaged Property is
located, in the name of the holder of record of the Mortgage Loan by an
authorized officer (with evidence of submission for recordation of such
assignment in the appropriate real estate recording office for such
Mortgaged Property to be received by the Trustee
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within 45 days of the Closing Date or, with respect to Subsequent Mortgage
Loans, the Subsequent Transfer Date); provided, however, that Assignments
of Mortgages shall not be required to be submitted for recording with
respect to any Mortgage Loan which relates to the Trustee's Mortgage File
if the Trustee, each of the Rating Agencies and the Certificate Insurer
shall have received an opinion of counsel satisfactory to the Trustee, each
of the Rating Agencies and the Certificate Insurer stating that, in such
counsel's opinion, the failure to record such Assignment of Mortgage shall
not have a materially adverse effect on the security interest of the
Trustee in the Mortgage; provided, further, that any Assignment of Mortgage
for which an opinion has been delivered shall be recorded upon the earlier
to occur of (i) receipt by the Trustee of the Certificate Insurer's written
direction to record such Mortgage, (ii) the occurrence of any Event of
Default, as such term is defined in this Pooling and Servicing Agreement,
or (iii) a bankruptcy or insolvency proceeding involving the Mortgagor is
initiated or foreclosure proceedings are initiated against the Mortgaged
Property as a consequence of an event of default under the Mortgage Loan;
provided, further, that if the related Mortgage has not been returned from
the applicable recording office, then such assignment shall be delivered
when so returned (and a blanket assignment with respect to each unrecorded
Mortgage shall be delivered on the Closing Date or, with respect to
Subsequent Mortgage Loans, the Subsequent Transfer Date);
(iv) Any intervening Assignments of the Mortgage with evidence of
recording thereon;
(v) Any assumption, modification, consolidation or extension
agreements; and
(vi) (1) The policy of title insurance (or a commitment for title
insurance, if the policy is being held by the title insurance company
pending recordation of the Mortgage) and the certificate of primary
mortgage guaranty insurance, if any, issued with respect to any Mortgage
Loan with a credit limit or Principal Balance in excess of $______ and with
respect to any Mortgage Loan which is in a first lien position;
(2) The limited liability title assurance with respect to any Mortgage
Loan in a second lien position with a credit limit or Principal Balance
between $_____ and $______ and which has a second mortgage ratio greater
than _____% and with respect to any Mortgage Loan with a credit limit or
Principal Balance between $_____ and $______; provided, however, that in
the case of any Mortgage Loans which have been prepaid in full after the
Cut-Off Date and prior to the date of the execution of this Agreement, the
Depositor, in lieu of delivering the above documents, hereby
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delivers to the Trustee a certification of an officer of the Seller of the
nature set forth in Exhibit M attached hereto; and provided, further,
however, that as to certain Mortgages or assignments thereof which have
been delivered or are being delivered to recording offices for recording
and have not been returned to the Seller in time to permit their delivery
hereunder at the time of such transfer, in lieu of delivering such original
documents, the Depositor is delivering to the Trustee a true copy thereof
with a certification by the Seller on the face of such copy substantially
as follows: "certified true and correct copy of original which has been
transmitted for recordation." The Seller has agreed pursuant to the
Purchase and Sale Agreement, that it will deliver such original documents,
together with any related policy of title insurance not previously
delivered, on behalf of the Depositor to the Trustee promptly after they
are received, and no later than 120 days after the Closing Date; provided,
however, that in those instances where the public recording office retains
the original Mortgage or Assignment of Mortgage after it has been recorded
or such original document has been lost by the recording office, the Seller
shall be deemed to have satisfied its obligations hereunder if it shall
have delivered to the Trustee a copy of such original Mortgage or
Assignment of Mortgage certified by the public recording office to be a
true copy of the recorded original thereof. The Seller has agreed pursuant
to the Purchase and Sale Agreement, at its own expense, to record (or to
provide the Trustee with evidence of recordation thereof) each assignment
within 45 days of the Closing Date or, with respect to Subsequent Mortgage
Loans, the Subsequent Transfer Date, in the appropriate public office for
real property records, provided that such assignments are redelivered by
the Trustee to the Seller upon the Seller's written request and at the
Seller's expense, unless the Seller (at its expense) furnishes to the
Trustee, the Certificate Insurer and the Rating Agencies an unqualified
Opinion of Counsel reasonably acceptable to the Trustee to the effect that
recordation of such assignment is not necessary under applicable state law
to preserve the Trustee's interest in the related Mortgage Loan against the
claim of any subsequent transferee of such Mortgage Loan or any successor
to, or creditor of, the Seller.
On or prior to the Closing Date, or, with respect to Subsequent Mortgage
Loans, the Subsequent Transfer Date, the Servicer, at its own expense shall
complete the endorsement of each Mortgage Note such that the final endorsement
appears in the following form:
"Pay to the order of _________, without recourse,
________________.
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The Servicer, at its own expense shall also complete each Assignment of
Mortgage such that the final Assignment of Mortgage appears in the following
form:
"________________, as Trustee for ___________________
Trust _____ formed pursuant to the Pooling and Servicing
Agreement dated as of ___________________, between Home
Equity Securitization Corp. as Depositor, _________________
as Servicer and ________________, as Trustee"
(b) Without diminution of the requirements of Sections 2.2(c) and this
Section 2.3, all original documents relating to the Mortgage Loans that are not
delivered to the Trustee are and shall be delivered to the Servicer by the
Seller on behalf of the Depositor pursuant to the Purchase and Sale Agreement,
and shall be held by the Servicer in trust for the benefit of the Trustee on
behalf of the Certificateholders and the Certificate Insurer. In the event that
any such original document is required pursuant to the terms of this Section 2.3
to be a part of a Mortgage File, the Servicer shall promptly deliver such
original document to the Trustee. In acting as custodian of any such original
document, the Servicer agrees further that it does not and will not have or
assert any beneficial ownership interest in the Mortgage Loans or the Mortgage
Files. Promptly upon the Depositor's and the Trust's acquisition thereof and the
Servicer's receipt thereof, the Servicer on behalf of the Trust shall mark
conspicuously each original document not delivered to the Trustee, and the
Seller's master data processing records evidencing each Mortgage Loan with a
legend, acceptable to the Trustee and the Certificate Insurer, evidencing that
the Trust has purchased the Mortgage Loans and all right and title thereto and
interest therein pursuant to the Purchase and Sale Agreement and this Agreement.
(c) In the event that any Mortgage Note required to be delivered pursuant
to this Section 2.3 is conclusively determined by any of the Seller, the
Servicer, the Custodian or the Trustee to be lost, stolen or destroyed the
Seller shall deliver a photostatic copy of such Mortgage Note and, within 14
days of the Closing Date or the later date upon which such Mortgage Note has
been conclusively determined to be lost, deliver to the Trustee a "lost note
affidavit" in form and substance acceptable to the Trustee, and shall further
agree to hold the Trustee and the Certificate Insurer harmless from any loss or
damage resulting from any action taken in reliance on the delivery and
possession by the Trustee of such lost note affidavit. Delivery by the Seller of
such lost note affidavit shall not affect the obligations of the Seller under
the Purchase and Sale Agreement with respect to the related Mortgage Loan.
Section 2.4 Acceptance by Trustee of the Trust Fund; Certain Substitutions;
Certification by Trustee. (a) The Trustee agrees to execute and deliver to the
Depositor, the
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Certificate Insurer, the Servicer and the Seller on or prior to the Closing Date
an acknowledgment of receipt of the Certificate Insurance Policies and, with
respect to each initial Mortgage Loan, the original Mortgage Note (with any
exceptions noted), in the form attached as Exhibit E hereto and declares that it
will hold such documents and any amendments, replacements or supplements
thereto, as well as any other assets included in the definition of Trust Fund
and delivered to the Trustee, as Trustee in trust upon and subject to the
conditions set forth herein for the benefit of the Certificateholders and the
Certificate Insurer. The Trustee agrees to execute and deliver to the Depositor,
the Certificate Insurer, the Servicer and the Seller on or prior to any
Subsequent Transfer Date an acknowledgement of receipt of original Mortgage Note
with respect to each Subsequent Mortgage Loan, in the form attached as Exhibit E
hereto and declares that it will hold such documents and any amendments,
replacements or supplements thereto, as well as any other assets included in the
definition of Trust Fund and delivered to the Trustee, as Trustee in trust and
subject to the conditions set forth herein for the benefit of the
Certificateholders and the Certificate Insurer.
The Trustee agrees, for the benefit of the Certificateholders and the
Certificate Insurer, to review (or cause to be reviewed) each Trustee's Mortgage
File within 45 Business Days after the Closing Date or, with respect to
Subsequent Mortgage Loans, the Subsequent Transfer Date and to deliver to the
Seller, the Servicer, the Depositor and the Certificate Insurer a certification
in the form attached hereto as Exhibit F to the effect that, as to each Mortgage
Loan listed in the related Mortgage Loan Schedule (other than any Mortgage Loan
paid in full or any Mortgage Loan specifically identified in such certification
as not covered by such certification), (i) all documents required to be
delivered to it pursuant to Section 2.3 hereof and the Purchase and Sale
Agreement are in its possession, (ii) each such document has been reviewed by
it, has been, to the extent required, executed and has not been mutilated,
damaged, torn or otherwise physically altered (handwritten additions, changes or
corrections shall not constitute physical alteration if initialed by the
Mortgagor), appears regular on its face and relates to such Mortgage Loan. The
Trustee shall be under no duty or obligation to inspect, review or examine any
such documents, instruments, certificates or other papers to determine that they
are genuine, enforceable, or appropriate for the represented purpose or that
they are other than what they purport to be on their face.
On or prior to the first anniversary of the Closing Date, the Trustee shall
deliver (or cause to be delivered) to the Servicer, the Seller, the Depositor
and the Certificate Insurer a final certification in the form attached hereto as
Exhibit G to the effect that, as to each Mortgage Loan and Subsequent Mortgage
Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or any Mortgage Loan specifically
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identified in such certification as not covered by such certification), and as
to any document noted in an exception included in the Trustee's initial
certification, (i) all documents required to be delivered to it pursuant to
Section 2.3 hereof and the Purchase and Sale Agreement are in its possession,
(ii) each such document has been reviewed by it, has been, to the extent
required, executed and has not been mutilated, damaged, torn or otherwise
physically altered (handwritten additions, changes or corrections shall not
constitute physical alteration if initialed by the Mortgagor), appears regular
on its face and relates to such Mortgage Loan.
(b) If the Certificate Insurer or the Trustee during the process of
reviewing the Trustee's Mortgage Files finds any document constituting a part of
a Trustee's Mortgage File which is not executed, has not been received, is
unrelated to the Mortgage Loan identified in the related Mortgage Loan Schedule,
or does not conform to the requirements of Section 2.3 or the description
thereof as set forth in the related Mortgage Loan Schedule, the Trustee or the
Certificate Insurer, as applicable, shall promptly so notify the Servicer, the
Seller, the Certificate Insurer and the Trustee. In performing any such review,
the Trustee may conclusively rely on the Seller as to the purported genuineness
of any such document and any signature thereon. It is understood that the scope
of the Trustee's review of the Mortgage Files is limited solely to confirming
that the documents listed in Section 2.3 have been executed and received and
relate to the Mortgage Files identified in the related Mortgage Loan Schedule.
Pursuant to the Purchase and Sale Agreement, the Seller has agreed to use
reasonable efforts to cause to be remedied a material defect in a document
constituting part of a Mortgage File of which it is so notified by the Trustee.
If, however, within 60 days after the Trustee's notice to it respecting such
defect the Seller has not caused to be remedied the defect and the defect
materially and adversely affects the interest of the Certificateholders in the
related Mortgage Loan or the interests of the Certificate Insurer (in either
case in the reasonable determination of the Certificate Insurer), the Trustee
shall enforce the Seller's obligation pursuant to the Purchase and Sale
Agreement to either (i) substitute in lieu of such Mortgage Loan a Qualified
Substitute Mortgage Loan in the manner and subject to the conditions set forth
in Section 3.3 hereof or (ii) purchase such Mortgage Loan at a purchase price
equal to the outstanding Principal Balance of such Mortgage Loan as of the date
of purchase, plus the greater of (x) all accrued and unpaid interest thereon and
(y) 30 days' interest thereon, computed at the related Mortgage Interest Rate,
plus the amount of any unreimbursed Servicing Advances made by the Servicer with
respect to such Mortgage Loan, which purchase price shall be deposited in the
Trustee Collection Account prior to the next succeeding Servicer Remittance
Date, after deducting therefrom any amounts received in respect of such
repurchased Mortgage Loan or Loans and being held in the Collection Account or
Trustee Collection Account for future distribution to the
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extent such amounts have not yet been applied to principal or interest on such
Mortgage Loan (the "Loan Repurchase Price"); provided, however, that the Seller
may not, pursuant to clause (ii) preceding, purchase the Principal Balance of
any Mortgage Loan that is not in default or as to which no default is imminent
unless the Seller has theretofore delivered an Opinion of Counsel knowledgeable
in federal income tax matters which states that such a purchase would not
constitute a prohibited transaction under the Code.
(c) Upon receipt by the Trustee of a certification of a Servicing Officer
of such substitution or purchase and, in the case of a substitution, upon
receipt of the related Trustee's Mortgage File, and the deposit of the amounts
described above into the Trustee Collection Account (which certification shall
be in the form of Exhibit H hereto), the Trustee shall release to the Servicer
for release to the Seller the related Trustee's Mortgage File and shall execute,
without recourse, and deliver such instruments of transfer furnished by the
Seller as may be necessary to transfer such Mortgage Loan to the Seller. The
Trustee shall notify the Certificate Insurer if the Seller fails to repurchase
or substitute for a Mortgage Loan in accordance with the foregoing.
Section 2.5 Designations under REMIC Provisions; Designation of Startup
Date. (a) The Class A Certificates are hereby designated as the "regular
interests", and the Class R Certificates are designated the single class of
"residual interests" in the _____ REMIC for the purposes of the REMIC
Provisions. The _____ REMIC shall be designated as the "___________________
Trust _____ REMIC."
The Closing Date will be the "startup day" of the _____ REMIC within the
meaning of Section 860G(a)(9) of the Code (the "Startup Date").
Section 2.6 Execution of Certificates. The Trustee acknowledges the
assignment to it of the Mortgage Loans and the delivery to it of the Trustee's
Mortgage Files relating thereto and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Depositor, in
exchange for the Mortgage Loans, the Trustee's Mortgage Files and the other
assets included in the definition of Trust Fund, Certificates and the Additional
Certificate duly authenticated by the Trustee, and, in the case of the Class A
Certificates, in Authorized Denominations, evidencing the entire beneficial
ownership interest in the Trust Fund.
Section 2.7 Application of Principal and Interest. In the event that Net
Liquidation Proceeds on a Liquidated Mortgage Loan are less than the outstanding
Principal Balance of the related Mortgage Loan plus accrued interest thereon, or
any Mortgagor makes a partial payment of any Monthly Payment due on a Mortgage
Loan, such Net Liquidation Proceeds or partial payment
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shall be applied to payment of the related Mortgage Note as provided therein,
and if not so provided, first to interest accrued at the Mortgage Interest Rate,
then to the principal owed on such Mortgage Loan.
Section 2.8 Grant of Security Interest. (a) It is the intention of the
parties hereto that the conveyance by the Depositor of the Trust Fund to the
Trustee on behalf of the Trust shall constitute a purchase and sale of such
Trust Fund and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that the transaction evidenced hereby constitutes a
loan and not a purchase and sale, it is the intention of the parties hereto that
this Agreement shall constitute a security agreement under applicable law, and
that the Depositor shall be deemed to have granted and hereby grants to the
Trustee, on behalf of the Trust, a first priority perfected security interest in
all of the Depositor's right, title and interest in, to and under the Trust Fund
to secure a loan in an amount equal to the purchase price of the Mortgage Loans.
The conveyance by the Depositor of the Trust Fund to the Trustee on behalf of
the Trust shall not constitute and are not intended to result in an assumption
by the Trustee, the Certificate Insurer or any Certificateholder or the Holder
of the Additional Certificate of any obligation of the Seller or any other
Person in connection with the Trust Fund, including, but not limited to, the
obligation to advance additional amounts pursuant to the terms of the Mortgage
Note.
(b) The Depositor and the Servicer shall take no action inconsistent with
the Trust's ownership of the Trust Fund and shall indicate or shall cause to be
indicated in its records and records held on its behalf that ownership of each
Mortgage Loan and the assets in the Trust Fund are held by the Trustee on behalf
of the Trust. In addition, the Depositor and the Servicer shall respond to any
inquiries from third parties with respect to ownership of a Mortgage Loan or any
other asset in the Trust Fund by stating that it is not the owner of such asset
and that ownership of such Mortgage Loan or other Trust Fund asset is held by
the Trustee on behalf of the Trust.
Section 2.9 Further Assurances; Powers of Attorney. (a) The Servicer agrees
that, from time to time, at its expense, it shall cause the Seller and
________________ (and the Depositor also agrees that it shall), promptly to
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or appropriate, or that the Servicer or the
Trustee may reasonably request, in order to perfect, protect or more fully
evidence the transfer of ownership of the Trust Fund or to enable the Trustee to
exercise or enforce any of its rights hereunder. Without limiting the generality
of the foregoing, the Servicer and the Depositor will, upon the request of the
Servicer or of the Trustee execute and file (or cause to be executed and filed)
such real estate filings, financing or continuation statements, or amendments
thereto or assignments thereof, and
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such other instruments or notices, as may be necessary or appropriate.
(b) The Depositor hereby grants to the Servicer and the Trustee powers of
attorney to execute all documents on its behalf under this Agreement and the
Purchase and Sale Agreement as may be necessary or desirable to effectuate the
foregoing.
Section 2.10 Conveyance of the Subsequent Mortgage Loans. (a) Subject to
the conditions set forth in Section 2.3 above and paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
to or upon the order of the Depositor of all or a portion of the balance of
funds in the Pre-Funding Account, the Depositor shall on any Subsequent Transfer
Date transfer, assign, set over and otherwise convey without recourse, to the
Trust (i) with respect to Group I, all of its right, title and interest in and
to each Subsequent Mortgage Loan that is a HELOC and with respect to Group II
all of its right, title and interest in and to each Subsequent Mortgage Loan
that is a HEL, in each case listed on the Mortgage Loan Schedule delivered by
the Depositor to the Trustee on such Subsequent Transfer Date, (ii) all its
right, title and interest in and to principal collected and interest accruing on
each such Subsequent Mortgage Loan on and after the related Cut-Off Date; (iii)
all its right, title and interest in and to all Insurance Policies and all items
with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.3 above and the other items in the related Mortgage Files; and (iv)
all its rights under each Subsequent Transfer Agreement; provided, however, that
the Depositor and/or Seller reserves and retains all its right, title and
interest in and to principal (including Prepayments) collected and interest
accruing on each such Subsequent Mortgage Loan prior to the related Cut-Off
Date. The transfer to the Trust by the Depositor of the Subsequent Mortgage
Loans set forth in the Mortgage Loan Schedule shall be absolute and shall be
intended by the Depositor, the Certificateholders, the Additional
Certificateholder and all parties hereto to constitute and to be treated as a
sale by the Depositor. The related Mortgage File for each Subsequent Mortgage
Loan shall be delivered to the Trustee prior to the Subsequent Transfer Date.
The amount released from the Pre-Funding Account shall be one-hundred
percent (_____%) of the aggregate Principal Balances of the Subsequent Mortgage
Loans so transferred of which _____% of the aggregate Principal Balances of
Subsequent Mortgage Loan which are HELOCs and _____% of the aggregate Principal
Balance of Subsequent Mortgage Loans which are HELs shall be transferred to the
Reserve Fund unless on or prior to the related Subsequent Transfer Date the
Servicer shall have provided an Eligible Letter of Credit in such amount to the
Trustee.
(b) The Depositor shall transfer to the Trust the Subsequent Mortgage Loans
and the other property and rights related thereto described in paragraph (a)
above only upon the
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satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:
(i) At least 5 Business Days prior to the Subsequent Transfer Date,
the Depositor shall have provided the Trustee, the Certificate Insurer,
Moody's and Standard & Poor's with an Addition Notice and shall have
provided any information in an electronic data file form as reasonably
requested by any of the foregoing with respect to the Subsequent Mortgage
Loans;
(ii) the Depositor shall have delivered to the Trustee and the
Custodian a duly executed written assignment (including an acceptance by
the Trustee) in substantially the form of Exhibit O (the "Subsequent
Transfer Agreement"), which shall include the Mortgage Loans Schedules,
listing the Subsequent Mortgage Loans and any other exhibits listed
thereon;
(iii) the Depositor shall have deposited in the Collection Account all
collections in respect of the Subsequent Mortgage Loans received on or
after the related Cut-Off Date;
(iv) as of each Subsequent Transfer Date, none of the Seller, the
Servicer or the Depositor was insolvent nor will any of them have been made
insolvent by such transfer nor is any of them aware of any pending
insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Trust or the Holders of the Certificates; (vi) the
Pre-Funding Period shall not have terminated;
(vii) the Depositor shall have delivered to the Trustee and the
Certificate Insurer an Officer's Certificate confirming the satisfaction of
each condition precedent specified in this paragraph (b) and paragraphs (c)
and (d) below, and in the related Subsequent Funding Transfer Agreement;
(viii) the Depositor shall have delivered to the Certificate Insurer,
the Rating Agencies and the Trustee Opinions of Counsel with respect to the
transfer of the Subsequent Mortgage Loans substantially in the form of the
Opinions of Counsel delivered to the Certificate Insurer and the Trustee on
the Startup Date (bankruptcy, corporate and tax opinions); and
(ix) the Trustee shall have delivered to the Certificate Insurer and
the Depositor an Opinion of Counsel addressed to the Depositor, the Rating
Agencies and the
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Certificate Insurer with respect to the Subsequent Transfer Agreement
substantially in the form of the Opinion of Counsel delivered to the
Certificate Insurer and the Depositor on the Closing Date regarding certain
corporate matters relating to the Trustee.
(c) (i) the obligation of the Trust to purchase a Subsequent Mortgage Loan
on any Subsequent Transfer Date for assignment to Group I is subject to the
following requirements: (i) such Subsequent Mortgage Loan may not be 59 days or
more contractually Delinquent as of the related Cut-Off Date and not more than
_____%, by aggregate Principal Balance, of all Subsequent Mortgage Loans
purchased by the Trust may be 30 or more days contractually Delinquent as of the
related Cut-Off Date; (ii) each such Subsequent Mortgage Loans shall be interest
only for approximately the first 10 years and then fully amortizing with level
payments over a term to maturity of not less than 10 years and indexed to prime,
(iii) such Subsequent Mortgage Loan will have a Combined Loan-to-Value Ratio of
not more than _____%, (iv) such Subsequent Mortgage Loan shall have a Gross
Margin of at least _____%, (v) will not have any Subsequent Mortgage Loan with a
Principal Balance in excess of $______, (vi) such Subsequent Mortgage Loan will
have a Mortgage Interest Rate of at least _____%; (vii) each Subsequent Mortgage
Loan shall be underwritten in accordance with the Underwriting Guidelines,
(viii) will not have any Subsequent Mortgage Loan with a maximum credit line
limit in excess of $______ and (ix) no such Subsequent Mortgage Loan shall be
associated with the purchase of a home; and following the purchase of such
Subsequent Mortgage Loans by the Trust, the HELOCs (including the Subsequent
Mortgage Loans that are HELOCs) (a) will have a weighted average Gross Margin of
at least _____%, (b) will have a weighted average Mortgage Interest Rate of no
less than _____%, (c) Subsequent Mortgage Loans with classifications of "E" will
represent approximately _____% of the HELOCs and Subsequent Mortgage Loans with
classifications of "G" and "F" will represent approximately _____% and _____% of
the HELOCs respectively, (d) will have a weighted average remaining term to
stated maturity of not more than 238 months, (e) will have a weighted average
second mortgage ratio of no less than _____%, (f) will have a weighted average
Combined Loan-to-Value Ratio of not greater than _____%, (g) no more than _____%
of the HELOCs (including the Subsequent Mortgage Loans that are HELOCs) shall be
secured by Mortgaged Properties located in any one zip code, (h) no more than
_____% of the HELOCs will be secured by Mortgaged Properties that are not Owner
Occupied Mortgaged Properties, (i) the HELOCs (including the Subsequent Mortgage
Loans that are HELOCs) shall have a weighted average Credit Bureau Score of at
least 654 and a weighted average debt-to-income ratio of no more than _____%,
and (j) approximately _____% of the HELOCs shall be secured by single family
residences, approximately _____% of the HELOCs shall be secured by planned unit
developments, approximately _____% of the HELOCs shall be secured by
condominiums and approximately _____% of the HELOCs shall be secured by
multi-family residences.
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(ii) The obligation of the Trust to purchase a Subsequent Mortgage Loan on
any Subsequent Transfer Date for assignment to Group II is subject to the
following requirements: (i) such Subsequent Mortgage Loan may not be more than
59 days contractually Delinquent as of the related Cut-Off Date, and not more
than _____%, by aggregate Principal Balance, of all Subsequent Mortgage Loans
purchased by the Trust may be 30 or more days contractually Delinquent as of the
related Cut-Off Date; (ii) the remaining term to maturity of such Subsequent
Mortgage Loan may not be more than 15 years, (iii) such Subsequent Mortgage Loan
will have a Combined Loan-to-Value Ratio of not more than _____%, (iv) such
Subsequent Mortgage Loan shall have a Mortgage Interest Rate of at least
______%, (v) will not have any Subsequent Mortgage Loan with a Principal Balance
in excess of $________, (vi) each Subsequent Mortgage Loan shall be underwritten
in accordance with the Underwriting Guidelines, and (vii) no such Subsequent
Mortgage Loan shall be associated with the purchase of a home; and following the
purchase of such Subsequent Mortgage loans by the Trust, the HELs (including the
Subsequent Mortgage Loans that are HELs) (a) will have a weighted average
Mortgage Interest Rate of at least _____%, (b) will have a weighted average
remaining term to stated maturity of not more than 135 months, (c) will have a
weighted average Combined Loan-to-Value Ratio of not greater than _____%, (d) no
more than _____% of the HELs (including the Subsequent Mortgage Loans that are
HELs) shall be secured by Mortgaged Properties located in any one zip code, (e)
no more than _____% of the HELs will be secured by Mortgaged Properties that are
not Owner Occupied Mortgaged Properties, (f) the HELs with classifications of
"E" will represent approximately _____% of the HELs and Subsequent Mortgage
Loans with classifications of "G" and "F" will represent approximately _____%
and _____% of the HELs, respectively, (g) the HELs will have a weighted-average
second mortgage ratio of no less than _____%, (h) the HELs (including the
Subsequent Mortgage Loans that are HELs) shall have a weighted average Credit
Bureau Score of at least 656 and a weighted average debt-to-income ratio of no
more than _____% and (i) approximately _____% of the HELs shall be secured by
single family residences, approximately ______% of the HELs shall be secured by
planned unit developments, approximately _____% of the HELs shall be secured by
condominiums and approximately _____% of the HELs shall be secured by
multi-family residences.
(d) The obligation of the Trust to purchase a Subsequent Mortgage Loan on
any Subsequent Transfer Date is subject to the following additional
requirements, any of which may be waived or modified in any respect by the
Certificate Insurer by a written instrument executed by the Certificate Insurer;
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(1) The obligation of the Trust to purchase a Subsequent Mortgage Loan
on any Subsequent Transfer Date is subject to the following additional
requirements: (i) no such Subsequent Mortgage Loan may have a Combined
Loan-to-Value Ratio greater than _____%; (ii) no such Mortgage Loan is
secured by a Mortgaged Property which, at the time of the origination of
such Mortgage Loan, had an Appraised Value greater than $______; (iii) the
first payment on each such Subsequent Mortgage Loan may be due no later
than ____________ and (iv) no Subsequent Mortgage Loan that is a HEL may
have a Mortgage Interest Rate lower than _____%.
(2) After giving effect to the Trust's purchase of any such Subsequent
Mortgage Loan (i) the weighted average Gross Margins of all HELOCs shall be
no less than _____%; (ii) the weighted average Mortgage Interest Rates of
all HELs shall be no less than _____% (iii) no more than _____% of the
Mortgage Loans held by the Trust shall be concentrated in any single zip
code; (iv) the HELOCs and the HELs shall each have a weighted average
Loan-to-Value Ratio no greater than _____% and _____% respectively; (v) no
more than _____% of the HELOCs and no more than _____% of the HELs by
aggregate Principal Balance related to Mortgaged Properties that are not
Owner Occupied Mortgaged Properties.
(e) In connection with each Subsequent Transfer Date and on the Payment
Date occurring in _________, ___________ and ____________, the Depositor shall
determine, and the Trustee shall co-operate with the Depositor in determining,
(i) the amount and correct dispositions of the Capitalized Interest Requirements
and the Capitalized Interest Deposit Amounts and the amount then on deposit in
the Pre-Funding Account, and (ii) any other necessary matters in connection with
the administration of the Pre-Funding Account and of the Capitalized Interest
Account. In the event that any amounts are incorrectly released to the Owners of
the Class R Certificates from the Pre-Funding Account or the Capitalized
Interest Account, such Owners or the Depositor shall immediately repay such
amounts to the Trustee.
(f) Any requirements or conditions set forth in clauses (c) and (d) above
my be waived or modified in writing by the Certificate Insurer; provided that,
as a condition to any such waiver or modification, the Certificate Insurer, in
its sole discretion, may modify the definition of Required Reserve Account Level
without the consent of any party hereto or any Certificateholder or Additional
Certificateholder.
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ARTICLE III
Representations and Warranties
Section 3.1 Representations of the Servicer. The Servicer hereby represents
and warrants to the Trustee, the Depositor, the Certificate Insurer and the
Certificateholders as of the Closing Date and during the term of this Agreement:
(a) The Servicer is a duly organized corporation, validly existing and in
good standing under the laws of the state of its incorporation and has all
licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each Mortgaged Property State if the
laws of such state require licensing or qualification in order to conduct
business of the type conducted by the Servicer, and in any event the Servicer is
in compliance with the laws of any such state to the extent necessary to ensure
the enforceability of the related Mortgage Loan and the servicing of such
Mortgage Loan in accordance with the terms of this Agreement; the Servicer has
the full corporate power and authority to execute and deliver this Agreement and
to perform in accordance herewith; the execution, delivery and performance of
this Agreement (including all instruments of transfer to be delivered pursuant
to this Agreement) by the Servicer and the consummation of the transactions
contemplated hereby have been duly and validly authorized; this Agreement
evidences the valid, binding and enforceable obligation of the Servicer; and all
requisite corporate action has been taken by the Servicer to make this Agreement
valid and binding upon the Servicer in accordance with its terms;
(b) The consummation of the transactions contemplated by this Agreement are
in the ordinary course of business of the Servicer;
(c) Neither the execution and delivery of this Agreement, nor the
performance of or compliance with the terms and conditions of this Agreement,
will conflict with or result in a breach of any of the terms, conditions or
provisions of the Servicer's charter or by-laws or any legal restriction or any
agreement or instrument to which the Servicer is now a party or by which it is
bound, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Servicer or its property is subject, or impair
the ability of the Trustee (or the Servicer as the agent of the Trustee) to
realize on the Mortgage Loans, or impair the value of the Mortgage Loans;
(d) The Servicer 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;
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(e) Except as previously disclosed to the Depositor, the Trustee and the
Certificate Insurer, there is no action, suit, proceeding or investigation
pending or, to the knowledge of the Servicer, threatened against the Servicer
which, either in any one instance or in the aggregate, may result in any
material adverse change in the business, operations, financial condition,
properties or assets of the Servicer, or in any material impairment of the right
or ability of the Servicer to carry on its business substantially as now
conducted, or in any material liability on the part of the Servicer, or which
would draw into question the validity of this Agreement or the Mortgage Loans or
of any action taken or to be taken in connection with the obligations of the
Servicer contemplated herein, or which would materially impair the ability of
the Servicer to perform under the terms of this Agreement;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of or compliance by the Servicer with this Agreement
or the sale of the Mortgage Loans to the Depositor in accordance with the
Purchase and Sale Agreement, or the consummation of the transactions
contemplated by this Agreement, except for those consents, approvals or
authorizations which have been obtained prior to the Closing Date;
(g) Neither this Agreement nor any statement, report or other document
furnished by the Servicer pursuant to this Agreement or in connection with the
transactions contemplated hereby contains any untrue statement of fact regarding
the Servicer or omits to state a fact necessary to make the statements regarding
the Servicer contained herein or therein not misleading;
(h) The Servicer has delivered to the Depositor unaudited financial
statements as to its last complete fiscal year and any quarter subsequent
thereto ended more than 60 days prior to the execution of this Agreement. All
such financial statements fairly present the pertinent results of operations and
changes in financial position at the end of each such period of the Servicer and
its subsidiaries and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
involved, except as set forth in the notes thereto. There has been no change in
the business, operations, financial condition, properties or assets of the
Servicer since the date of the Servicer's financial statements that would have a
material adverse effect on its ability to perform its obligations under this
Agreement; and
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.1 shall survive the delivery of the
respective Mortgage Files to the Trustee or to a custodian, as the case may be,
and inure to the benefit of the Trustee and the Certificate Insurer.
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Section 3.2 Representations, Warranties and Covenants of the Depositor. The
Depositor hereby represents, warrants and covenants to the Trustee that as of
the date of this Agreement or as of such date specifically provided herein:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of North Carolina;
(b) The Depositor has the corporate power and authority to convey the
Mortgage Loans and to execute, deliver and perform, and to enter into and
consummate transactions contemplated by, this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, all requisite corporate action having been
taken, and, assuming the due authorization, execution and delivery hereof
by the Servicer and the Trustee, constitutes or will constitute the legal,
valid and binding agreement of the Depositor, enforceable against the
Depositor in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally,
and by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(d) No consent, approval, authorization or order of, or registration
or filing with, or notice to, any governmental authority or court is
required for the execution, delivery and performance of or compliance by
the Depositor with this Agreement or the consummation by the Depositor of
any of the transactions contemplated hereby, except as have been received
or obtained on or prior to the Closing Date;
(e) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this
Agreement, (i) conflicts or will conflict with or results or will result in
a breach of, or constitutes or will constitute a default or results or will
result in an acceleration under (A) the charter or bylaws of the Depositor,
or (B) of any term, condition or provision of any material indenture, deed
of trust, contract or other agreement or instrument to which the Depositor
or any of its subsidiaries is a party or by which it or any of its
subsidiaries is bound; (ii) results or will result in a violation of any
law, rule, regulation, order, judgment or decree applicable to the
Depositor of any court or governmental authority having jurisdiction over
the Depositor or its subsidiaries; or (iii) results in the creation or
imposition of any lien, charge or encumbrance which would have a material
adverse effect upon the Mortgage Loans or any documents or instruments
evidencing or securing the Mortgage Loans;
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(f) There are no actions, suits or proceedings before or against or
investigations of, the Depositor pending, or to the knowledge of the
Depositor, threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Depositor's
reasonable judgment, might materially and adversely affect the performance
by the Depositor of its obligations under this Agreement, or the validity
or enforceability of this Agreement; and
(g) The Depositor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency that would materially and adversely
affect its performance hereunder.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.2 shall survive delivery of the respective
Mortgage Files to the Trustee or to a custodian, as the case may be, and shall
inure to the benefit of the Trustee and the Certificate Insurer.
Section 3.3 Purchase and Substitution. (a) It is understood and agreed that
the representations and warranties set forth in Sections 3.1 and 3.2 of the
Purchase and Sale Agreement shall survive delivery of the Certificates to the
Certificateholders. Pursuant to the Purchase and Sale Agreement, with respect to
any representation or warranty contained in Sections 3.1 or 3.2 of the Purchase
and Sale Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, any Subservicer, the Trustee, the Certificate
Insurer or any Certificateholder that the substance of such representation and
warranty was inaccurate as of the Closing Date and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan, then
notwithstanding the Seller's lack of knowledge with respect to the inaccuracy at
the time the representation or warranty was made, such inaccuracy shall be
deemed a breach of the applicable representation or warranty. Upon discovery by
the Seller, the Servicer, any Subservicer, the Trustee or the Certificate
Insurer of a breach of any of such representations and warranties which
materially and adversely affects the value of the Mortgage Loans or the interest
of the Certificateholders, or which materially and adversely affects the
interests of the Certificate Insurer or the Certificateholders in the related
Mortgage Loan in the case of a representation and warranty relating to a
particular Mortgage Loan (notwithstanding that such representation and warranty
was made to the Seller's best knowledge), the party discovering such breach
shall give prompt written notice to the others. Subject to the last paragraph of
this Section 3.3, within 60 days of the earlier of its discovery or its receipt
of notice of any breach of a representation or warranty, pursuant to the
Purchase and Sale Agreement, the Seller shall be required to (i) promptly cure
such breach in all material respects, (ii) purchase such Mortgage Loan on the
next succeeding Servicer Remittance Date, in the manner
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and at the price specified in Section 2.4(b) (in which case the Mortgage Loan
shall become a Deleted Mortgage Loan), (iii) remove such Mortgage Loan from the
Trust Fund (in which case the Mortgage Loan shall become a Deleted Mortgage
Loan) and substitute one or more Qualified Substitute Mortgage Loans; provided,
that, such substitution is effected not later than the date which is two years
after the Startup Date or at such later date, if the Trustee and the Certificate
Insurer receive an Opinion of Counsel to the effect that such substitution will
not constitute a prohibited transaction for the purposes of the REMIC provisions
of the Code or cause the _____ REMIC to fail to qualify as a REMIC at any time
any Certificates are outstanding. Pursuant to the Purchase and Sale Agreement,
any such substitution shall be accompanied by payment by the Seller of the
Substitution Adjustment, if any, to the Servicer to be deposited in the Trustee
Collection Account.
(b) As to any Deleted Mortgage Loan for which the Seller substitutes a
Qualified Substitute Mortgage Loan or Loans, the Seller shall be required
pursuant to the Purchase and Sale Agreement to effect such substitution by
delivering to the Trustee a certification in the form attached hereto as Exhibit
H, executed by a Servicing Officer and the documents described in Sections
2.3(a)(i)-(vi) for such Qualified Substitute Mortgage Loan or Loans.
(c) The Servicer shall deposit in the Collection Account all payments
received in connection with such Qualified Substitute Mortgage Loan or Loans
after the date of such substitution. Monthly Payments received with respect to
Qualified Substitute Mortgage Loans on or before the date of substitution will
be retained by the Seller. The Trust Fund will own all payments received on the
Deleted Mortgage Loan on or before the date of substitution, and the Seller
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Mortgage Loan. The Servicer shall give written notice to
the Trustee and the Certificate Insurer that such substitution has taken place
and shall amend the Mortgage Loan Schedule to reflect the removal of such
Deleted Mortgage Loan from the terms of this Agreement and the substitution of
the Qualified Substitute Mortgage Loan. Upon such substitution, such Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects.
(d) It is understood and agreed that the obligations of the Seller set
forth in Sections 2.5 and 3.4 of the Purchase and Sale Agreement to cure,
purchase, substitute or otherwise pay amounts to the Trust or the Certificate
Insurer for a defective Mortgage Loan as provided in such Sections 2.5 and 3.4
constitute the sole remedies of the Trustee, the Certificate Insurer and the
Certificateholders with respect to a breach of the representations and
warranties of the Seller set forth in Sections 3.1 and 3.2 of the Purchase and
Sale Agreement. The Trustee shall give prompt written notice to the Certificate
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Insurer, Moody's and S&P of any repurchase or substitution made pursuant to this
Section 3.3 or Section 2.4(b) hereof.
(e) Upon discovery by the Servicer, the Trustee, the Certificate Insurer or
any Certificateholder that any Mortgage Loan does not constitute a Qualified
Mortgage, the Person discovering such fact shall promptly (and in any event
within 5 days of the discovery) give written notice thereof to the others of
such Persons. In connection therewith, pursuant to the Purchase and Sale
Agreement, the Seller shall be required to repurchase or substitute a Qualified
Substitute Mortgage Loan for the affected Mortgage Loan within 60 days of the
earlier of such discovery by any of the foregoing parties, or the Trustee's or
the Seller's receipt of notice, in the same manner as it would a Mortgage Loan
for a breach of representation or warranty contained in Section 3.1 or 3.2 of
the Purchase and Sale Agreement. The Trustee shall reconvey to the Seller the
Mortgage Loan to be released pursuant hereto in the same manner, and on the same
terms and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section 3.1 or 3.2 of the Purchase and
Sale Agreement.
Section 3.4 Servicer Covenants. The Servicer hereby covenants to the
Trustee, the Depositor and the Certificate Insurer and the Certificateholders
that as of the Closing Date and during the term of this Agreement:
(a) The Servicer shall deliver on the Closing Date an opinion from the
general counsel or the corporate counsel of the Servicer as to general
corporate matters in form and substance reasonably satisfactory to
Underwriter's counsel and counsel to the Certificate Insurer.
(b) The Servicer may in its discretion (i) waive any prepayment
charge, assumption fee, late payment charge or other charge in connection
with a Mortgage Loan, and (ii) arrange a schedule, running for no more than
180 days after the Due Date for payment of any installment on any Mortgage
Note, for the liquidation of delinquent items; provided, that the Servicer
shall not agree to the modification or waiver of any provision of a
Mortgage Loan at a time when such Mortgage Loan is not in default or such
default is not imminent, if such modification or waiver would be treated as
a taxable exchange under Code Section 1001, unless such exchange would not
be considered a "prohibited transaction" under the REMIC Provisions.
It is understood and agreed that the covenants set forth in this Section
3.4 shall survive the delivery of the respective Mortgage Files to the Trustee
or to a custodian, as the case may be, and inure to the benefit of the Trustee
and the Certificate Insurer.
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ARTICLE IV
The Certificates
Section 4.1 The Certificates. The Certificates and the Additional
Certificate shall be substantially in the forms annexed hereto as, in the case
of the Class A-1 Certificate, Exhibit B-1, in the case of the Class A-2
Certificate, Exhibit B-2, in the case of the Class A-3 Certificate, Exhibit B-3,
in the case of the Class A-4 Certificate, Exhibit B-4, in the case of the Class
R Certificate, Exhibit B-5 and in the case of the Additional Certificate,
Exhibit B-6. All Certificates and the Additional Certificate shall be executed
by manual or facsimile signature on behalf of the Trustee by an authorized
officer and authenticated by the manual or facsimile signature of an authorized
officer. Any Certificates and any Additional Certificate bearing the signatures
of individuals who were at the time of the execution thereof the authorized
officers of the Trustee shall bind the Trustee, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
delivery of such Certificates or Additional Certificates or did not hold such
offices at the date of such Certificates. All Certificates and the Additional
Certificate issued hereunder shall be dated the date of their authentication.
Section 4.2 Registration of Transfer and Exchange of Certificates. (a) The
Trustee, as registrar, shall cause to be kept a register (the "Certificate
Register") in which, subject to such reasonable regulations as it may prescribe,
the Trustee shall provide for the registration of Certificates and the
Additional Certificate and the registration of transfer of Certificates and the
Additional Certificate. The Trustee is hereby appointed registrar for the
purpose of registering and transferring Certificates and the Additional
Certificate, as herein provided. The Certificate Insurer and the Servicer shall
be entitled to inspect and copy the Certificate Register and the records of the
Trustee relating to the Certificates and the Additional Certificate during
normal business hours upon reasonable notice.
(b) All Certificates and the Additional Certificate issued upon any
registration of transfer or exchange of Certificates and the Additional
Certificate shall be valid evidence of the same ownership interests in the Trust
and entitled to the same benefits under this Agreement as the Certificates and
the Additional Certificate surrendered upon such registration of transfer or
exchange.
(c) Every Certificate and Additional Certificate presented or surrendered
for registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by the Holder or holder thereof or his attorney duly
authorized in
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writing. Every Certificate shall include a statement of insurance provided by
the Certificate Insurer.
(d) No service charge shall be made to a Holder or holder for any
registration of transfer or exchange of Certificates and the Additional
Certificate, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Certificates and the Additional
Certificate; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(e) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. The Class A-1 Certificates shall, except as otherwise provided in the
next paragraph, be initially issued in the form of a single fully registered
Class A-1 Certificate with a denomination equal to the Original Class A-1
Principal Balance. The Class A-2 Certificates shall, except as otherwise
provided in the next paragraph, be initially issued in the form of a single
fully registered Class A-2 Certificate with a denomination equal to the Original
Class A-2 Principal Balance. The Class A-3 Certificates shall, except as
otherwise provided in the next paragraph, be initially issued in the form of a
single fully registered Class A-3 Certificate with a denomination equal to the
Original Class A-3 Principal Balance. The Class A-4 Certificates shall, except
as otherwise provided in the next paragraph, be initially issued in the form of
a single fully registered Class A-4 Certificate with a denomination equal to the
Original Class A-4 Principal Balance. Upon initial issuance, the ownership of
each such Class A Certificate shall be registered in the Certificate Register in
the name of Cede & Co., or any successor thereto, as nominee for the Depository.
The Depositor and the Trustee are hereby authorized to execute and deliver the
Representation Letter with the Depository. With respect to Class A Certificates
registered in the Certificate Register in the name of Cede & Co., as nominee of
the Depository, the Depositor, the Seller, the Servicer, the Trustee and the
Certificate Insurer shall have no responsibility or obligation to Direct or
Indirect Participants or beneficial owners for which the Depository holds Class
A Certificates from time to time as a Depository. Without limiting the
immediately preceding sentence, the Depositor, the Seller, the Servicer, the
Trustee and the Certificate Insurer shall have no responsibility or obligation
with respect to (i) the accuracy of the records of the Depository, Cede & Co.,
or any Direct or Indirect Participant with respect to any Ownership Interest,
(ii) the delivery to any Direct or Indirect Participant or any other Person,
other than a Certificateholder, of any notice with respect to the Class A
Certificates or (iii) the payment to any Direct or Indirect Participant or any
other Person, other than a Certificateholder, of any amount with respect to any
distribution of principal or interest on the Class A Certificates. No Person
other than a Certificateholder shall receive a certificate evidencing such
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Class A Certificate. Upon delivery by the Depository to the Trustee of written
notice to the effect that the Depository has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions hereof with
respect to the payment of interest by the mailing of checks or drafts to the
Certificateholders appearing as Certificateholders at the close of business on a
Record Date, the mane "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(f) In the event that (i) the Depository or the Servicer advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and the Servicer or the Depository is unable to locate a
qualified successor or (ii) the Trustee at its sole option elects to terminate
the book-entry system through the Depository, the Class A Certificates shall no
longer be restricted to being registered in the Certificate Register in the name
of Cede & Co. (or a successor nominee) as nominee of the Depository. At that
time, the Servicer may determine that the Class A Certificates shall be
registered in the name of and deposited with a successor depository operating a
global book-entry system, as may be acceptable to the Servicer, or such
depository's agent or designee but, if the Servicer does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name or names Certificateholders transferring Class A
Certificates shall designate, in accordance with the provisions hereof;
provided, however, that any such reregistration shall be at the expense of the
Servicer.
(g) Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates as the case may be and all notices with respect to such
Class A Certificates as the case may be shall be made and given, respectively,
in the manner provided in the Representation Letter.
(h) No transfer, sale, pledge or other disposition of any Class R
Certificate shall be made unless such disposition is made pursuant to an
effective registration statement under the Securities Act of 1933, as amended
and effective registration or qualification under applicable state securities
laws or "Blue Sky" laws, or is made in a transaction that does not require such
registration or qualification. None of the Servicer, the Depositor, the Seller
or the Trustee is obligated under this Agreement to register the Certificates
under the Securities Act of 1933, as amended or any other securities law or to
take any action not otherwise required under this Agreement to permit the
transfer of the Class R Certificates without such registration or qualification.
Any such Certificateholder desiring to effect such transfer shall, and does
hereby agree to, indemnify the
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Trustee, the Depositor, the Seller, the Servicer and the Certificate Insurer
against any liability that may result if the transfer is not exempt or is not
made in accordance with such applicable federal and state laws. Promptly after
receipt by an indemnified party under this paragraph of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this paragraph,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to appoint counsel reasonably satisfactory to such
indemnified party to represent the indemnified party in such action; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are in conflict with or contrary to the interests of
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to appoint counsel to defend such action
and approval by the indemnified party of such counsel, the indemnifying party
will not be liable to such indemnified party under this paragraph for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso of the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel for any indemnified party),
(ii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. Under no circumstances shall the indemnified party enter
into a settlement agreement with respect to any lawsuit, claim or other
proceeding without the prior written consent of the indemnifying party.
(i) Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Servicer or its designee as its attorney-in-fact to
negotiate the terms of any mandatory sale under subclause (vii) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
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Ownership Interest in a Class R Certificate are expressly subject to the
following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a Class
R Certificate shall be a Permitted Transferee and a United States Person
and shall promptly notify the Trustee of any change or impending change in
its status as either a United States Person or a Permitted Transferee.
(ii) In connection with any proposed Transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery to
it, and shall not register the Transfer of any Class R Certificate until
its receipt of, an affidavit and agreement (a "Transfer Affidavit and
Agreement") attached hereto as Exhibit I from the proposed Transferee,
representing and warranting, among other things, that such Transferee is a
Permitted Transferee, that it is not acquiring its Ownership Interest in
the Class R Certificate that is the subject of the proposed Transfer as a
nominee, trustee or agent for any Person that is not a Permitted
Transferee, that for so long as it retains its Ownership Interest in a
Class R Certificate, it will endeavor to remain a Permitted Transferee, and
that it has reviewed the provisions of this Section 4.2(i) and agrees to be
bound by them.
(iii) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (ii) above, if the Trustee
has actual knowledge that the proposed Transferee is not a Permitted
Transferee, no Transfer of an Ownership Interest in a Class R Certificate
to such proposed Transferee shall be effected.
(iv) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall agree (x) to require a Transfer Affidavit and
Agreement from any other Person to whom such Person attempts to transfer
its Ownership Interest in a Class R Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate (attached hereto as
Exhibit J) to the Trustee stating that, among other things, it has no
actual knowledge that such other Person is not a Permitted Transferee.
(v) Each Person holding or acquiring an Ownership Interest in a Class
R Certificate, by purchasing an Ownership Interest in such Certificate,
agrees to give the Trustee written notice that it is a "pass-through
interest holder" within the meaning of temporary Treasury Regulation
Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership
Interest in a Class R Certificate, if it is, or is holding an Ownership
Interest in a Class R Certificate on behalf of, a "pass-through interest
holder."
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(vi) The Trustee will register the Transfer of any Class R Certificate
only if it shall have received the Transfer Affidavit and Agreement. In
addition, no Transfer of a Class R Certificate shall be made unless the
Trustee shall have received a representation letter, the form of which is
attached hereto as Exhibit N from the Transferee of such Certificate to the
effect that such Transferee is a United States Person and is not a
"disqualified organization" (as defined in Section 860E(e)(5) of the Code).
(vii) Any attempted or purported transfer of any Ownership Interest in
a Class R Certificate in violation of the provisions of this Section 4.2
shall be absolutely null and void and shall vest no rights in the purported
transferee. If any purported transferee shall become a Holder of a Class R
Certificate in violation of the provisions of this Section 4.2, then the
last preceding Permitted Transferee shall be restored to all rights as
Holder thereof retroactive to the date of registration of transfer of such
Class R Certificate. The Trustee shall notify the Servicer upon receipt of
written notice or discovery by a Responsible Officer that the registration
of transfer of a Class R Certificate was not in fact permitted by this
Section 4.2. Knowledge shall not be imputed to the Trustee with respect to
an impermissible transfer in the absence of such a written notice or
discovery by a Responsible Officer. The Trustee shall be under no liability
to any Person for any registration of transfer of a Class R Certificate
that is in fact not permitted by this Section 4.2 or for making any
payments due on such Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of this Agreement
so long as the transfer was registered after receipt of the related
Transfer Affidavit and Transfer Certificate. The Trustee shall be entitled,
but not obligated to recover from any Holder of a Class R Certificate that
was in fact not a Permitted Transferee at the time it became a Holder or,
at such subsequent time as it became other than a Permitted Transferee, all
payments made on such Class R Certificate at and after either such time.
Any such payments so recovered by the Trustee shall be paid and delivered
by the Trustee to the last preceding Holder of such Certificate.
(viii) If any purported transferee shall become a Holder of a Class R
Certificate in violation of the restrictions in this Section 4.2, then the
Servicer or its designee shall have the right, without notice to the Holder
or any prior Holder of such Class R Certificate, to sell such Class R
Certificate to a purchaser selected by the Servicer or its designee on such
reasonable terms as the Servicer or its designee may choose. Such purchaser
may be the Servicer itself or any Affiliate of the Servicer. The
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proceeds of such sale, net of commissions, expenses and taxes due, if any,
will be remitted by the Servicer to the last preceding purported transferee
of such Class R Certificate, except that in the event that the Servicer
determines that the Holder or any prior Holder of such Class R Certificate
may be liable for any amount due under this Section 4.2 or any other
provision of this Agreement, the Servicer may withhold a corresponding
amount from such remittance as security for such claim. The terms and
conditions of any sale under this subclause (viii) shall be determined in
the sole discretion of the Servicer or its designee, and it shall not be
liable to any Person having an Ownership Interest in a Class R Certificate
as a result of its exercise of such discretion.
(ix) The provisions of Section 4.2(i) may be modified, added to or
eliminated, provided that there shall have been delivered to the Trustee
and the Certificate Insurer an Opinion of Counsel to the effect that such
modification of, addition to or elimination of such provisions will not
cause the _____ REMIC to cease to qualify as a REMIC and will not cause (x)
the _____ REMIC to be subject to an entity-level tax caused by the Transfer
of any Ownership Interest in a Class R Certificate to a Person that is not
a Permitted Transferee or (y) a Person other than the prospective
transferee to be subject to a REMIC-related tax caused by the Transfer of
an Ownership Interest in a Class R Certificate to a Percentage that is not
a Permitted Transferee.
(x) No transfer of a Class R Certificate or any interest therein shall
be made to any employee benefit plan or other retirement arrangement,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code
(each, a "Plan"), unless the prospective transferee of such Class R
Certificate provides the Servicer and the Trustee with a certification of
facts and, at the prospective transferee's expense, an Opinion of Counsel
which establish to the satisfaction of the Servicer and the Trustee that
such transfer will not result in a violation of Section 406 of ERISA or
Section 4975 of the Code or cause the Servicer or the Trustee to be deemed
a fiduciary of such Plan or result in the imposition of an excise tax under
Section 4975 of the Code. In the absence of their having received the
certification of facts or Opinion of Counsel contemplated by the preceding
sentence, the Trustee and the Servicer shall require the prospective
transferee of any Class R Certificate to certify (in the form of Exhibit K
hereto) that (A) it is neither (i) a Plan nor (ii) a Person who is directly
or indirectly purchasing a Class R Certificate on
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behalf of, as named fiduciary of, as trustee of, or with assets, of a Plan
and (B) all funds used by such transferee to purchase such Certificates
will be funds held by it in its general account which it reasonably
believes do not constitute "plan assets" of any Plan.
(xi) Subject to the restrictions set forth in this Agreement, upon
surrender for registration of transfer of any Certificate at the office or
agency of the Trustee located in ________________, ________________, the
Trustee shall execute, authenticate and deliver in the name of the
designated transferee or transferees, a new Certificate of the same Class
and evidencing, in the case of a Class A-1 Certificate, Class A-2
Certificate, Class A-3 Certificate or Class A-4 Certificate, the same
Percentage Interest, and in any other case, the equivalent undivided
beneficial ownership interest in the related REMIC and dated the date of
authentication by the Trustee. At the option of the Certificateholders,
Certificates may be exchanged for other Certificates of Authorized
Denominations of a like aggregate undivided beneficial ownership interest,
upon surrender of the Certificates to be exchanged at such office. Whenever
any Certificates are so surrendered for exchange, the Trustee shall
execute, authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. No service
charge shall be made for any transfer or exchange of Certificates, but the
Trustee may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Certificates. All Certificates surrendered for transfer and
exchange shall be canceled by the Trustee.
(j) Upon reasonable request of the holder of the Additional Certificate,
not more frequently than twice annually, and with the consent of the Certificate
Insurer and the Rating Agencies, the Trustee shall authenticate and deliver one
or more certificates or other instruments representing the right to receive
distributions in respect of Additional Balances drawn under the HELOCs to the
date of such request or any portion thereof. The rights of any holders of such
certificates or other instruments shall have the same priority, be in lieu of
and in no event exceed the rights of the Holder of the Additional Certificate
immediately prior to such authentication and delivery. Following such
authentication and delivery, rights reserved to the Holder of the Additional
Certificate hereunder, shall be allocated among the holders of such certificates
or other instruments and the Holder of the Additional Certificate hereunder as
determined by an executed written agreement between such parties and the Trustee
approved by the Certificate Insurer. Other than in connection with such a
transfer, the Holder of the Additional Certificate may not transfer its
Ownership Interest or any portion thereof in such Additional Certificate and the
Holder of the Additional Certificate shall retain its obligation under
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the HELOCs to advance Additional Balances to the related Mortgagors.
Section 4.3 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
mutilated Certificate is surrendered to the Trustee, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the Servicer, the Certificate Insurer
and the Trustee such security or indemnity as may reasonably be required by each
of them to save each of them harmless, then, in the absence of notice to the
Servicer, the Certificate Insurer and the Trustee that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute, authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor and representing an
equivalent beneficial ownership interest, but bearing a number not
contemporaneously outstanding. Upon the issuance of any new Certificate under
this Section 4.3, the Servicer and the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and their fees and expenses connected therewith. Any duplicate
Certificate issued pursuant to this Section 4.3 shall constitute complete and
indefeasible evidence of ownership in the Trust Fund, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Certificate shall be
found at any time.
Section 4.4 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer and subject to the provisions of
Section 4.2 and Article X, the Servicer, the Depositor, the Seller, the
Certificate Insurer and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.5 and for all other purposes
whatsoever, and the Servicer, the Depositor, the Seller, the Certificate Insurer
and the Trustee shall not be affected by notice to the contrary.
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ARTICLE V
Administration and Servicing of the Mortgage Loans
Section 5.1 Appointment of the Servicer.
(a) _________________ agrees to act as the Servicer and to perform all
servicing duties under this Agreement subject to the terms hereof.
(b) The Servicer shall service and administer the Mortgage Loans on behalf
of the Trustee and the Certificate Insurer and shall have full power and
authority, acting alone or through one or more Subservicers, to do any and all
things in connection with such servicing and administration which it may deem
necessary or desirable. Without limiting the generality of the foregoing, the
Servicer, in its own name or the name of a Subservicer, may, and is hereby
authorized and empowered by the Trustee to, execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans, the insurance policies and accounts related thereto and the properties
subject to the Mortgages. Upon the execution and delivery of this Agreement, and
from time to time as may be required thereafter, the Trustee shall furnish the
Servicer or its Subservicers with any powers of attorney and such other
documents as may be necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder.
In servicing and administering the Mortgage Loans, the Servicer shall
employ procedures consistent with Accepted Servicing Practices and in a manner
consistent with recovery under any insurance policy required to be maintained by
the Servicer pursuant to this Agreement.
The Servicer shall make any Mortgage Interest Rate adjustments on each
Interest Adjustment Date in compliance with applicable regulatory adjustable
mortgage loan requirements and the Mortgage Notes. The Servicer shall establish
procedures to monitor the Interest Adjustment Dates in order to assure that it
uses a published interest rate in determining an interest rate change, and it
will comply with those procedures. In the event a published interest rate is no
longer available, the Servicer shall choose a new comparable published interest
rate in accordance with the provisions hereof, of the applicable Mortgage Note
and of Accepted Servicing Practices, and shall provide the Mortgagor, the
Trustee and the Certificate Insurer with notice of the new published interest
rate sufficient under law and the Mortgage Note. The Servicer shall execute and
deliver all appropriate notices required by the applicable adjustable mortgage
loan laws and regulations and the Mortgage Loan Documents regarding such
Mortgage Interest Rate adjustments.
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If the Servicer fails to make a timely Mortgage Interest Rate adjustment in
accordance with the terms of the related Mortgage Notes, the Servicer shall use
its own funds to satisfy any shortage in the Mortgagor's remittance so long as
such shortage shall continue; any such amount paid by the Servicer shall be
reimbursable to it from any subsequent amounts collected on account of the
related Mortgage Loan with respect to such adjustments.
Costs incurred by the Servicer in effectuating the timely payment of taxes
and assessments on the property securing a Mortgage Note and foreclosure costs
may be added by the Servicer to the amount owing under such Mortgage Note where
the terms of such Mortgage Note so permit; provided, however, that the addition
of any such cost shall not be taken into account for purposes of calculating the
principal amount of the Mortgage Note and the Mortgage Loan secured by the
Mortgage Note or distributions to be made to Certificateholders. Such costs
shall be recoverable by the Servicer pursuant to Section 5.4. Notwithstanding
any other provision of this Agreement, the Servicer shall at all times service
the Mortgage Loans in a manner consistent with the provisions of Sections 5.1(b)
and 5.1(c).
(c) It is intended that the _____ REMIC formed hereunder shall constitute,
and that the affairs of the REMIC _____ shall be conducted so as to qualify it
as, a "real estate mortgage investment conduit" ("REMIC") as defined in and in
accordance with the REMIC Provisions. In furtherance of such intentions, the
Servicer covenants and agrees that it shall not take any action or omit to take
any action reasonably within the Servicer's control and the scope of its duties
more specifically set forth herein that would (i) result in a taxable event to
the Holders of the Certificates or endanger the REMIC status of the _____ REMIC
or (ii) result in the imposition on the _____ REMIC or the Trust Fund of a tax
on "prohibited transactions" (either clause (i) or (ii) shall be an "Adverse
REMIC Event.") The Servicer shall not take any action or fail to take any action
(whether or not authorized hereunder) as to which the Trustee has advised it in
writing that it has received an Opinion of Counsel to the effect that an Adverse
REMIC Event could occur with respect to such action, and the Servicer shall have
no liability hereunder for any action taken by it in accordance with the written
instruments of the Trustee. In addition, prior to taking any action with respect
to the Trust Fund that is not expressly permitted under the terms of this
Agreement, the Servicer will consult with the Trustee or its designee and the
Certificate Insurer, in writing, with respect to whether such action could cause
an Adverse REMIC Event to occur. The Trustee may consult with counsel to make
such written advice, and the cost of same shall be borne by the party seeking to
take the action not permitted by this Agreement. At all times as may be required
by the Code, the Servicer shall use its best efforts to ensure that
substantially all of the assets of the Trust will consist of
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"qualified mortgages" as defined in Section 860G(a)(3) of the Code and
"permitted investments" as defined in Section 860G(a)(5) of the Code. In the
event any specified time period or other requirement set forth in this Agreement
in respect of compliance with the REMIC Provisions becomes inconsistent with the
REMIC Provisions as the same may be amended, such specified time period or other
requirement shall also be deemed amended to comply with the requirements of this
Section, unless such amended time period or other requirements shall be less
protective of the interests of the Certificateholders and the Certificate
Insurer, in which case, to the extent consistent with the REMIC Provisions, the
former time period or requirement shall continue in force.
(d) Subject to Section 5.12, the Servicer is hereby authorized and
empowered to execute and deliver on behalf of the Trustee and each
Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the Mortgaged Properties. If
reasonably required by the Servicer, each Certificateholder and the Trustee
shall execute any powers of attorney furnished to the Trustee by the Servicer
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties under this Agreement.
(e) On and after such time as the Trustee receives the resignation of, or
notice of the removal of, the Servicer from its rights and obligations under
this Agreement, and with respect to resignation pursuant to Section 5.23, after
receipt by the Trustee and the Certificate Insurer of the Opinion of Counsel
required pursuant to Section 5.23, the Trustee or its designee approved by the
Certificate Insurer shall assume all of the rights and obligations of the
Servicer, subject to Section 7.2 hereof. The Servicer shall, upon request of the
Trustee but at the expense of the Servicer, deliver to the Trustee all documents
and records relating to the Mortgage Loans and an accounting of amounts
collected and held by the Servicer and otherwise use its best efforts to effect
the orderly and efficient transfer of servicing rights and obligations to the
assuming party.
(f) The Servicer shall deliver a list of Servicing Officers to the Trustee
and the Certificate Insurer by the Closing Date, which list may, from time to
time, be amended, modified or supplemented by the subsequent delivery to the
Trustee and the Certificate Insurer of any superseding list of Servicing
Officers.
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Section 5.2 Subservicing Agreements Between the Servicer and Subservicers.
(a) The Servicer may, subject to the prior written approval of the Certificate
Insurer (except as between the Servicer and the Trustee, as Subservicer), enter
into Subservicing Agreements with Subservicers for the servicing and
administration of the Mortgage Loans and for the performance of any and all
other activities of the Servicer hereunder. Each Subservicer shall be either (i)
a depository institution the accounts of which are insured by the FDIC or (ii)
another entity that engages in the business of originating, acquiring or
servicing loans, and in either case shall be authorized to transact business in
the state or states where the related Mortgaged Properties it is to service are
situated. In addition, each Subservicer will obtain and preserve its
qualifications to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates and any of the Mortgage Loans
and to perform or cause to be performed its duties under the related
Subservicing Agreement which shall provide that the Subservicer's rights shall
automatically terminate upon the termination, resignation or other removal of
the Servicer under this Agreement. Each account used by any Subservicer for the
deposit of payments on any of the Mortgage Loans shall be an Eligible Account.
(b) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain obligated and primarily liable to the Trustee, the
Certificate Insurer and the Certificateholders for the servicing and
administering of the Mortgage Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
Subservicing Agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Mortgage Loans. For
purposes of this Agreement, the Servicer shall be deemed to have received
payments on Mortgage Loans when the Subservicer has received such payments.
In the event the Servicer shall for any reason no longer be the Servicer
(including by reason of an Event of Default), the Trustee or its designee may,
with the prior written consent of the Certificate Insurer, or shall, at the
direction of the Certificate Insurer, either (i) assume all of the rights and
obligations of the Servicer under each Subservicing Agreement that the Servicer
may have entered into or (ii) notwithstanding anything to the contrary contained
in each such Subservicing Agreement, terminate the related Subservicer without
being required to pay any fee in connection therewith.
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Section 5.3 Collection of Certain Mortgage Loan Payments; Collection
Account. (a) The Servicer shall use its best efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and any
applicable primary mortgage insurance policy, follow such collection procedures
as shall constitute Accepted Servicing Practices.
The Servicer shall establish and maintain in the name of the Trustee two
Collection Accounts (collectively, the "Collection Account"), in trust for the
benefit of the Holders of the Certificates, the Additional Certificates and the
Certificate Insurer, one of which shall be established and maintained with the
Trustee (the "Trustee Collection Account"). The Servicer shall promptly provide
notice to the Certificate Insurer, the Trustee and each Rating Agency of any
creation and establishment of a Collection Account hereunder. Each Collection
Account shall be established and maintained as an Eligible Account and one
Collection Account may be maintained at the Bank of the West. The Certificate
Insurer, in its sole discretion, may direct the Servicer to close such
Collection Account and to establish and maintain a replacement Collection
Account that is an Eligible Account. Neither the Collection Account nor the
Trustee Collection Account constitute assets of the _____ REMIC.
On the Closing Date, the Servicer shall deposit in the Trustee Collection
Account any amounts representing the principal portion of Monthly Payments on
the Mortgage Loans made in respect of the _________ Due Date and received on or
prior to the Cut-Off Date. On the third Business Day prior to the first
Remittance Date, the Servicer shall have deposited into the Trustee Collection
Account all of the following collections and payments received or made by the
Servicer in respect of monies due under the Mortgage Loans (other than in
respect of interest on the Mortgage Loans accrued on or before the Due Date
immediately preceding the Cut-Off Date), and shall, on a daily basis thereafter
(except as otherwise provided herein), deposit such collections and payments
into the Collection Account:
(i) all payments received after the Cut-Off Date on account of
principal on the Mortgage Loans and all Principal Prepayments, Curtailments
and all Net REO Proceeds collected after the Cut-Off Date;
(ii) all payments received after the Cut-Off Date on account of
interest on the Mortgage Loans (other than payments of interest that
accrued on each Mortgage Loan up to and including the Due Date immediately
preceding the Cut-Off Date);
(iii) all Net Liquidation Proceeds;
(iv) all Insurance Proceeds;
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(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase of any
Mortgage Loan and the amount of any Substitution Adjustment pursuant to
Sections 2.4 and 3.3 hereof; and
(vii) any amount expressly required to be deposited in the Collection
Account or Trustee Collection Account in accordance with certain provisions
of this Agreement, including, without limitation amounts in respect of the
termination of the Trust Fund (which shall be deposited in the Trustee
Collection Account), and amounts referenced in Sections 2.4(b), 3.3(a),
3.3(c), 5.6, and 6.6(d) of this Agreement;
provided, however, that the Servicer shall be entitled, at its election, either
(a) to withhold and to pay to itself the applicable Servicing Fee from any
payment on account of interest or other recovery (including Net REO Proceeds) as
received and prior to deposit of such payments in the Collection Account or (b)
to withdraw the applicable Servicing Fee from the Collection Account after the
entire payment or recovery has been deposited therein; provided, further, that
with respect to any payment of interest received by the Servicer in respect of a
Mortgage Loan (whether paid by the Mortgagor or received as Liquidation
Proceeds, Insurance Proceeds or otherwise) which is less than the full amount of
interest then due with respect to such Mortgage Loan, only that portion of such
payment that bears the same relationship to the total amount of such payment of
interest as the rate used to determine the Servicing Fee bears to the Mortgage
Interest Rate borne by such Mortgage Loan shall be allocated to the Servicing
Fee with respect to such Mortgage Loan. All other amounts shall be deposited in
the Collection Account not later than the Business Day following the day of
receipt and posting by the Servicer. All amounts collected in respect of the
Mortgage Loans and on deposit in each Local Collection Account shall be
transferred on a regular monthly basis into the Trustee Collection Account.
Notwithstanding any regularly scheduled transfer of funds to the Trustee
Collection Account, the Servicer shall, not later than 3 Business Days prior to
each Remittance Date transfer to the Trustee Collection Account all funds in
each Local Collection Account that are to be included in the Servicer Remittance
Amount on the Servicer Remittance Date immediately preceding the Remittance
Date.
The Servicer shall direct, in writing, the institution maintaining each
Collection Account and the Trustee Collection Account to invest the funds in the
Collection Account or Trustee Collection Account, as the case may be, only in
Permitted Investments. No Permitted Investment shall be sold or disposed of at a
gain prior to maturity unless the Servicer has obtained
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an Opinion of Counsel (at the Servicer's expense) that such sale or disposition
will not cause the Trust Fund to be subject to the tax on income from prohibited
transactions imposed by Code Section 860F(a)(1), otherwise subject the Trust
Fund to tax or cause the _____ REMIC to fail to qualify as a REMIC. All income
(other than any gain from a sale or disposition of the type referred to in the
preceding sentence) realized from any such Permitted Investment shall be for the
benefit of the Servicer as additional servicing compensation. The amount of any
losses incurred in respect of any such investments shall be deposited in the
Collection Account by the Servicer out of its own funds immediately as realized.
The foregoing requirements for deposit in the Collection Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of those described in the last
paragraph of Section 5.14 and payments in the nature of prepayment charges, late
payment charges or assumption fees need not be deposited by the Servicer in the
Collection Account. Notwithstanding any provision herein to the contrary, the
Servicer shall not deposit in any Collection Account, including the Trustee
Collection Account, any amount other than amounts required to be deposited
therein in accordance with the terms of this Agreement, and the Servicer shall
have the right at all times to transfer funds from the Collection Account to the
Trustee Collection Account. All funds deposited by the Servicer in the
Collection Account and the Trustee Collection Account shall be held therein for
the account of the Trustee in trust for the Certificateholders and the
Certificate Insurer until disbursed in accordance with Section 6.1 or withdrawn
in accordance with Section 5.4.
(b) Prior to the time of their required deposit in the Collection Account,
all amounts required to be deposited therein may be deposited in an account in
the name of Servicer, provided that such account is an Eligible Account. All
such funds shall be held by the Servicer in trust for the benefit of the
Certificateholders and the Certificate Insurer pursuant to the terms hereof.
(c) The Collection Account may, upon written notice by the Trustee to the
Certificate Insurer, be transferred to a different depository so long as such
transfer is to an Eligible Account.
Section 5.4 Permitted Withdrawals from the Collection Account and Trustee
Collection Account. The Servicer is hereby authorized by the Trustee (such
authorization to be revocable by the Trustee at any time), from time to time, to
make withdrawals from the Collection Account or, as applicable, the Trustee
Collection Account but only for the following purposes:
(a) to reimburse itself from any funds in the Collection Account and the
Trustee Collection Account for any
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accrued unpaid Servicing Fees and for unreimbursed Periodic Advances and
Servicing Advances. The Servicer's right to reimbursement for unpaid Servicing
Fees and unreimbursed Servicing Advances shall be limited to late collections on
the related Mortgage Loan, including Liquidation Proceeds, Released Mortgaged
Property Proceeds, Insurance Proceeds and such other amounts on deposit in the
Collection Account as may be collected by the Servicer from the related
Mortgagor or otherwise relating to the Mortgage Loan in respect of which such
unreimbursed amounts are owed. The Servicer's right to reimbursement for
unreimbursed Periodic Advances shall be limited to late collections of interest
on any Mortgage Loan and to Liquidation Proceeds and Insurance Proceeds on
related Mortgage Loans;
(b) to reimburse itself for any Periodic Advances determined in good faith
to have become Nonrecoverable Advances, such reimbursement to be made from any
funds in the Collection Account and the Trustee Collection Account;
(c) to withdraw from the Collection Account or the Trustee Collection
Account any Preference Amount received from a Mortgagor;
(d) to withdraw any funds deposited in the Collection Account or Trustee
Collection Account that were mistakenly deposited therein;
(e) to withdraw from the Collection Account or the Trustee Collection
Account any funds needed to pay itself Servicing Compensation pursuant to
Section 5.14 hereof to the extent not retained or paid pursuant to Section 5.3,
5.4 or 5.14;
(f) to withdraw from the Collection Account or the Trustee Collection
Account to pay to the Seller with respect to each Mortgage Loan or property
acquired in respect thereof that has been repurchased or replaced pursuant to
Section 2.4 or 3.3 or to pay to itself with respect to each Mortgage Loan or
property acquired in respect thereof that has been purchased pursuant to Section
8.1 all amounts received thereon and not required to be deposited into the
Collection Account or the Trustee Collection Account as a result of such
repurchase or replacement;
(g) subject to the provisions of Section 5.20, to reimburse itself from the
Collection Account or the Trustee Collection Account for (i) Nonrecoverable
Advances that are not, with respect to aggregate Servicing Advances on any
single Mortgage Loan or REO Property, in excess of the Trust Balance thereof and
(ii) for amounts to be reimbursed to the Servicer pursuant to Section 5.21;
(h) to withdraw from the Collection Account or the Trustee Collection
Account to pay to the Seller with respect to each Mortgage Loan the excess, if
any, of (i) interest accrued
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and unpaid on such Mortgage Loan on the Cut-Off Date, over (ii) interest on such
Mortgage Loan from the Due Date for such Mortgage Loan immediately preceding the
Cut-Off Date to the Cut-Off Date;
(i) to transfer funds from the Collection Account into the Trustee
Collection Account and to withdraw funds from the Collection Account and the
Trustee Collection Account necessary to make deposits to the Certificate Account
(which shall include the Trustee Fee) in the amounts and in the manner provided
for in Section 6.1 hereof;
(j) to pay itself any interest earned on or investment income earned with
respect to funds in the Collection Account or Trustee Collection Account;
(k) to withdraw from the Collection Account, any amount deposited therein
that is allocable to an Additional Balance and deposit such amount into the
Additional Certificate Account; and
(l) to clear and terminate the Collection Account and Trustee Collection
Account upon the termination of this Agreement.
The Servicer shall keep and maintain a separate accounting for each
Mortgage Loan for the purpose of accounting for withdrawals from the Collection
Account pursuant to subclause (a).
Section 5.5 Payment of Taxes, Insurance and Other Charges. With respect to
each Mortgage Loan, the Servicer shall maintain accurate records reflecting
casualty insurance coverage.
With respect to each Mortgage Loan as to which the Servicer maintains
escrow accounts, the Servicer shall maintain accurate records reflecting the
status of ground rents, taxes, assessments, water rates and other charges which
are or may become a lien upon the Mortgaged Property and the status of primary
mortgage guaranty insurance premiums, if any, and casualty insurance coverage
and shall obtain, from time to time, all bills for the payment of such charges
(including renewal premiums) and shall effect payment thereof prior to the
applicable penalty or termination date and at a time appropriate for securing
maximum discounts allowable, employing for such purpose deposits of the
Mortgagor in any escrow account which shall have been estimated and accumulated
by the Servicer in amounts sufficient for such purposes, as allowed under the
terms of the Mortgage. To the extent that a Mortgage does not provide for escrow
payments, the Servicer shall, if it has received notice of a default or
deficiency, monitor such payments to determine if they are made by the
Mortgagor.
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Section 5.6 Maintenance of Casualty Insurance. For each Mortgage Loan, the
Servicer shall maintain or cause to be maintained, to the extent required by the
related Mortgage Loan to be maintained by the Mortgagor, fire and casualty
insurance with a standard mortgagee clause and extended coverage in an amount
which is not less than the replacement value of the improvements securing such
Mortgage Loan or the unpaid principal balance of such Mortgage Loan, whichever
is less. If, upon origination of the Mortgage Loan, the Mortgaged Property was
in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards (and such flood insurance has
been made available) the Servicer will cause to be maintained, to the extent
required by the related Mortgage Loan to be maintained by the Mortgagor, a flood
insurance policy meeting the requirements of the current guidelines of the
Federal Insurance Administration with a generally acceptable insurance carrier,
in an amount representing coverage not less than the least of (i) the unpaid
principal balance of the Mortgage Loan, (ii) the full insurable value of the
Mortgaged Property or (iii) the maximum amount of insurance available under the
Flood Disaster Protection Act of 1973. With respect to each Mortgage Loan, the
Servicer shall also maintain fire insurance with extended coverage and, if
applicable, flood insurance on REO Property in an amount which is at least equal
to the lesser of (i) the maximum insurable value of the improvements which are a
part of such property and (ii) the principal balance owing on such Mortgage Loan
at the time of such foreclosure or grant of deed in lieu of foreclosure plus
accrued interest and related Liquidation Expenses. It is understood and agreed
that such insurance shall be with insurers approved by the Servicer and that no
earthquake or other additional insurance is to be required of any Mortgagor or
to be maintained on property acquired in respect of a defaulted loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. Pursuant to Section 5.3,
any amounts collected by the Servicer under any insurance policies maintained
pursuant to this Section 5.6 (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or released to the
Mortgagor in accordance with Accepted Servicing Practices) shall be deposited
into the Collection Account, subject to withdrawal pursuant to Section 5.4. Any
cost incurred by the Servicer in maintaining any such insurance shall be added
to the amount owing under the Mortgage Loan where the terms of the Mortgage Loan
so permit; provided, however, that the addition of any such cost shall not be
taken into account for purposes of calculating the principal amount of the
Mortgage Note or the Mortgage Loan secured by the Mortgage Note or the
distributions to be made to the Certificateholders. Such costs shall be
recoverable by the Servicer pursuant to Section 5.4. In the event that the
Servicer shall obtain and maintain a blanket policy issued by an insurer that is
acceptable to FNMA or FHLMC, insuring against hazard losses on all of the
Mortgage Loans, it shall conclusively be deemed to have satisfied its obligation
as set forth in the first
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sentence of this Section 5.6, it being understood and agreed that such policy
may contain a deductible clause, in which case the Servicer shall, in the event
that there shall not have been maintained on the related mortgaged or acquired
property an insurance policy complying with the first sentence of this Section
5.6 and there shall have been a loss which would have been covered by such a
policy had it been maintained, be required to deposit from its own funds into
the Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause.
Section 5.7 Servicer Account. In addition to the Collection Account, the
Servicer shall be permitted to establish and maintain one or more Servicer
Accounts (collectively, the "Servicer Account"), which shall be an Eligible
Account, in which the Servicer may deposit all payments by, and collections
from, the Mortgagors received in connection with the Mortgage Loans prior to the
Servicer's deposit of all such funds required to be deposited into the
Collection Account. Withdrawals may be made out of such collections in the
Servicer Account to reimburse the Servicer for any advances not otherwise
required to be made from the Collection Account or for any refunds made by the
Servicer of any sums determined to be overages, or to pay any interest owed to
Mortgagors on such account to the extent required by law, and in order to
terminate and clear the Servicer Account upon the termination of this Agreement
upon the termination of the Trust Fund.
Section 5.8 Fidelity Bond; Errors and Omissions Policy. (a) The Servicer
shall maintain with a responsible company, and at its own expense, a blanket
fidelity bond (a "Fidelity Bond") and an errors and omissions insurance policy
(an "Errors and Omissions Policy"), in a minimum amount acceptable to FNMA or
otherwise in an amount as is commercially available at a cost that is not
generally regarded as excessive by industry standards, with broad coverage on
all officers, employees or other persons acting in any capacity requiring such
persons to handle funds, money, documents or papers relating to the Mortgage
Loans ("Servicer Employees"). Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer against losses, including losses
resulting from forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such Servicer Employees. Such fidelity bond shall also protect
and insure the Servicer against losses in connection with the release or
satisfaction of a Mortgage Loan without having obtained payment in full of the
indebtedness secured thereby. No provision of this Section 5.8 requiring such
fidelity bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Agreement. Upon
the request of the Trustee, the Certificate Insurer or any Certificateholder,
the Servicer shall cause to be delivered to the Trustee, such Certificateholder
or the Certificate Insurer a certified true copy of such fidelity bond and
insurance policy. On the Closing Date, such bond and
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insurance is maintained with certain underwriters as may be specified in writing
to the Certificate Insurer and the Trustee, from time to time. Any such fidelity
bond or insurance policy shall not be canceled or modified in a materially
adverse manner without written notice to the Trustee and the Certificate
Insurer.
(b) The Servicer shall be deemed to have complied with this provision if
one of its respective Affiliates has such a Fidelity Bond and Errors and
Omissions Policy and, by the terms of such fidelity bond and errors and omission
policy, the coverage afforded thereunder extends to the Servicer. The Servicer
shall cause each and every Subservicer for it to maintain a policy of insurance
covering errors and omissions and a fidelity bond which would meet the
requirements of Section 5.8(a) hereof. Any such Fidelity Bond and Errors and
Omissions Policy shall not be canceled or modified in a materially adverse
manner without written notice to the Certificate Insurer.
Section 5.9 Collection of Taxes, Assessments and Other Items. The Servicer
shall deposit all payments by Mortgagors for taxes, assessments, primary
mortgage or hazard insurance premiums or comparable items in the Collection
Account. Withdrawals from the Collection Account may be made to effect payment
of taxes, assessments, primary mortgage or hazard insurance premiums or
comparable items, to reimburse the Servicer out of related collections for any
advances made in the nature of any of the foregoing, to refund to any Mortgagors
any sums determined to be overages, or to pay any interest owed to Mortgagors on
such account to the extent required by law. The Servicer shall advance the
payments referred to in the first sentence of this Section 5.9 that are not
timely paid by the Mortgagors on the date when the tax, premium or other cost
for which such payment is intended is due, but the Servicer shall be required to
so advance only to the extent that such advances, in the good faith judgment of
the Servicer, will be recoverable by the Servicer pursuant to Section 5.3 out of
Liquidation Proceeds, Insurance Proceeds or otherwise.
Section 5.10 Periodic Filings with the Securities and Exchange Commission;
Additional Information. The Trustee shall prepare or cause to be prepared for
filing with the Commission (other than the initial Current Report on Form 8-K to
be filed by the Depositor in connection with the issuance of the Certificates)
any and all reports, statements and information respecting the Trust and/or the
Certificates required to be filed (as set forth in written instructions received
from the Depositor within 10 Business Days of the Closing Date), and shall
solicit any and all proxies of the Certificateholders whenever such proxies are
required to be solicited, pursuant to the Securities Exchange Act of 1934, as
amended. The Depositor shall promptly file, and exercise its best efforts to
obtain a favorable response to, no-action requests with, or other appropriate
exemptive relief from, the Commission seeking the usual and
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customary exemption from such reporting requirements granted to issuers of
securities similar to the Certificates. Fees and expenses incurred by the
Trustee in connection with the foregoing shall be reimbursed pursuant to Section
9.5 and shall not be paid by the Trust.
Section 5.11 Enforcement of Due-on-Sale Clauses; Assumption Agreements. In
any case in which a Mortgaged Property is about to be conveyed by the Mortgagor
(whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains liable thereon) and the Servicer has knowledge of such
prospective conveyance, the Servicer shall effect assumptions in accordance with
the terms of any due-on-sale provision contained in the related Mortgage Note or
Mortgage. The Servicer shall enforce any due-on-sale provision contained in such
Mortgage Note or Mortgage to the extent the requirements thereunder for an
assumption of the Mortgage Loan have not been satisfied to the extent permitted
under the terms of the related Mortgage Note, unless such provision is not
exercisable under applicable law and governmental regulations or in the
Servicer's judgment, such exercise is reasonably likely to result in legal
action by the Mortgagor, or such conveyance is in connection with a permitted
assumption of the related Mortgage Loan. Subject to the foregoing, the Servicer
is authorized to take or enter into an assumption agreement from or with the
Person to whom such property is about to be conveyed, pursuant to which such
person becomes liable under the related Mortgage Note and, unless prohibited by
applicable state law, the Mortgagor remains liable thereon, provided that the
Mortgage Interest Rate with respect to such Mortgage Loan shall remain
unchanged. The Servicer is also authorized to release the original Mortgagor
from liability upon the Mortgage Loan and substitute the new Mortgagor as
obligor thereon. In connection with such assumption or substitution, the
Servicer shall apply such underwriting standards and follow such practices and
procedures as shall be normal and usual for mortgage loans similar to the
Mortgage Loans and as it applies to mortgage loans owned solely by it. The
Servicer shall notify the Trustee that any such assumption or substitution
agreement has been completed by forwarding to the Trustee the original copy of
such assumption or substitution agreement, which copy shall be added by the
Trustee to the related Mortgage File and shall, for all purposes, be considered
a part of such Mortgage File to the same extent as all other documents and
instruments constituting a part thereof. In connection with any such assumption
or substitution agreement, the Mortgage Interest Rate of the related Mortgage
Note and the payment terms shall not be changed. Any fee collected by the
Servicer for entering into an assumption or substitution of liability agreement
will be retained by the Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any conveyance by the
Mortgagor of the
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property subject to the Mortgage or any assumption of a Mortgage Loan by
operation of law which the Servicer in good faith determines it may be
restricted by law from preventing, for any reason whatsoever, or if the exercise
of such right would impair or threaten to impair any recovery under any
applicable insurance policy or, in the Servicer's judgment, be reasonably likely
to result in legal action by the Mortgagor.
Section 5.12 Realization upon Defaulted Mortgage Loans. Except as provided
in the last two paragraphs of this Section 5.12, the Servicer shall, on behalf
of the Trust, foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans as come into and continue in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments pursuant to Section 5.3. In connection with such
foreclosure or other conversion, the Servicer shall follow Accepted Servicing
Practices. The foregoing is subject to the proviso that the Servicer shall not
be required to expend its own funds in connection with any foreclosure or to
restore any damaged property unless it shall determine that (i) such foreclosure
and/or restoration will increase the proceeds of liquidation of the Mortgage
Loan to Certificateholders after reimbursement to itself for such expenses and
(ii) such expenses will be recoverable to it through Liquidation Proceeds
(respecting which it shall reimburse itself for such expense prior to the
deposit in the Collection Account of such proceeds). The Servicer shall be
entitled to reimbursement of the Servicing Fee and other amounts due it, if any,
to the extent, but only to the extent, that withdrawals from the Collection
Account and the Trustee Collection Account with respect thereto are permitted
under Section 5.3.
The Servicer may foreclose against the Mortgaged Property securing a
defaulted Mortgage Loan either by foreclosure, by sale or by strict foreclosure,
and in the event a deficiency judgment is available against the Mortgagor or any
other person, may proceed for the deficiency.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed or
certificate of sale shall be issued to the Trustee, or to the Servicer on behalf
of the Trustee and the Certificateholders. Notwithstanding any such acquisition
of title and cancellation of the related Mortgage Loan, such REO Mortgage Loan
shall be considered to be a Mortgage Loan held in the applicable REMIC of the
Trust Fund until such time as the related Mortgaged Property shall be sold and
such REO Mortgage Loan becomes a Liquidated Mortgage Loan. Consistent with the
foregoing, for purposes of all calculations hereunder, so long as such REO
Mortgage Loan shall be considered to be an Outstanding Mortgage Loan:
(i) Notwithstanding that the indebtedness evidenced by the related
Mortgage Note shall have been
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discharged, such Mortgage Note and the related amortization schedule in
effect at the time of any such acquisition of title (after giving effect to
any previous Curtailments and before any adjustment thereto by reason of
any bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period) shall be assumed to remain in effect, except that such
schedule shall be adjusted to reflect the application of Net REO Proceeds
received in any month pursuant to the succeeding clause.
(ii) Net REO Proceeds received in any month shall be deemed to have
been received first in payment of the accrued interest that remained unpaid
on the date that such Mortgage Loan became an REO Mortgage Loan of the
applicable REMIC of the Trust Fund, with the excess thereof, if any, being
deemed to have been received in respect of the delinquent principal
installments that remained unpaid on such date. Thereafter, Net REO
Proceeds received in any month shall be applied to the payment of
installments of principal and accrued interest on such Mortgage Loan deemed
to be due and payable in accordance with the terms of such Mortgage Note
and such amortization schedule. If such Net REO Proceeds exceed the then
Unpaid REO Amortization, the excess shall be treated as a Curtailment
received in respect of such Mortgage Loan.
(iii) The Net REO Proceeds allocated to the payment of a related
Servicing Fee shall be limited to an amount equal to the product of (x) the
total amount of Net REO Proceeds allocable to interest multiplied by (y)
the fraction, the numerator of which is the interest rate at which the
Servicing Fee is determined and the denominator of which is the Mortgage
Interest Rate borne by such Mortgage Loan.
In the event that a REMIC of the Trust Fund acquires any Mortgaged Property
as aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, such Mortgaged Property shall be disposed of by or on behalf of
such REMIC within two years after its acquisition thereby unless (a) the
Servicer shall have provided to the Trustee an Opinion of Counsel to the effect
that the holding by such REMIC of the Trust Fund of such Mortgaged Property
subsequent to two years after its acquisition (and specifying the period beyond
such two-year period for which the Mortgaged Property may be held) will not
cause such REMIC to be subject to the tax on prohibited transactions imposed by
Code Section 860F(a)(1), otherwise subject such REMIC or the Trust Fund to tax
or cause the applicable REMIC to fail to qualify as a REMIC at any time that any
Certificates are outstanding, or (b) the Servicer or the Trustee (at the
Servicer's expense) shall have applied for, at
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least 60 days prior to the expiration of such two-year period, an extension of
such two-year period in the manner contemplated by Code Section 856(e)(3), in
which case the two-year period shall be extended by the applicable period. The
Servicer shall further ensure that the Mortgaged Property is administered so
that it constitutes "foreclosure property" within the meaning of Code Section
860G(a)(8) at all times, that the sale of such property does not result in the
receipt by the applicable REMIC of the Trust Fund of any income from
non-permitted assets as described in Code Section 860F(a)(2)(B), and that such
REMIC does not derive any "net income from foreclosure property" within the
meaning of Code Section 860G(c)(2) with respect to such property.
In lieu of foreclosing upon any defaulted Mortgage Loan, the Servicer may,
in its discretion, permit the assumption of such Mortgage Loan if, in the
Servicer's judgment, such default is unlikely to be cured and if the assuming
borrower satisfies the Servicer's underwriting guidelines with respect to
mortgage loans owned by the Servicer. In connection with any such assumption,
the Mortgage Interest Rate of the related Mortgage Note and the payment terms
shall not be changed. Any fee collected by the Servicer for entering into an
assumption agreement will be retained by the Servicer as servicing compensation.
Alternatively, the Servicer may encourage the refinancing of any defaulted
Mortgage Loan by the Mortgagor.
Notwithstanding the foregoing, prior to instituting foreclosure proceedings
or accepting a deed-in-lieu of foreclosure with respect to any Mortgaged
Property, the Servicer shall make, or cause to be made, inspection of the
Mortgaged Property in accordance with the Accepted Servicing Practices and, with
respect to environmental hazards, such procedures as are required by the
provisions of the FNMA's selling and servicing guide applicable to single-family
homes and in effect on the date hereof. The Servicer shall be entitled to rely
upon the results of any such inspection made by others. In cases where the
inspection reveals that such Mortgaged Property is potentially contaminated with
or affected by hazardous wastes or hazardous substances, the Servicer shall
promptly give written notice of such fact to the Certificate Insurer, the
Trustee and each Class A Certificateholder. The Servicer shall not commence
foreclosure proceedings or accept a deed-in-lieu of foreclosure for such
Mortgaged Property without obtaining the consent of the Certificate Insurer.
Section 5.13 Trustee to Cooperate; Release of Mortgage Files. Upon the
payment in full of any Mortgage Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer shall (i) immediately deliver to the Trustee a
notice substantially in the form of the Request for Release attached hereto as
Exhibit H (which request shall include a statement to the effect that all
amounts received in connection with such payment which are required to be
deposited in the applicable
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Collection Account pursuant to Section 5.3 have been or shall be so deposited)
and executed by a Servicing Officer and (ii) request delivery to it of the
Mortgage File. Upon receipt of such Request for Release, the Trustee, or the
Custodian on its behalf, shall promptly release the related Mortgage File to the
Servicer. Upon any such payment in full, the Servicer is authorized to give, as
agent for the Trustee and the mortgagee under the Mortgage which secured the
Mortgage Loan, an instrument of satisfaction (or assignment of mortgage without
recourse) regarding the property subject to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of such payment, it being
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In connection therewith, the Trustee shall
execute and return to the Servicer any required power of attorney provided to
the Trustee by the Servicer and other required documentation in accordance with
Section 5.1(d). From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan and in accordance with Accepted Servicing
Practices, the Trustee shall, upon request of the Servicer and delivery to the
Trustee of a Request for Release signed by a Servicing Officer, release, or
cause the Custodian to release, the related Mortgage File to the Servicer and
shall execute such documents as shall be necessary to the prosecution of any
such proceedings. Such Request for Release shall obligate the Servicer to return
the Mortgage File to the Trustee when the need therefor by the Servicer no
longer exists unless the Mortgage Loan shall be liquidated, in which case, upon
receipt of a certificate of a Servicing Officer similar to the Request for
Release hereinabove specified, the Mortgage File shall be delivered by the
Trustee to the Servicer.
Section 5.14 Servicing Fee; Servicing Compensation. (a) The Servicer shall
be entitled, at its election, either (i) to pay itself the Servicing Fee out of
any Mortgagor payment on account of interest or Net REO Proceeds actually
collected prior to the deposit of such payment in the Collection Account or (ii)
to withdraw from the Collection Account or Trustee Collection Account such
Servicing Fee pursuant to Section 5.4. The Servicer shall also be entitled, at
its election, either (a) to pay itself the Servicing Fee in respect of each
delinquent Mortgage Loan out of Liquidation Proceeds in respect of such Mortgage
Loan or other recoveries with respect thereto to the extent permitted in Section
5.3(a) or (b) to withdraw from the Collection Account the Servicing Fee in
respect of each such Mortgage Loan to the extent of such Liquidation Proceeds or
other recoveries, to the extent permitted by Section 5.4(a).
The aggregate Servicing Fee is reserved for the administration of the Trust
Fund and, in the event of replacement of the Servicer as servicer of the
Mortgage Loans, for the payment of other expenses related to such replacement.
The
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aggregate Servicing Fee shall be offset as provided in Section 5.19. The
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including maintenance of the hazard
insurance required by Section 5.5) and shall not be entitled to reimbursement
therefor except as specifically provided herein.
(b) Servicing compensation in the form of assumption fees, late payment
charges, tax service fees, fees for statement of account or payoff of the
Mortgage Loan (to the extent permitted by applicable law) or otherwise shall be
retained by the Servicer and are not required to be deposited in the Collection
Account.
Section 5.15 Reports to the Trustee; Collection Account Statements. Not
later than 15 days after each Remittance Date, the Servicer shall provide to the
Trustee and the Certificate Insurer a statement, certified by a Servicing
Officer, setting forth the status of the Collection Account and the Trustee
Collection Account as of the close of business on the related Servicer
Remittance Date, stating that all distributions required by this Agreement to be
made by the Servicer on behalf of the Trustee have been made (or if any required
distribution has not been made by the Servicer, specifying the nature and status
thereof) and showing, for the period covered by such statement, the aggregate of
deposits into and withdrawals from the Collection Account and the Trustee
Collection Account for each category of deposit specified in Section 5.3 and
each category of withdrawal specified in Section 5.4, the allocation of such
amounts between principal and interest collected on the Trust Balances and any
Additional Balances and the aggregate of deposits into the Certificate Account
and the Additional Certificate Account as specified in Sections 6.1(e) and
6.1(f), respectively. Such statement shall also state the aggregate unpaid
principal balance of all the Mortgage Loans as of the close of business on the
last day of the month preceding the month in which such Remittance Date occurs
and the allocation of such aggregated balances between the Trust Balances and
the Additional Balances. Copies of such statement shall be provided by the
Trustee to any Certificateholder upon request.
Section 5.16 Annual Statement as to Compliance. The Servicer will deliver
to the Trustee, the Certificate Insurer, S&P and Moody's not later than the last
day of the fifth month subsequent to the end of the Servicer's fiscal year, an
Officers' Certificate stating as to each signer thereof, that (i) a review of
the activities of the Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
year, or if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The first such
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Officers' Certificate shall be delivered in _____________. Such Officers'
Certificate shall be accompanied by the statement described in Section 5.17 of
this Agreement. Copies of such statement shall, upon request, be provided to any
Certificateholder by the Servicer, or by the Trustee at the Servicer's expense
if the Servicer shall fail to provide such copies.
Section 5.17 Annual Independent Public Accountants' Servicing Report. Not
later than the last day of the fifth month subsequent to the end of the
Servicer's fiscal year, the Servicer, at its expense, shall cause a firm of
nationally recognized independent public accountants to furnish a statement to
the Trustee, the Certificate Insurer, S&P and Moody's to the effect that, on the
basis of an examination of certain documents and records relating to the
servicing of the mortgage loans being serviced by the Servicer under pooling and
servicing agreements similar to this Agreement (which agreements shall be
described in a schedule to such statement), conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers,
such firm is of the opinion that such servicing has been conducted in compliance
with the Uniform Single Attestation Program for Mortgage Bankers and that such
examination has disclosed no exceptions or errors relating to the servicing
activities of the Servicer (including servicing of Mortgage Loans subject to
this Agreement) that, in the opinion of such firm, are material, except for such
exceptions as shall be set forth in such statement. The first such statement
shall be delivered in _________. Copies of such statement shall, upon request,
be provided to Certificateholders by the Servicer, or by the Trustee at the
Servicer's expense if the Servicer shall fail to provide such copies. For
purposes of such statement, such firm may conclusively presume that any pooling
and servicing agreement which governs mortgage pass-through certificates offered
by the Depositor (or any predecessor or successor thereto) in a registration
statement under the Securities Act of 1933, as amended, is similar to this
Agreement, unless such other pooling and servicing agreement expressly states
otherwise.
Section 5.18 Reports to be Provided by the Servicer. (a) In connection with
the transfer of the Certificates, the Trustee on behalf of any Certificateholder
may request that the Servicer make available to any prospective
Certificateholder annual unaudited financial statements of the Servicer (or,
upon request, audited annual financial statements of the Servicer's ultimate
parent corporation) for one or more of the most recently completed fiscal years
for which such statements are available, which request shall not be unreasonably
denied or unreasonably delayed. Such annual unaudited financial statements also
shall be made available to the Certificate Insurer upon request.
(b) The Servicer also agrees to make available on a reasonable basis to the
Certificate Insurer or any prospective Certificateholder a knowledgeable
financial or accounting officer
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for the purpose of answering reasonable questions respecting recent developments
affecting the Servicer or the financial statements of the Servicer and to permit
the Certificate Insurer or any prospective Certificateholder to inspect the
Servicer's servicing facilities during normal business hours for the purpose of
satisfying the Certificate Insurer or such prospective Certificateholder that
the Servicer has the ability to service the Mortgage Loans in accordance with
this Agreement.
Section 5.19 Adjustment of Servicing Compensation in Respect of Prepaid
Mortgage Loans. The aggregate amount of the Servicing Fees that the Servicer
shall be entitled to receive with respect to all of the Mortgage Loans and each
Remittance Date shall be offset on such Remittance Date by an amount equal to
the aggregate Prepayment Interest Shortfall with respect to all Mortgage Loans
which were subjects of Principal Prepayments during the Due Period applicable to
such Remittance Date. The amount of any offset against the aggregate Servicing
Fee with respect to any Remittance Date under this Section 5.19 shall be limited
to the aggregate amount of the Servicing Fees otherwise payable to the Servicer
(without adjustment on account of Prepayment Interest Shortfalls) with respect
to (i) scheduled payments having the Due Date occurring in the Due Period
applicable to such Remittance Date received by the Servicer prior to the
Servicer Remittance Date, and (ii) Principal Prepayments, Curtailments and
Liquidation Proceeds received in the Due Period applicable to such Remittance
Date, and the rights of the Certificateholders to the offset of the aggregate
Prepayment Interest Shortfalls shall not be cumulative.
Section 5.20 Periodic Advances. If, on any Determination Date, the Servicer
determines that any Monthly Payments due on the Due Date immediately preceding
such Determination Date have not been received as of the close of business on
such Determination Date, the Servicer shall determine the amount of any Periodic
Advance required to be made with respect to such unpaid Monthly Payments on the
related Servicer Remittance Date. The Servicer shall, one Business Day after
such Determination Date, certify and deliver a magnetic tape or diskette to the
Trustee indicating the payment status of each Mortgage Loan as of such
Determination Date and shall cause to be deposited in the Trustee Collection
Account an amount equal to the Periodic Advance for the related Servicer
Remittance Date, which deposit may be made in whole or in part from funds in the
Collection Account being held for future distribution or withdrawal on or in
connection with Remittance Dates in subsequent months. Any funds being held for
future distribution to Certificateholders and so used shall be replaced by the
Servicer from its own funds by deposit into the Trustee Collection Account on or
before the Determination Date corresponding to any such future Servicer
Remittance Date to the extent that funds in the Trustee Collection Account on
such future Determination Date shall otherwise be less than the amount required
to be transferred to the Certificate Account in respect
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of payments to Certificateholders required to be made on the Remittance Date
related to such future Determination Date.
The Servicer shall designate on its records the specific Mortgage Loans and
related installments (or portions thereof) as to which such Periodic Advance
shall be deemed to have been made, such designation, except in cases of manifest
error, being conclusive for purposes of withdrawals from the Collection Account
or Trustee Collection Account pursuant to Section 5.4.
Section 5.21 Indemnification; Third Party Claims. (a) Each of the Servicer,
the Depositor, and the Seller (solely for the purpose of this Section 5.21, the
"Indemnifying Parties") agrees to indemnify and to hold each of the Servicer,
the Depositor, the Trustee, the Seller, the Certificate Insurer and each
Certificateholder (solely for the purpose of this Section 5.21, the "Indemnified
Parties") harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indemnified Parties may, respectively, sustain in any way
related to the failure of any one or more of the Indemnifying Parties to perform
its respective duties in compliance with the terms of this Agreement. Each
Indemnified Party and the Servicer shall immediately notify the other
Indemnified Parties if a claim is made by a third party with respect to this
Agreement, and the Servicer shall with the consent of the Certificate Insurer,
such consent not to be unreasonably withheld, assume the defense of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees approved by the Certificate Insurer, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Indemnified
Parties in respect of such claim. The Trustee shall, out of the assets of the
Trust Fund, reimburse the Servicer in accordance with Section 5.14 hereof for
all amounts advanced by it pursuant to the preceding sentence except when the
claim relates directly to the failure of the Servicer to service and administer
the Mortgages in compliance with the terms of this Agreement; provided, that the
Servicer's indemnity hereunder shall not be in any manner conditioned on the
availability of funds for such reimbursement.
(b) The Trustee, at the written request of the Servicer (which the Trustee
may conclusively rely on) may, if necessary, reimburse the Servicer from amounts
otherwise distributable on the Class R Certificates for all amounts advanced by
the Servicer pursuant to Section 4.4(a)(ii) of the Purchase and Sale Agreement,
except when the claim relates directly to the failure of the Servicer, if it is,
or is an Affiliate of, the Seller, to perform its obligations to service and
administer the Mortgages in compliance with the terms of the Purchase and Sale
Agreement, or the failure of the Seller to perform its duties in compliance with
the terms of this Agreement.
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(c) The Trustee, at the written request of the Servicer (which the Trustee
may conclusively rely on) shall reimburse the Seller from amounts otherwise
distributable on the Class R Certificates for all amounts advanced by the Seller
pursuant to the second sentence of Section 4.4(a)(ii) of the Purchase and Sale
Agreement except when the relevant claim relates directly to the failure of the
Seller to perform its duties in compliance with the terms of the Purchase and
Sale Agreement.
Section 5.22 Maintenance of Corporate Existence and Licenses; Merger or
Consolidation of the Servicer. (a) The Servicer will keep in full effect its
existence, rights and franchises as a corporation, will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction
necessary to protect the validity and enforceability of this Agreement or any of
the Mortgage Loans and to perform its duties under this Agreement and will
otherwise operate its business so as to cause the representations and warranties
under Section 3.1 to be true and correct at all times under this Agreement.
(b) Any Person into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an established mortgage loan servicing institution acceptable
to the Certificate Insurer that has a net worth of at least $______ and is a
Permitted Transferee, and in all events shall be the successor of the Servicer
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. The
Servicer shall send notice of any such merger or consolidation to the Trustee
and the Certificate Insurer.
Section 5.23 Assignment of Agreement by Servicer; Servicer Not to Resign.
The Servicer shall not assign this Agreement nor resign from the obligations and
duties hereby imposed on it except by mutual written consent of the Servicer,
the Seller, the Certificate Insurer and the Trustee or upon the determination
that the Servicer's duties hereunder are no longer permissible under applicable
law and that such incapacity cannot be cured by the Servicer without the
incurrence, in the reasonable judgment of the Certificate Insurer, of
unreasonable expense. Any such determination that the Servicer's duties
hereunder are no longer permissible under applicable law permitting the
resignation of the Servicer shall be evidenced by a written Opinion of Counsel
(who may be counsel for the Servicer) to such effect delivered to the Trustee,
the Seller, the Depositor and the Certificate Insurer. No such resignation shall
become effective until the Trustee or a successor appointed in accordance with
the terms of this Agreement has assumed the Servicer's responsibilities and
obligations hereunder in accordance with Section 7.2. The Servicer shall provide
the
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Trustee, Moody's and S&P and the Certificate Insurer with 30 days prior written
notice of its intention to resign pursuant to this Section 5.23.
Section 5.24 Servicer Purchase of Certain Mortgage Loans. On and after the
date upon which the Trust Balance of any HELOC has been reduced to zero (from
payments from sources other than the Servicer or any Affiliate of the Servicer),
the Servicer may purchase the related Mortgage Loan by depositing an amount
equal to the then outstanding Additional Balance with respect to such Mortgage
Loan into the Additional Certificate Account. After the deposit of such amount
the Trustee shall release such Mortgage Loan and the related Mortgage File to or
at the direction of the Servicer.
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ARTICLE VI
Distributions and Payments
Section 6.1 Establishment of Certificate Account, Additional Certificate
Account, Capitalized Interest Account and Pre-Funding Account; Deposits to the
Certificate Account, the Additional Certificate Account, Capitalized Interest
Account and the Pre-Funding Account. (a) The Trustee shall establish and
maintain the Certificate Account which shall be titled "Certificate Account,
________________, as trustee for the registered holders of Mortgage Pass-Through
Certificates, Series _____, Class A and Class R" and which shall be an Eligible
Account. Notice of the establishment of the Certificate Account shall be
promptly provided in writing to each of the Servicer, the Rating Agencies and
the Certificate Insurer.
(b) The Trustee shall establish and maintain the Additional Certificate
Account which shall be titled "Additional Certificate Account, ________________,
as trustee for the registered holders of Mortgage Pass-Through Certificates,
Series _____, Additional Certificates." Notice of the establishment of the
Additional Certificate Account shall be promptly provided in writing to each of
the Servicer, the Certificate Insurer and the Holder of the Additional
Certificate.
(c) (i) The Trustee shall establish and maintain the Pre-Funding Account
which shall be titled "Pre-Funding Account, ________________, as trustee for the
registered holders of Mortgage Pass-Through Certificates, Series _____, Class A"
and which shall be an Eligible Account. The Trustee shall deposit the Original
Group I Pre-Funded Amount from the proceeds of the sale of the Class A-1
Certificates and the Original Group II Pre-Funded Amount from the proceeds of
the sale of the Group II Certificates into the Pre-Funding Account on the
Closing Date.
(ii) The Trustee shall establish and maintain the Capitalized Interest
Account which shall be titled "Capitalized Interest Account, ________________,
as trustee for the registered holders of Mortgage Pass-Through Certificates,
Series _____, Class A" and which shall be an Eligible Account. The Trustee shall
deposit the Capitalized Interest Requirement from the proceeds of the sale of
the Class A Certificates into the Capitalized Interest Account on the Closing
Date unless an Eligible Letter of Credit with respect to such amount has been
delivered to the Trustee on the Closing Date.
(d) The Servicer may direct the Trustee in writing to invest the funds in
the Certificate Account, the Capitalized Interest Account and the Pre-Funding
Account only in Permitted Investments which mature not later than the second
Business Day prior to the Remittance Date and thereafter all such funds shall be
held by the Trustee uninvested. No Permitted Investment shall be sold or
disposed of at a gain prior to maturity unless the
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Servicer has delivered to the Trustee an Opinion of Counsel (at the Servicer's
expense) that such sale or disposition will not cause the Trust Fund to be
subject to the tax on income from prohibited transactions imposed by Code
Section 860F(a)(1), otherwise subject the Trust Fund to tax or cause the _____
REMIC to fail to qualify as a REMIC. All income (other than any gain from a sale
or disposition of the type referred to in the preceding sentence or such income
from amounts on deposit in the Pre-Funding Account) realized from any such
Permitted Investment shall be for the benefit of the Servicer as additional
servicing compensation. The amount of any losses incurred in respect of any such
investments shall be deposited in the Certificate Account by the Servicer out of
its own funds immediately as realized.
(e) On each Servicer Remittance Date, the Servicer shall cause to be
deposited in the Certificate Account (i) from funds on deposit in the Trustee
Collection Account, an amount equal to the Servicer Remittance Amount with
respect to Group I (net of the amount to be deposited pursuant to clause (ii)
below) and the Servicer Remittance Amount with respect to Group II (net of the
amount to be deposited pursuant to clause (ii) below), (ii) from funds on
deposit in the Collection Account or the Trustee Collection Account, the Net
Foreclosure Profits for the related Group, if any with respect to the related
Remittance Date, minus any portion thereof payable to the Servicer pursuant to
Section 5.3, net of the Additional Certificate Allocation, (iii) from funds on
deposit in the Capitalized Interest Account, the Capitalized Interest Deposit
Amount for such Remittance Date and (iv) from funds on deposit in the
Pre-Funding Account, any such amount that constitutes a portion of the Servicer
Remittance Amount.
(f) On the second Business Day prior to each Remittance Date, the Trustee
shall transfer funds on deposit in the Trustee Collection Account into the
Certificate Account in the amount specified by the Servicer pursuant to Section
6.4(d) hereof. On each of the first three Remittance Dates, to the extent funds
in the Certificate Account are insufficient to pay the amounts required by
Sections 6.5(a)(i) - (vi), the Trustee shall withdraw from the Capitalized
Interest Account (or make a drawing on the Letter of Credit) and deposit in the
Certificate Account the related Capitalized Interest Deposit Amount. On the
Business Day prior to the Remittance Date immediately following the end of the
Pre-Funding Period the Trustee shall transfer all amounts then on deposit in the
Pre-Funding Account to the Certificate Account.
(g) On the second Business Day prior to each Remittance Date, the Servicer
shall cause to be deposited in the Additional Certificate Account, all amounts
on deposit in the Trustee Collection Account and the Collection Account
allocable to the Additional Certificate in accordance with the definition of
Servicer Remittance Amount and the definition of Additional
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Certificate Allocation hereof. All funds herein required to be deposited in the
Additional Certificate Account shall be allocated at the direction of the Holder
of the Additional Certificate.
Section 6.2 Permitted Withdrawals From the Certificate Account and The
Additional Certificate Account. The Trustee shall, in accordance with the
Servicer's written directions to the Trustee as described in Section 6.5,
withdraw or cause to be withdrawn
(a) funds from the Certificate Account for the following purposes:
(i) to effect the distributions described in Section 6.5(a);
(ii) to pay to or upon the direction of the Seller with respect to
each Mortgage Loan or property acquired in respect thereof that has been
repurchased or replaced pursuant to Section 2.4 or 3.3 or to pay to the
Servicer with respect to each Mortgage Loan or property acquired in respect
thereof that has been purchased all amounts received thereon deposited in
the related Certificate Account that do not constitute property of the
Trust Fund;
(iii) to pay the Servicer any interest earned on or investment income
earned with respect to funds in the Certificate Account;
(iv) to return to the Trustee Collection Account any amount deposited
in the Certificate Account that was not required to be deposited therein;
and
(v) to clear and terminate the related Certificate Account upon
termination of the Trust Fund or any Group thereof pursuant to Article
VIII.
The Trustee shall keep and maintain a separate accounting for withdrawals
from the Certificate Account pursuant to each of subclauses (a)(i) through
(a)(v) listed above.
(b) funds from the Additional Certificate Account, for the following
purposes:
(i) to effect the distributions described in Section 6.5(b);
(ii) to pay to the Servicer any interest earned on or investment
income earned with respect to funds in the Additional Certificate Account;
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(iii) to return to the Trustee Collection Account or the Collection
Account any amount deposited in the Additional Certificate Account that was
not required to be deposited therein; and
(iv) to clear and terminate the Additional Certificate Account upon
termination of the Trust Fund pursuant to Article VIII hereof.
The Trustee shall keep and maintain a separate accounting for withdrawals
from the Additional Certificate Account pursuant to each of subclauses (b)(i)
through (b)(v).
Section 6.3 Collection of Money. Except as otherwise expressly provided
herein, the Trustee may demand payment or delivery of all money and other
property payable to or receivable by the Trustee pursuant to this Agreement,
including, but not limited to, (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Trustee by the Servicer or by any Subservicer
and (b) Insured Payments. The Trustee shall hold all such money and property
received by it, as part of the Trust Fund and shall apply it as provided in this
Agreement.
Section 6.4 The Reserve Account and the Certificate Insurance Policies. (a)
On the Closing Date, the Trustee shall establish the Reserve Account entitled
"Reserve Account, ________________, as trustee for the registered holders of
Mortgage Pass-Through Certificates, Series _____, Class A and Class R" for the
benefit of the Trust, the Certificateholders and the Certificate Insurer. The
Trustee shall have exclusive control over such Reserve Account and the sole
right of withdrawal from such Account. On the Closing Date, the Depositor shall
make available under an Eligible Letter of Credit or, from the proceeds of the
offering of the Certificates, shall deposit an amount equal to $______ in such
Reserve Account, which represents the sum of _____% of the Aggregate HELOC Trust
Balance of the Cut-Off Date and _____% of the Aggregate HEL Trust Balance as of
the Cut-Off Date. The Trustee shall maintain the Reserve Account at the Required
Reserve Account Level as described in Section 6.5 hereof. If the amount in the
Reserve Account decreases below the Required Reserve Account Level, then on the
next Remittance Date, the Trustee shall, to the extent of the Available Funds
Excess, transfer from the Certificate Account the amount described in Section
6.5(a)(vi) and deposit such amount into the Reserve Account. On any Remittance
Date, any amount in the Reserve Account in excess of the Required Reserve
Account Level after the required distributions described in Sections
6.5(a)(i)-(vi) shall be withdrawn from the Reserve Account and paid to the
Holders of the Class R Certificates pro rata in proportion to their undivided
beneficial ownership interest in the _____ REMIC. Funds held in the Reserve
Account shall be invested in Permitted Investments at the written direction of
the
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Holders of the Class R Certificates that mature prior to the Business Day prior
to the next Servicer Remittance Date. No Permitted Investment shall be sold
prior to its maturity. The Holders of the Class R Certificates shall be liable
for any losses occurring with respect to the Permitted Investments held in the
Reserve Account.
(b) Not later than two Business Days prior to the Servicer Remittance Date,
the Trustee, based on the information provided to it by the Servicer pursuant to
Section 6.5 hereof, shall determine with respect to the immediately following
Remittance Date the amount to be on deposit in the Certificate Account (such
amount the result of the Servicer's remittance of the Servicer Remittance Amount
for Group I and the Servicer Remittance Amount for Group II) reduced by (x) the
sum of the amounts described in clauses (i) and (ii) of Section 6.5(a) for the
related Remittance Date, and further not including (y) any Insured Payment.
(c) (i) Not later than 12:00 noon ________________ City time on the second
Business Day preceding each Remittance Date, the Trustee shall, if the Trustee
determines that the Group I Available Amount plus any amount available to be
transferred to the Certificate Account from the Reserve Account (or drawn under
an Eligible Letter of Credit) for the related Remittance Date is less than the
Class A-1 Formula Distribution Amount for such Remittance Date, complete a
Notice in the form of Exhibit A to the Class A-1 Certificate Insurance Policy
and submit such notice to the Certificate Insurer and such notice shall serve as
a claim for an Insured Payment in an amount equal to the Insured Payment due
with respect to the Class A-1 Certificates for and on such Remittance Date.
Unless the Class A-1 Credit Enhancement Distribution Amount is transferred to
the Certificate Account prior to the related Remittance Date, the Insured
Payment shall be deposited directly into the Certificate Account in accordance
with the Notice and the Class A-1 Certificate Insurance Policy.
(ii) Not later than 12:00 noon ________________ City time on the second
Business Day preceding each Remittance Date, the Trustee shall, if the Trustee
determines that the Group II Available Amount plus any amount available to be
transferred to the Certificate Account from the Reserve Account (or drawn under
an Eligible Letter of Credit) for the related Remittance Date is less than the
Group II Formula Distribution Amount for such Remittance Date, complete a Notice
in the form of Exhibit A to the Group II Certificate Insurance Policy and submit
such notice to the Certificate Insurer and such notice shall serve as a claim
for an Insured Payment in an amount equal to the Insured Payment due with
respect to the Group II Certificates for and on such Remittance Date. Unless the
Group II Credit Enhancement Distribution Amount is transferred to the
Certificate Account prior to the related Remittance Date, the Insured Payment
shall be deposited
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directly into the Certificate Account in accordance with the Notice and the
Group II Certificate Insurance Policy.
(d) On the Business Day prior to each Remittance Date, (i) for which an
Insured Payment is required, the Trustee shall withdraw all funds on deposit in
the Reserve Account and draw all amounts available to be drawn under the
Eligible Letter of Credit in accordance with the letter of instructions
addressed to the Trustee dated as of the Closing Date attached hereto as Exhibit
Q and deposit such amount in the Certificate Account and (ii) for which no
Insured Payment is required, the Trustee shall withdraw from the Reserve Account
and if the amounts on deposits in the Reserve Account are insufficient shall
draw upon the Eligible Letter of Credit in accordance with the letter of
instructions addressed to the Trustee dated as of the Closing Date attached
hereto as Exhibit Q, in an aggregate amount equal to the Class A-1 Credit
Enhancement Distribution Amount and the Group II Credit Enhancement Distribution
Amount and deposit such amount in the Certificate Account to be used to make
distributions to the related Certificateholders on the related Remittance Date.
(e) The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Certificate from moneys received
under either Certificate Insurance Policy. The Certificate Insurer shall have
the right to inspect such records at reasonable times during normal business
hours upon one Business Day's prior notice to the Trustee.
(f) In the event that the Trustee has received a certified copy of an order
of the appropriate court that any amount distributed on the Class A
Certificates, including any amounts represented by an Insured Payment, has been
voided in whole or in part as a preference payment under applicable bankruptcy
law, the Trustee shall so notify the Certificate Insurer, shall comply with the
provisions of the related Certificate Insurance Policy to obtain payment by the
Certificate Insurer of such voided amount distributed, and shall, at the time it
provides notice to the Certificate Insurer, notify, by mail to
Certificateholders of the affected Certificates that, in the event any
Certificateholder's amount distributed is so recovered, such Certificateholder
will be entitled to payment pursuant to the related Certificate Insurance
Policy, a copy of which shall be made available through the Trustee, the
Certificate Insurer or the Certificate Insurer's fiscal agent, if any, and the
Trustee shall furnish to the Certificate Insurer or its fiscal agent, if any,
its records evidencing the payments which have been made by the Trustee and
subsequently recovered from Certificateholders, and dates on which such payments
were made.
(g) The Trustee shall promptly notify the Certificate Insurer of any
proceeding or the institution of any action, of which a Responsible Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable
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bankruptcy, insolvency, receivership or similar law (a "Preference Claim") of
any distribution made with respect to the Certificates. Each Certificateholder,
by its purchase of Certificates, the Servicer and the Trustee agree that, the
Certificate Insurer (so long as no Certificate Insurer Default exists) may at
any time during the continuation of any proceeding relating to a Preference
Claim direct all matters relating to such Preference Claim, including, without
limitation, (i) the direction of any appeal of any order relating to such
Preference Claim and (ii) the posting of any surety, supersedeas or performance
bond pending any such appeal. In addition and without limitation of the
foregoing, the Certificate Insurer shall be subrogated to, and each
Certificateholder, the Servicer and the Trustee hereby delegate and assign to
the Certificate Insurer, to the fullest extent permitted by law, the rights of
the Servicer, the Trustee and each Certificateholder in the conduct of any such
Preference Claim, including, without limitation, all rights of any party to any
adversary proceeding or action with respect to any court order issued in
connection with any such Preference Claim.
Section 6.5 Distributions. No later than 12:00 noon California time on the
Determination Date, the Servicer shall deliver to the Trustee and to the
Certificate Insurer a report in computer-readable form specifying (x) the
outstanding Trust Balances and Additional Balances, if any, of each of the
Mortgage Loans as of the last day of the calendar month immediately preceding
the Due Period applicable to such Servicer Remittance Date, (y) such of the
information included in Section 6.7(c) as to the Mortgage Loans as the Trustee
may reasonably require or the Certificate Insurer may reasonably request and (z)
such information as to each Mortgage Loan as of the Record Date immediately
preceding such Servicer Remittance Date and such other information as the
Trustee shall reasonably require or the Certificate Insurer may reasonably
request. The Servicer shall include written direction to the Trustee (with a
copy delivered to the Certificate Insurer) specifying the following information
(which need not be in computer-readable form): (A) each amount to be transferred
by the Trustee from the Trustee Collection Account and/or the Collection Account
(i) to the Certificate Account, including (a) the Servicer Remittance Amount for
Group I and the Servicer Remittance Amount for Group II, (b) the Net Foreclosure
Profits for Group I (net of any portion payable to the Servicer and net of the
Additional Certificate Allocation portion thereof) and the Net Foreclosure
Profits for Group II (net of any portion payable to the Servicer) and (c) the
Periodic Advances for such Remittance Date; and (ii) to the Additional
Certificate Account(s), pursuant to Section 6.1(g); (B) instructions to the
Trustee regarding the amounts to be withdrawn from the Reserve Account and
deposited into the Certificate Account pursuant to Section 6.4(d) hereof; (C)
instructions to the Trustee regarding amounts to be drawn under the Eligible
Letter of Credit and (D) instructions to the Trustee specifying the amounts to
be withdrawn from the Certificate Account pursuant to Section 6.2(a)
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(including therein an itemization of the amounts to be distributed pursuant to
Section 6.2(a)(i) as specified in Section 6.5(a)(i)-(vii) and the amounts to be
withdrawn from the Additional Certificate Account(s) pursuant to Section 6.2(b)
(including therein an itemization of the amounts to be distributed pursuant to
Section 6.5(b)(i)-(ii)). The information with respect to the Remittance Date
provided by the Servicer to the Trustee and the Certificate Insurer on the
Determination Date shall also include the Class A-1 Formula Distribution Amount,
the Group II Formula Distribution Amount, the Class A-1 Pass-Through Rate, the
Weighted Average Rate Cap, the Weighted Average Group II Pass-Through Rate the
Class A-1 Premium Percentage and the Group II Premium Percentage, the aggregate
Class A-1 Principal Balance, the aggregate Class A-2 Principal Balance, the
aggregate Class A-3 Principal Balance, the aggregate Class A-4 Principal Balance
the Aggregate HELOC Trust Balance, the Aggregate HEL Trust Balance, the Class
A-1 Credit Enhancement Distribution Amount, the Group II Credit Enhancement
Distribution Amount and the Required Reserve Account Level. The Servicer shall
also calculate and provide the Group I Available Amount, the Group II Available
Amount, the Available Funds Excess, the Group I Net Available Funds Excess, the
Group II Net Available Funds Excess, if any, the amount of any Deficiency Amount
with respect to the Class A-1 Certificates, the amount of any Deficiency Amount
with respect to the Group II Certificates and any Insured Payment with respect
to the Class A-1 Certificates and any Insured Payment with respect to the Group
II Certificates and the amount required to be deposited into the Reserve Account
to bring the amount remaining on deposit in the Reserve Account together with
the amount available to be drawn under any Eligible Letter of Credit (after any
withdrawal by the Trustee, and subsequent transfer to the Certificate Account)
equal to the Required Reserve Account Level. Simultaneous with the delivery of
the foregoing information to the Trustee, the Servicer shall provide the Trustee
and the Certificate Insurer with a report including information specified in
each of Sections 6.7(a)(i)-(xi) and in Section 6.7(c)(i)-(vii).
(a) With respect to the Certificate Account (including, if deposited into
such Certificate Account, any withdrawals from the Reserve Account or any
Insured Payments), on each Remittance Date, the Trustee shall make the following
allocations, disbursements and transfers in the following order of priority, in
accordance with the information received pursuant to the immediately preceding
paragraph and each such allocation, transfer and disbursement shall be treated
as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(i) to the Certificate Insurer, the Certificate Insurance Premium
Amount;
(ii) to the Trustee, an amount equal to the Trustee Fees then due to
it;
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(iii) to the Class A-1 Certificateholders from the Group I Available
Amount an amount equal to the Class A-1 Interest Distribution Amount, to
the Class A-2 Certificateholders from the Group II Available Amount an
amount equal to the Class A-2 Interest Distribution Amount, to the Class
A-3 Certificateholders from the Group II Available Amount an amount equal
to the Class A-3 Interest Distribution Amount and to the Class A-4
Certificateholders from the Group II Available Amount an amount equal to
the Class A-4 Interest Distribution Amount;
(iv) from the Group I Available Amount to the Class A-1
Certificateholders an amount equal to the Class A-1 Principal Distribution
Amount until the Class A-1 Principal Balance has been reduced to zero and
from the Group II Available Amount to the Class A-2 Certificateholders an
amount equal to the Group II Principal Distribution Amount until the Class
A-2 Principal Balance has been reduced to zero and from the Group II
Available Amount after the Class A-2 Principal Balance has been reduced to
zero to the Class A-3 Certificateholders an amount equal to the Group II
Principal Distribution Amount until the Class A-3 Principal Balance has
been reduced to zero, and from the Group II Available Amount after the
Class A-3 Principal Balance has been reduced to zero to the Class A-4
Certificateholders an amount equal to the Group II Principal Distribution
Amount until the Class A-4 Principal Balance has been reduced to zero;
(v) to the Certificate Insurer the lesser of (x) the excess of (i) the
amount in the Certificate Account (excluding Insured Payments) over (ii)
the amount of Insured Payments for such Remittance Date and (y) the
outstanding Reimbursement Amount, if any, as of such Remittance Date;
(vi) to the Reserve Account, an amount equal to the lesser of (x) any
amount then remaining in the Certificate Account after the applications
described in clauses (i) through (v) above (the "Available Funds Excess")
and (y) the amount necessary to bring the amount on deposit in the Reserve
Account together with the amount available to be drawn under any Eligible
Letter of Credit to the Required Reserve Account Level; and
(vii) to the Holders of the Class R Certificates, the amount remaining
in the Certificate Account on such Remittance Date, if any.
(b) With respect to the Additional Certificate Account, on each Remittance
Date, the Trustee shall make the following disbursements and transfers in the
following order of priority, in accordance with the information received
pursuant to the first paragraph of this Section 6.5 and each such
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disbursement or transfer shall be treated as having occurred only after all
preceding disbursements and transfers have occurred:
(i) to the Servicer, any amounts representing interest earned on or
investment income earned with respect to funds on deposit in the Additional
Certificate Account; and
(ii) to or upon the direction of the Holder(s) of the Additional
Certificate(s) and the Additional Certificate(s), the corresponding
Percentage Interest of each such certificate of the amount remaining on
deposit on such Remittance Date in the Additional Certificate Account after
each of the foregoing distributions have occurred.
Notwithstanding the foregoing, the aggregate amounts distributed on all
Remittance Dates to the Holders of the Class A-1 Certificates, the Holders of
the Class A-2 Certificates, the Holders of the Class A-3 Certificates, the
Holders of the Class A-4 Certificates on account of principal shall not exceed
the Original Class A-1 Principal Balance, Original Class A-2 Principal Balance,
Original Class A-3 Principal Balance or Original Class A-4 Principal Balance, as
applicable.
Section 6.6 Investment of Accounts. (a) So long as no Event of Default
shall have occurred and be continuing, and consistent with any requirements of
the Code, all or a portion of any Account (other than the Reserve Account) held
by the Trustee shall be invested and reinvested by the Trustee, as directed in
writing by the Servicer, in one or more Permitted Investments bearing interest
or sold at a discount and maturing not later than the second Business Day prior
to the next Remittance Date. If an Event of Default shall have occurred and be
continuing or if the Servicer does not provide investment directions, the
Trustee shall invest all Accounts in Permitted Investments described in
paragraph (d) of the definition of Permitted Investments and maturing not later
than the second Business Day prior to the next Remittance Date. Notwithstanding
anything to the contrary in this Section 6.6(a), all amounts received under the
Certificate Insurance Policies shall remain uninvested.
(b) If any amounts are needed for disbursement from any Account (other than
the Reserve Account) held by the Trustee and sufficient uninvested funds are not
available to make such disbursement, the Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Account. The Trustee shall not be liable for any investment loss or other charge
resulting therefrom unless the Trustee's failure to perform in accordance with
this Section 6.6 is the cause of such loss or charge or the Trustee is the
obligor of the related investment.
(c) Subject to Section 9.1 hereof, the Trustee shall not in any way be held
liable by reason of any insufficiency in
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any Account held by the Trustee resulting from any investment loss on any
Permitted Investment included therein (except as provided in subsection (b) of
this Section 6.6).
(d) So long as no Event of Default shall have occurred and be continuing,
all net income and gain realized from investment of, and all earnings on, funds
deposited in any Account (excluding the Reserve Account) shall be for the
benefit of the Servicer as servicing compensation (in addition to the Servicing
Fee). The Servicer shall deposit in the related Account the amount of any loss
incurred in respect of any Permitted Investment held therein which is in excess
of the income and gain thereon immediately upon realization of such loss,
without any right to reimbursement therefor from its own funds.
Section 6.7 Reports by Trustee. (a) On each Remittance Date the Trustee
shall, provide a report delivered to it by the Servicer on the Determination
Date, as described in Section 6.5 hereof, to each Holder, to the Certificate
Insurer, to the Underwriter, to the Depositor, to the Servicer, to S&P and to
Moody's (the "Trustee Remittance Report"). Such report shall set forth the
following information:
(i) the amount of the distributions made on such Remittance Date with
respect to the Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class R
Certificates, and the Additional Certificates, including whether such
distributions were made to the holder of the corresponding certificate, or
to an account held by the Trust for the benefit of such corresponding
certificate;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments or
other unscheduled recoveries of principal included therein;
(iii) the amount of such distributions allocable to interest and the
calculation thereof;
(iv) the amount of any Net Liquidation Proceeds included in such
distributions and the calculation thereof:
(v) the principal amount of the Class A-1 Certificates (based on a
Certificate in an original principal amount of $_____), the principal
amount of the Class A-2 Certificates (based on a Certificate in an original
principal amount of $_____), the principal amount of the Class A-3
Certificates (based on a Certificate in an original principal amount of
$_____) then outstanding, the principal amount of the Class A-4
Certificates (based on a Certificate in an original principal amount of
$_____) then outstanding, and the outstanding amount of the Trust
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Balances (stated separately for HELs and HELOCs) and the Additional
Balances, in each case after giving effect to any principal payments made
on such Remittance Date:
(vi) the amount of any Insured Payment included in the amounts
distributed to the related Class of Class A Certificateholders on such
Remittance Date;
(vii) the amount of any Available Funds Excess and any Deficiency
Amount with respect to the Class A-1 Certificates and any Deficiency Amount
with respect to the Group II Certificates on such Remittance Date:
(viii) the amount of any Class A-1 Credit Enhancement Distribution
Amount or Group II Credit Enhancement Distribution Amount withdrawn from
the Reserve Account on such Remittance Date;
(ix) the amount then on deposit in the Reserve Account together with
the current Required Reserve Account Level (indicating the calculation for
each in such report), the amount then on deposit in the Pre-Funding
Account, the amount then on deposit in the Capitalized Interest Account and
the amount available to be drawn under all Eligible Letters of Credit on
such Remittance Date;
(x) the total of any Substitution Adjustments and any Loan Repurchase
Price amounts included in each such distribution; and
(xi) the amounts, if any, of any related Liquidation Loan Losses for
the related Due Period.
Items (i), (ii) and (iii) above shall, with respect to the Class A
Certificates, be presented on the basis of a Certificate having a $_____
denomination. In addition, by ____________ of each calendar year following any
year during which the Certificates are outstanding, the Trustee shall furnish a
report to each Holder of record if so requested in writing at any time during
each calendar year as to the aggregate of amounts reported pursuant to (i), (ii)
and (iii) with respect to the Certificates for such calendar year.
(b) All distributions made to the Certificateholders according to Class or
type of Certificate on each Remittance Date will be made on a pro rata basis
among the Certificateholders as of the next preceding Record Date based on the
proportional beneficial ownership interest in the _____ REMIC as are represented
by their respective Certificates, and shall be made by wire transfer of
immediately available funds to the account of such Certificateholder at a bank
or other entity having appropriate facilities therefor, if, in the case of a
Class A Certificateholder, such Certificateholder shall own of record
Certificates of the same Class which have denominations
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aggregating at least $_____ appearing in the Certificate Register and shall have
provided complete wiring instructions at least five Business Days prior to the
Record Date, and otherwise by check mailed to the address of such
Certificateholder appearing in the Certificate Register.
(c) In addition, on each Remittance Date the Trustee will distribute to
each Holder, to the Certificate Insurer, to the Underwriter, to the Depositor,
to S&P and to Moody's, together with the information described in subsection (a)
preceding, the following information with respect to the Mortgage Loans as of
the close of business on the last Business Day of the prior calendar month
(except as otherwise provided in clause (v) below), which is hereby required to
be prepared by the Servicer and furnished to the Trustee for such purpose on or
prior to the related Servicer Remittance Date:
(i) the total number of HELOCs and HELs and the aggregate Trust
Balances and Additional Balances, if any, thereof, together with the
number, aggregate principal balances of such HELOCs and HELs and the
percentage (based on the aggregate Trust Balances of the Mortgage Loans) of
the aggregate Trust Balances of such Mortgage Loans to the aggregate Trust
Balance of all Mortgage Loans in the related Group (A) 30-59 days
Delinquent, (B) 60-89 days Delinquent and (C) 90 or more days Delinquent;
(ii) the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs or HELs) of
the aggregate Trust Balances of such Mortgage Loans to the aggregate Trust
Balance of all Mortgage Loans in the related Group in foreclosure
proceedings and the number, aggregate Trust Balances of all HELOCs and HELs
and percentage (based on the aggregate Trust Balances of the Mortgage
Loans) of any such HELOCs and HELs also included in any of the statistics
described in the foregoing clause (i);
(iii) the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs and HELs)
of the aggregate Trust Balances of such Mortgage Loans to the aggregate
Trust Balance of all Mortgage Loans in the related Group relating to
Mortgagors in bankruptcy proceedings and the number, aggregate Trust
Balances of all HELOCs and HELs and percentage (based on the aggregate
Trust Balances of the HELOCs and HELs) of any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause (i);
(iv) the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs and HELs)
of the aggregate Trust Balances of such Mortgage Loans to the aggregate
Trust
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Balance of all Mortgage Loans in the related Group relating to REO Mortgage
Loans and the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs and HELs)
of any such Mortgage Loans that are also included in any of the statistics
described in the foregoing clause (i);
(v) the weighted average of (i) the Mortgage Interest Rate for the
HELOCs and for the HELs and (ii) the Net Mortgage Interest Rate for the
HELOCs and for the HELs on the Due Date occurring in the Due Period related
to such Remittance Date;
(vi) the weighted average remaining term to stated maturity of (a) all
HELOCs and (b) all HELs; and
(vii) the book value of any REO Property.
Section 6.8 Additional Reports by Trustee and by Servicer. (a) The Trustee
shall report to the Depositor, the Servicer and the Certificate Insurer with
respect to the amount then held in each Account (including investment earnings
accrued or scheduled to accrue) held by the Trustee and the identity of the
investments included therein, as the Depositor, the Servicer or the Certificate
Insurer may from time to time request in writing.
(b) From time to time, at the request of the Certificate Insurer, the
Trustee shall report to the Certificate Insurer with respect to its actual
knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
the Purchase and Sale Agreement, the Mortgage Loan Sale Agreement or in Section
3.1 or 3.2 hereof.
Section 6.9 Compensating Interest. Not later than the close of business on
the third Business Day prior to the Remittance Date, the Servicer shall remit to
the Trustee (without right or reimbursement therefor) for deposit into the
Certificate Account an amount equal to the lesser of (a) the aggregate of the
Prepayment Interest Shortfalls for the related Remittance Date resulting from
Principal Prepayments during the related Due Period and (b) its aggregate
Servicing Fees received in the related Due Period (the "Compensating Interest").
Section 6.10 Effect of Payments by the Certificate Insurer; Subrogation.
Anything herein to the contrary notwithstanding, any payment with respect to
principal of or interest on the Certificates which is made with moneys received
pursuant to the terms of the Certificate Insurance Policies shall not be
considered payment of the Certificates from the Trust. The Depositor, the
Servicer and the Trustee acknowledge, and each Holder by its acceptance of a
Certificate agrees, that without the need for any further action on the part of
the Certificate
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Insurer, the Depositor, the Servicer, the Trustee or the Certificate Registrar
(i) to the extent the Certificate Insurer makes payments, directly or
indirectly, on account of principal of or interest on the Certificates to the
Holders of such Certificates, the Certificate Insurer will be fully subrogated
to, and each Certificateholder, the Servicer and the Trustee hereby delegate and
assign to the Certificate Insurer, to the fullest extent permitted by law, the
rights of such Holders to receive such principal and interest from the Trust
Fund, including, without limitation, any amounts due to the Certificateholders
in respect of securities law violations arising from the offer and sale of the
Certificates, and (ii) the Certificate Insurer shall be paid such amounts but
only from the sources and in the manner provided herein for the payment of such
amounts. The Trustee and the Servicer shall cooperate in all respects with any
reasonable request by the Certificate Insurer for action to preserve or enforce
the Certificate Insurer's rights or interests under this Agreement without
limiting the rights or affecting the interests of the Holders as otherwise set
forth herein.
Section 6.11 Pre-Funding Account.
(a) Funds deposited in the Pre-Funding Account shall be held in trust by
the Trustee for the Certificateholders and the Certificate Insurer for the uses
and purposes set forth herein. All income and gain realized from investment of
funds deposited in the Pre-Funding Account shall be transferred to the
Certificate Account on the Business Day immediately preceding each Remittance
Date. The Servicer shall deposit in the Pre-Funding Account the amount of any
net loss incurred in respect of any Permitted Investment immediately upon
realization of such loss, without any right of reimbursement.
(b) Amounts on deposit in the Pre-Funding Account shall be withdrawn by the
Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee, upon written
direction of the Depositor, shall release and apply amounts from the
Pre-Funding Account in accordance with Section 2.10(a) hereof upon
satisfaction of the conditions set forth in Sections 2.3 and 2.10 hereof;
and
(ii) On the Final Subsequent Transfer Date, the Trustee shall deposit
into the Certificate Account all amounts remaining in the Pre-Funding
Account.
Section 6.12 Capitalized Interest Account.
(a) Funds deposited in the Capitalized Interest Account shall be held in
trust by the Trustee for the Certificateholders and the Certificate Insurer for
the uses and purposes set forth herein. The Servicer shall deposit in the
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Capitalized Interest Account the amount of any net loss incurred in respect of
Permitted Investments immediately upon realization of such loss, without any
right of reimbursement.
(b) On each of the first three Remittance Dates, to the extent funds in the
Certificate Account are insufficient to pay the amounts required by Sections
6.5(a)(i) - (vi), the Trustee shall withdraw from the Capitalized Interest
Account (or make a drawing on the Letter of Credit) and deposit in the
Certificate Account the related Capitalized Interest Deposit Amount.
(c) On the Remittance Date following the Final Subsequent Transfer Date,
any amount remaining on deposit in the Capitalized Interest Account after
distributions pursuant to clause (b) above shall be withdrawn by the Trustee and
paid to the Depositor.
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ARTICLE VII
Default
Section 7.1 Events of Default. (a) In case one or more of the following
Events of Default by the Servicer shall occur and be continuing, that is to say:
(i) any failure by the Servicer to remit to the Trustee any payment
required to be made by the Servicer under the terms of this Agreement or to
deliver the report required by Section 6.5 of this Agreement;
(ii) the failure by the Servicer to make any required Servicing
Advance or Periodic Advance;
(iii) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Servicer contained in this Agreement, or the breach of any
representation and warranty made pursuant to Section 3.1 to be true and
correct which continues unremedied for a period of 30 days after the date
on which written notice of such failure or breach, requiring the same to be
remedied, shall have been given to the Servicer, as the case may be, by the
Depositor or the Trustee or to the Servicer and the Trustee by any
Certificateholder or the Certificate Insurer;
(iv) a decree or order of a court or agency or supervisory authority
having jurisdiction in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or for the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of 60 days;
(v) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property;
(vi) the Servicer shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations;
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(vii) as of any Remittance Date prior to the 60th Remittance Date,
Total Expected Losses exceed _____% of the aggregate Principal Balance of
the Mortgage Loans;
(viii) as of any Remittance Date following the 60th Remittance Date
but prior to the 120th Remittance Date, Total Expected Losses exceed
__________% of the aggregate Principal Balance of the Mortgage Loans;
(b) then, and in each and every such case, so long as an Event of Default
shall not have been remedied with respect to (i) - (ix) above, the Trustee
shall, but only at the direction of the Certificate Insurer or the Majority
Certificateholders with the consent of the Certificate Insurer, by notice in
writing to the Servicer and a Responsible Officer of the Trustee, (x) remove the
Servicer, and in the case of any removal at the direction of the Majority
Certificateholders, and in addition to whatever rights such Certificateholders
may have at law or equity to damages, including injunctive relief and specific
performance, (y) terminate all the rights and obligations of the Servicer under
this Agreement and in and to the Mortgage Loans and the proceeds thereof, as
servicer; and (z) with respect to clauses (vii) through (ix) above, the Trustee
shall, but only at the direction of the Certificate Insurer, after notice in
writing to the Servicer and a Responsible Officer of the Trustee, terminate all
the rights and obligations of the Servicer under this Agreement and in and to
the Mortgage Loans and the proceeds thereof, as Servicer. Upon receipt by the
Servicer of such written notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Mortgage Loans or otherwise, shall,
subject to Section 7.2, pass to and be vested in the Trustee or its designee
approved by the Certificate Insurer and the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, at the expense of the Servicer, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Mortgage Loans
and related documents. The Servicer agrees to cooperate (and pay any related
costs and expenses) with the Trustee in effecting the termination of the
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee or its designee for administration by it of all
amounts which shall at the time be credited by the Servicer to the Collection
Account or thereafter received with respect to the Mortgage Loans. The Trustee
shall promptly notify the Certificate Insurer, Moody's and S&P upon receiving
notice of, or its discovery of, the occurrence of an Event of Default.
Section 7.2 Trustee to Act; Appointment of Successor. (a) On and after the
time the Servicer receives a notice of termination pursuant to Section 7.1, or
the Trustee and the
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Certificate Insurer receive the resignation of the Servicer evidenced by an
Opinion of Counsel pursuant to Section 5.23, or the Servicer is removed as
Servicer pursuant to Article VII, in which event the Trustee shall promptly
notify the Certificate Insurer and Moody's and S&P, except as otherwise provided
in Section 7.1, the Trustee shall be the successor in all respects to the
Servicer in its capacity as servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof arising on or after the date of succession;
provided, however, that the Trustee shall not be liable for any actions or the
representations and warranties of any servicer prior to it and including,
without limitation, the obligations of the Servicer set forth in Sections 2.4
and 3.3. The Trustee, as Successor Servicer, or any other successor servicer
shall be obligated to pay Compensating Interest pursuant to Section 6.9 hereof;
the Trustee, as Successor Servicer is obligated to make advances pursuant to
Section 5.20 unless, and only to the extent the Trustee, as Successor Servicer
determines reasonably and in good faith that such advances would not be
recoverable pursuant to Sections 5.4(b), 5.4(g) or 5.4(j), such determination to
be evidenced by a certification of a Responsible Officer of the Trustee, as
Successor Servicer delivered to the Certificate Insurer.
(b) Notwithstanding the above, the Trustee may, if it shall be unwilling to
so act, or shall, if it is unable to so act or if the Majority
Certificateholders with the consent of the Certificate Insurer or the
Certificate Insurer so requests in writing to the Trustee, appoint, pursuant to
the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution acceptable to the Certificate Insurer that has a net worth of not
less than $_____ as the successor to the Servicer hereunder in the assumption of
all or any part of the responsibilities, duties or liabilities of the Servicer
hereunder.
(c) In the event the Trustee is the Successor Servicer, it shall be
entitled to the Servicing Compensation (including the Servicing Fee as adjusted
pursuant to the definition thereof) and other funds pursuant to Section 5.14
hereof as the Servicer if the Servicer had continued to act as servicer
hereunder. In the event the Trustee is unable or unwilling to act as successor
servicer, the Trustee shall solicit, by public announcement, bids from housing
and home finance institutions, banks and mortgage servicing institutions meeting
the qualifications set forth above. Such public announcement shall specify that
the successor servicer shall be entitled to the full amount of the aggregate
Servicing Fees hereunder as servicing compensation, together with the other
Servicing Compensation. Within thirty days after any such public announcement,
the Trustee shall negotiate and effect the sale,
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transfer and assignment of the servicing rights and responsibilities hereunder
to the qualifying party submitting the highest qualifying bid. The Trustee shall
deduct from any sum received by the Trustee from the successor to the Servicer
in respect of such sale, transfer and assignment all costs and expenses of any
public announcement and of any sale, transfer and assignment of the servicing
rights and responsibilities hereunder and the amount of any unreimbursed
Servicing Advances and Periodic Advances owed to the Trustee. After such
deductions, the remainder of such sum shall be paid by the Trustee to the
Servicer at the time of such sale, transfer and assignment to the Servicer's
successor.
(d) The Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession. The
Servicer agrees to cooperate with the Trustee and any successor servicer in
effecting the termination of the Servicer's servicing responsibilities and
rights hereunder and shall promptly provide the Trustee or such successor
servicer, as applicable, at the Servicer's cost and expense, all documents and
records reasonably requested by it to enable it to assume the Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor servicer, as applicable, all amounts that then have been or should
have been deposited in the Collection Account by the Servicer or that are
thereafter received with respect to the Mortgage Loans. Any collections received
by the Servicer after such removal or resignation shall be endorsed by it to the
Trustee and remitted directly to the Trustee or, at the direction of the
Trustee, to the successor servicer. Neither the Trustee nor any other successor
servicer shall be held liable by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof caused by (i) the
failure of the Servicer to deliver, or any delay in delivering, cash, documents
or records to it, or (ii) restrictions imposed by any regulatory authority
having jurisdiction over the Servicer hereunder. No appointment of a successor
to the Servicer hereunder shall be effective until the Trustee and the
Certificate Insurer shall have consented thereto, and written notice of such
proposed appointment shall have been provided by the Trustee to the Certificate
Insurer and to each Certificateholder. The Trustee shall not resign as servicer
until a successor servicer reasonably acceptable to the Certificate Insurer has
been appointed.
(e) Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Servicer pursuant to Section 5.14, together with
other Servicing Compensation. The Servicer, the Trustee and such successor shall
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take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
Section 7.3 Waiver of Defaults. The Certificate Insurer or the Majority
Certificateholders may, on behalf of all Certificateholders, and subject to the
consent of the Certificate Insurer, waive any events permitting removal of the
Servicer as servicer pursuant to this Article VII; provided, however, that the
Majority Certificateholders may not waive a default in making a required
distribution on a Certificate without the consent of the holder of such
Certificate. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to S&P and Moody's.
Section 7.4 Mortgage Loans, Trust Fund and Accounts Held for Benefit of the
Certificate Insurer. (a) The Trustee shall hold the Trust Fund and the Mortgage
Files for the benefit of the Certificateholders and the Certificate Insurer and
all references in this Agreement and in the Certificates to the benefit of
Holders of the Certificates shall be deemed to include the Certificate Insurer.
The Trustee shall cooperate in all reasonable respects with any reasonable
request by the Certificate Insurer for action to preserve or enforce the
Certificate Insurer's rights or interests under this Agreement and the
Certificates unless, as stated in an Opinion of Counsel addressed to the Trustee
and the Certificate Insurer, such action is adverse to the interests of the
Certificateholders or diminishes the rights of the Certificateholders or imposes
additional burdens or restrictions on the Certificateholders.
(b) The Servicer hereby acknowledges and agrees that it shall service the
Mortgage Loans for the benefit of the Certificateholders and for the benefit of
the Certificate Insurer, and all references in this Agreement to the benefit of
or actions on behalf of the Certificateholders shall be deemed to include the
Certificate Insurer.
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ARTICLE VIII
Termination
Section 8.1 Termination. (a) This Agreement shall terminate upon notice to
the Trustee of either: (i) the later of the distribution to Certificateholders
of the final payment or collection with respect to the last Mortgage Loan (or
Periodic Advances of same by the Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due hereunder
and the payment of all amounts due and payable to the Certificate Insurer and
the Trustee or (ii) mutual consent of the Servicer, the Certificate Insurer and
all Certificateholders in writing; provided, however, that in no event shall the
Trust established by this Agreement terminate later than twenty-one years after
the death of the last survivor of the descendants of John D. Rockefeller, alive
as of the date hereof.
(b) In addition, the Servicer may, at its option and at its sole cost and
expense (or, if the Servicer does not exercise this option, the Certificate
Insurer may, at its sole cost and expense), repurchase all of the HELOCs in
Group I or all of the HELs in Group II on any date on which the Class A-1
Principal Balance with respect to the HELOCs or the sum of the Class A-2
Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal
Balance with respect to the HELs is less than _____% of the Original Class A-1
Principal Balance with respect to the HELOCs or the sum of the Original Class
A-2 Principal Balance, the Original Class A-3 Principal Balance and the Original
Class A-4 Principal Balance with respect to the HELs, on the next succeeding
Remittance Date, at a price equal to the sum of (i) the greater of (A) _____% of
the Trust Balance of each outstanding Mortgage Loan and each REO Mortgage Loan,
and (B) the fair market value (disregarding accrued interest) of the Mortgage
Loans and REO Properties in the related Group, determined as the average of
three written bids (copies of which shall be delivered to the Trustee and the
Certificate Insurer by the Servicer and the reasonable cost of which may be
deducted from the final purchase price) made by nationally recognized dealers
and based on a valuation process which would be used to value comparable
mortgage loans and REO property, plus (ii) the aggregate amount of accrued and
unpaid interest on the Mortgage Loans in the related Group through the related
Due Period and 30 days' interest thereon at a rate equal to the weighted average
of the Mortgage Interest Rates for the Mortgage Loans in the related Group, in
each case net of the Servicing Fee, plus (iii) any unreimbursed amounts due to
the Certificate Insurer under this Agreement or the Certificate Insurer
Agreement (the "Termination Price"). Any such purchase shall be accomplished by
deposit into the Certificate Account for the related Group of the Termination
Price. No such termination is permitted without the prior written consent of the
Certificate Insurer (i) if it would result in a draw on the related Certificate
Insurance Policy, or (ii)
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unless the Servicer shall have delivered to the Certificate Insurer an Opinion
of Counsel reasonably satisfactory to the Certificate Insurer stating that no
amounts paid hereunder are subject to recapture as preferential transfers under
the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq., as amended.
(c) If on any Remittance Date, the Servicer determines that there are no
outstanding Mortgage Loans and no other funds or assets in the Trust Fund other
than funds in the Certificate Account, the Servicer shall send a final
distribution notice promptly to each such Certificateholder in accordance with
paragraph (d) below.
(d) Notice of any termination, specifying the Remittance Date upon which
any Group, the Trust Fund or the _____ REMIC will terminate and the related
Certificateholders shall surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Servicer by letter to each of the related Certificateholders identified to the
Servicer by the Trustee as the Certificateholders of record as of the most
recent Record Date, and shall be mailed during the month of such final
distribution before the Servicer Remittance Date in such month, specifying (i)
the Remittance Date upon which final payment of such Certificates will be made
upon presentation and surrender of Certificates at the office of the Trustee
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Remittance Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trustee therein specified. The Servicer shall give such notice
to the Trustee therein specified. The Servicer shall give such notice to the
Trustee at the time such notice is given to Certificateholders. The obligations
of the Certificate Insurer hereunder shall terminate upon the deposit by the
Servicer with the Trustee of a sum sufficient to purchase all of the Mortgage
Loans and REO Properties as set forth above and when the Class A-1 Principal
Balance, Class A-2 Principal Balance, Class A-3 Principal Balance and Class A-4
Principal Balance has been reduced to zero.
(e) In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned written notice, the Servicer shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice, all of the affected Certificates shall not
have been surrendered for cancellation, the Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto. If within nine months after the second notice all the affected
Certificates
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shall not have been surrendered for cancellation, the Class R Certificateholders
shall be entitled to all unclaimed funds and other assets which remain subject
hereto and the Trustee upon transfer of such funds shall be discharged of any
responsibility for such funds and the Certificateholders shall look only to the
Class R Certificateholders for payment. Such funds shall remain uninvested.
Section 8.2 Additional Termination Requirements. (a) In the event that the
Servicer exercises its purchase option as provided in Section 8.1, the _____
REMIC shall be terminated in accordance with the following additional
requirements, unless the Trustee has been furnished with an Opinion of Counsel
to the effect that the failure of the _____ REMIC (or of any other REMIC of the
Trust Fund) to comply with the requirements of this Section 8.3 will not (i)
result in the imposition of taxes on "prohibited transactions" of such REMIC as
defined in Section 860F of the Code or (ii) cause such REMIC to fail to qualify
as a REMIC at any time that any Class A Certificates are outstanding:
(i) Within 90 days prior to the final Remittance Date the Servicer
shall adopt and the Trustee shall sign, a plan of complete liquidation of
the _____ REMIC (or the applicable REMIC of the Trust Fund) meeting the
requirements of a "Qualified Liquidation" under Section 860F of the Code
and any regulations thereunder;
(ii) At or after the time of adoption of such a plan of complete
liquidation, which plan shall include a description of the method for such
liquidation and the price to be conveyed for all of the assets of the _____
REMIC at the time of such liquidation, and at or prior to the final
Remittance Date, the Trustee shall sell all of the assets of the _____
REMIC (or the applicable REMIC of the Trust Fund) to the Servicer for cash;
and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited (A) to the Class A Certificateholders the related
Class A Principal Balance, plus one month's interest thereon at the related
Class A Pass-Through Rate, and (B) to the Class R Certificateholders, all
of such REMIC's cash on hand after such payment to the Class A
Certificateholders (other than cash retained to meet claims) and the _____
REMIC shall terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof hereby
agree to appoint the Servicer as their attorney in fact to: (i) adopt such a
plan of complete liquidation (and the Certificateholders hereby appoint the
Trustee as their attorney in fact to sign such plan) as appropriate or upon the
written request of the Certificate Insurer and (ii) to take such other action in
connection
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therewith as may be reasonably required to carry out such plan of complete
liquidation all in accordance with the terms hereof.
Section 8.3 Accounting Upon Termination of Servicer. Upon termination of
the Servicer, the Servicer shall, at its expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer
tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee and, upon request, to the Certificateholders a
full accounting of all funds, including a statement showing the Monthly
Payments collected by it and a statement of monies held in trust by it for
the payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer
of servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the "Servicer" under this
Agreement.
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ARTICLE IX
The Trustee
Section 9.1 Duties of Trustee. (a) The Trustee, prior to the occurrence of
an Event of Default and after the curing of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If an Event of Default has occurred
and has not been cured or waived, the Trustee shall exercise such of the rights
and power vested in it by this Agreement, and use the same degree of care and
skill in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; provided, however,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Servicer or the Seller hereunder. If any such
instrument is found not to conform on its face to the requirements of this
Agreement, the Trustee shall take action as it deems appropriate to have the
instrument corrected and, if the instrument is not corrected to the Trustee's
satisfaction, the Trustee will, at the expense of the Servicer notify the
Certificate Insurer and request written instructions as to the action it deems
appropriate to have the instrument corrected, and if the instrument is not so
corrected, the Trustee will provide notice thereof to the Certificate Insurer
who shall then direct the Trustee as to the action, if any, to be taken.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein,
upon any certificates or
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opinions furnished to the Trustee and conforming to the requirements of
this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or other officers of
the Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Certificate Insurer or with the
consent of the Certificate Insurer, any Class of the Class A
Certificateholders holding Class A Certificates evidencing Percentage
Interests of such Class of at least _____%, relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under
this Agreement;
(iv) The Trustee shall not be required to take notice or be deemed to
have notice or knowledge of any default or Event of Default (except an
Event of Default with respect to the nonpayment of any amount described in
Section 7.1(a)), unless a Responsible Officer of the Trustee shall have
received written notice thereof. In the absence of receipt of such notice,
the Trustee may conclusively assume that there is no default or Event of
Default (except a failure to make a Periodic Advance);
(v) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability for the performance of any of its
duties hereunder or the exercise of any of its rights or powers if there is
reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it and none of the provisions contained in this Agreement shall in any
event require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Trustee shall be the successor to,
and be vested with the rights, duties powers and privileges of, the
Servicer in accordance with the terms of this Agreement; and
(vi) Subject to the other provisions of this Agreement and without
limiting the generality of this Section, the Trustee shall have no duty (A)
to see to any recording, filing, or depositing of this Agreement or any
agreement referred to herein or any financing statement or continuation
statement evidencing a security interest, or to see to the maintenance of
any such recording or filing or depositing or to any rerecording, refiling
or redepositing
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of any thereof, (B) to see to any insurance, (C) to see to the payment or
discharge of any tax, assessment, or other governmental charge or any lien
or encumbrance of any kind owing with respect to, assessed or levied
against, any part of the Trust, the Trust Fund, the Certificateholders or
the Mortgage Loans, (D) to confirm or verify the contents of any reports or
certificates of the Servicer delivered to the Trustee pursuant to this
Agreement believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties.
(d) It is intended that the _____ REMIC formed hereunder shall constitute,
and that the affairs of the _____ REMIC shall be conducted so as to qualify it
as, a REMIC as defined in and in accordance with the REMIC Provisions. In
furtherance of such intention, the Trustee covenants and agrees that it shall
act as agent (and the Trustee is hereby appointed to act as agent) and as Tax
Matters Person on behalf of the _____ REMIC, and that in such capacities it
shall:
(i) prepare, sign and file, or cause to be prepared and filed, in a
timely manner, a U.S. Real Estate Mortgage Investment Conduit Income Tax
Return (Form 1066) and any other Tax Return required to be filed by the
_____ REMIC, using a calendar year as the taxable year for the _____ REMIC;
(ii) make, or cause to be made, an election, on behalf of the _____
REMIC, to be treated as a REMIC on the federal tax return of the _____
REMIC for its first taxable year;
(iii) prepare and forward, or cause to be prepared and forwarded, to
the Trustee, the Certificateholders and to the Internal Revenue Service and
any other relevant governmental taxing authority all information returns or
reports as and when required to be provided to them in accordance with the
REMIC Provisions;
(iv) to the extent that the affairs of the _____ REMIC are within its
control, conduct such affairs of the _____ REMIC at all times that any
Certificates are outstanding so as to maintain the status of the _____
REMIC as a REMIC under the REMIC Provisions and any other applicable
federal, state and local laws, including, without limitation, information
reports relating to "original issue discount, as defined in the Code, based
upon the Prepayment Assumption and calculated by using the issue price of
the Certificates:
(v) not knowingly or intentionally take any action or omit to take any
action that would cause the termination of the REMIC status of the _____
REMIC:
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(vi) pay the amount of any and all federal, state, and local taxes
imposed on the Trust Fund, prohibited transaction taxes as defined in
Section 860F of the Code, other than any amount due as a result of a
transfer or attempted or purported transfer in violation of Section 4.2,
imposed on the Trust Fund when and as the same shall be due and payable
(but such obligation shall not prevent the Trustee or any other appropriate
Person from contesting any such tax in appropriate proceedings and shall
not prevent the Trustee from withholding payment of such tax, if permitted
by law, pending the outcome of such proceedings). The Trustee shall be
entitled to reimbursement in accordance with Sections 9.1(c) and 9.5 hereof
(vii) ensure that any such returns or reports filed on behalf of the
Trust Fund by the Trustee are properly executed by the appropriate person
and submitted in a timely manner;
(viii) represent the Trust Fund in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of
the Trust Fund, enter into settlement agreements with any governmental
taxing agency, extend any statute of limitations relating to any item of
the Trust Fund and otherwise act on behalf of the Trust Fund in relation to
any tax matter involving the Trust Fund;
(ix) as provided in Section 5.18 hereof, make available information
necessary for the computation of any tax imposed (1) on transferrers of
residual interests to transferees that are not Permitted Transferees or (2)
on pass-through entities, any interest in which is held by an entity which
is not a Permitted Transferee. The Trustee covenants and agrees that it
will cooperate with the Servicer in the foregoing matters and that it will
sign, as Trustee, any and all Tax Returns required to be filed by the Trust
Fund. Notwithstanding the foregoing, at such time as the Trustee becomes
the successor Servicer, the holder of the largest percentage of the Class R
Certificates shall serve as Tax Matters Person until such time as an entity
is appointed to succeed the Trustee as Servicer:
(x) make available to the Internal Revenue Service and those Persons
specified by the REMIC Provisions all information necessary to compute any
tax imposed (A) as a result of the Transfer of an Ownership Interest in a
Class R Certificate to any Person who is not a Permitted Transferee,
including the information described in Treasury regulations sections
1.860D-1(b)(5) and 1.860E-2(a)(5)with respect to the "excess inclusions" of
such Class R Certificate and (B) as a result of any regulated investment
company, real estate investment trust, common trust fund,
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partnership, trust, estate or organization described in Section 1381 of the
Code that holds an Ownership Interest in a Class R Certificate having as
among its record holders at any time any Person that is not a Permitted
Transferee. Reasonable compensation for providing such information may be
accepted by the Trustee;
(xi) pay out of its own funds, without any right of reimbursement from
the assets of the Trust Fund, any and all tax related expenses of the Trust
Fund (including, but not limited to, tax return preparation and filing
expenses and any professional fees or expenses related to audits or any
administrative or judicial proceedings with respect to the Trust Fund that
involve the Internal Revenue Service or state tax authorities), other than
the expense of obtaining any Opinion of Counsel required pursuant to
Sections 3.3, 5.10 and 8.2 and other than taxes except as specified herein;
(xii) upon filing with the Internal Revenue Service, the Trustee shall
furnish to the Holders of the Class R Certificates the Form 1066 and each
Form 1066Q and shall respond promptly to written requests made not more
frequently than quarterly by any Holder of Class R Certificates with
respect to the following matters:
(1) the original projected principal and interest cash flows on
the Closing Date on the regular and residual interests created
hereunder and on the Mortgage Loans, based on the Prepayment
Assumption;
(2) the projected remaining principal and interest cash flows as
of the end of any calendar quarter with respect to the regular and
residual interests created hereunder and the Mortgage Loans, based on
the Prepayment Assumption;
(3) the Prepayment Assumption and any interest rate assumptions
used in determining the projected principal and interest cash flows
described above;
(4) the original issue discount (or, in the case of the Mortgage
Loans, market discount) or premium accrued or amortized through the
end of such calendar quarter with respect to the regular or residual
interests created hereunder and with respect to the Mortgage Loans,
together with each constant yield to maturity used in computing the
same;
(5) the treatment of losses realized with respect to the Mortgage
Loans or the regular interests created hereunder, including the timing
and amount of any cancellation of indebtedness income of the _____
REMIC with
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respect to such regular interests or bad debt deductions claimed with
respect to the Mortgage Loans;
(6) the amount and timing of any non-interest expenses of the
_____ REMIC: and
(7) any taxes (including penalties and interest) imposed on the
_____ REMIC, including, without limitation, taxes on "prohibited
transactions," "contributions" or "net income from foreclosure
property" or state or local income or franchise taxes; and
(xiii) make any other required reports in respect of interest payments
in respect of the Mortgage Loans and acquisitions and abandonments or
Mortgaged Property to the Internal Revenue Service and/or the borrowers, as
applicable.
(e) In the event that any tax is imposed on "prohibited transactions" of
the REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code, on
any contribution to the REMIC after the Startup Date pursuant to Section 860G(d)
of the Code, or any other tax is imposed, such tax shall be paid by (i) the
Trustee, if such tax arises out of or results from a breach by the Trustee of
any of its obligations under this Agreement, (ii) the Servicer, if such tax
arises out of or results from a breach by the Servicer of any of its obligations
under this Agreement, or otherwise (iii) the holders of the Class R Certificates
in proportion to their undivided beneficial ownership interest in the related
REMIC as are represented by such Class R Certificates. To the extent such tax is
chargeable against the holders of the Class R Certificates, notwithstanding
anything to the contrary contained herein, the Trustee is hereby authorized to
retain from amounts otherwise distributable to the Holders of the Class R
Certificates on any Remittance Date sufficient funds to reimburse the Trustee
for the payment of such tax (to the extent that the Trustee has not been
previously reimbursed or indemnified therefor).
Section 9.2 Certain Matters Affecting the Trustee. (a) Except as otherwise
provided in Section 9.1:
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, Opinion
of Counsel, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(ii) the Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete
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authorization and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with such opinion
of counsel;
(iii) the Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Agreement or to institute, conduct or
defend by litigation hereunder or in relation hereto at the request, or
direction of the Certificate Insurer or any of the Certificateholders,
pursuant to the provisions of this Agreement, unless such
Certificateholders or the Certificate Insurer, as applicable, shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the obligation,
upon the occurrence of an Event of Default (which has not been cured), to
exercise such of the rights and powers vested in it by this Agreement, and
to use the same degree of care and skill in its exercise as a prudent
person would exercise or use under the circumstances in the conduct of such
person's own affairs;
(iv) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Agreement;
(v) prior to the occurrence of an Event of Default hereunder and after
the curing of all Events of Default which may have occurred, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or other paper or
document, unless requested in writing to do so by the Certificate Insurer
or Holders of any Class of Class A Certificates evidencing Percentage
Interests aggregating not less than _____% of such class; provided,
however, that if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Agreement, the Trustee may require reasonable indemnity against such
expense or liability as a condition to taking any such action. The
reasonable expense of every such examination shall be paid by the Servicer
or, if paid by the Trustee, shall be repaid by the Servicer upon demand
from the Servicer's own funds;
(vi) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable
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for other than its negligence or willful misconduct in the performance of
such act;
(vii) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust created hereby or the powers granted
hereunder; and
(viii) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys.
(b) Following the Startup Date, the Trustee shall not knowingly accept any
contribution of assets to the Trust Fund, unless the Trustee shall have received
an Opinion of Counsel (at the expense of the Servicer) to the effect that the
inclusion of such assets in the Trust Fund will not cause the _____ REMIC to
fail to qualify as a REMIC at any time that any Certificates are outstanding or
subject the _____ REMIC to any tax under the REMIC Provisions or other
applicable provisions of federal, state and local law or ordinances. The Trustee
agrees to indemnify the Trust Fund and the Servicer for any taxes and costs,
including any attorney's fees, imposed or incurred by the Trust Fund or the
Servicer as a result of the breach of the Trustee's covenants set forth within
this subsection (b).
Section 9.3 Not Liable for Certificates or Mortgage Loans. The recitals
contained herein (other than the certificate of authentication on the
Certificates) shall be taken as the statements of the Seller or the Servicer, as
the case may be, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement or of any Mortgage Loan or related document. The
Trustee shall not be accountable for the use or application of any funds paid to
the Servicer in respect of the Mortgage Loans or deposited in or withdrawn from
the Collection Account by the Servicer. The Trustee shall not be responsible for
the legality or validity of the Agreement or the validity, priority, perfection
or sufficiency of the security for the Certificates issued or intended to be
issued hereunder.
Section 9.4 Trustee May Own Certificates. The Trustee in its individual or
any other capacity may become the owner or pledgor of Certificates with the same
rights it would have if it were not Trustee, and may otherwise deal with the
parties hereto.
Section 9.5 Trustee's Fees and Expenses; Indemnity. (a) The Trustee
acknowledges that in consideration of the performance of its duties hereunder it
is entitled to receive the Trustee Fee in accordance with the provision of
Section 6.5(a). Additionally, the Trustee hereby covenants, for the benefit of
the Depositor, that the Trustee has arranged separately with the Servicer for
the payment to the Trustee of all of the Trustee's expenses in connection with
this Agreement, including, without limitation, all of the Trustee's Fees and
expenses in connection
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with any actions taken by the Trustee pursuant to Section 9.12 hereof. For the
avoidance of doubt, the parties hereto acknowledge that it is the intent of the
parties that the Depositor shall not pay any of the Trustee's fees and expenses
in connection with this transaction. The Trustee shall not be entitled to
compensation for any expense, disbursement or advance as may arise from its
negligence or bad faith, and the Trustee shall have no lien on the Trust Fund
for the payment of its fees and expenses.
(b) The Trust Fund, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Servicer and held harmless
against any loss, liability, claim, damage or expense arising out of, or imposed
upon the Trust or the Trustee, other than any loss, liability or expense
incurred by reason of (i) the acts of the Trustee not authorized or required
pursuant to this Agreement or taken pursuant to written instructions received
from the Servicer, the Certificate Insurer or the Majority Holders, or (ii) by
reason of the Trustee's reckless disregard of obligations and duties hereunder.
The obligation of the Servicer under this Section 9.5 arising prior to any
resignation or termination of the Servicer hereunder shall survive termination
of the Servicer and payment of the Certificates, and shall extend to any
co-trustee appointed pursuant to this Article IX.
Section 9.6 Eligibility Requirements for Trustee. The Trustee hereunder
shall at all times be (a) a banking association organized and doing business
under the laws of any state or the United States of America subject to
supervision or examination by federal or state authority, (b) authorized under
such laws to exercise corporate trust powers, including taking title to the
Trust Fund assets on behalf of the Certificateholders (c) having a combined
capital and surplus of at least $_____, (d) whose long-term deposits, if any,
shall be rated at least BBB by S&P and Baa3 by Moody's (except as provided
herein) or such lower long-term deposit rating as may be approved in writing by
the Certificate Insurer, and (e) reasonably acceptable to the Certificate
Insurer as evidenced in writing. If such banking association publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 9.7.
Section 9.7 Resignation and Removal of the Trustee. (a) The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer, the Certificate Insurer and to all
Certificateholders. Upon receiving such notice of resignation, the Servicer
shall
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promptly appoint a successor trustee by written instrument, in duplicate, which
instrument shall be delivered to the resigning Trustee and to the successor
trustee. A copy of such instrument shall be delivered to the Depositor, the
Certificateholders, the Certificate Insurer and the Seller by the Servicer.
Unless a successor trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.6 and shall fail to resign after written
request therefor by the Servicer or the Certificate Insurer, or if at any time
the Trustee shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Servicer or the Certificate Insurer may remove the Trustee
and the Servicer shall, within 30 days after such removal, appoint, subject to
the approval of the Certificate Insurer, which approval shall not be
unreasonably delayed, a successor trustee by written instrument, in duplicate,
which instrument shall be delivered to the Trustee so removed and to the
successor trustee. A copy of such instrument shall be delivered to the
Depositor, the Certificateholders, the Certificate Insurer and the Seller by the
Servicer.
(c) If the Trustee fails to perform in accordance with the terms of this
Agreement, the Majority Certificateholders or the Certificate Insurer may remove
the Trustee and appoint a successor trustee acceptable to the Certificate
Insurer by written instrument or instruments, in triplicate, signed by such
Holders or their attorneys-in-fact duly authorized, one complete set of which
instruments shall be delivered to the Servicer, one complete set to the Trustee
so removed and one complete set to the successor Trustee so appointed.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 9.8.
(e) Upon any termination of, or appointment of any successor to the Trustee
hereunder, the Trustee shall promptly transfer all of the Residual Interest (as
defined under the Code) of the Trust to the successor Trustee.
Section 9.8 Successor Trustee. Any successor trustee appointed as provided
in Section 9.7 shall execute, acknowledge and deliver to the Depositor, the
Certificate Insurer, the
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Seller, the Servicer and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with the
like effect as if originally named as trustee herein. The predecessor trustee
shall deliver to the successor trustee all Mortgage Files and related documents
and statements held by it hereunder, and the Servicer and the predecessor
trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully and certainly vesting and confirming
in the successor trustee all such rights, powers, duties and obligations. No
successor trustee shall accept appointment as provided in this Section unless at
the time of such acceptance such successor trustee shall be eligible under the
provisions of Section 9.6. Upon acceptance of appointment by a successor trustee
as provided in this Section, the Servicer shall mail notice of the succession of
such trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register and to Moody's and S&P. If the Servicer fails
to mail such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Servicer.
Section 9.9 Merger or Consolidation of Trustee. Any Person into which the
Trustee may be merged or converted or with which it may be consolidated or any
corporation or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or national banking association succeeding to the business of the
trustee, shall be the successor of the Trustee hereunder, provided such
corporation or national banking association shall be eligible under the
provisions of Section 9.6, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.10 Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
9.10, such powers, duties, obligations, rights and trusts as the Servicer and
the Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such
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appointment within 15 days after the receipt by it of a request so to do, or in
case an Event of Default shall have occurred and be continuing, the Trustee
alone shall have the power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 9.6 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 9.8 hereof.
(b) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. The Trustee shall not be responsible
for any action or inaction of any such separate trustee or co-trustee, provided
that the Trustee appointed such separate trustee or co-trustee with due care. If
any separate trustee or co-trustee shall die, become incapable of acting, resign
or be removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted by law, without
the appointment of a new or successor trustee.
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Section 9.11 Tax Returns; Old Interest Reporting. The Servicer and the
Depositor, as applicable, upon request, will promptly furnish the Trustee with
all such information as may be reasonably required in connection with the
Trustee's preparation of all Tax Returns of the Trust Fund or for the purpose of
the Trustee responding to reasonable requests for information made by
Certificateholders in connection with tax matters and, upon request within seven
(7) Business Days after its receipt thereof, the Servicer shall (a) sign on
behalf of the Trust Fund any Tax Return that the Servicer is required to sign
pursuant to applicable federal, state or local tax laws, and (b) cause such Tax
Return to have been returned to the Trustee for filing and for distribution to
Certificateholders if required.
Section 9.12 Retirement of Certificates. The Trustee shall, upon the
retirement of the Certificates pursuant hereto or otherwise, furnish to the
Certificate Insurer a notice of such retirement, and, upon retirement of the
Certificates and the expiration of the term of the Certificate Insurance Policy,
shall surrender the Certificate Insurance Policy to the Certificate Insurer for
cancellation.
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ARTICLE X
Miscellaneous Provisions
Section 10.1 Limitation on Liability of the Depositor and the Servicer.
Neither the Depositor nor the Servicer nor any of the directors, officers,
employees or agents of the Depositor or the Servicer shall be under any
liability to the Trust, the Certificateholders or the Certificate Insurer for
any action taken, or for refraining from the taking of any action, in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor or the Servicer or any such
Person against any breach of warranties or representations made herein, or
against any specific liability imposed on each such party pursuant to this
Agreement or against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties hereunder. The Depositor
or the Servicer and any director, officer, employee or agent of the Depositor or
the Servicer may rely in good faith on any document of any kind which, prima
facie, is properly executed and submitted by any appropriate Person respecting
any matters arising hereunder.
Section 10.2 Acts of Certificateholders; Certificateholders' Rights. (a)
Except as otherwise specifically provided herein, whenever Certificateholder
action, consent or approval is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Certificateholders if the Majority
Certificateholders or the Certificate Insurer agrees to take such action or give
such consent or approval.
(b) The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heir to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(c) No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof or thereof.
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(d) The rights of the Certificateholders of Series _____ will be determined
pursuant to this Agreement. The rights of the Holders of any certificates or
other instruments which may be issued by the Trustee pursuant to Section 4.2 of
this Agreement shall be determined by a supplement with respect thereto. Such
supplement may provide for any other agreements between the parties hereto as
long as such agreements do not violate, as to any Certificate, certificates or
other instruments, Section 10.3.
Section 10.3 Amendment or Supplement. (a) This Agreement may be amended or
supplemented from time to time by the Servicer, the Depositor and the Trustee by
written agreement, upon the prior written consent of the Certificate Insurer
(which consent shall not be withheld if, in the Opinion of Counsel addressed to
the Trustee and the Certificate Insurer, failure to amend would adversely affect
the interests of the Certificateholders and such consent would not adversely
affect the interests of the Certificate Insurer), without notice to or consent
of the Certificateholders to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, at
the expense of the party requesting the change, delivered to the Trustee and the
Certificate Insurer, adversely affect in any material respect the interests of
any Certificateholder; and provided, further, that no such amendment shall
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the Holder of such Certificate, or change the rights or
obligations of any other party hereto without the consent of such party. The
Trustee shall give prompt written notice to Moody's and S&P of any amendment
made pursuant to this Section 10.3 or pursuant to Section 6.9 of the Purchase
and Sale Agreement.
(b) This Agreement may be amended or supplemented from time to time by the
Servicer, the Depositor and the Trustee with the consent of the Certificate
Insurer (which consent shall not be withheld if, in the Opinion of Counsel
addressed to the Trustee and the Certificate Insurer, failure to amend would
adversely affect the interests of the Certificateholders and such consent would
not adversely affect the interests of the Certificate Insurer), the Majority
Certificateholders and the Holders of the majority of the undivided beneficial
ownership interest in the _____ REMIC as is represented by the Class R
Certificates for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Holders; provided, however, that no such amendment
shall be made unless the Trustee and the Certificate Insurer receive an Opinion
of Counsel, at the expense of the party requesting the change,
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that such change will not adversely affect the status of the _____ REMIC as a
REMIC or cause a tax to be imposed on such REMIC; and provided, further, that no
such amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or reduce the
percentage for the Holders of which are required to consent to any such
amendment without the consent of the Holders of _____% of Certificates affected
thereby.
(c) It shall not be necessary for the consent of Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent shall approve the substance thereof.
Section 10.4 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at the Certificateholders' expense on direction
and at the expense of Majority Certificateholders requesting such recordation,
but only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.
Section 10.5 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 10.6 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
to (i) in the case of the Servicer, (with copies to the Seller), (ii) in the
case of the Seller, ________________, ___________, with an additional copy of
such notice simultaneously delivered to the Servicer, (iii) in the case of the
Trustee, ________________, (iv) in the case of the Certificateholders, as set
forth in the Certificate Register, (v) in the case of [Moody's] (vii) in the
case of the Certificate Insurer, ________________, (viii) in the case of the
Fiscal Agent, to (or such other address as the Fiscal Agent or the Certificate
Insurer shall specify to the Trustee in writing) and (ix) in the case of the
Depositor or the Underwriter. Any such notices shall be deemed to be effective
with respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Certificateholders shall be effective upon mailing or
personal delivery.
Section 10.7 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this
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Agreement shall be held invalid for any reason whatsoever, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other covenants, agreements,
provisions or terms of this Agreement.
Section 10.8 No Partnership. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties hereto
and the services of the Servicer shall be rendered as an independent contractor
and not as agent for the Certificateholders.
Section 10.9 Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.
Section 10.10 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Servicer, the Depositor, the Trustee and the
Certificateholders and their respective successors and permitted assigns.
Section 10.11 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
Section 10.12 The Certificate Insurer Default. Any right conferred to the
Certificate Insurer shall be suspended during any period in which a Certificate
Insurer Default exists. At such time as the Certificates are no longer
outstanding hereunder, and no amounts owed to the Certificate Insurer hereunder
remain unpaid, the Certificate Insurer's rights hereunder shall terminate.
Section 10.13 Third Party Beneficiary. The parties agree that each of the
Seller and the Certificate Insurer is intended and shall have all rights of a
third-party beneficiary of this Agreement.
Section 10.14 Intent of the Parties. It is the intent of the Depositor and
Certificateholders that, for federal income taxes, state and local income or
franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
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<PAGE>
Section 10.15 Appointment of Tax Matters Person. The Holders of the Class R
Certificates hereby appoint the Trustee to act as the Tax Matters Person for the
_____ REMIC for all purposes of the Code. The Tax Matters Person will perform,
or cause to be performed, such duties and take, or cause to be taken, such
actions as are required to be performed or taken by the Tax Matters Person under
the code. The Holders of the Class R Certificates may hereafter appoint a
different entity as their agent, or may appoint one of the Class R
Certificateholders to be the Tax Matters Person.
Section 10.16 GOVERNING LAW CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
________________.
(b) THE SERVICER AND THE TRUSTEE HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF ________________ AND THE UNITED
STATES DISTRICT COURT LOCATED IN ________________, AND EACH WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH IN SECTION
10.6 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER
THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE
DEPOSITOR, THE SERVICER AND THE TRUSTEE EACH HEREBY WAIVE ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT
OF THE DEPOSITOR, THE SERVICER OR THE TRUSTEE TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR RIGHTS TO BRING ANY ACTION
OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE DEPOSITOR, THE SERVICER AND THE TRUSTEE EACH HEREBY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
[End of Agreement.]
136
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee and the Depositor have caused
their names to be signed hereto by their respective officers thereunto duly
authorized as of the day and year first above written.
RESIDENTIAL ASSET FUNDING CORPORATION,
as Depositor
By:_________________________________
Name:
Title:
________________________ as Servicer
By:_________________________________
Name:
Title:
_________________________ as Trustee
By:_________________________________
Name:
Title:
[Signature Page to Pooling and Servicing Agreement]
<PAGE>
State of _________________ )
) ss.:
County of ________________ )
On the ___th day of ____________ before me, a Notary Public in and for the
State of ________________, personally appeared ___________, known to me to be
_____________of Residential Asset Funding Corporation, the corporation that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my official
seal the day and year in this certificate first above written.
----------
Notary Public
My Commission expires ___________
[Notary's Acknowledgement Page to Pooling and Servicing Agreement]
<PAGE>
State of California )
) ss.:
County of Contra Costa )
On ___________ before me, __________, a Notary Public in and for said
County and State, personally __________, personally known to me or proved to me
on the basis of satisfactory evidence to be the person whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
-----------
Notary Public
[Notary's Acknowledgement Page to Pooling and Servicing Agreement]
<PAGE>
State of _________________ )
) ss.:
County of ________________ )
On the _______ day of ________ before me, a Notary Public in and for the
State of ________________, personally appeared ___________ known to me to be a
_______________ of ________________, the corporation that executed the within
instrument and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
Notary Public
My Commission expires_______________
[Notary's Acknowledgement Page to Pooling and Servicing Agreement]
EXHIBIT 4.2
FORM OF INDENTURE
INDENTURE
between
___________OWNER TRUST__________,
as Issuer
and
______________________________________,
as Indenture Trustee
Dated as of _____________________
___________OWNER TRUST__________,
Asset Backed Notes
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Section 1.01 Definitions................................................ 2
Section 1.02 Incorporation by Reference of Trust
Indenture Act.............................................. 8
Section 1.03 Rules of Construction...................................... 8
ARTICLE II
Section 2.01 Form....................................................... 9
Section 2.02 Execution, Authentication, Delivery and Dating............. 9
Section 2.03 Registration; Registration of Transfer and Exchange........ 10
Section 2.04 Mutilated, Destroyed, Lost or Stolen Notes................. 11
Section 2.05 Persons Deemed Owner....................................... 12
Section 2.06 Payment of Principal and Interest; Defaulted Interest...... 12
Section 2.07 Cancellation............................................... 12
Section 2.08 Conditions Precedent to the Authentication................. 13
Section 2.09 Release of Collateral...................................... 15
Section 2.10 Registration of Notes...................................... 15
Section 2.11 Notices to Clearing Agency................................. 16
Section 2.12 Definitive Notes........................................... 16
Section 2.13 Tax Treatment.............................................. 16
ARTICLE III
Section 3.01 Payment of Principal and Interest.......................... 17
Section 3.02 Maintenance of Office or Agency............................ 17
Section 3.03 Money for Payments to Be Held in Trust..................... 17
Section 3.04 Existence.................................................. 19
Section 3.05 Protection of Collateral................................... 19
Section 3.06 Annual Opinions as to Collateral........................... 19
Section 3.07 Performance of Obligations; Servicing of Loans............. 20
Section 3.08 Negative Covenants......................................... 21
Section 3.09 Annual Statement as to Compliance.......................... 22
Section 3.10 Covenants of the Issuer.................................... 23
Section 3.11 Servicer's Obligations..................................... 23
Section 3.12 Restricted Payments........................................ 23
Section 3.13 Treatment of Notes as Debt for Tax Purposes................ 23
Section 3.14 Notice of Events of Default................................ 23
Section 3.15 Further Instruments and Acts............................... 23
ARTICLE IV
Section 4.01 Satisfaction and Discharge of Indenture.................... 24
Section 4.02 Application of Trust Money................................. 25
Section 4.03 Repayment of Moneys Held by Paying Agent................... 25
i
<PAGE>
ARTICLE V
Section 5.01 Events of Default.......................................... 26
Section 5.02 Acceleration of Maturity; Rescission and Annulment......... 27
Section 5.03 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee........ 27
Section 5.04 Remedies; Priorities....................................... 29
Section 5.05 Optional Preservation of the Collateral.................... 30
Section 5.06 Limitation of Suits........................................ 30
Section 5.07 Unconditional Rights of Noteholders to Receive Principal
and Interest............ 31
Section 5.08 Restoration of Rights and Remedies......................... 31
Section 5.09 Rights and Remedies Cumulative............................. 31
Section 5.10 Delay or Omission Not a Waiver............................. 31
Section 5.11 Control by Noteholders..................................... 32
Section 5.12 Waiver of Past Defaults.................................... 32
Section 5.13 Undertaking for Costs...................................... 32
Section 5.14 Waiver of Stay or Extension Laws........................... 33
Section 5.15 Action on Notes............................................ 33
Section 5.16 Performance and Enforcement of Certain Obligations......... 33
ARTICLE VI
Section 6.01 Duties of Indenture Trustee................................ 34
Section 6.02 Rights of Indenture Trustee................................ 35
Section 6.03 Individual Rights of Indenture Trustee..................... 35
Section 6.04 Indenture Trustee's Disclaimer............................. 35
Section 6.05 Notice of Defaults......................................... 35
Section 6.06 Reports by Indenture Trustee to Holders.................... 36
Section 6.07 Compensation and Indemnity................................. 36
Section 6.08 Replacement of Indenture Trustee........................... 37
Section 6.09 Successor Indenture Trustee by Merger...................... 37
Section 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee................ 38
Section 6.11 Eligibility; Disqualification.............................. 39
Section 6.12 Preferential Collection of Claims Against Issuer........... 39
Section 6.13 No Conflict with Administrator............................. 39
ARTICLE VII
Section 7.01 Issuer to Furnish Indenture Trustee Names and Addresses of
Noteholders........... 40
Section 7.02 Preservation of Information; Communications to Noteholders. 40
Section 7.03 Reports by Issuer.......................................... 40
Section 7.04 Reports by Indenture Trustee............................... 41
ARTICLE VIII
Section 8.01 Collection of Money........................................ 42
Section 8.02 Trust Accounts; Distributions.............................. 42
Section 8.03 General Provisions Regarding Accounts...................... 43
Section 8.04 Distribution Statement..................................... 43
Section 8.05 Release of Collateral...................................... 43
Section 8.06 Opinion of Counsel......................................... 44
ARTICLE IX
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<PAGE>
Section 9.01 Supplemental Indentures Without Consent of Noteholders..... 45
Section 9.02 Supplemental Indentures with Consent of Noteholders........ 46
Section 9.03 Execution of Supplemental Indentures....................... 47
Section 9.04 Effect of Supplemental Indentures.......................... 47
Section 9.05 Conformity with Trust Indenture Act........................ 47
Section 9.06 Reference in Notes to Supplemental Indentures.............. 47
Section 9.07 Amendments to Trust Agreement.............................. 47
ARTICLE X
Section 10.01 Redemption................................................. 48
Section 10.02 Form of Redemption Notice.................................. 48
Section 10.03 Notes Payable on Redemption Date; Provision for
Payment of Indenture Trustee............................. 49
ARTICLE XI
Section 11.01 Compliance Certificates and Opinions, etc.................. 50
Section 11.02 Form of Documents Delivered to Indenture Trustee........... 51
Section 11.03 Acts of Noteholders........................................ 51
Section 11.04 Notices, etc., to Indenture Trustee, Issuer and Rating
Agencies................................................. 52
Section 11.05 Notices to Noteholders; Waiver............................. 52
Section 11.06 Conflict with Trust Indenture Act.......................... 53
Section 11.07 Effect of Headings and Table of Contents................... 53
Section 11.08 Successors and Assigns..................................... 53
Section 11.09 Separability............................................... 53
Section 11.10 Benefits of Indenture...................................... 53
Section 11.11 Legal Holidays............................................. 54
Section 11.12 GOVERNING LAW.............................................. 54
Section 11.13 Counterparts............................................... 54
Section 11.14 Recording of Indenture..................................... 54
Section 11.15 Trust Obligation........................................... 54
Section 11.16 No Petition................................................ 54
Section 11.17 Inspection................................................. 54
iii
<PAGE>
This Indenture, dated as of _________________, between [________________
OWNER TRUST _________], a [Delaware business trust], as Issuer (the "Issuer"),
______________________________, not in its individual capacity but solely as
Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of the Issuer's Class A-1
_________% Asset Backed Notes (the "Class A-1 Notes"), Class A-2 _________%
Asset Backed Notes (the "Class A-2 Notes"), Class A-3 _________% Asset Backed
Notes (the "Class A-3 Notes"), Class A-4 _________% Asset Backed Notes (the
"Class A-4 Notes"), Class M-1 _________% Asset Backed Notes (the "Class M-1
Notes"), Class M-2 _________% Asset Backed Notes (the "Class M-2 Notes") and
Class B _________% Asset Backed Notes (the "Class B Notes" and, together with
the Class A-1, Class A-2, Class A-3, Class A-4, Class M-1 and Class M-2 Notes,
the "Notes"):
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee at the Closing Date, as Indenture Trustee for the benefit of
the holders of the Notes, all of the Issuer's right, title and interest in and
to: (i) the Trust Estate (as defined in the Sale and Servicing Agreement); (ii)
all right, title and interest of the Issuer in the Sale and Servicing Agreement
(including the Issuer's right to cause the Depositor to repurchase Loans from
the Issuer under certain circumstances described therein); (iii) all present and
future claims, demands, causes of action and chooses in action in respect of any
or all of the foregoing and all payments on or under and all proceeds of every
kind and nature whatsoever in respect of any or all of the foregoing, including
all proceeds of the conversion thereof, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind and other
forms of obligations and receivables, instruments and other property which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing; (iv) all funds on deposit from time to time in the Trust Accounts
(including the Certificate Distribution Account); and (v) all other property of
the Trust from time to time (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal of
and interest on, and any other amounts owing in respect of, the Notes, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the holders of the
Notes, acknowledges such Grant, accepts the trusts hereunder and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the holders of the Notes may be adequately and
effectively protected. The Indenture Trustee agrees and acknowledges that the
Indenture Trustee's Loan Files will be held by the Custodian for the benefit of
the Indenture Trustee in __________, _______________. The Indenture Trustee
further agrees and acknowledges that each other item of Collateral that is
physically delivered to the Indenture Trustee will be held by the Indenture
Trustee in ____________, _____________.
1
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. (a) For all purposes of this Indenture, except as
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Sale and Servicing Agreement. All other capitalized terms
used herein shall have the meanings specified herein.
"Act" has the meaning specified in Section 11.03(a).
"Administration Agreement" means the Administration Agreement dated as of
______________, among the Administrator, the Issuer and [__________________].
"Administrator" means _________________________, a national banking
association, or any successor Administrator under the Administration Agreement.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any officer of the
Owner Trustee or Co-Owner Trustee who is authorized to act for the Owner Trustee
or Co-Owner Trustee, as applicable, in matters relating to the Issuer and who is
identified on the list of Authorized Officers delivered by the Owner Trustee or
Co-Owner Trustee, as applicable, to the Indenture Trustee on the Closing Date
(as such list may be modified or supplemented from time to time thereafter) and,
so long as the Administration Agreement is in effect, any Vice President, any
Assistant Vice President or more senior officer of the Administrator who is
authorized to act for the Administrator in matters relating to the Issuer and to
be acted upon by the Administrator pursuant to the Administration Agreement and
who is identified on the list of Authorized Officers delivered by the
Administrator to the Indenture Trustee on the Closing Date (as such list may be
modified or supplemented from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust Agreement, this
Indenture, the Sale and Servicing Agreement, the Administration Agreement, the
Custodial Agreement, the Loan Purchase Agreement, the Loan Sale Agreement, the
Note Depository Agreement and other documents and certificates delivered in
connection therewith.
"Book-Entry Notes" means a beneficial interest in the Class A-1, Class A-2,
Class A-3, Class A-4, Class M-1, Class M-2 or Class B Notes, ownership and
transfers of which, after delivery of the final Prospectus Supplement, shall be
made through book entries by a Clearing Agency as described in Section 2.10.
"Business Day" means any day other than (i) a Saturday or a Sunday, or (ii)
a day on which banking institutions in New York City or the city in which the
Corporate Trust Office of the Indenture Trustee is located are authorized or
obligated by law or executive order to be closed.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit C to the Trust Agreement.
2
<PAGE>
"Class A-1 Notes", "Class A-2 Notes", "Class A-3 Notes", "Class A-4 Notes",
"Class M-1 Notes", "Class M-2 Notes" and "Class B Notes" shall each have the
meaning assigned thereto in the "WITNESSETH THAT" Clause on the first page of
this Indenture.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means ________________.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
"Company" means [ _________________ ]., a [ ____________] corporation or
any successor in interest thereto.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located
______________________, ____________________________; Attention: Corporate Trust
Offices - Asset-Backed Administration, or at such other address as the Indenture
Trustee may designate from time to time by notice to the Noteholders and the
Issuer, or the principal corporate trust office of any successor Indenture
Trustee at the address designated by such successor Indenture Trustee by notice
to the Noteholders and the Issuer.
"Default" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.12.
"Depositor" means Residential Asset Funding Corporation and any successor
thereto under the Sale and Servicing Agreement.
"Depository Institution" means any depository institution or trust company,
including the Indenture Trustee, that (a) is incorporated under the laws of the
United States of America or any State thereof, (b) is subject to supervision and
examination by federal or state banking authorities and (c) has outstanding
unsecured commercial paper or other short-term unsecured debt obligations that
are rated [P-1] by [Moody's] and [A-1] by [Fitch].
"Distribution Date" means the 25th day of any month or if such 25th day is
not a Business Day, the first Business Day immediately following such day,
commencing in ______________.
"Due Period" means, with respect to any Distribution Date and any Class of
Notes, the calendar month immediately preceding the month of such Distribution
Date.
"Event of Default" has the meaning specified in Section 5.01.
3
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
["Fitch" means Fitch Investors Service, L.P. or any successor thereto.]
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indenture Trustee" _________________________________, a national banking
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified Person, that
the Person (a) is in fact independent of the Issuer, any other obligor on the
Notes, the Depositor and any Affiliate of any of the foregoing Persons, (b) does
not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Depositor or any Affiliate
of any of the foregoing Persons and (c) is not connected with the Issuer, any
such other obligor, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
"Independent Certificate" means a certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning of
Section 11.01.
"Issuer" means [________________ Owner Trust ______] until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"Issuer Order" and "Issuer Request" mean a written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"Maturity Date" means with respect to the Class A-1 Notes the Distribution
Date in _____________, with respect to the Class A-2 Notes the Distribution Date
in _____________, with respect to the Class A-3 Notes the Distribution Date in
_____________ and with respect to any other Class of Notes, the Distribution
Date in _____________.
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["Moody's" means Moody's Investors Service, Inc. or any successor thereto.]
"Note" means a Class A-1 Note, Class A-2 Note, Class A-3 Note, Class A-4
Note, Class M-1 Note, Class M-2 Note or Class B Note, as applicable.
"Note Depository Agreement" means the agreement among the Issuer, the
Administrator, the Indenture Trustee and The Depository Trust Company, as the
initial Clearing Agency, relating to the Book-Entry Notes.
"Note Interest Rate" means, with respect to any Class of Notes, the
applicable per annum rate specified below (computed on the basis of a 360-day
year assumed to consist of twelve 30-day months):
Class A-1: ____%
Class A-2: ____%
Class A-3: ____%
Class A-4: ____%
Class M-1: ____%
Class M-2: ____%
Class B: ____%
"Note Owner" means, with respect to a Book-Entry Note, the Person who is
the beneficial owner of such Book-Entry Note, as reflected on the books of the
Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 2.03.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer or the Administrator, under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.01,
and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer or the Administrator.
"Opinion of Counsel" means one or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee,
and which opinion or opinions shall be addressed to the Indenture Trustee, as
Indenture Trustee, and shall comply with any applicable requirements of Section
11.01 and shall be in form and substance satisfactory to the Indenture Trustee.
"Outstanding" means, with respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture Trustee
or any Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision for such notice
has been made, satisfactory to the Indenture Trustee);
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(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser; provided, that in determining whether the
Holders of the requisite Outstanding Amount of the Notes have given any
request, demand, authorization, direction, notice, consent, or waiver
hereunder or under any Basic Document, Notes owned by the Issuer, any other
obligor upon the Notes, the Depositor or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization,
direction, notice, consent, or waiver, only Notes that the Indenture
Trustee knows to be so owned shall be so disregarded. Notes so owned that
have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee
is not the Issuer, any other obligor upon the Notes, the Depositor or any
Affiliate of any of the foregoing Persons; and
(iv) Notes for which the related Maturity Date has occurred.
"Outstanding Amount" means the aggregate principal amount of all Notes, or
Class of Notes, as applicable, Outstanding at the date of determination.
"Owner Trustee" means ____________________, not in its individual capacity
but solely as Owner Trustee under the Trust Agreement, or any successor Owner
Trustee under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Note Distribution Account, including payment of principal of or interest on the
Notes on behalf of the Issuer.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, limited liability company, limited
liability partnership, or government or any agency or political subdivision
thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency Condition" means, with respect to any applicable action,
that each Rating Agency shall have been given 10 days (or such shorter period as
is acceptable to each Rating Agency) prior notice thereof and that each of the
Rating Agencies shall have notified the Depositor, the Servicer and the Issuer
in writing that such action will not result in a reduction or withdrawal of the
then current rating of the Notes.
"Rating Agency" means any or all of (i) [Moody's] or (ii) [Fitch]. If no
such organization or successor is any longer in existence, "Rating Agency" shall
be a nationally recognized statistical rating organization or other comparable
Person rating the Notes.
"Record Date" means, as to each Distribution Date, the last Business Day of
the month immediately preceding the month in which such Distribution Date
occurs.
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"Redemption Date" means in the case of a redemption of the Notes pursuant
to Section 10.01 or a payment to Noteholders pursuant to Section 10.03, the
Distribution Date specified by the Servicer or the Issuer pursuant to Section
10.01 or Section 10.03, as applicable.
"Registered Holder" means the Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement dated
as of ________________, among the Issuer, Residential Asset Funding
Corporation, as Depositor _______________ as Servicer, and ________________,
________________, as Indenture Trustee and Co-Owner Trustee.
"Schedule of Loans" means the listing of the Loans set forth in Schedule A,
as supplemented as of any date on which a Defective Loan has been repurchased
from the Trust or substituted with a Qualified Loan pursuant to Section 3.5 of
the Sale and Servicing Agreement or after any Subsequent Transfer Date pursuant
to Section 2.07.
"Securities Act" means the Securities Act of 1933, as amended.
"Servicer" shall mean [ ________________ ] in its capacity as servicer
under the Sale and Servicing Agreement, and any Successor Servicer thereunder.
"State" means any one of the States of the United States of America or the
District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.07(e).
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
"Underwriter" means ____________________.
(b) Except as otherwise specified herein or as the context may otherwise
require, capitalized terms used but not otherwise defined herein have the
respective meanings set forth in the Sale and Servicing Agreement for all
purposes of this Indenture.
Section 1.02 Incorporation by Reference of Trust Indenture Act. (a)
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
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"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
Section 1.03 Rules of Construction. Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in
effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented (as provided in such agreements) and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person are
also to its permitted successors and assigns.
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ARTICLE II
THE NOTES
Section 2.01 Form. The Notes shall be designated as the "________________
Owner Trust ________ Asset Backed Notes." Each Class of Notes shall be in
substantially the form set forth in Exhibit A hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
Each Note shall be dated the date of its authentication. The terms of the
Notes are set forth in Exhibit A. The terms of each Class of Notes are part of
the terms of this Indenture.
Section 2.02 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee or the Co-Owner Trustee. The signature of any such Authorized Officer on
the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who were at
any time Authorized Officers of the Owner Trustee or the Co-Owner Trustee shall
bind the Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Notes or did not hold such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.08,
the Indenture Trustee shall upon Issuer Order authenticate and deliver the seven
Classes of Notes for original issue in the following principal amounts: Class
A-1, $____________; Class A-2, $________; Class A-3, $______; Class A-4,
$________; Class M-1, $________; Class M-2, $________; and Class B, $________.
The aggregate principal amounts of such Classes of Notes outstanding at any time
may not exceed such respective amounts.
The Notes that are authenticated and delivered by the Indenture Trustee to
or upon the order of the Issuer on the Closing Date shall be dated
________________. All other Notes that are authenticated after the Closing Date
for any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $100,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by the
Indenture Trustee by the manual signature of one of its authorized signatories,
and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder.
Section 2.03 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as
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herein provided. Upon any resignation of any Note Registrar, the Issuer shall
promptly appoint a successor or, if it elects not to make such an appointment,
assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer as
Note Registrar, the Issuer will give the Indenture Trustee prompt written notice
of the appointment of such Note Registrar and of the location, and any change in
the location, of the Note Register, and the Indenture Trustee shall have the
right to inspect the Note Register at all reasonable times and to obtain copies
thereof, and the Indenture Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by an Executive Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Owner
Trustee or the Co-Owner Trustee on behalf of the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, in the name of the designated transferee or transferees, one
or more new Notes of the same Class in any authorized denominations, of a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of the
same Class in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Owner Trustee or the
Co-Owner Trustee on behalf of the Issuer shall execute, and the Indenture
Trustee shall authenticate and the Noteholder shall obtain from the Indenture
Trustee, the Notes which the Noteholder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
Notwithstanding the foregoing, in the case of any sale or other transfer of
a Definitive Note, the transfer of such Definitive Note shall be required to
represent and warrant in writing to the Note Registrar that the prospective
transferee either (a) is not (i) an "employee health plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is subject to the provisions of Title I of ERISA, (ii) a "plan"
within the meaning of Section 4975(e)(I) of the Code) that is subject to Section
4975 of the Code, or (iii) an entity whose underlying assets are deemed to
include assets of a plan described in (i) or (ii) above by reason of such plan's
investment in the entity (any such entity described in clauses (i) through
(iii), a "Benefit Plan Entity") or (b) is a Benefit Plan Entity and the
acquisition and holding of the Definitive Note by such prospective transferee is
covered by a Department of Labor Prohibited Transaction Class Exemption. Each
transferee of a Book Entry Note that is a Benefit Plan Entity shall be deemed to
represent that its acquisition and holding of the Book Entry Note is covered by
a Department of Labor Prohibited Transaction Class Exemption.
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No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.04 or Section 9.06 not involving any transfer.
The preceding provisions of this Section 2.03 notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to such Note.
Section 2.04 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be reasonably required by it to hold the Issuer and, Indenture
Trustee, the Administrator, the Owner Trustee and the Co-Owner Trustee harmless,
then, in the absence of notice to the Issuer, the Note Registrar or the
Indenture Trustee that such Note has been acquired by a bona fide purchaser, an
Authorized Officer of the Owner Trustee, the Co-Owner Trustee or the
Administrator on behalf of the Issuer shall execute, and upon its request the
Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Note, a replacement Note of the
same Class; provided, however, that if any such destroyed, lost or stolen Note,
but not a mutilated Note, shall have become or within seven days shall be due
and payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable or upon the Redemption Date without surrender thereof. If, after
the delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section 2.04, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 2.04 in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 2.04 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.05 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee, the
Owner Trustee, the Co-Owner Trustee, the Administrator and any agent of the
Issuer, the Indenture Trustee, the Owner Trustee, the Co-Owner Trustee or the
Administrator may treat the Person in whose name any Note is registered (as of
the day of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the
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Indenture Trustee or any agent of the Issuer or the Indenture Trustee shall be
affected by notice to the contrary.
Section 2.06 Payment of Principal and Interest; Defaulted Interest. (a)
Each Class of Notes shall accrue interest at the related Note Interest Rate, and
such interest shall be due and payable on each Distribution Date as specified in
Exhibit A hereto, subject to Section 3.01. Any installment of interest or
principal, if any, payable on any Note that is punctually paid or duly provided
for by the Issuer on the applicable Distribution Date shall be paid to the
Person in whose name such Note (or one or more Predecessor Notes) is registered
on the Record Date by check mailed first-class postage prepaid to such Person's
address as it appears on the Note Register on such Record Date, except that,
unless Definitive Notes have been issued pursuant to Section 2.12, with respect
to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payment will be made
by wire transfer in immediately available funds to the account designated by
such nominee and except for the final installment of principal payable with
respect to such Note on a Distribution Date or on the applicable Maturity Date
for such Class of Notes (and except for the Termination Price for any Note
called for redemption pursuant to Section 10.01), which shall be payable as
provided in Section 2.06(b). The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03.
(b) The principal of each Note shall be payable in installments on each
Distribution Date as provided in the forms of the Notes set forth in Exhibit A
hereto. Notwithstanding the foregoing, the entire unpaid principal amount of the
Notes of a Class of Notes shall be due and payable, if not previously paid, on
the earlier of (i) the Maturity Date, (ii) the Redemption Date or (iii) the date
on which an Event of Default shall have occurred and be continuing, if the
Indenture Trustee or the Holders of Notes representing not less than a majority
of the Outstanding Amount of the Notes have declared the Notes to be immediately
due and payable in the manner provided in Section 5.02. All principal payments
on each Class of Notes shall be made pro rata to the Noteholders of such Class
entitled thereto. The Indenture Trustee shall notify the Person in whose name a
Note is registered at the close of business on the Record Date preceding the
Distribution Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
or transmitted by facsimile prior to such Distribution Date and shall specify
that such final installment will be payable only upon presentation and surrender
of such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Noteholders as provided in Section
10.02.
Section 2.07 Cancellation. All Notes surrendered for payment, registration
of transfer, exchange or redemption shall, if surrendered to any Person other
than the Indenture Trustee, be delivered to the Indenture Trustee and shall be
promptly cancelled by the Indenture Trustee. The Issuer may at any time deliver
to the Indenture Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Issuer may have acquired in any manner whatsoever,
and all Notes so delivered shall be promptly cancelled by the Indenture Trustee.
No Notes shall be authenticated in lieu of or in exchange for any Notes
cancelled as provided in this Section 2.07, except as expressly permitted by
this Indenture. All cancelled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided, that such Issuer Order is timely and
the Notes have not been previously disposed of by the Indenture Trustee.
Section 2.08 Conditions Precedent to the Authentication. The Notes may be
authenticated by the Indenture Trustee, upon Issuer Request and upon receipt by
the Indenture Trustee of the following:
(a) An Issuer Order authorizing the execution and authentication of such
Notes by the Issuer.
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(b) All of the items of Collateral which shall be delivered to the
Indenture Trustee or its designee.
(c) An executed counterpart of the Trust Agreement.
(d) An Opinion of Counsel addressed to the Indenture Trustee to the effect
that:
(i) all instruments furnished to the Indenture Trustee as conditions
precedent to the authentication of the Notes by the Indenture Trustee
pursuant to the Indenture conform to the requirements of this Indenture and
constitute all the documents required to be delivered hereunder for the
Indenture Trustee to authenticate the Notes;
(ii) all conditions precedent provided for in this Indenture relating
to the authentication of the Notes have been complied with;
(iii) the Owner Trustee and Co-Owner Trustee have power and authority
to execute, deliver and perform their respective obligations under the
Trust Agreement;
(iv) the Issuer has been duly formed, is validly existing as a
[business trust under the laws of the State of Delaware, 12 Del. C. ss.
3801, et seq.], and has power, authority and legal right to execute and
deliver this Indenture, the Administration Agreement and the Sale and
Servicing Agreement;
(v) assuming due authorization, execution and delivery thereof by the
Indenture Trustee, the Indenture is the valid, legal and binding obligation
of the Issuer, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
or preferential conveyance and other similar laws of general application
affecting the rights of creditors generally and to general principles of
equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(vi) the Notes, when executed and authenticated as provided herein and
delivered against payment therefor, will be the valid, legal and binding
obligations of the Issuer pursuant to the terms of this Indenture, entitled
to the benefits of this Indenture, and will be enforceable in accordance
with their terms, subject to bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent or preferential conveyance and other
similar laws of general application affecting the rights of creditors
generally and to general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(vii) the Trust Agreement authorizes the Issuer to Grant the
Collateral to the Indenture Trustee as security for the Notes and the Owner
Trustee has taken all necessary action under the Trust Agreement to Grant
the Collateral to the Indenture Trustee;
(viii) this Indenture has been duly qualified under the Trust
Indenture Act;
(ix) this Indenture, together with the Grant of the Collateral to the
Indenture Trustee, creates a valid security interest in the Collateral in
favor of the Indenture Trustee for the benefit of the Noteholders;
(x) such action has been taken with respect to delivery of possession
of the Collateral, and with respect to the execution and filing of this
Indenture and any financing statements as are necessary to make effective
and to perfect a first priority security interest created by this Indenture
in
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the Collateral in favor of the Indenture Trustee, except that with respect
to the Debt Instruments, possession of such Debt Instruments must be
maintained by the Indenture Trustee or an agent of the Indenture Trustee
(other than the Issuer), an Affiliate of the Issuer, or a "securities
intermediary," as defined in Section 8-102 of the UCC, an agent of the
Indenture Trustee; and
(xi) no authorization, approval or consent of any governmental body
having jurisdiction in the premises which has not been obtained by the
Issuer is required to be obtained by the Issuer for the valid issuance and
delivery of the Notes, except that no opinion need be expressed with
respect to any such authorizations, approvals or consents as may be
required under any state securities "blue sky" laws.
(e) An Officer's Certificate complying with the requirements of Section
11.01 and stating that:
(i) the Issuer is not in Default under this Indenture and the issuance
of the Notes applied for will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, the Trust
Agreement, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is bound, or any
order of any court or administrative agency entered in any proceeding to
which the Issuer is a party or by which it may be bound or to which it may
be subject, and that all conditions precedent provided in this Indenture
relating to the authentication and delivery of the Notes applied for have
been complied with;
(ii) the Issuer is the owner of all of the Loans, has not assigned any
interest or participation in the Loans (or, if any such interest or
participation has been assigned, it has been released) and has the right to
Grant all of the Loans to the Indenture Trustee;
(iii) the Issuer has Granted to the Indenture Trustee all of its
right, title, and interest in the Collateral, and has delivered or caused
the same to be delivered to the Indenture Trustee;
(iv) attached thereto are true and correct copies of letters signed by
[Moody's] and [Fitch] confirming that the Class A-1, Class A-2, Class A-3,
Class A-4, have been rated "______" and "______" by [Moody's] and [Fitch],
respectively, and letters signed by [Moody's] and [Fitch] confirming that
the Class M-1 Notes have been rated "A2" and "AA" by [Moody's] and [Fitch],
respectively, the Class M-2 Notes have been rated "A2" and "A" by [Moody's]
and [Fitch], respectively, and the Class B Notes have been rated "________"
and "________" by [Moody's] and [Fitch], respectively; and
(v) all conditions precedent provided for in this Indenture relating
to the authentication of the Notes have been complied with.
Section 2.09 Release of Collateral. (a) Except as otherwise provided in
subsections (b) and (c) of this Section 2.09 and Section 11.01 and the terms of
the Basic Documents, the Indenture Trustee shall release property from the lien
of this Indenture only upon receipt of an Issuer Request accompanied by an
Officer's Certificate, an Opinion of Counsel and Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion of Counsel in
lieu of such Independent Certificates to the effect that the TIA does not
require any such Independent Certificates.
(b) The Servicer in accordance with Accepted Servicing Procedures, on
behalf of the Issuer, shall be entitled to obtain a release from the lien of
this Indenture for any Loan and the related Mortgaged Property at any time (i)
after a payment by the Depositor or the Issuer of the Purchase Price of the
Loan, (ii) after a Qualified Substitute Loan is substituted for such Loan and
payment of the Substitution Adjustment, if any,
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(iii) after liquidation of the Loan in accordance with Section 4.2 of the Sale
and Servicing Agreement and the deposit of all proceeds received thereon in the
Collection Account, or (iv) upon the termination of a Loan (due to, among other
causes, a prepayment in full of the Loan and sale or other disposition of the
related Mortgaged Property), if the Issuer delivers to the Indenture Trustee an
Issuer Request (A) identifying the Loan and the related Mortgaged Property to be
released, (B) requesting the release thereof, (C) setting forth the amount
deposited in the Collection Account with respect thereto, and (D) certifying
that the amount deposited in the Collection Account (x) equals the Purchase
Price of the Loan, in the event a Loan and the related Mortgaged Property are
being released from the lien of this Indenture pursuant to item (i) above, (y)
equals the Substitution Adjustment related to the Qualified Substitute Loan and
the Defective Loan released from the lien of the Indenture pursuant to item (ii)
above, or (z) equals the entire amount of Recoveries received with respect to
such Loan and the related Mortgaged Property in the event of a release from the
lien of this Indenture pursuant to items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested by the Servicer, temporarily
release or cause the Custodian to temporarily release to the Servicer the
Indenture Trustee's Loan File pursuant to the provisions of Section 7.2 of the
Sale and Servicing Agreement upon compliance by the Servicer of the provisions
thereof provided that the Indenture Trustee's Loan File shall have been stamped
to signify the Issuer's pledge to the Indenture Trustee under the Indenture.
Section 2.10 Registration of Notes. Upon original issuance, the Notes will
be issued in definitive, fully-registered form. The Notes will be issued in the
form of typewritten Notes representing the Book-Entry Notes, to be delivered to
The Depository Trust Company, the initial Clearing Agency, by, or on behalf of,
the Issuer. The Book-Entry Notes shall be registered initially on the Note
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Owner thereof will receive a definitive Note representing such Note
Owner's interest in such Note, except as provided in Section 2.12. Unless and
until definitive, fully registered Notes (the "Definitive Notes") have been
issued to such Note Owners pursuant to Section 2.12:
(i) the provisions of this Section 2.10 shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be entitled to
deal with the Clearing Agency for all purposes of this Indenture (including
the payment of principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole holder of the Notes, and
shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section 2.10 conflict
with any other provisions of this Indenture, the provisions of this Section
2.10 shall control;
(iv) the rights of Note Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and
agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants pursuant to the Note Depository Agreement.
Unless and until Definitive Notes are issued pursuant to Section 2.12, the
initial Clearing Agency will make book-entry transfers among the Clearing
Agency Participants and receive and transmit payments of principal of and
interest on the Notes to such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a
specified percentage of the Outstanding Amount of the Notes, the Clearing
Agency shall be deemed to represent such percentage only to the extent that
it has received instructions to such effect from Note Owners and/or
Clearing Agency
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Participants owning or representing, respectively, such required percentage
of the beneficial interest in the Notes and has delivered such instructions
to the Indenture Trustee.
Section 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to such Note Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Clearing Agency, and shall have no obligation to such Note Owners.
Section 2.12 Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the Book-Entry
Notes and the Administrator is unable to locate a qualified successor, (ii) the
Administrator at its option advises the Indenture Trustee in writing that it
elects to terminate the book-entry system through the Clearing Agency or (iii)
after the occurrence of an Event of Default, Owners of the Book-Entry Notes
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Note Owners, then the Clearing Agency shall notify
all Note Owners and the Indenture Trustee of the occurrence of such event and of
the availability of Definitive Notes to Note Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Notes representing the
Book-Entry Notes by the Clearing Agency, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 2.13 Tax Treatment. The Issuer has entered into this Indenture, and
the Notes will be issued, with the intention that, for all purposes including
federal, State and local income, single business and franchise tax purposes, the
Notes will qualify as indebtedness of the Issuer secured by the Collateral. The
Issuer, by entering into this Indenture, and each Noteholder, by its acceptance
of a Note (and each Note Owner by its acceptance of an interest in the
applicable Book-Entry Note), agree to treat the Notes for all purposes including
federal, State and local income, single business and franchise tax purposes as
indebtedness of the Issuer.
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ARTICLE III
COVENANTS
Section 3.01 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes,
the Sale and Servicing Agreement and this Indenture including Section 8.02(c).
Amounts properly withheld under the Code by any Person from a payment to any
Noteholder of interest and/or principal shall be considered as having been paid
by the Issuer to such Noteholder for all purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Collateral, as
provided in this Indenture. The Issuer shall not otherwise be liable for
payments on the Notes. If any other provision of this Indenture shall be deemed
to conflict with the provisions of this Section 3.01, the provisions of this
Section 3.01 shall control.
Section 3.02 Maintenance of Office or Agency. The Issuer will or will cause
the Administrator to maintain in Minneapolis, Minnesota an office or agency
where Notes may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Administrator
to serve as its agent for the foregoing purposes and to serve as Paying Agent
with respect to the Notes and the Certificates. The Issuer will give prompt
written notice to the Indenture Trustee of the location, and of any change in
the location, of any such office or agency. If at any time the Issuer shall fail
to maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
Section 3.03 Money for Payments to Be Held in Trust. As provided in Section
8.02(a) and (b), all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Collection Account and
the Note Distribution Account pursuant to Section 8.02(c) shall be made on
behalf of the Issuer by the Indenture Trustee or by the Paying Agent, and no
amounts so withdrawn from the Collection Account and the Note Distribution
Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
On or before the Business Day preceding each Distribution Date and
Redemption Date, the Paying Agent shall deposit or cause to be deposited in the
Note Distribution Account an aggregate sum sufficient to pay the amounts due on
such Distribution Date or Redemption Date under the Notes, such sum to be held
in trust for the benefit of the Persons entitled thereto, and (unless the Paying
Agent is the Indenture Trustee) shall promptly notify the Indenture Trustee of
its action or failure so to act.
Any Paying Agent shall be appointed by Issuer Order with written notice
thereof to the Indenture Trustee. Any Paying Agent appointed by the Issuer shall
be a Person who would be eligible to be Indenture Trustee hereunder as provided
in Section 6.11. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) which is not, at the time of such appointment, a Depository
Institution.
The Issuer will cause each Paying Agent other than the Administrator to
execute and deliver to the Indenture Trustee an instrument in which such Paying
Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts
as Paying Agent, it hereby so agrees), subject to the provisions of this Section
3.03, that such Paying Agent will:
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(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the Issuer
(or any other obligor upon the Notes) of which it has actual knowledge in
the making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Indenture Trustee, forthwith pay to the Indenture
Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes if
at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith; provided, however, that
with respect to withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer shall have first
provided the calculations pertaining thereto to the Indenture Trustee.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Indenture Trustee all sums held in trust by such
Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts
as those upon which the sums were held by such Paying Agent; and upon such
payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or abandoned
property, any money held by the Indenture Trustee or any Paying Agent in trust
for the payment of any amount due with respect to any Note and remaining
unclaimed for two years after such amount has become due and payable shall be
discharged from such trust and be paid to the Issuer on Issuer Request; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Issuer for payment thereof (but only to the extent of the amounts so
paid to the Issuer), and all liability of the Indenture Trustee or such Paying
Agent with respect to such trust money shall thereupon cease; provided, however,
that the Indenture Trustee or such Paying Agent, before being required to make
any such repayment, shall at the expense and direction of the Issuer cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Issuer.
The Indenture Trustee shall also adopt and employ, at the expense and direction
of the Issuer, any other reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Holders
whose Notes have been called but have not been surrendered for redemption or
whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Indenture Trustee or of any Paying Agent,
at the last address of record for each such Holder).
Section 3.04 Existence. (a) Subject to Section 3.04(b), the Issuer will
keep in full effect its existence, rights and franchises as a [business trust]
under the laws of the [State of Delaware] (unless it
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becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other State or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes and the Collateral.
(b) Any successor to the Owner Trustee or Co-Owner Trustee appointed
pursuant to Section 10.2 of the Trust Agreement shall be the successor Owner
Trustee or Co-Owner Trustee, respectively, under this Indenture without the
execution or filing of any paper, instrument or further act to be done on the
part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the Owner
Trustee or Co-Owner Trustee, the Person succeeding to the Owner Trustee or
Co-Owner Trustee under the Trust Agreement may exercise every right and power of
the Owner Trustee under this Indenture with the same effect as if such Person
had been named as the Owner Trustee or Co-Owner Trustee herein.
Section 3.05 Protection of Collateral. The Issuer will from time to time
execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments, and will take such other action necessary or advisable
to:
(i) provide further assurance with respect to the Grant of all or any
portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights of the
Indenture Trustee and the Noteholders in such Collateral against the claims
of all persons and parties.
The Issuer hereby designates the Administrator its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.05.
Section 3.06 Annual Opinions as to Collateral. On or before
____________________ in each calendar year, beginning in _________, the Issuer
shall furnish to the Indenture Trustee an Opinion of Counsel either stating
that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such
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counsel, be required to maintain the lien and security interest of this
Indenture until _______________of the following calendar year.
Section 3.07 Performance of Obligations; Servicing of Loans. (a) The Issuer
will not take any action and will use its best efforts not to permit any action
to be taken by others that would release any Person from any of such Person's
material covenants or obligations under any instrument or agreement included in
the Collateral or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as expressly provided
in this Indenture, the Sale and Servicing Agreement or such other instrument or
agreement.
(b) The Issuer may contract with or otherwise obtain the assistance of
other Persons (including, without limitation, the Administrator under the
Administration Agreement) to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee in an Officer's Certificate of the Issuer shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the
Servicer and the Administrator to assist the Issuer in performing its duties
under this Indenture. The Administrator must at all times be the same Person as
the Indenture Trustee.
(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Collateral, including but not limited
to (i) filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement and (ii) recording or causing to be recorded
all Mortgages, Assignments of Mortgage, all intervening Assignments of Mortgage
and all assumption and modification agreements required to be recorded by the
terms of the Sale and Servicing Agreement, in accordance with and within the
time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
and the Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Default under the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee and the Rating Agencies thereof, and shall specify in such
notice the action, if any, the Issuer is taking with respect to such default. If
such an Event of Default shall arise from the failure of the Servicer to perform
any of its duties or obligations under the Sale and Servicing Agreement with
respect to the Loans, the Issuer shall take all reasonable steps available to it
to remedy such failure.
(e) As promptly as possible after the giving of notice of termination to
the Servicer of the Servicer's rights and powers pursuant to Section 10.1 of the
Sale and Servicing Agreement, the Indenture Trustee shall appoint a successor
Servicer (the "Successor Servicer"), and such Successor Servicer shall accept
its appointment by a written assumption in a form acceptable to the Indenture
Trustee. In the event that a Successor Servicer has not been appointed and
accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer. The Indenture Trustee may resign as the
Servicer by giving written notice of such resignation to the Issuer and in such
event will be released from such duties and obligations, such release not to be
effective until the date a new servicer enters into a servicing agreement with
the Issuer as provided below. Upon delivery of any such notice to the Issuer,
the Issuer shall obtain a new servicer as the Successor Servicer under the Sale
and Servicing Agreement. Any Successor Servicer other than the Indenture Trustee
shall (i) satisfy the criteria specified in Section 9.4(b) of the Sale and
Servicing Agreement and (ii) enter into a servicing agreement with the Issuer
having substantially the same provisions as the provisions of the Sale and
Servicing Agreement applicable to the Servicer. If within 30 days after the
delivery of the notice referred
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to above, the Issuer shall not have obtained such a new servicer, the Indenture
Trustee may appoint, or may petition a court of competent jurisdiction to
appoint, a Successor Servicer. In connection with any such appointment, the
Indenture Trustee may make such arrangements for the compensation of such
successor as it and such successor shall agree, subject to the limitations set
forth below and in the Sale and Servicing Agreement, and in accordance with
Section 10.2 of the Sale and Servicing Agreement, the Issuer shall enter into an
agreement with such successor for the servicing of the Loans (such agreement to
be in form and substance satisfactory to the Indenture Trustee). The servicing
fee paid to any Successor Servicer shall not be in excess of the Servicing Fee
being paid to the initial Servicer. If the Indenture Trustee shall succeed to
the Servicer's duties as servicer of the Loans as provided herein, it shall do
so in its individual capacity and not in its capacity as Indenture Trustee and,
accordingly, the provisions of Article VI shall be inapplicable to the Indenture
Trustee in its duties as Successor Servicer and the servicing of the Loans. In
case the Indenture Trustee shall become Successor Servicer under the Sale and
Servicing Agreement, the Indenture Trustee shall be entitled to appoint as
Servicer any one of its Affiliates, provided that it shall be fully liable for
the actions and omissions of such Affiliate in such capacity as Successor
Servicer.
(f) Upon any termination of the Servicer's rights and powers pursuant to
the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture
Trustee. As soon as a Successor Servicer is appointed, the Issuer shall notify
the Indenture Trustee of such appointment, specifying in such notice the name
and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment granted
to the Indenture Trustee under this Indenture or the rights of the Indenture
Trustee hereunder, the Issuer agrees (i) that it will not, without the prior
written consent of the Indenture Trustee, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Basic
Documents, or waive timely performance or observance by the Servicer or the
Depositor under the Sale and Servicing Agreement; and (ii) that any such
amendment shall not (A) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, distributions that are required to be made
for the benefit of the Noteholders without the consent of 100% of the affected
Noteholders or (B) reduce the aforesaid percentage of the Notes that is required
to consent to any such amendment, without the consent of 100% of the affected
Noteholders. If any such amendment, modification, supplement or waiver shall be
so consented to by the Indenture Trustee, the Issuer agrees, promptly following
a request by the Indenture Trustee to do so, to execute and deliver, in its own
name and at its own expense, such agreements, instruments, consents and other
documents as the Indenture Trustee may deem necessary or appropriate in the
circumstances.
Section 3.08 Negative Covenants. So long as any Notes are Outstanding, the
Issuer shall not:
(i) except as expressly permitted by this Indenture or the Sale and
Servicing Agreement (including but not limited to the Servicer's rights as
set forth therein), sell, transfer, exchange or otherwise dispose of any of
the properties or assets of the Issuer, including those included in the
Collateral, unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Noteholder by reason of the payment of the taxes levied
or assessed upon any part of the Collateral;
(iii) engage in any business or activity other than as permitted by
the Trust Agreement or other than in connection with, or relating to, the
issuance of Notes pursuant to this Indenture, or
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amend the Trust Agreement as in effect on the Closing Date other than in
accordance with Section 11.1 of the Trust Agreement,
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any indebtedness of
any Person, except for such indebtedness as may be incurred by the Issuer
in connection with the issuance of the Notes pursuant to this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or consolidate
with any other Person;
(vii) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released
from any covenants or obligations with respect to the Notes under this
Indenture except as may be expressly permitted hereby, (B) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance
(other than the lien of this Indenture) to be created on or extend to or
otherwise arise upon or burden the Collateral or any part thereof or any
interest therein or the proceeds thereof (other than tax liens, mechanics'
liens and other liens that arise by operation of law, in each case on any
of the Mortgaged Properties and arising solely as a result of an action or
omission of the related Obligor) or (C) permit the lien of this Indenture
not to constitute a valid first priority (other than with respect to any
such tax, mechanics' or other lien) security interest in the Collateral;
(viii) remove the Administrator without cause unless the Rating Agency
Condition shall have been satisfied in connection with such removal; or
(ix) take any other action or fail to take any action which may cause
the Issuer to be taxable as (a) an association pursuant to Section 7701 of
the Code and the corresponding regulations or (b) as a taxable mortgage
pool pursuant to Section 7701(i) of the Code and the corresponding
regulations.
Section 3.09 Annual Statement as to Compliance. The Issuer will deliver to
the Indenture Trustee, within 120 days after the end of each fiscal year of the
Issuer (commencing with the fiscal year ______ covering the activities for
fiscal year _______), an Officer's Certificate stating, as to the Authorized
Officer signing such Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year and of
its performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has complied with all conditions and covenants under
this Indenture throughout such year, or, if there has been a default in its
compliance with any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
Section 3.10 Covenants of the Issuer. All covenants of the Issuer in this
Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the
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statements, representations, warranties or obligations of the Issuer hereunder,
as to all of which the parties hereto agree to look solely to the property of
the Issuer.
Section 3.11 Servicer's Obligations. The Issuer shall cause the Servicer to
comply with the Sale and Servicing Agreement.
Section 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, (x)
distributions to the Servicer, the Indenture Trustee, the Owner Trustee, the
Noteholders and the holders of the Residual Interests as contemplated by, and to
the extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Trust Agreement and (y) payments to the Indenture Trustee
pursuant to Section 1(a)(ii) of the Administration Agreement. The Issuer will
not, directly or indirectly, make or cause to be made payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
Section 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer shall,
and shall cause the Administrator to, treat the Notes as indebtedness for all
purposes.
Section 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Rating Agencies prompt written notice of each Event of
Default hereunder, each default on the part of the Servicer or the Depositor of
its obligations under the Sale and Servicing Agreement and each default on the
part of the Depositor of its obligations under the Loan Purchase Agreement.
Section 3.15 Further Instruments and Acts. Upon request of the Indenture
Trustee, the Issuer will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
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ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01 Satisfaction and Discharge of Indenture. This Indenture shall
cease to be of further effect with respect to the Notes (except as to (i) rights
of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Section 3.03, Section 3.04,
Section 3.05, Section 3.08 and Section 3.10, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.07 and the obligations of the Indenture
Trustee under Section 4.02) and (vi) the rights of Noteholders as beneficiaries
hereof with respect to the property so deposited with the Indenture Trustee
payable to all or any of them), and the Indenture Trustee, on demand of and at
the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to the Notes, when all
of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i) Notes
that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.04 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust,
as provided in Section 3.03) have been delivered to the Indenture Trustee
for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
(a) have become due and payable,
(b) are to be called for redemption within one year under arrangements
satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense,
of the Issuer,
(c) and the Issuer, in the case of a. above, has irrevocably deposited or
caused to be irrevocably deposited with the Indenture Trustee cash or
direct obligations of or obligations guaranteed by the United States
of America (which will mature prior to the date such amounts are
payable), in trust for such purpose, in an amount sufficient to pay
and discharge the entire indebtedness on such Notes not theretofore
delivered to the Indenture Trustee for cancellation when due to the
applicable Maturity Date of such Class of Notes or Redemption Date (if
Notes shall have been called for redemption pursuant to Section
10.01), as the case may be; and
(B) the later of (a) eighteen months after payment in full of all outstanding
obligations under the Notes, (b) the payment in full of all unpaid Trust
Fees and Expenses and (c) the date on which the Issuer has paid or caused
to be paid all other sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's Certificate,
an Opinion of Counsel and (if required by the TIA or the Indenture Trustee)
an Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.01(i) and, subject
to Section 11.02, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
with respect to the Notes have been complied with.
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Section 4.02 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 3.03 and Section 4.01 shall be held in
trust and applied by it, in accordance with the provisions of the Notes, the
Sale and Servicing Agreement and this Indenture, to the payment, either directly
or through any Paying Agent, as the Indenture Trustee may determine, to the
Holders of the particular Notes for the payment or redemption of which such
moneys have been deposited with the Indenture Trustee, of all sums due and to
become due thereon for principal and interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
Section 4.03 Repayment of Moneys Held by Paying Agent. In connection with
the satisfaction and discharge of this Indenture with respect to the Notes, all
moneys then held by any Paying Agent other than the Indenture Trustee under the
provisions of this Indenture with respect to such Notes shall, upon demand of
the Issuer, be paid to the Indenture Trustee to be held and applied according to
Section 3.03 and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
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ARTICLE V
REMEDIES
Section 5.01 Events of Default. "Event of Default," wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest on any Note when the same
becomes due and payable, and continuance of such default for a period of five
(5) days; or
(b) default in the payment of the principal of or any installment of the
principal of any Note when the same becomes due and payable, and continuance of
such default for a period of five (5) days; or
(c) default in the observance or performance of any covenant or agreement
of the Issuer made in this Indenture (other than a covenant or agreement, a
default in the observance or performance of which is elsewhere in this Section
5.01 specifically dealt with), or any representation or warranty of the Issuer
made in this Indenture, the Sale and Servicing Agreement or in any certificate
or other writing delivered pursuant hereto or in connection herewith proving to
have been incorrect in any material respect as of the time when the same shall
have been made, and such default shall continue or not be cured, or the
circumstance or condition in respect of which such misrepresentation or warranty
was incorrect shall not have been eliminated or otherwise cured, for a period of
30 days after there shall have been given, by registered or certified mail, to
the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee
by the Holders of at least 25% of the Outstanding Amount of the Notes, a written
notice specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of Default
hereunder; or
(d) default in the observance or performance of any covenant or agreement
of the Company made in the Trust Agreement or any representation or warranty of
the Company made in the Trust Agreement, proving to have been incorrect in any
material respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days after there shall
have been given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Holders of at least
25% of the Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder;
(e) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(f) the commencement by the Issuer of a voluntary case under any applicable
federal or state bankruptcy, insolvency or other similar law now or hereafter in
effect, or the consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to the
appointment or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer or for any substantial
part of the Collateral, or the making by the Issuer of any general
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assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee, within five days after
the occurrence thereof, written notice in the form of an Officer's Certificate
of any event which with the giving of notice and the lapse of time would become
an Event of Default under clauses (c) and (d) above, its status and what action
the Issuer is taking or proposes to take with respect thereto.
Section 5.02 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee, at the direction or upon the prior written consent of the
Holders of Notes representing not less than a majority of the Outstanding Amount
of the Notes may declare all the Notes to be immediately due and payable, by a
notice in writing to the Issuer (and to the Indenture Trustee if given by
Noteholders), and upon any such declaration the unpaid principal amount of such
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
1. all payments of principal of and interest on all Notes and all
other amounts that would then be due hereunder or upon such Notes
if the Event of Default giving rise to such acceleration had not
occurred; and
2. all sums paid or advanced by the Indenture Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Indenture Trustee and its agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal of
the Notes that has become due solely by such acceleration, have been cured or
waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any right
consequent thereto.
Section 5.03 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of any
interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, and such default continues for a period of five days,
the Issuer will, upon demand of the Indenture Trustee, pay to the Indenture
Trustee, for the benefit of the Holders of the Notes, the whole amount then due
and payable on such Notes for principal and interest, with interest upon the
overdue principal and in addition thereto such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Indenture Trustee may, and shall at the direction of the majority of
the Holders of the Notes, institute a Proceeding for the collection of the sums
so due and unpaid, and may prosecute such Proceeding to judgment or final
decree,
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and may enforce the same against the Issuer or other obligor upon such Notes and
collect in the manner provided by law out of the property of the Issuer or other
obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be
payable.
(c) If an Event of Default occurs and is continuing, the Indenture Trustee
may and shall at the direction of the majority of the Holders of the Notes, as
more particularly provided in Section 5.04, in its discretion, proceed to
protect and enforce its rights and the rights of the Noteholders, by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section 5.03, shall be
entitled and empowered by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee, each predecessor
Indenture Trustee, and its agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances
made, by the Indenture Trustee and each predecessor Indenture Trustee,
except as a result of negligence or bad faith) and of the Noteholders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and the Indenture Trustee on their
behalf; and
(iv) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Indenture
Trustee or the Holders of Notes allowed in any judicial proceedings
relative to the Issuer, its creditors and its property; and any trustee,
receiver, liquidator, custodian or other similar official in any such
Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such
Noteholders, to pay to the Indenture Trustee such amounts as shall be
sufficient to cover reasonable compensation to the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, and all other expenses and liabilities incurred, and all advances
made, by the Indenture Trustee and each predecessor Indenture Trustee
except as a result of negligence or bad faith.
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(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.
Section 5.04 Remedies; Priorities. If an Event of Default shall have
occurred and be continuing, the Indenture Trustee may and at the direction of a
majority of the Holders of the Notes shall do one or more of the following
(subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an express
trust for the collection of all amounts then payable on the Notes or under
this Indenture with respect thereto, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Issuer and any other
obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Collateral;
(iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Indenture Trustee or the Noteholders; and
(iv) sell the Collateral or any portion thereof or rights or interest
therein in a commercially reasonable manner, at one or more public or
private sales called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Collateral as permitted under this Section 5.04 following an Event
of Default, unless (A) the Holders of 100% of the Outstanding Amount of the
Notes consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Noteholders are sufficient to discharge in full all amounts
then due and unpaid upon such Notes for principal and interest or (C) the
Indenture Trustee determines that the Collateral will not continue to provide
sufficient funds for the payment of principal of and interest on the Notes as
they would have become due if the Notes had not been declared due and payable,
and the Indenture Trustee obtains the consent of Holders of 66-2/3% of the
Outstanding Amount of the Notes. In determining such sufficiency or
insufficiency with respect to clauses (B) and (C) above, the Indenture Trustee
may, but need not, obtain and rely upon an opinion of an Independent investment
banking or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Collateral for such purpose.
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(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for the Indenture Trustee Fee then due and
any costs or expenses incurred by it in connection with the enforcement of the
remedies provided for in this Article V and to the Owner Trustee for the Owner
Trustee Fee then due;
SECOND: to the Servicer for the Servicing Fee then due and unpaid;
THIRD: to the Custodian for the Custodian Fee then due and unpaid;
FOURTH: to the Servicer for any amounts then due and payable as Servicing
Advances under the Sale and Servicing Agreement;
FIFTH: to Noteholders for amounts due and unpaid on the Notes for interest,
pro rata, according to the amounts due and payable on the Notes for interest;
SIXTH: to Noteholders for amounts due and unpaid on the Notes for
principal, according to the amounts due and payable and in the order and
priorities set forth in Section 5.1(d) and Section 5.1(e) of the Sale and
Servicing Agreement, until the Class Principal Balance of each such Class is
reduced to zero;
SEVENTH: to the Owner Trustee or Co-Owner Trustee, as applicable, for any
amounts to be distributed, pro rata, to the holders of the Residual Interests.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section 5.04. At least 15
days before such record date, the Indenture Trustee shall mail to each
Noteholder and the Issuer a notice that states the record date, the payment date
and the amount to be paid.
Section 5.05 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.02 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Collateral. It is the desire of the parties hereto and the Noteholders
that there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral. In determining whether to maintain possession of the Collateral, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the
Collateral for such purpose.
Section 5.06 Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% of the Outstanding Amount of the Notes
have made written request to the Indenture Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Indenture Trustee
hereunder;
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(c) such Holder or Holders have offered to the Indenture Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceedings; and
(e) no direction inconsistent with such written request has been given to
the Indenture Trustee during such 60-day period by the Holders of a majority of
the Outstanding Amount of the Notes.
It is understood and intended that no one or more Holders of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07 Unconditional Rights of Noteholders to Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
applicable Maturity Date thereof expressed in such Note or in this Indenture
(or, in the case of redemption, on or after the Redemption Date) and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
Section 5.08 Restoration of Rights and Remedies. If the Indenture Trustee
or any Noteholder has instituted any Proceeding to enforce any right or remedy
under this Indenture and such Proceeding has been discontinued or abandoned for
any reason or has been determined adversely to the Indenture Trustee or to such
Noteholder, then and in every such case the Issuer, the Indenture Trustee and
the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.
Section 5.09 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10 Delay or Omission Not a Waiver. No delay or omission of the
Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
Section 5.11 Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any Proceeding
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for any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or with
this Indenture;
(b) subject to the express terms of Section 5.04, any direction to the
Indenture Trustee to sell or liquidate the Collateral shall be by Holders of
Notes representing not less than 100% of the Outstanding Amount of the Notes;
(c) if the conditions set forth in Section 5.05 have been satisfied and the
Indenture Trustee elects to retain the Collateral pursuant to such Section 5.05,
then any direction to the Indenture Trustee by Holders of Notes representing
less than 100% of the Outstanding Amount of the Notes to sell or liquidate the
Collateral shall be of no force and effect; and
(d) the Indenture Trustee may take any other action deemed proper by the
Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Noteholders set forth in this Section
5.11, subject to Section 6.01, the Indenture Trustee need not take any action
that it determines might involve it in liability or might materially adversely
affect the rights of any Noteholders not consenting to such action.
Section 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes representing not less than a majority of the Outstanding Amount
of the Notes may waive any past Default or Event of Default and its consequences
except a Default (a) in the payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof that cannot be
modified or amended without the consent of the Holder of each Note. In the case
of any such waiver, the Issuer, the Indenture Trustee and the Holders of the
Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
Section 5.13 Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Note by such Holder's acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
Section 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead or in any manner whatsoever, claim or
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take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.04(b).
Section 5.16 Performance and Enforcement of Certain Obligations. Promptly
following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and observance
by the Depositor and the Servicer, as applicable, of each of their obligations
to the Issuer under or in connection with the Sale and Servicing Agreement, and
to exercise any and all rights, remedies, powers and privileges lawfully
available to the Issuer under or in connection with the Sale and Servicing
Agreement to the extent and in the manner directed by the Indenture Trustee,
including the transmission of notices of default on the part of the Depositor or
the Servicer thereunder and the institution of legal or administrative actions
or proceedings to compel or secure performance by the Depositor or the Servicer
of each of their obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the Indenture
Trustee may, and at the direction (which direction shall be in writing or by
telephone, confirmed in writing promptly thereafter) of the Holders of 66-2/3%
of the Outstanding Amount of the Notes shall, exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Depositor or the
Servicer under or in connection with the Sale and Servicing Agreement, including
the right or power to take any action to compel or secure performance or
observance by the Depositor or the Servicer, as the case may be, of each of
their obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension, or waiver under the Sale and Servicing
Agreement, and any right of the Issuer to take such action shall be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01 Duties of Indenture Trustee. (a) If an Event of Default has
occurred and is continuing, the Indenture Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11. (d) Every provision of
this Indenture that in any way relates to the Indenture Trustee is subject
to paragraphs (a), (b), (c) and (g) of this Section 6.01.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(f) Money held in trust by the Indenture Trustee shall be segregated from
other funds except to the extent permitted by law or the terms of this Indenture
or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and further provided that nothing in
this Section 6.01(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to
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Section 6.07. In determining that such repayment or indemnity is not reasonably
assured to it, the Indenture Trustee must consider not only the likelihood of
repayment or indemnity by or on behalf of the Issuer but also the likelihood of
repayment or indemnity from amounts payable to it from the Collateral pursuant
to Section 6.07.
(h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Indenture Trustee shall be
subject to the provisions of this Section 6.01 and to the provisions of the TIA.
Section 6.02 Rights of Indenture Trustee. The Indenture Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Indenture Trustee need not investigate any fact or
matter stated in the document.
(a) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(b) The Indenture Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee.
(c) The Indenture Trustee shall not be liable for (i) any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that such action or omission by the
Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any willful misconduct or negligence on the part of the
Custodian.
(d) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
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Section 6.03 Individual Rights of Indenture Trustee. The Indenture Trustee
in its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Indenture Trustee must comply with Section 6.11 and Section 6.12.
Section 6.04 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
Section 6.05 Notice of Defaults. If a Default occurs and is continuing and
if it is known to a Responsible Officer of the Indenture Trustee, the Indenture
Trustee shall mail to each Noteholder notice of the Default within 90 days after
it occurs. Except in the case of a Default in payment of principal of or
interest on any Note (including payments pursuant to the mandatory redemption
provisions of such Note), the Indenture Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
Section 6.06 Reports by Indenture Trustee to Holders. The Indenture Trustee
shall deliver to each Noteholder such information as may be required to enable
such holder to prepare its federal and State income tax returns.
Section 6.07 Compensation and Indemnity. As compensation for its services
hereunder, the Indenture Trustee shall be entitled to receive, on each
Distribution Date, the Indenture Trustee's Fee pursuant to Section 8.02(c)
(which compensation shall not be limited by any law on compensation of a trustee
of an express trust) and shall be entitled to reimbursement for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Indenture Trustee's agents, counsel, accountants and experts. The Issuer agrees
to cause the Depositor to indemnify the Indenture Trustee against any and all
loss, liability or expense (including attorneys' fees) incurred by it in
connection with the administration of this trust and the performance of its
duties hereunder, except for the Indenture Trustee's gross negligence or bad
faith. The Indenture Trustee shall notify the Issuer and the Depositor promptly
of any action or claim for which the Indenture Trustee (the "Indemnified Party")
may seek indemnity. In case any such action is brought against the Indemnified
Party and it notifies the Depositor (the "Indemnifying Party"), of the
commencement thereof, the Indemnifying Party shall be entitled to participate
therein and, to the extent that, by written notice delivered to the Indemnified
Party promptly after receiving the aforesaid notice from such Indemnified Party,
the Indemnifying Party elects to assume the defense thereof, it may participate
with counsel satisfactory to such Indemnified Party; provided, however, that if
the defendants in any such action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party or parties shall have reasonably
concluded that there may be legal defenses available to it or them and/or other
Indemnified Parties that are different from or additional to those available to
the Indemnifying Party, the Indemnified Party or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such Indemnified Party or
parties. Upon receipt of notice from the Indemnifying Party to such Indemnified
Party of its election so to assume the defense of such action and approval by
the Indemnified Party of such counsel, the Indemnifying Party shall not be
liable to such Indemnified Party under this paragraph for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof, unless (i) the Indemnified Party shall have employed separate
counsel (plus any local counsel) in connection with the assertion of legal
defenses in accordance with the proviso to the immediately preceding sentence,
(ii) the
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Indemnifying Party shall not have employed counsel satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time
after notice of commencement of the action or (iii) the Indemnifying Party has
authorized the employment of counsel for the Indemnified Party at the expense of
the Indemnifying Party. No party shall be liable for contribution with respect
to any action or claim settled without its consent, which shall not be
unreasonably withheld. Failure by the Indenture Trustee to so notify the Issuer
and the Servicer shall not relieve the Issuer of its obligations hereunder. The
Issuer shall or shall cause the Servicer to defend any such claim, and the
Indenture Trustee may have separate counsel and the Issuer shall or shall cause
the Servicer to pay the fees and expenses of such counsel. Neither the Issuer
nor the Servicer need reimburse any expense or indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to this
Section 6.07 shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in Section
5.01(e) or Section 5.01(f) with respect to the Issuer, the expenses are intended
to constitute expenses of administration under Title 11 of the United States
Code or any other applicable federal or state bankruptcy, insolvency or similar
law.
Section 6.08 Replacement of Indenture Trustee. No resignation or removal of
the Indenture Trustee and no appointment of a successor Indenture Trustee shall
become effective until the acceptance of appointment by the successor Indenture
Trustee pursuant to this Section 6.08. The Indenture Trustee may resign at any
time by so notifying the Issuer. The Holders of a majority in Outstanding Amount
of the Notes may remove the Indenture Trustee by so notifying the Indenture
Trustee and may appoint a successor Indenture Trustee. The Issuer shall remove
the Indenture Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in
the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days after
the retiring Indenture Trustee resigns or is removed, the retiring Indenture
Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the
Notes may petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee.
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If the Indenture Trustee fails to comply with Section 6.11, any Noteholder
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to this
Section 6.08, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies written notice of any such transaction.
In case at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Collateral, or any part hereof, and, subject to the other
provisions of this Section 6.10, such powers, duties, obligations, rights and
trusts as the Indenture Trustee may consider necessary or desirable. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 6.11 and no notice to
Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 6.08.
(b) Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Collateral or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Indenture Trustee;
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(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11 Eligibility; Disqualification. The Indenture Trustee shall at
all times satisfy the requirements of TIA Section 310(a). The Indenture Trustee
shall have a combined capital and surplus of at least $________________ as set
forth in its most recent published annual report of condition. The Indenture
Trustee shall comply with TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9); provided, however,
that there shall be excluded from the operation of TIA Section 310(b)(1) any
indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.
Section 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
Section 6.13 No Conflict with Administrator. In performing its duties as
Administrator pursuant to the Administration Agreement, the Indenture Trustee
shall not be liable for any potential conflict of interest related to its
performance as Indenture Trustee hereunder.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01 Issuer to Furnish Indenture Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Holders of Notes as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished.
Section 7.02 Preservation of Information; Communications to Noteholders.
The Indenture Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Notes contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.01
and the names and addresses of Holders of Notes received by the Indenture
Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any
list furnished to it as provided in such Section 7.01 upon receipt of a new list
so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have the
protection of TIA Section 312(c).
Section 7.03 Reports by Issuer. The Issuer shall:
(i) file with the Indenture Trustee, within 15 days after the Issuer
is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from time to
time by rules and regulations prescribe) that the Issuer may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the
Exchange Act;
(ii) file with the Indenture Trustee and the Commission in accordance
with the rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with respect
to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Noteholders described in TIA Section 313(c)) such
summaries of any information, documents and reports required to be filed by
the Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a) and by
rules and regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the Issuer
shall end on December 31 of each year.
Section 7.04 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each ______________, beginning with
_______________, the Indenture Trustee shall mail to each
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Noteholder as required by TIA Section 313(c) a brief report dated as of such
date that complies with TIA Section 313(a). The Indenture Trustee also shall
comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Indenture Trustee with the Commission and each securities exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any securities exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01 Collection of Money, General. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Collateral, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02 Trust Accounts; Distributions. On or prior to the Closing
Date, the Issuer shall cause the Servicer to establish and maintain, in the name
of the Indenture Trustee for the benefit of the Noteholders, or the Co-Owner
Trustee for the benefit of the Residual Interestholders, the Trust Accounts as
provided in Article V of the Sale and Servicing Agreement. The Indenture Trustee
or Co-Owner Trustee shall deposit amounts into each of the Trust Accounts in
accordance with the terms hereof, the Sale and Servicing Agreement and the
Servicer's Monthly Remittance Report.
(b) On the Remittance Date of each month the Servicer shall instruct the
Indenture Trustee to withdraw from the Collection Account the Available
Collection Amount pursuant to Section 5.1(b)(2) of the Sale and Servicing
Agreement and deposit such amount into the Note Distribution Account. Prior to
each Distribution Date, to the extent funds are available in the Note
Distribution Account, the Indenture Trustee shall either retain funds in the
Note Distribution Account or make the withdrawals from the Note Distribution
Account and deposits into the other Trust Accounts for distribution on such
Distribution Date as required pursuant to Section 5.1(c) of the Sale and
Servicing Agreement.
(c) On each Distribution Date and Redemption Date, to the extent funds are
available in the Note Distribution Account, the Indenture Trustee shall make the
following distributions from the amounts on deposit in the Note Distribution
Account in the following order of priority (except as otherwise provided in
Section 5.04(b)):
(i) (A) to the Servicer, an amount equal to the Servicing Compensation
(net of any amounts retained prior to deposit into the Collection Account
pursuant to Section 5.1(b)(1) of the Sale and Servicing Agreement) and all
unpaid Servicing Compensation from prior due periods, (B) to the Indenture
Trustee, an amount equal to the Indenture Trustee Fee and all unpaid
Indenture Trustee Fees from prior Due Periods, (C) to the Company, an
amount equal to the Owner Trustee Fee and all unpaid Owner Trustee Fees
from prior Due Periods, and (D) to the Custodian, an amount equal to the
Custodian Fee and all unpaid Custodian Fees from prior Due Periods; and
(ii) to the Noteholders, the amounts set forth in Section 5.1(d) and
Section 5.1(e) of the Sale and Servicing Agreement.
(d) On each Distribution Date and each Redemption Date, to the extent of
the interest of the Indenture Trustee in the Certificate Distribution Account
(as described in Section 5.2 of the Sale and Servicing Agreement), the Indenture
Trustee hereby authorizes the Owner Trustee, the Co-Owner Trustee or
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the Paying Agent, as applicable, to make the distributions from the Certificate
Distribution Account as required pursuant to Section 5.1(d) and Section 5.1(e)
of the Sale and Servicing Agreement.
Section 8.03 General Provisions Regarding Accounts. So long as no Default
or Event of Default shall have occurred and be continuing, all or a portion of
the funds in the Trust Accounts shall be invested in Permitted Investments and
reinvested by the Indenture Trustee at the direction of the Servicer in
accordance with the provisions of Article V of the Sale and Servicing Agreement.
All income or other gain from investments of moneys deposited in the Trust
Accounts shall be paid by the Indenture Trustee to the Servicer, and any loss
resulting from such investments shall be deposited by the Servicer into the
Trust Account experiencing such loss. The Servicer will not direct the Indenture
Trustee to make any investment of any funds or to sell any investment held in
any of the Trust Accounts unless the security interest Granted and perfected in
such account will continue to be perfected in such investment or the proceeds of
such sale, in either case without any further action by any Person, and, in
connection with any direction to the Indenture Trustee to make any such
investment or sale, if requested by the Indenture Trustee, the Issuer shall
deliver to the Indenture Trustee an Opinion of Counsel, acceptable to the
Indenture Trustee, to such effect.
(b) Subject to Section 6.01(c), the Indenture Trustee shall not in any way
be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Servicer shall have failed to give investment directions for
any funds on deposit in the Trust Accounts to the Indenture Trustee by 11:00
a.m. Eastern Time (or such other time as may be agreed by the Issuer and
Indenture Trustee) on any Business Day or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Notes but the Notes
shall not have been declared due and payable pursuant to Section 5.02 or (iii)
if such Notes shall have been declared due and payable following an Event of
Default, amounts collected or receivable from the Collateral are being applied
in accordance with Section 5.05 as if there had not been such a declaration,
then the Indenture Trustee shall, to the fullest extent practicable, invest and
reinvest funds in the Trust Accounts in one or more Eligible Investments.
Section 8.04 Distribution Statement. On each Distribution Date, the
Indenture Trustee shall deliver the Distribution Statement (as defined in the
Sale and Servicing Agreement) with respect to such Distribution Date to the
Clearing Agencies and the Rating Agencies.
Section 8.05 Release of Collateral. Subject to the payment of its fees and
expenses pursuant to Section 6.07, the Indenture Trustee may, and when required
by the provisions of this Indenture shall, execute instruments to release
property from the lien of this Indenture, or convey the Indenture Trustee's
interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(a) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Residual Interestholder, the Servicer
pursuant to Section 8.02(c)(i)(A), the Indenture Trustee pursuant to Section
8.02(c)(i)(B), the Owner Trustee pursuant to Section 8.02(c)(i)(C) and the
Custodian pursuant to Section 8.02(c)(i)(D) have been paid, release any
remaining portion of the Collateral that secured the Notes from the lien of this
Indenture and release to the Issuer or any other Person entitled thereto any
funds then on deposit in the Trust Accounts. The Indenture Trustee shall release
property from the lien of this Indenture pursuant to this Section 8.05(b) only
upon receipt of an Issuer Request accompanied by an Officer's
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Certificate, an Opinion of Counsel and (if required by the TIA) Independent
Certificates in accordance with TIA Section 314(c) and TIA Section 314(d)(1)
meeting the applicable requirements of Section 11.01.
Section 8.06 Opinion of Counsel. The Indenture Trustee shall receive at
least seven days notice (or such shorter period of time as may be agreed upon by
the parties hereto) when requested by the Issuer to take any action pursuant to
Section 8.05(a), accompanied by copies of any instruments involved, and the
Indenture Trustee shall also require, as a condition to such action, an Opinion
of Counsel, in form and substance satisfactory to the Indenture Trustee, stating
the legal effect of any such action, outlining the steps required to complete
the same, and concluding that all conditions precedent to the taking of such
action have been complied with and such action will not materially and adversely
impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions of this Indenture; provided, however, that such
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Collateral. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Indenture Trustee in connection with any such
action.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01 Supplemental Indenture Without Consent of Noteholders. Without
the consent of the Holders of any Notes but with prior notice to the Rating
Agencies, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture that may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided, that such action
shall not adversely affect the interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to
facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of any
such supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
prior consent of the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by (i)
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an Opinion of Counsel or (ii) satisfaction of the Rating Agency Condition,
adversely affect in any material respect the interests of any Noteholder.
Section 9.02 Supplemental Indentures with Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with prior consent of the Rating Agencies, and with the consent of the Holders
of not less than a majority of the Outstanding Amount of the Notes, by Act of
such Holders delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof, the interest rate
thereon or the Termination Price with respect thereto, change the provisions of
this Indenture relating to the application of collections on, or the proceeds of
the sale of, the Collateral to payment of principal of or interest on the Notes,
or change any place of payment where, or the coin or currency in which, any Note
or the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the application of
funds available therefore, as provided in Article V, to the payment of any such
amount due on the Notes on or after the respective due dates thereof (or, in the
case of redemption, on or after the Redemption Date);
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Holders of which is required for any such supplemental indenture,
or the consent of the Holders of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(c) modify or alter the provisions of the proviso to the definition of the
term "Outstanding";
(d) reduce the percentage of the Outstanding Amount of the Notes required
to direct the Indenture Trustee to direct the Issuer to sell or liquidate the
Collateral pursuant to Section 5.04;
(e) modify any provision of this Section 9.02 except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Basic Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby;
(f) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Distribution Date (including the calculation of any of the
individual components of such calculation) or to affect the rights of the
Holders of Notes to the benefit of any provisions for the mandatory redemption
of the Notes contained herein; or
(g) permit the creation of any lien ranking prior to or on a parity with
the lien of this Indenture with respect to any part of the Collateral or, except
as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Holder of
any Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such determination
shall be conclusive upon the Holders of all Notes, whether theretofore or
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.
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In connection with requesting the consent of the Noteholders pursuant to
this Section 9.02, the Indenture Trustee shall mail to the Holders of the Notes
to which such amendment or supplemental indenture relates a notice setting forth
in general terms the substance of such supplemental indenture. It shall not be
necessary for any Act of Noteholders under this Section 9.02 to approve the
particular form of any proposed supplemental indenture, but it shall be
sufficient if such Act shall approve the substance thereof.
Section 9.03 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and Section 6.02, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
Section 9.04 Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
Section 9.05 Conformity with Trust Indenture Act. Every amendment of this
Indenture and every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect
so long as this Indenture shall then be qualified under the Trust Indenture Act.
Section 9.06 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
Section 9.07 Amendments to Trust Agreement. Subject to Section 11.1 of the
Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to any
proposed amendment to the Trust Agreement or an amendment to or waiver of any
provision of any other document relating to the Trust Agreement, such consent to
be given without the necessity of obtaining the consent of the Holders of any
Notes upon satisfaction of the requirements under Section 11.1 of the Trust
Agreement.
Nothing in this Section 9.07 shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
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ARTICLE X
REDEMPTION OF NOTES
Section 10.01 Redemption. The Majority Residual Interest Holders (as
defined in the Trust Agreement) may, at their option, effect an early redemption
of the Notes on or after any Distribution Date on which the Pool Principal
Balance declines to 10% or less of the Maximum Collateral Amount. The Majority
Residual Interest Holders shall effect such early redemption by purchasing all
of the Loans at a price not less than the Termination Price. In connection with
any such optional termination, to the extent that sufficient proceeds are not
available from the sale of the Loans or the termination of the Trust, the
Majority Residual Interest Holders will pay the outstanding fees and expenses,
if any, of the Indenture Trustee, the Owner Trustee, the Co-Owner Trustee, the
Issuer, the Custodian and the Servicer.
Any such early redemption by the Majority Residual Interestholders shall be
accomplished by depositing into the Collection Account on the Determination Date
immediately preceding the Distribution Date on which the purchase is to occur
the amount of the Termination Price to be paid. The Termination Price and any
amounts then on deposit in the Collection Account (other than any amounts not
required to have been deposited therein pursuant to Section 5.1(b)(1) of the
Sale and Servicing Agreement and any amounts withdrawable therefrom by the
Indenture Trustee pursuant to Section 5.1(b)(3) of the Sale and Servicing
Agreement) shall be transferred to the Note Distribution Account pursuant to
Section 5.1(b)(2) of the Sale and Servicing Agreement for distribution to
Noteholders on the succeeding Distribution Date; and any amounts received with
respect to the Loans and Foreclosure Properties subsequent to the Due Period
immediately preceding such final Distribution Date shall belong to the purchaser
thereof. For purposes of calculating the Available Distribution Amount for such
final Distribution Date, amounts transferred to the Note Distribution Account
immediately preceding such final Distribution Date shall in all cases be deemed
to have been received during the related Due Period, and amounts so transferred
shall be applied pursuant to Section 5.1(c) and 5.1(d) of the Sale and Servicing
Agreement.
The Servicer or the Issuer shall furnish the Rating Agencies notice of any
such redemption in accordance with Section 10.02.
Section 10.02 Form of Redemption Notice. Notice of redemption under Section
10.01 shall be given by the Indenture Trustee by first-class mail, postage
prepaid, or by facsimile mailed or transmitted not later than 10 days prior to
the applicable Redemption Date to each Holder of Notes, as of the close of
business on the Record Date preceding the applicable Redemption Date, at such
Holder's address or facsimile number appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Termination Price; and
(iii) the place where such Notes are to be surrendered for payment of
the Termination Price (which shall be the office or agency of the Issuer to
be maintained as provided in Section 3.02).
Notice of redemption of the Notes shall be given by the Indenture Trustee
in the name of the Issuer and at the expense of the Servicer. Failure to give
notice of redemption, or any defect therein, to any Holder of any Note shall not
impair or affect the validity of the redemption of any other Note.
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Section 10.03 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee. The Notes or portions thereof to be redeemed shall, following
notice of redemption as required by Section 10.02 (in the case of redemption
pursuant to Section 10.01), on the Redemption Date become due and payable at a
price equal to the outstanding Class Principal Amount of each class of Notes
plus accrued and unpaid interest thereon provided that no interest shall accrue
on such price for any period after the date to which accrued interest is
calculated for purposes of calculating the such price. The Issuer may not redeem
the Notes unless, (i) all outstanding obligations under the Notes have been paid
in full and (ii) the Indenture Trustee has been paid all amounts to which it is
entitled hereunder.
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ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates And Opinions, etc. Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture (except with respect to the Servicer's
servicing activity in the ordinary course of its business), the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section 11.01, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and
the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion
as to whether or not such covenant or condition has been complied
with; and
(4) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
(b) Prior to the deposit of any Collateral or other property or securities
with the Indenture Trustee that is to be made the basis for the release of any
property or securities subject to the lien of this Indenture, the Issuer shall,
in addition to any obligation imposed in Section 11.01(a) or elsewhere in this
Indenture, furnish to the Indenture Trustee an Officer's Certificate certifying
or stating the opinion of each person signing such certificate as to the fair
value (within 90 days of such deposit) to the Issuer of the Collateral or other
property or securities to be so deposited.
(c) Whenever the Issuer is required to furnish to the Indenture Trustee an
Officer's Certificate certifying or stating the opinion of any signer thereof as
to the matters described in clause (b) above, the Issuer shall also deliver to
the Indenture Trustee an Independent Certificate as to the same matters, if the
fair value to the Issuer of the securities to be so deposited and of all other
such securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Issuer, as set forth in the
certificates delivered pursuant to clause (b) above and this clause (c), is 10%
or more of the Outstanding Amount of the Notes, but such a certificate need not
be furnished with respect to any securities so deposited, if the fair value
thereof to the Issuer as set forth in the related Officer's Certificate is less
than $25,000 or less than one percent of the Outstanding Amount of the Notes.
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(d) Whenever any property or securities are to be released from the lien of
this Indenture, the Issuer shall also furnish to the Indenture Trustee an
Officer's Certificate certifying or stating the opinion of each person signing
such certificate as to the fair value (within 90 days of such release) of the
property or securities proposed to be released and stating that in the opinion
of such person the proposed release will not impair the security under this
Indenture in contravention of the provisions hereof.
(e) Whenever the Issuer is required to furnish to the Indenture Trustee an
Officer's Certificate certifying or stating the opinion of any signer thereof as
to the matters described in clause (d) above, the Issuer shall also furnish to
the Indenture Trustee an Independent Certificate as to the same matters if the
fair value of the property or securities and of all other property, other than
securities released from the lien of this Indenture since the commencement of
the then-current calendar year, as set forth in the certificates required by
clause (d) above and this clause (e), equals _____% or more of the Outstanding
Amount of the Notes, but such certificate need not be furnished in the case of
any release of property or securities if the fair value thereof as set forth in
the related Officer's Certificate is less than $__________ or less than one
percent of the then Outstanding Amount of the Notes.
Section 11.02 Form of Documents Delivered to Indenture Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate of an Authorized Officer or Opinion of
Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Servicer, the Depositor, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Depositor, the Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 11.03 Acts of Noteholders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Noteholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such
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Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 11.03.
(b) The fact and date of the execution by any person of any such instrument
or writing may be proved in any manner that the Indenture Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Notes shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 11.04 Notices, etc., to Indenture Trustee, Issuer and Rating
Agencies. Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
shall be in writing and if such request, demand, authorization, direction,
notice, consent, waiver or act of Noteholders is to be made upon, given or
furnished to or filed with:
(a) the Indenture Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in writing and mailed first-class,
postage prepaid to the Issuer addressed to: ________________ Owner Trust
_________, in care of
_________________________,________________________________________, Attention:
___________________, or at any other address previously furnished in writing to
the Indenture Trustee by the Issuer or the Administrator. The Issuer shall
promptly transmit any notice received by it from the Noteholders to the
Indenture Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [99 Church Street, New York, New York
10007], and (ii) in the case of [Fitch] at the following address: [One State
Street Plaza, New York, New York 10004]; or as to any of the foregoing, at such
other address as shall be designated by written notice to the other parties.
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Section 11.05 Notices to Noteholders; Waiver. Where this Indenture provides
for notice to Noteholders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Noteholder affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Noteholders is given by mail, neither the failure to
mail such notice nor any defect in any notice so mailed to any particular
Noteholder shall affect the sufficiency of such notice with respect to other
Noteholders, and any notice that is mailed in the manner herein provided shall
conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall be filed with the Indenture Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure to
give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
Section 11.06 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 11.07 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 11.08 Successors and Assigns. All covenants and agreements in this
Indenture and the Notes by the Issuer shall bind its successors and assigns,
whether so expressed or not. All agreements of the Indenture Trustee in this
Indenture shall bind its successors, co-trustees and agents.
Section 11.09 Separability. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 11.10 Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 11.11 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force
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and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 11.12 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.13 Counterparts. This Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
Section 11.14 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 11.15 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or, except as expressly provided for in
Article VI, under this Indenture or any certificate or other writing delivered
in connection herewith or therewith, against (i) the Indenture Trustee or the
Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director, employee or agent of the Indenture Trustee or the Owner Trustee in its
individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed (it being understood that the Indenture
Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, Article VII and Article VIII of the Trust Agreement.
Section 11.16 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Depositor, the Servicer, or
the Issuer, or join in any institution against the Depositor, the Servicer, or
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the Basic Documents.
Section 11.17 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by
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law (and all reasonable applications for confidential treatment are unavailing)
and except to the extent that the Indenture Trustee may reasonably determine
that such disclosure is consistent with its obligations hereunder.
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
OWNER TRUST
By: ___________________________ not in its
individual capacity but solely as Owner
Trustee
By: /s/ _________________________________
Name: ____________________________________
Title: ___________________________________
__________________________________________,
as Indenture Trustee
By: /s/ _______________________________
Name: ___________________________________
Title: ____________________________
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STATE OF [DELAWARE]
COUNTY OF [__________]
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared _________________, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
________________________, not in its individual capacity, but solely as Owner
Trustee on behalf of [________________ OWNER TRUST ________], a [Delaware
business trust], and that such person executed the same as the act of said
business trust for the purpose and consideration therein expressed, and in the
capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ______ day of
_______________________.
_______________________________________________
Notary Public in and for the State of [Delaware]
(Seal)
My commission expires: ______________________________
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STATE OF _______________
COUNTY OF _____________
On ________________________, before me, _________________, a Notary Public
in and for said County and State, personally appeared
__________________________, proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
_________________________________________
Notary Public
My commission expires:_________________________________
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SCHEDULE A
(To be Provided at the Closing)
58
EXHIBIT 4.3
FORM OF SALE AND SERVICING AGREEMENT
SALE AND SERVICING AGREEMENT
Dated as of _____________________
Among
_______________ TRUST ___________
(Issuer)
______________________
(Servicer)
RESIDENTIAL ASSET FUNDING CORPORATION
(Depositor)
and
_______________________________________________
(Indenture Trustee and Co-Owner Trustee)
_______________ Trust ___________
<PAGE>
This Sale and Servicing Agreement is entered into as of
____________________, among _________________ TRUST ____________, a Delaware
business trust (the "Issuer" or the "Trust"), [____________________________]),
as Servicer (the "Servicer"), RESIDENTIAL ASSET FUNDING CORPORATION, a
_______________, corporation, as Depositor (the "Depositor"), and
____________________________________________, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee"), and as Co-Owner
Trustee on behalf of the Certificateholders (in such capacity, the "Co-Owner
Trustee")
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Loans which were
originated or purchased by the Servicer in its ordinary course of business and
subsequently conveyed by the Servicer to the Depositor;
WHEREAS, the Depositor is willing to sell such Loans to the Issuer; and
WHEREAS, the Servicer is willing to service such Loans in accordance with
the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article I. Unless otherwise specified, all
calculations of interest described herein shall be made on the basis of a
360-day year consisting of twelve 30-day months.
Accepted Servicing Procedures: Servicing procedures that meet at least the
same standards the Servicer would follow in servicing first, second and third
lien residential mortgage loans such as the Loans held for its own account,
giving due consideration to standards of practice of prudent mortgage lenders
and loan servicers that originate and service mortgage loans comparable to the
Loans and to the reliance placed by the Securityholders on the Servicer for the
servicing of the Loans but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
affiliate of the Servicer or any Subservicer may have with the related
Mortgagor;
(ii) the ownership of any Securities by the Servicer or any affiliate
of the Servicer;
(iii) the Servicer's obligation to make Servicing Advances; or
(iv) the Servicer's or any Subservicer's right to receive compensation
for its services hereunder with respect to any particular transaction.
Accrual Period: With respect to each Class of Notes for a given
Distribution Date, the calendar month preceding the month of such Distribution
Date based on a 360-day year consisting of twelve 30-day months.
<PAGE>
Addition Notice: For any date during the Pre-Funding Period, a notice
(which shall be in writing) given to the Rating Agencies, the Owner Trustee, the
Co-Owner Trustee and the Indenture Trustee pursuant to Section 2.7.
Adjustable Rate Loan: Each Loan identified on the Loan Schedule as having
an adjustable Loan Interest Rate.
Aggregate Note Principal Balance: With respect to any Distribution Date,
the aggregate of the Class Principal Balances of the Notes.
Agreement: This Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
Allocable Loss Amount: With respect to each Distribution Date, the excess,
if any, of (a) the aggregate of the Class Principal Balances of all Classes of
Notes (after giving effect to all distributions on such Distribution Date) over
(b) the sum of the Pool Principal Balance and the Pre-Funded Amount as of the
end of the immediately preceding Due Period.
Allocable Loss Amount Priority: With respect to any Distribution Date,
sequentially, to the Class B Notes, the Class M-2 Notes and the Class M-1 Notes,
in that order, until the respective Class Principal Balances thereof are reduced
to zero.
Appraised Value: The appraised value of any Mortgaged Property, based upon
the appraisal made at the time the related Loan is originated.
Assignment of Mortgage: With respect to each Loan secured by a Mortgage, an
assignment, notice of transfer or equivalent instrument sufficient under the
laws of the jurisdiction wherein the related Mortgaged Property is located to
reflect or record the sale of the related Loan which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
Available Collection Amount: With respect to any Distribution Date, an
amount equal to the sum of: (i) all amounts received on the Loans or required to
be paid by the Servicer or the Depositor during the related Due Period
(exclusive of amounts not required to be deposited by the Servicer in the
Collection Account pursuant to Section 5.1(b)(1) and amounts permitted to be
withdrawn by the Indenture Trustee from the Collection Account pursuant to
Section 5.1(b)(3)) as reduced by any portion thereof that may not be withdrawn
therefrom pursuant to an order of a United States bankruptcy court of competent
jurisdiction imposing a stay pursuant to Section 362 of the United States
Bankruptcy Code; (ii) with respect to the final Distribution Date or an early
redemption or termination of the Securities pursuant to Section 11.2, the
Termination Price; (iii) the Purchase Price paid for any Loans required to be
purchased and the Substitution Adjustment, if any, required to be deposited in
the Collection Account in connection with any substitution, in each case
pursuant to Section 3.5 and prior to the related Determination Date and (iv) the
Capitalized Interest Requirement, if any, with respect to such Distribution
Date.
Available Distribution Amount: With respect to any Distribution Date, the
Available Collection Amount, minus the amount required to be paid from the Note
Distribution Account pursuant to Section 5.1(c)(i), plus, if applicable, the
amount of any Pre-Funding Earnings for the related Due Period and, on the
Distribution Date relating to the Due Period in which the termination of the
Pre-Funding Period occurred, the amount on deposit in the Pre-Funding Account at
such time.
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Balloon Loan: A Loan with a final Monthly Payment that is greater than five
(5) times any other Monthly Payment.
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in New York City or in the city in which the
corporate trust office of the Indenture Trustee is located are authorized or
obligated by law or executive order to be closed.
Call Option Date: The first Distribution Date on which the Majority
Residual Interest Holders are able to cause an optional termination of the
Issuer pursuant to Section 11.2.
Capitalized Interest Account: The account designated as such, established
and maintained pursuant to Section 5.6.
Capitalized Interest Requirement: With respect to the Distribution Date in
___________, (A) the product of (a) a fraction, the numerator of which is the
Pre-Funding Amount on the Closing Date and the denominator of which is the sum
of the Pre-Funding Amount on the Closing Date and the Original Pool Principal
Balance and (b) the aggregate amount of interest accrued on each Class of Notes
for the related Accrual Periods minus (B) in the case of any Subsequent Loan
transferred to the Issuer during the related Due Period, the amount of any
interest collected after the Cut-Off Date applicable to such Subsequent Loan and
during such related Due Period and minus (C) any Pre-Funding Earnings for the
related Due Period.
With respect to the Distribution Date in _________________, (A) the product
of (a) a fraction, the numerator of which is the Pre-Funding Amount on the first
day of the related Due Period and the denominator of which is the sum of the
Pre-Funding Amount on the first day of the related Due Period and the Pool
Principal Balance on the first day of the related Due Period and (b) the
percentage equivalent of fraction the numerator of which is the aggregate amount
of interest accrued on each Class of Notes for the related Accrual Period minus
(B) any Pre-Funding Earnings for the related Due Period and minus (C) in the
case of any Subsequent Loan transferred to the Issuer during the related Due
Period, the amount of any interest collected after the Cut-Off Date applicable
to such Subsequent Loan and during such related Due Period.
With respect to the Distribution Date in _________________, (A) the product
of (a) the Pre-Funding Amount on the first day of the related Due Period the
denominator of which is the sum of the Pre-Funding Amount on the first day of
the related Due Period and the Pool Principal Balance on the first day of the
related Due Period and (b) the aggregate amount of interest accrued on each
Class of Notes for the related Accrual Period minus (B) any Pre-Funding Earnings
for the related Due Period and minus (C) in the case of any Subsequent Loan
transferred to the Issuer during the related Due Period, the amount of any
interest collected after the Cut-Off Date applicable to such Subsequent Loan and
during such related Due Period.
Certificate: Any Residual Interest Instrument issued pursuant to the Trust
Agreement.
Certificate Distribution Account: The Account established and maintained
pursuant to Section 5.2.
Certificateholder: A holder of any Certificate.
Class: With respect to the Notes, all Notes bearing the same Class
designation.
Class A Excess Spread Distribution Amount: With respect to any Distribution
Date, the least of (i) the excess of (x) the Class Principal Balance of all
Senior Notes (after giving effect to all distributions
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pursuant to Section 5.1(d)) over (y) the Senior Optimal Principal Balance for
such Distribution Date, (ii) the Overcollateralization Deficiency Amount for
such Distribution Date, and (iii) the Excess Spread for such Distribution Date.
Class A Principal Distribution Amount: With respect to any Distribution
Date, the lesser of (i) the Regular Principal Distribution Amount and (ii) the
excess of (x) the aggregate Class Principal Balance of all Senior Notes (prior
to giving effect to distributions on such Distribution Date, other than any
distributions in respect of the Pre-Funded Amount on the Distribution Date on
which a Pre-Funding Pro Rata Distribution Trigger has occurred) over (y) the
Senior Optimal Principal Balance for such Distribution Date.
Class A-1 Note, Class A-2 Note, Class A-3 Note, Class A-4 Note, Class M-1
Note, Class M-2 Note and Class B Note: The respective meanings assigned thereto
in the Indenture.
Class B Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, the excess of (A) the Class B Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Class B Noteholders' Interest Carry-Forward Amount for such preceding
Distribution Date, over (B) the amount in respect of interest that is actually
distributed to such Notes on such preceding Distribution Date.
Class B Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class B Notes, the sum of the Class B Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class B
Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class B Noteholders' Monthly Interest Distributable Amount: With respect to
any Distribution Date and the Class B Notes, the aggregate amount of thirty (30)
days' accrued interest at the Class B Note Interest Rate on the sum of the (i)
Class Principal Balance of the Class B Notes immediately preceding such
Distribution Date and (ii) any Class B Noteholders' Interest Carry-Forward
Amount remaining outstanding for such Distribution Date.
Class Factor: With respect to each Class and any date of determination, the
then applicable Class Principal Balance of such Class divided by the Original
Class Principal Balance thereof.
Class M-1 Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class M-1 Notes, the excess of (A) the Class M-1
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Class M-1 Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date, over (B) the amount
in respect of interest that is actually distributed to such Notes on such
preceding Distribution Date.
Class M-1 Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class M-1 Notes, the sum of the Class M-1 Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class
M-1 Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class M-1 Noteholders' Monthly Interest Distributable Amount: With respect
to each Distribution Date and the Class M-1 Notes, the aggregate amount of
thirty (30) days' accrued interest at the Class M-1 Note Interest Rate on the
sum of (i) the Class Principal Balance of the Class M-1 Notes immediately
preceding such Distribution Date and (ii) any Class M-1 Noteholders' Interest
Carry-Forward Amount remaining outstanding for such Distribution Date.
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Class M-1 Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; and with respect to any other Distribution
Date, the Pool Principal Balance as of the preceding Determination Date minus
the sum of (i) the aggregate Class Principal Balance of the Senior Notes (after
taking into account distributions made on such Distribution Date in reduction of
the Class Principal Balances of the Classes of Senior Notes prior to such
determination) and (ii) the greater of (x) the sum of (1) __% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (calculated
without giving effect to the proviso in the definition thereof) and (y) ____% of
the Maximum Collateral Amount; provided however, that the Class M-1 Optimal
Principal Balance shall never be less than zero or greater than the Original
Class Principal Balance of the Class M-1 Notes.
Class M-2 Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class M-2 Notes, the excess of (A) the Class M-2
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Class M-2 Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date, over (B) the amount
in respect of interest that is actually distributed to such Notes on such
preceding Distribution Date.
Class M-2 Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class M-2 Notes, the sum of the Class M-2 Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class
M-2 Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class M-2 Noteholders' Monthly Interest Distributable Amount: With respect
to each Distribution Date and the Class M-2 Notes, the aggregate amount of
thirty (30) days' accrued interest at the Class M-2 Note Interest Rate on the
sum of (i) the Class Principal Balance of the Class M-2 Notes immediately
preceding such Distribution Date and (ii) any Class M-2 Noteholders' Interest
Carry-Forward Amount remaining outstanding for such Distribution Date.
Class M-2 Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; with respect to any other Distribution Date,
the Pool Principal Balance as of the preceding Determination Date minus the sum
of (i) the aggregate Class Principal Balance of the Senior Notes (after taking
into account any distributions made on such Distribution Date in reduction of
the Class Principal Balances of the Classes of Senior Notes prior to such
determination) plus the Class Principal Balance of the Class M-1 Notes (after
taking into account any distributions made on such Distribution Date in
reduction of the Class Principal Balance of the Class M-1 Notes prior to such
determination) and (ii) the greater of (x) the sum of (1) ___% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (without giving
effect to the proviso in the definition thereof) and (y) ____% of the Maximum
Collateral Amount; provided, however, that such amount shall never be less than
zero or greater than the Original Class Principal Balance of the Class M-2
Notes.
Class Principal Balance: With respect to each Class and as of any date of
determination, the Original Class Principal Balance of such Class reduced by the
sum of (i) all amounts previously distributed in respect of principal of such
Class on all previous Distribution Dates and (ii) with respect to the Class M-1,
Class M-2 and the Class B Notes, all Allocable Loss Amounts applied in reduction
of principal of such Class on all previous Distribution Dates.
Closing Date: ___________________________.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
Treasury Regulations promulgated thereunder.
5
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Collection Account: The account established and maintained by the Servicer
in accordance with Section 5.1.
Combination Loan: A loan, the proceeds of which were used by the Mortgagor
in combination to finance property improvements and for debt consolidation or
other purposes.
Combined Loan-to-Value Ratio or CLTV: The sum of (x) any outstanding first
mortgage balance as of the date of origination of the related Mortgage plus (y)
Principal Balance as of the Cut-Off Date, divided by the Appraised Value of such
Mortgaged Property.
Commission: The Securities and Exchange Commission.
Co-Owner Trustee: _____________________________________, in its capacity as
the Co-Owner Trustee under the Trust Agreement acting on behalf of the
Certificateholders, or any successor co-owner trustee under the Trust Agreement.
Cram Down Losses: With respect to any Loan, the reduction to the related
Loan Balance and/or the amount by which the installment of interest due on the
related Due Date under the terms of such Loan has been reduced as a result of a
reduction in the related Loan Interest Rate, in each case resulting from an
order issued by a court of appropriate jurisdiction in an insolvency proceeding.
A Cram Down Loss shall be deemed to have occurred on the date of issuance of
such order.
Custodial Agreement: The custodial agreement dated as of
____________________by and among the Depositor, _________, as servicer, the
Indenture Trustee, and ________________________, as the Custodian providing for
the retention of the Indenture Trustee's Loan Files by the Custodian on behalf
of the Indenture Trustee.
Custodian: Any custodian appointed by the Indenture Trustee pursuant to the
Custodial Agreement, which shall not be affiliated with the Servicer, the
Depositor or any Subservicer. ____________________________________ shall be the
initial Custodian pursuant to the terms of the Custodial Agreement.
Cut-Off Date: With respect to the Initial Loans, the close of business on
________________________. With respect to any Subsequent Loan, the close of
business on the date designated as such in the related Subsequent Transfer
Agreement.
Debt Consolidation Loan: A loan, the proceeds of which were primarily used
by the related Mortgagor for debt consolidation purposes or purposes other than
to finance property improvements.
Debt Instrument: The note or other evidence of indebtedness evidencing the
indebtedness of an Mortgagor under a Loan.
Defaulted Loan: With respect to any date of determination, any Loan,
including without limitation any Liquidated Loan, incident to foreclosure,
default or imminent default.
Defective Loan: As defined in Section 3.5 hereof.
Delinquent: A Loan is "Delinquent" if any Monthly Payment due thereon is
not made by the close of business on the day such Monthly Payment is scheduled
to be paid. A Loan is "30 days Delinquent" if such Monthly Payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such Monthly Payment was due, or, if
there is no such corresponding day (e.g., as when a 30-day month follows a
31-day month in
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which a payment was due on the 31st day of such month) then on the last day of
such immediately succeeding month. The determination of whether a Loan is "60
days Delinquent," "90 days Delinquent", etc., shall be done in like manner.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof to the Indenture Trustee or its nominee or
custodian by physical delivery to the Indenture Trustee or its nominee or
custodian endorsed to, or registered in the name of, the Indenture Trustee or
its nominee or custodian or endorsed in blank, and, with respect to a
certificated security (as defined in Section 8-102 of the UCC) transfer thereof
(i) by delivery of such certificated security endorsed to, or registered in the
name of, the Indenture Trustee or its nominee or custodian or endorsed in blank
to a financial intermediary (as defined in Section 8-313 of the UCC) and the
making by such financial intermediary of entries on its books and records
identifying such certificated securities as belonging to the Indenture Trustee
or its nominee or custodian and the sending by such financial intermediary of a
confirmation of the purchase of such certificated security by the Indenture
Trustee or its nominee or custodian, or (ii) by delivery thereof to a "clearing
corporation" (as defined in Section 8-102(3) of the UCC) and the making by such
clearing corporation of appropriate entries on its books reducing the
appropriate securities account of the transferor and increasing the appropriate
securities account of a financial intermediary by the amount of such
certificated security, the identification by the clearing corporation of the
certificated securities for the sole and exclusive account of the financial
intermediary, the maintenance of such certificated securities by such clearing
corporation or a "custodian bank" (as defined in Section 8-102(4) of the UCC) or
the nominee of either subject to the clearing corporation's exclusive control,
the sending of a confirmation by the financial intermediary of the purchase by
the Indenture Trustee or its nominee or custodian of such securities and the
making by such financial intermediary of entries on its books and records
identifying such certificated securities as belonging to the Indenture Trustee
or its nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the name of
the Indenture Trustee or its nominee or custodian; and such additional or
alternative procedures as may hereafter become appropriate to effect the
complete transfer of ownership of any such Trust Account Property (as defined
herein) to the Indenture Trustee or its nominee or custodian, consistent with
changes in applicable law or regulations or the interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury, FNMA or
FHLMC that is a book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations, the following procedures, all in
accordance with applicable law, including applicable federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a Federal Reserve
Bank by a financial intermediary that is also a "depository" pursuant to
applicable federal regulations and issuance by such financial intermediary of a
deposit advice or other written confirmation of such book-entry registration to
the Indenture Trustee or its nominee or custodian of the purchase by the
Indenture Trustee or its nominee or custodian of such book-entry securities; the
making by such financial intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations as belonging to the Indenture Trustee
or its nominee or custodian and indicating that such custodian holds such Trust
Account Property solely as agent for the Indenture Trustee or its nominee or
custodian; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or custodian, consistent with
changes in applicable law or regulations or the interpretation thereof; and
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(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (b) above, registration on the books and records of the issuer thereof in
the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its nominee
or custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or custodian.
Determination Date: With respect to any Distribution Date, the fourteenth
calendar day of the month in which such Distribution Date occurs or if such day
is not a Business Day, the immediately preceding Business Day.
Distribution Date: The 25th day of any month or if such 25th day is not a
Business Day, the first Business Day immediately following such day, commencing
in __________________.
Distribution Statement: As defined in Section 6.1.
DTC: The Depository Trust Company.
Due Date: The day of the month on which the Monthly Payment is due from the
Mortgagor on a Loan.
Due Period: With respect to any Determination Date or Distribution Date,
the calendar month immediately preceding the month in which such Determination
Date or Distribution Date occurs, as the case may be.
Eligible Account: At any time, an account which is any of the following:
(i) an account maintained with a depository institution (A) the long-term debt
obligations of which are at such time rated by each Rating Agency in one of
their two highest long-term rating categories, or (B) the short-term debt
obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) an account or accounts the deposits in which
are fully insured by either the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC; (iii) a trust account (which shall be a "segregated
trust account") maintained with the corporate trust department of a federal or
state chartered depository institution or trust company with trust powers and
acting in its fiduciary capacity for the benefit of the Indenture Trustee and
the Issuer, which depository institution or trust company shall have capital and
surplus of not less than $____________________; or (iv) an account that will not
cause any Rating Agency to downgrade or withdraw its then-current rating(s)
assigned to the Notes, as evidenced in writing by such Rating Agency. (Each
reference in this definition of "Eligible Account" to the Rating Agency shall be
construed as a reference to ____________________ or ____________________.)
Eligible Servicer: A Person who is qualified to act as Servicer of the
Loans under applicable federal and state laws and regulations.
Event of Default: As described in Section 10.1.
Excess Spread: With respect to any Distribution Date, the excess of (a) the
Available Distribution Amount over (b) the Regular Distribution Amount.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FHLMC: The Federal Loan Mortgage Corporation and any successor thereto.
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FICO Score: The credit evaluation scoring methodology developed by Fair,
Isaac and Company.
Fidelity Bond: As described in Section 4.3.
[Fitch: Fitch Investors Service, L.P. or any successor thereto.]
Fixed Rate Loan: Each Loan identified on the Loan Schedule as bearing a
fixed Loan Interest Rate.
FNMA: The Federal National Mortgage Association and any successor thereto.
Foreclosure Property: Any real property securing a Loan that has been
acquired by the Servicer through foreclosure, deed in lieu of foreclosure or
similar proceedings in respect of the related Loan.
Gross Margin: As to each Adjustable Rate Loan, the fixed percentage set
forth in the related Debt Instrument and indicated in the Loan Schedule as the
"Gross Margin," which percentage is added to the Index on each Interest
Adjustment Date to determine (subject to rounding, any applicable statutory
maximum interest rate, the Periodic Rate Caps, the Lifetime Floor and the
Lifetime Cap) the Mortgage Interest Rate on such Loan until the next Interest
Adjustment Date.
HUD: The United States Department of Housing and Urban Development and any
successor thereto.
Indenture: The Indenture, dated as of _______________________, between the
Issuer and the Indenture Trustee.
Indenture Trustee: ____________________________________, as Indenture
Trustee under the Indenture and this Agreement acting on behalf of the
Noteholders, or any successor indenture trustee under the Indenture or this
Agreement.
Indenture Trustee Fee: The annual fee payable to the Indenture Trustee,
calculated and payable monthly on each Distribution Date pursuant to Section
5.1(c)(i), equal to the per annum percentage of _____ percent of the Pool
Principal Balance as of the first day of the immediately preceding Due Period.
Indenture Trustee's Loan File: As defined in Section 2.5(a).
Independent: When used with respect to any specified Person, such Person
that (i) is in fact independent of the Servicer, the Depositor or any of their
respective affiliates, (ii) does not have any direct financial interest in or
any material indirect financial interest in any of the Servicer, the Depositor
or any of their respective affiliates and (iii) is not connected with any of the
Servicer, the Depositor or any of their respective affiliates, as an officer,
employee, promoter, underwriter, trustee, partner, director or Person performing
similar functions; provided, however, that a Person shall not fail to be
Independent of ______________, the Servicer, the Depositor or any of their
respective affiliates merely because such Person is the beneficial owner of
________% or less of any class of securities issued by ______________, the
Servicer, the Depositor or any of their respective affiliates, as the case may
be.
Independent Accountants: A firm of nationally recognized certified public
accountants which is Independent.
Index: The LIBOR Index.
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Insurance Proceeds: With respect to any Loan, the proceeds paid to the
Servicer by any insurer pursuant to any insurance policy covering a Loan,
Mortgaged Property or Foreclosure Property or any other insurance policy that
relates to a Loan, net of any expenses that are incurred by the Servicer in
connection with the collection of such proceeds and not otherwise reimbursed to
the Servicer, other than proceeds of any insurance policy that are to be applied
to the restoration or repair of the Mortgaged Property or released to the
Mortgagor in accordance with customary mortgage loan servicing procedures
applicable to the respective loan type, including Debt Consolidation Loans and
Combination Loans.
Interest Adjustment Date: With respect to any Adjustable Rate Loan, the
date on which the Loan Interest Rate is or may be adjusted with respect to such
Loan.
LIBOR Index: The London Interbank Offered Rate for six month U.S. dollar
deposits either as announced by the Federal National Mortgage Association and
available as of the date 45 days before each Interest Adjustment Date or as
published in The Wall Street Journal generally on a day of the month preceding
the month of the Interest Adjustment Date.
Lien: A security interest, lien, charge, pledge, equity, or encumbrance of
any kind, other than tax liens, mechanics' liens and any liens that attach to
the respective Mortgaged Property by operation of law as a result of any act or
omission by the related Mortgagor.
Lifetime Cap: As to any Adjustable Rate Loan, the maximum Loan Interest
Rate set forth in the related Debt Instrument and indicated in the Loan
Schedule.
Lifetime Floor: As to any Adjustable Rate Loan, the minimum Loan Interest
Rate set forth in the related Debt Instrument and indicated in the Loan
Schedule.
Liquidated Loan: With respect to any date of determination, any Loan or
Foreclosure Property in respect of a Loan as to which the Servicer has
determined that all amounts which it reasonably and in good faith expects to
collect have been recovered from or on account of such Loan or the related
Foreclosure Property; provided that, in any event, such Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore deemed a
Liquidated Loan upon the earliest of: (a) the liquidation of the related
Foreclosure Property, (b) the determination by the Servicer in accordance with
customary servicing practices that no further amounts are collectible from the
Loan and any related Mortgaged Property, or (c) the date on which any portion of
a Monthly Payment on any Loan is in excess of 180 consecutive days past due.
Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts
received in connection with the liquidation of such Liquidated Loan, whether
through trustee's sale, foreclosure sale or other disposition, and any other
amounts required to be deposited in the Collection Account pursuant to Section
4.2 or Section 4.4, in each case other than Insurance Proceeds and Released
Mortgaged Property Proceeds.
Loan: Any Debt Consolidation Loan or Combination Loan identified as sold to
the Issuer by virtue of its inclusion on the Loan Schedule. As applicable, a
Loan shall be deemed to refer to the related Debt Instrument, Mortgage and any
related Foreclosure Property. The term "Loan" includes any Subsequent Loan on
and after the date it becomes a Subsequent Loan.
Loan Interest Rate: With respect to each Fixed Rate Loan, the fixed annual
rate of interest borne by a Debt Instrument, as shown on the related Loan
Schedule as the same may be modified by the Servicer in accordance with Section
4.1(c). With respect to each Adjustable Rate Loan, subject to applicable
Periodic Rate Cap, the Lifetime Cap and the Lifetime Floor, the related Index
plus the
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applicable Gross Margin, as shown by the related Loan Schedule as the same may
be modified by the Servicer in accordance with Section 4.1(c).
Loan Pool: The pool of Loans.
Loan Sale Agreement: The loan sale agreement between _________, as seller
and the Depositor, as purchaser, dated as of _______________________________.
Loan Schedule: The schedule of Loans attached hereto as Exhibit A and
provided to the Indenture Trustee in computer readable form in a format
acceptable to the Indenture Trustee, as amended or supplemented from time to
time, such schedule identifying each Loan by address (including the related
state and Zip code) of the related Mortgaged Property, if any, and the name(s)
of each Mortgagor and setting forth as to each Loan the following information:
(i) the Principal Balance as of the Cut-Off Date, (ii) the account number, (iii)
the original principal amount, (iv) the Due Date, (v) whether such Loan is a
Fixed Rate Loan or an Adjustable Rate Loan, (vi) for each Fixed Rate Loan, the
Loan Interest Rate and for each Adjustable Rate Loan, the Gross Margin, (vii)
the first date on which a Monthly Payment is due under the related Debt
Instrument, (viii) the Monthly Payment, (ix) the maturity date of the related
Debt Instrument, and (x) the remaining number of months to maturity as of the
Cut-Off Date.
Loss Reimbursement Deficiency: With respect to any Distribution Date and
the Class M-1 Notes, Class M-2 Notes or Class B Notes, the amount of Allocable
Loss Amounts applied to the reduction of the Class Principal Balance of such
Class and not reimbursed pursuant to Section 5.1(d)(viii) as of such
Distribution Date plus interest accrued thereon during the related Accrual
Period at the related Note Interest Rate.
Mandatory Redemption Date: The Distribution Date immediately following the
end of the Pre-Funding Period.
Majority Securityholders: The holder or holders of in excess of 50% of the
Class Principal Balance of all Classes of Notes.
Majority Residual Interest Holders: The holder or holders of in excess of
50% Percentage Interest of the Residual Interests.
Maximum Collateral Amount: The sum of the Original Pool Principal Balance
and the Principal Balances of all Subsequent Loans transferred to the Issuer on
or prior to the applicable Cut-Off Date.
Mezzanine Notes: The Class M-1 Notes and Class M-2 Notes.
Monthly Payment: The scheduled monthly payment of principal and/or interest
required to be made by a Mortgagor on the related Loan, as set forth in the
related Debt Instrument.
[Moody's: Moody's Investment Service, Inc. or any successor thereto.]
Mortgage: The mortgage, deed of trust or other security instrument creating
a lien in accordance with applicable law on a Mortgaged Property to secure the
Debt Instrument which evidences a secured Loan.
Mortgagor: The obligor on a Debt Instrument.
Mortgaged Property: The real property encumbered by the Mortgage which
secures the Debt Instrument evidencing a secured Loan.
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Mortgaged Property States: Each state in which any Mortgaged Property
securing a Loan is located as set forth in the Loan Schedule.
Net Delinquency Calculation Amount: With respect to any Distribution Date,
beginning with the sixth Distribution Date, the excess, if any, of (x) the
product of 2.5 and the Six-Month Rolling Delinquency Average over (y) the
aggregate of the amounts of Excess Spread for the three preceding Distribution
Dates.
Net Liquidation Proceeds: With respect to any Distribution Date, any cash
amounts received from Liquidated Loans during the related Due Period, whether
through trustee's sale, foreclosure sale, disposition of Mortgaged Properties or
otherwise (other than Insurance Proceeds and Released Mortgaged Property
Proceeds), and any other cash amounts received in connection with the management
of the Mortgaged Properties relating to Defaulted Loans, in each case, net of
any reimbursements to the Servicer made from such amounts for any unreimbursed
Servicing Compensation and Servicing Advances (including Nonrecoverable
Servicing Advances) made and any other fees and expenses paid in connection with
the foreclosure, conservation and liquidation of the related Liquidated Loans or
Foreclosure Property pursuant to Sections 4.2 and Section 4.4.
Net Loan Losses: On each Distribution Date, the sum of
(a) with respect to the Loans that become Liquidated Loans during the
immediately preceding Due Period, an amount (but not less than zero) determined
as of the related Determination Date equal to:
(i) the aggregate uncollected Principal Balances of such Liquidated Loans
as of the last day of such Due Period and without the application of any amounts
included in clause (ii) below, minus
(ii) the aggregate amount of any recoveries attributable to principal from
whatever source received during any Due Period, with respect to such Liquidated
Loans, including any Due Period subsequent to the Due Period wherein such Loan
became a Liquidated Loan, and including without limitation any Net Liquidation
Proceeds, any Insurance Proceeds, any Released Mortgaged Property Proceeds, any
payments from the related Mortgagor and any payments made pursuant to Section
3.5, less the amount of any expenses incurred in connection with such
recoveries; and
(b) the aggregate Cram Down Losses during the related Due Period.
Net Loan Rate: With respect to each Loan, the related Loan Interest Rate,
less the rate at which the Servicing Fee is calculated.
Nonrecoverable Servicing Advance: (A) Any Servicing Advance previously made
and not reimbursed from late collections, Liquidation Proceeds, Insurance
Proceeds, Post Liquidation Proceeds or the Released Mortgaged Property Proceeds,
or (B) a Servicing Advance proposed to be made in respect of a Loan or
Foreclosure Property either of which, in the good faith business judgment of the
Servicer, as evidenced by an Officer's Certificate delivered to the Indenture
Trustee would not be ultimately recoverable.
Note: Any of the Senior Notes, the Class M-1 Notes, the Class M-2 Notes and
the Class B Notes.
Note Distribution Account: The account established and maintained pursuant
to Section 5.1(a)(2).
Noteholder: A holder of a Note.
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Noteholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Senior Noteholders' Interest Distributable
Amount, the Class M-1 Noteholders' Interest Distributable Amount, the Class M-2
Noteholders' Interest Distributable Amount and the Class B Noteholders' Interest
Distributable Amount for such Distribution Date.
Note Interest Rate: With respect to each Class of Notes and any
Distribution Date, the per annum rate of interest payable to the holders of such
Class of Notes. The Note Interest Rates with respect to the Classes of Notes are
as follows: Class A-1: ____%; Class A-2: ____%; Class A-3: ____%; Class A-4:
____%; Class M-1: ____%; Class M-2: ____%; and Class B: ____%.
Officer's Certificate: A certificate delivered to the Indenture Trustee or
the Issuer signed by the President or a Vice President or an Assistant Vice
President of the Servicer or the Depositor, in each case, as required by this
Agreement.
Optional Principal Balance: With respect to the Senior Notes, the Senior
Optimal Principal Balance; with respect to the Class M-1 Notes, the Class M-2
Notes and the Class B Notes, the Class M-1 Optimal Principal Balance and the
Class B Optimal Principal Balance respectively.
Original Class Principal Balance: With respect to the Classes of Notes, as
follows: Class A-1: $__________; Class A-2: $__________; Class A-3: $__________;
Class A-4: $__________; Class M-1: $__________; Class M-2: $__________; and
Class B: $_________.
Original Pool Principal Balance: $_____________, which is the Pool
Principal Balance as of the initial Cut-Off Date.
Original Pre-Funded Amount: $_____________.
Overcollateralization Amount: With respect to any Distribution Date, the
amount equal to the excess of (A) the sum of the Pool Principal Balance and the
Pre-Funded Amount, each as of the end of the preceding Due Period, over (B) the
aggregate of the Class Principal Balances of the Notes (after giving effect to
all distributions to be made to the Noteholders and the holders of the Residual
Interest Instruments on such Distribution Date).
Overcollateralization Deficiency Amount: With respect to any date of
determination, the excess, if any, of the Overcollateralization Target Amount
over the Overcollateralization Amount (such Overcollateralization Amount to be
calculated after giving effect to all (distributions to be made to the
Noteholders and the holders of the Residual Interest Instruments on such
Distribution Date).
Overcollateralization Target Amount: (A) With respect to any Distribution
Date occurring prior to the Stepdown Date, an amount equal to the greater of (x)
7% of the Maximum Collateral Amount and (y) the Net Delinquency Calculation
Amount; (B) with respect to any other Distribution Date, an amount equal to the
greater of (x) 14% of the Pool Principal Balance as of the end of the related
Due Period and (y) the Net Delinquency Calculation Amount; provided, however,
that the Overcollateralization Target Amount shall in no event be less than
0.50% of the Maximum Collateral Amount.
Ownership Interest: As to any Security, any ownership or security interest
in such Security, including any interest in such Security as the holder thereof
and any other interest therein, whether direct or indirect, legal or beneficial,
as owner or as pledgee.
Owner Trustee: _______________________________, as owner trustee under the
Trust Agreement, and any successor owner trustee under the Trust Agreement.
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Owner Trustee Fee: The annual fee of $_______________, payable in equal
monthly installments to the Servicer who shall in turn pay such $_______________
to the Owner Trustee on the Distribution Date occurring in September each year
during the term of this Agreement commencing in ________________________;
provided, however, that the initial Owner Trustee Fee shall be paid by the
Depositor on the Closing Date.
Percentage Interest: As defined in the Trust Agreement.
Periodic Rate Cap: With respect to any Adjustable Rate Loan the periodic
rate cap set forth in the Debt Instrument related thereto.
Permitted Investments: Each of the following:
(a) obligations of, or guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States;
(b) a repurchase agreement that satisfies the following criteria: (1)
must be between the Indenture Trustee and either (a) primary dealers on the
Federal Reserve reporting dealer list which are rated in one of the two
highest categories for long-term unsecured debt obligations by at least one
Rating Agency, or (b) banks rated in one of the two highest categories for
long-term unsecured debt obligations by at least one Rating Agency; and (2)
the written repurchase agreement must include the following: (a) securities
that are acceptable for transfer and are either (I) direct U.S. government
obligations, or (II) obligations of a federal agency that are backed by the
full faith and credit of the U.S. government, or FNMA or FHLMC; (b) a term
no greater than 60 days for any repurchase transaction; (c) the collateral
must be delivered to the Indenture Trustee or a third party custodian
acting as agent for the Indenture Trustee by appropriate book entries and
confirmation statements, and must have been delivered before or
simultaneous with payment (i.e., perfection by possession of certificated
securities); and (d) the securities sold thereunder must be valued weekly,
marked-to-market at current market price plus accrued interest and the
value of the collateral must be equal to at least ______% of the amount of
cash transferred by the Indenture Trustee under the repurchase agreement
and if the value of the securities held as collateral declines to an amount
below _______% of the cash transferred by the Indenture Trustee plus
accrued interest (i.e., a margin call), then additional cash and/or
acceptable securities must be transferred to the Indenture Trustee to
satisfy such margin call; provided, however, that if the securities used as
collateral are obligations of FNMA or FHLMC, then the value of the
securities held as collateral must equal at least _____% of the cash
transferred by the Indenture Trustee under such repurchase agreement;
(c) certificates of deposit, time deposits and bankers acceptances of
any United States depository institution or trust company incorporated
under the laws of the United States or any state, including the Indenture
Trustee; provided that the debt obligations of such depository institution
or trust company at the date of the acquisition thereof have been rated by
at least one Rating Agency in one of its two highest long-term rating
categories;
(d) deposits, including deposits with the Indenture Trustee, that are
fully insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, as the case may be;
(e) commercial paper of any corporation incorporated under the laws of
the United States or any state thereof, including corporate affiliates of
the Indenture Trustee, which at the date of acquisition is rated by at
least one Rating Agency in its highest short-term rating category and which
has an original maturity of not more than 365 days;
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(f) debt obligations rated by at least one Rating Agency at the time
at which the investment is made in its highest long-term rating category
(or those investments specified in (3) above with depository institutions
which have debt obligations rated by at least one Rating Agency in one of
its two highest long-term rating categories);
(g) money market funds which are rated by at least one Rating Agency
at the time at which the investment is made in its highest long-term rating
category, any such money market funds which provide for demand withdrawals
being conclusively deemed to satisfy any maturity requirements for
Permitted Investments set forth in this Agreement; or
(h) any other demand, money market or time deposit obligation,
security or investment as may be acceptable to each Rating Agency at the
time at which the investment is made;
provided, however, that no instrument described in the foregoing subparagraphs
shall evidence either the right to receive (a) only interest with respect to the
obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument where the interest
and principal payments with respect to such instrument provide a yield to
maturity at par greater than _____% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described in
the foregoing subparagraphs may be purchased at a price greater than par if such
instrument may be prepaid or called at a price less than its purchase price
prior to stated maturity. Any loans repurchased after the end of a Due Period
and prior to the following Determination Date shall be deemed to have been
repurchased during such Due Period.
Each reference in this definition of "Permitted Investments" to the Rating
Agency shall be construed, in the case of each subparagraph above referring to
each Rating Agency, as a reference to each of ___________________ and
______________________.
Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Loans as of the end of the preceding Due
Period, provided, however, that the Pool Principal Balance as of the end of the
Due Period relating to the Distribution Date on which the Termination Price is
to be paid will be deemed to have been equal to zero as of such date.
Post Liquidation Proceeds: As defined in Section 4.2(b).
Pre-Funded Percentage: With respect to any Class of Notes and a
Distribution Date, the percentage obtained from the fraction, the numerator of
which is the Class Principal Balance of such Class of Notes on the Closing Date
and the denominator of which is the aggregate of the Class Principal Balances
for all Classes of Notes as of the Closing Date.
Pre-Funding Account: The account created and maintained by the Indenture
Trustee pursuant to Section 5.5.
Pre-Funding Amount: With respect to any date, the amount on deposit in the
Pre-Funding Account (net of any Pre-Funding Earnings).
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Pre-Funding Earnings: With respect to the Distribution Date in
_______________, the actual investment earnings earned on amounts on deposit in
the Pre-Funding Account during the period from _______________________ through
and including ______________________. With respect to the Distribution Date in
_____________________, the actual investment earnings earned on amounts on
deposit in the Pre-Funding Account during the period from
___________________________ through and including _________________________
(which amount shall be available on __________________________). With respect to
the Distribution Date in _______________________________, the actual investment
earnings earned on amounts on deposit in the Pre-Funding Account during the
period from ______________________ through and including _____________________
(which amount shall be available on _______________________).
Pre-Funding Period: The period commencing on the Closing Date and ending on
the earliest to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account (exclusive of any Pre-Funding Earnings) is less than
$________________, (ii) the date on which any Event of Default relating to the
Servicer occurs and (iii) ________________________.
Pre-Funding Pro Rata Distribution Trigger: With respect to the Distribution
Date following the Due Period in which the termination of the Pre-Funding Period
occurs, a Pre-Funding Pro Rata Distribution Trigger will be deemed to have
occurred if, at such time, the Pre-Funded Amount was greater than or equal to
$__________________.
Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Cut-Off Date, the outstanding unpaid principal balance of
the Loan as of the Cut-Off Date and (ii) with respect to any date of
determination, the outstanding unpaid principal balance of the Loan as of the
last day of the preceding Due Period (after giving effect to all payments
received thereon and the allocation of any Net Loan Losses pursuant to clause
(B) thereof with respect thereto for any Defaulted Loan which relates to such
Due Period), without giving effect to amounts received in respect of such Loan
or related Foreclosure Property after such Due Period; provided, however, that
any Loan that became a Liquidated Loan during the preceding Due Period shall
have a Principal Balance of zero. With respect to any Distribution Date, any
Loans repurchased in the month following the end of the related Due Period but
prior to the Determination Date in such month shall be deemed to have been
repurchased during such related Due Period.
Principal Prepayment: With respect to any Loan and any Due Period, any
principal amount received on a Loan in excess of the principal portion of the
Monthly Payment due in such Due Period.
Property: The property (real, personal or mixed) encumbered by the Mortgage
which secures the Debt Instrument evidencing a secured Loan.
Prospectus Supplement: The Prospectus Supplement dated ___________________
relating to the Securities and filed with the Commission in connection with the
Registration Statement heretofore filed or to be filed with the Commission
pursuant to Rule 424(b)2 or 424(b)5.
Purchase Price: As defined in Section 3.5.
Qualified Substitute Loan: A home loan or home loans substituted for a
Defective Loan pursuant to Section 2.6 or Section 3.5, which (i) is a Fixed Rate
Loan if the related Defective Loan is a Fixed Rate Loan, (ii) has or have an
interest rate or rates of not less than two percentage points fewer and not more
than two percentage points greater than the Loan Interest Rate for the Defective
Loan, (iii) matures or mature not more than two years later than and not more
than two years earlier than the Defective Loan (provided, however, that no such
Qualified Substitute Loan shall mature later than the latest maturing Loan held
by the Issuer as of the Closing Date), (iv) has or have a principal balance or
principal balances
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(after application of all payments received on or prior to the date of
substitution) equal to or less than the Principal Balance of the Defective Loan
as of such date, (v) has or have a lien priority equal or superior to that of
the Defective Loan, (vi) has or have a borrower with a comparable credit grade
classification to the credit grade classification of the borrower with respect
to the Deleted Loans, including a FICO Score that is no more than 10 points
below that of such Deleted Loan; (vii) has a first payment date within 30 days
of its transfer to the Issuer; and (viii) complies or comply as of the date of
substitution with each representation and warranty set forth in Section 3.4 and
is or are not more than 29 days delinquent as of the date of substitution for
such Deleted Loan, including, without limitation, satisfaction of the conditions
set forth in Section 3.4(af) as not constituting a "real estate mortgage" if the
related Defective Loan did not constitute a "real estate mortgage". For purposes
of determining whether multiple mortgage loans proposed to be substituted for
one or more Deleted Loans pursuant to Section 2.6 or Section 3.5 are in fact
"Qualified Substitute Loans" as provided above, the criteria specified in
clauses (i) and (iii) above may be considered on an aggregate or weighted
average basis, rather than on a loan-by-loan basis (e.g. so long as the weighted
average Loan Interest Rate of any loans proposed to be substituted is not less
than two percentage points fewer than and not more than two percentage points
greater than the Loan Interest Rate for the designated Deleted Loan or Loans,
the requirements of clause (ii) above would be deemed satisfied).
Rating Agencies: Any and all of (i) [Fitch] or (ii) [Moody's.] If no such
organization or successor is any longer in existence, "Rating Agency" shall be a
nationally recognized statistical rating organization or other comparable Person
designated by the Issuer, notice of which designation shall have been given to
the Indenture Trustee, the Issuer and the Servicer.
Ratings: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
Record Date: With respect to each Distribution Date (other than the first
Distribution Date), the close of business on the last Business Day of the month
immediately preceding the month in which such Distribution Date occurs and, with
respect to the first Distribution Date, the Closing Date.
Regular Distribution Amount: With respect to any Distribution Date, the
lesser of (a) the Available Distribution Amount and (b) the sum of (i) the
Noteholders' Interest Distribution Amount, (ii) the Regular Principal
Distribution Amount and (iii) if such Distribution Date relates to the Due
Period in which the Pre-Funding Period ended and at the termination of such
Pre-Funding Period a Pre-Funding Pro Rata Distribution Trigger had occurred, the
amount on deposit in the Pre-Funding Account on such date.
Regular Principal Distribution Amount: On each Distribution Date, an amount
equal to the lesser of:
(a) the aggregate of the Class Principal Balances of the Classes of Notes
immediately prior to such Distribution Date; and
(b) the sum of (i) each scheduled payment of principal actually collected
by the Servicer in the related Due Period, (ii) all partial and full principal
prepayments applied by the Servicer during such related Due Period, (iii) the
principal portion of all Net Liquidation Proceeds, Insurance Proceeds and
Released Mortgaged Property Proceeds received during the related Due Period,
(iv) that portion of the Purchase Price, received on or after the second
preceding Determination Date and prior to the immediately preceding
Determination Date, that represents principal of the related Repurchased Loan,
(v) the principal portion of any Substitution Adjustments required to be
deposited in the Collection Account as of the related Determination Date, (vi)
if such Distribution Date relates to the Due Period in which the Pre-Funding
Period ended and at the termination of such Pre-Funding Period a Pre-Funding Pro
Rata Distribution Trigger had not occurred, the amount on deposit in the
Pre-Funding Account on such
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date and (vii) on the Distribution Date on which the Issuer is to be dissolved
pursuant to Section 11.2, that portion of the Termination Price to be applied to
the payment of principal of the Securities.
Released Mortgaged Property Proceeds: With respect to any secured Loan,
proceeds received by the Servicer in connection with (i) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise; which in either
case are not released to the Mortgagor in accordance with applicable law,
Accepted Servicing Procedures and this Agreement.
Remittance Date: The 20th day of each month, or if such 20th day is not a
Business Day, the first Business Day immediately following such day, commencing
in ____________.
Repurchased Loan: Any Loan that has been repurchased pursuant to clause
(ii) of the fourth sentence of Section 3.5(a).
Residual Interests: Each instrument that represents (i) the right to
receive distributions from the Certificate Distribution Account pursuant to this
Agreement, the Indenture and the Trust Agreement on each Distribution Date
together with (ii) certain other rights to receive amounts hereunder and under
the Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Secretary, Assistant Secretary or
any other officer of the Indenture Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer in the
Corporate Trust Administration Department of the Owner Trustee with direct
responsibility for the administration of the Trust Agreement and this Agreement
on behalf of the Issuer. When used with respect to the Depositor, the Servicer,
or the Custodian, the President or any Vice President, Assistant Vice President,
or any Secretary or Assistant Secretary.
Securities: Collectively, the Notes and the Certificates.
Securityholder: Collectively, any holder of a Note or a Certificate.
Senior Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Classes of Senior Notes, the excess of (A) the Senior
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Senior Noteholders' Interest Carry-Forward
Amount for such preceding Distribution Date, over (B) the amount in respect of
interest that is actually distributed to such Notes on such preceding
Distribution Date.
Senior Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Classes of Senior Notes, the sum of the Senior
Noteholders' Monthly Interest Distributable Amount for such Distribution Date
and the Senior Noteholders' Interest Carry-Forward Amount for such Distribution
Date.
Senior Noteholders' Monthly Interest Distributable Amount: With respect to
each Distribution Date and the Classes of Senior Notes, the aggregate amount of
interest accrued during the related Accrual Period at the respective Note
Interest Rates on the sum of (i) the Class Principal Balance of such Class
immediately preceding such Distribution Date and (ii) any Senior Noteholders'
Interest Carry-Forward Amount with respect to such Class remaining outstanding
for such Distribution Date.
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Senior Notes: The Class A-1, Class A-2, Class A-3 and Class A-4 Notes.
Senior Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; with respect to any other Distribution Date,
an amount equal to the Pool Principal Balance as of the preceding Determination
Date minus the greater of (a) the sum of (1) ________% of the Pool Principal
Balance as of the preceding Determination Date and (2) the Overcollateralization
Target Amount for such Distribution Date (without giving effect to the proviso
in the definition thereof) and (b) ________% of the Maximum Collateral Amount;
provided, however, that the Senior Optimal Principal Balance shall never be less
than zero or greater than the aggregate Note Principal Balance of the Senior
Notes as of the Closing Date.
Series or Series ______: First Union Home Loan Asset Backed Notes, Series
_______.
Servicer: ______________________, in its capacity as the servicer
hereunder, or any successor appointed as herein provided.
Servicer's Fiscal Year: January 1st through December 31st of each year.
Servicer's Loan Files: In respect of each Loan, all documents customarily
included in the servicer's loan file for the related type of Loan in accordance
with the servicing standard set forth in Section 4.1.
Servicer's Monthly Remittance Report: The monthly report described in
Section 6.1(a).
Servicing Advances: Subject to Section 4.1(b), all reasonable, customary
and necessary "out of pocket" costs and expenses advanced or paid by the
Servicer with respect to the Loans in accordance with the performance by the
Servicer of its servicing obligations hereunder, including, but not limited to,
the costs and expenses for (i) the preservation, restoration and protection of
the Mortgaged Property, including without limitation advances in respect of real
estate taxes and assessments, (ii) any collection, enforcement or judicial
proceedings, including without limitation foreclosures, collections and
liquidations pursuant to Section 4.2, (iii) the conservation, management and
sale or other disposition of a Foreclosure Property pursuant to Section 4.4,
(iv) the preservation of the security for a Loan if any lienholder under a
Superior Lien has accelerated or intends to accelerate the obligations secured
by such Superior Lien pursuant to Section 4.1(b); provided, however, that such
Servicing Advances are reimbursable to the Servicer on account of late
collections as set forth in Section 5.1(b)(3)(iii) or, to the extent that such
Servicing Advances constitute Nonrecoverable Servicing Advances, from any
amounts on deposit in the Collection Account.
Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 7.1 and Section 7.3.
Servicing Fee: As to each Loan (including any Loan that has been foreclosed
and has become a Foreclosure Property, but excluding any Liquidated Loan), the
fee payable monthly to the Servicer on each Distribution Date, which shall be
the product of 1.00% (100 basis points) and the Principal Balance of such Loan
as of the beginning of the immediately preceding Due Period, divided by 12. The
Servicing Fee includes any servicing fees owed or payable to any Subservicer
which fees shall be paid from the Servicing Fee.
Servicing Officer: Any officer of the Servicer or Subservicer involved in,
or responsible for, the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers annexed to an
Officer's Certificate furnished by the Servicer or the Subservicer,
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respectively, to the Issuer and the Indenture Trustee, on behalf of the
Securityholders, as such list may from time to time be amended.
Six-Month Rolling Delinquency Average: With respect to any Distribution
Date, the average of the applicable 60-Day Delinquency Amounts for each of the
six immediately preceding Due Periods, where the 60-Day Delinquency Amount for
any Due Period is the aggregate of the Principal Balances of all Loans (without
duplication) that are 60 or more days Delinquent, in foreclosure or Foreclosure
Property as of the end of such Due Period.
Spread Deferral Period: The period beginning on the Closing Date and ending
as soon as Excess Spread in an amount equal to $____________________ Loan been
deposited in the Certificate Distribution Account for distribution to holders of
the Residual Interests..
Stepdown Date: The first Distribution Date occurring after September 2000
as to which all of the following conditions exist:
(a) the Pool Principal Balance has been reduced to an amount less than
or equal to 50% of the Maximum Collateral Amount;
(b) the Net Delinquency Calculation Amount is less than _____% of the
Maximum Collateral Amount; and
(c) the aggregate Class Principal Balance of the Senior Notes (after
giving effect to distributions of principal on such Distribution Date) will
be reduced on such Distribution Date (such determination to be made by the
Indenture Trustee prior to making actual distributions on such Distribution
Date) to the excess of (i) the Pool Principal Balance as of the preceding
Determination Date over (ii) the greater of (a) the sum of (1) _________%
of the Pool Principal Balance as of the preceding Determination Date and
(2) the Overcollateralization Target Amount for such Distribution Date
(such Overcollateralization Target Amount to be calculated for this purpose
without giving effect to the proviso in the definition thereof and rather
calculated pursuant only to clause (B) in the definition thereof) and (b)
___________% of the Maximum Collateral Amount.
Subsequent Cut-Off Date Deposit: With respect to any Subsequent Transfer
Date and any Subsequent Loan transferred to the Issuer during any month which
does not have a Monthly Payment due until the second Due Period following such
month, an amount equal to the product of (a) the Loan Balance of such Subsequent
Loan on the related Cut-Off Date and (b) one-twelfth of the Net Loan Rate on
such Subsequent Loan.
Subsequent Loans: The Loans sold to the Issuer pursuant to Section 2.7 and
the related Subsequent Transfer Agreement, which shall be listed on the loan
schedule attached to such Subsequent Transfer Agreement.
Subsequent Transfer Agreement: Each Subsequent Transfer Agreement executed
by the Owner Trustee, Indenture Trustee and the Depositor substantially in the
form in Exhibit E hereto, by which Subsequent Loans are sold and assigned to the
Issuer; provided, however, that in no event shall there be more than three (3)
such Subsequent Transfer Agreements.
Subsequent Transfer Date: The date specified in each Subsequent Transfer
Agreement.
Subservicer: Any Person with whom the Servicer has entered into a
Subservicing Agreement and who is an Eligible Servicer and who satisfies any
requirements set forth in Section 4.6(a) in respect of the qualifications of a
Subservicer.
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Subservicing Account: An account established by a Subservicer pursuant to a
Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Loans
as provided in Section 4.6(a), copies of which shall be made available, along
with any modifications thereto, to the Issuer and the Indenture Trustee.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 2.6 or Section 3.5, the amount, if any, by which (a) the sum
of the aggregate Principal Balance (after application of principal payments
received on or before the date of substitution) of any Qualified Substitute
Loans as of the date of substitution plus any accrued and unpaid interest
thereon to the date of substitution, is less than (b) the sum of the aggregate
of the Principal Balances, together with accrued and unpaid interest thereon to
the date of substitution, of the related Defective Loans.
Superior Lien: With respect to any Loan that is secured by a lien other
than a first priority lien, the mortgage loan(s) relating to the corresponding
Mortgaged Property having a superior priority lien.
Termination Price: As of any date of determination, an amount without
duplication equal to the sum of (i) the then outstanding Principal Balances of
the Loans plus all accrued and unpaid interest thereon, (ii) any Trust Fees and
Expenses due and unpaid on such date and (iii) any unreimbursed Servicing
Advances or any Nonrecoverable Servicing Advances.
Depositor: Residential Asset Funding Corporation, in its capacity as the
Depositor hereunder.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in any Trust Account and all proceeds of the foregoing.
Trust Accounts: The Note Distribution Account, the Certificate Distribution
Account, the Collection Account, the Pre-Funding Account and the Capitalized
Interest Account.
Trust Agreement: The Trust Agreement dated as of ______________________,
among the Depositor, the Co-Owner Trustee and the Owner Trustee.
Trust Estate: The assets subject to this Agreement, the Trust Agreement and
the Indenture and assigned to the Trust, which assets consist of: (i) such Loans
as from time to time are subject to this Agreement as listed in the Loan
Schedule, as the same may be amended or supplemented from time to time including
the addition of Subsequent Loans, the removal of Deleted Loans and the addition
of Qualified Substitute Loans, together with the Servicer's Loan Files and the
Indenture Trustee's Loan Files relating thereto and all proceeds thereof, (ii)
all payments in respect of interest received with respect to the Loans on or
after the Cut-Off Date and all payments received with respect to principal, on
or after the Cut-Off Date, (iii) such assets as from time to time are identified
as Foreclosure Property, (iv) such assets and funds as are from time to time are
deposited in the Collection Account, the Note Distribution Account and the
Certificate Distribution Account, including amounts on deposit in such accounts
which are invested in Permitted Investments, (v) the Issuer's rights under all
insurance policies with respect to the Loans and any Insurance Proceeds, (vi)
Net Liquidation Proceeds, Post Liquidation Proceeds and Released Mortgaged
Property Proceeds, and (vii) all right, title and interest of the Servicer and
the Depositor in and to the rights and obligations of any Subservicer, pursuant
to any Subservicing Agreement.
Trust Fees and Expenses: As of each Distribution Date, an amount equal to
the Servicing Compensation, the Indenture Trustee Fee and the Owner Trustee Fee.
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Underwriter: _____________________________________________.
Underwriting Guidelines: The underwriting guidelines of the Servicer a copy
of which is attached as an exhibit to the Loan Purchase Agreement.
Uninsured Cause: Any cause of damage to a Mortgaged Property such that the
complete restoration of such property is not fully reimbursable by the hazard
insurance policies required to be maintained pursuant to this Agreement.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Indenture and the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in any such certificate or other document, and accounting terms
partly defined in this Agreement or in any such certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles. To the extent that the definitions of
accounting terms in this Agreement or in any such certificate or other document
are inconsistent with the meanings of such terms under generally accepted
accounting principles, the definitions contained in this Agreement or in any
such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
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ARTICLE II
CONVEYANCE OF THE LOANS
Section 2.01 Conveyance of the Loans.
(a) As of the Closing Date, in consideration of the Issuer's delivery upon
the order of the Depositor, of the Notes and Residual Interest Instruments to
the Depositor or its designee, the Depositor, as of the Closing Date and
concurrently with the execution and delivery hereof, does hereby sell, transfer,
assign, set over and otherwise convey to the Issuer, without recourse, but
subject to the other terms and provisions of this Agreement, all of the right,
title and interest of the Depositor in and to the Trust Estate. The foregoing
sale, transfer, assignment, set over and conveyance does not and is not intended
to result in a creation or an assumption by the Issuer of any obligation of the
Depositor or any other Person in connection with the Trust Estate or under any
agreement or instrument relating thereto except as specifically set forth
herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it of
the Trust Estate, receipt of which is hereby acknowledged by the Issuer.
Concurrently with such delivery and in exchange therefor, the Issuer has pledged
to the Indenture Trustee the Trust Estate and the Indenture Trustee, pursuant to
the written instructions of the Issuer, has executed and caused to be
authenticated and delivered the Notes to the Depositor or its designee, upon the
order of the Issuer. In addition, concurrently with such delivery and in
exchange therefor, the Owner Trustee, pursuant to the instructions of the
Depositor, has executed (not in its individual capacity, but solely as Owner
Trustee on behalf of the Issuer) and caused to be authenticated and delivered
upon the order of the Depositor the Residual Interests to the Depositor or its
designee.
Section 2.02 Intended Characterization; Grant of Security Interest.
(a) It is the intention of the parties hereto that the conveyance by the
Depositor of the Trust Estate to the Issuer shall constitute a purchase and sale
of such Trust Estate and not a loan. In the event, however, that a court of
competent jurisdiction were to hold that the transaction evidenced hereby
constitutes a loan and not a purchase and sale, it is the intention of the
parties hereto that this Agreement shall constitute a security agreement under
applicable law, and that the Depositor shall be deemed to have granted and
hereby, does grant to the Issuer, a first priority perfected security interest
in all of the Depositor's right, title and interest in, to and under the Trust
Estate to secure a loan in an amount equal to the purchase price of the Loans.
(b) The Depositor and the Servicer shall take no action inconsistent with
the Issuer's ownership of the Trust Estate and shall indicate or shall cause to
be indicated in its records and records held on its behalf that ownership of
each Loan and the assets in the Trust Estate are held by the Issuer. In
addition, the Depositor and the Servicer shall respond to any inquiries from
third parties with respect to ownership of a Loan or any other asset in the
Trust Estate by stating that it is not the owner of such asset and that
ownership of such Loan or other Trust Estate asset is held by the Issuer.
Section 2.02 Ownership and Possession of Indenture Trustee's Loan Files.
Upon the issuance of the Securities, with respect to the Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of the
related Servicer's Loan File and the Indenture Trustee's Loan File shall be
vested in the Owner Trustee and the Co-Owner Trustee and pledged to the
Indenture Trustee for the benefit of the Noteholders, although possession of the
Servicer's Loan Files (other than items required to be maintained in the
Indenture Trustee's Loan Files) on behalf of and for the
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benefit of the Securityholders shall remain with the Servicer, and the Custodian
shall take possession of the Indenture Trustee's Loan Files as contemplated in
Section 2.6.
Section 2.04 Books and Records.
The sale of each Loan shall be reflected on the Depositor's balance sheets
and other financial statements as a sale of assets by the Depositor under
generally accepted accounting principles ("GAAP"). The Servicer shall be
responsible for maintaining, and shall maintain, a complete set of books and
records for each Loan which shall be clearly marked to reflect the ownership of
each Loan by the Owner Trustee and the Co-Owner Trustee for the benefit of the
Securityholders and the pledge of each Loan to the Indenture Trustee for the
benefit of the Noteholders. The Custodian, pursuant to the terms of the
Custodial Agreement, shall hold the Indenture Trustee's Loan Files and maintain
books and records for the Loans which shall be clearly marked to reflect the
ownership of each Loan by the Issuer for the benefit of the Securityholders and
the pledge of each Loan to the Indenture Trustee for the benefit of the
Noteholders.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Loans
and the other property specified in Section 2.1(a) from the Depositor to the
Issuer and such property shall not be property of the Depositor. If the
assignment and transfer of the Loans and the other property specified in Section
2.1(a) to the Issuer pursuant to this Agreement or the conveyance of the Loans
or any of such other property to the Issuer is held or deemed not to be a sale
or is held or deemed to be a pledge of security for a loan, the Depositor
intends that the rights and obligations of the parties shall be established
pursuant to the terms of this Agreement and that, in such event, (i) the
Depositor shall be deemed to have granted and does hereby grant to the Issuer a
first priority security interest in the entire right, title and interest of the
Depositor in and to the Loans and all other property conveyed to the Issuer
pursuant to Section 2.1(a) and all proceeds thereof, and (ii) this Agreement
shall constitute a security agreement under applicable law. Within five days
after the Closing Date, the Depositor shall cause to be filed UCC-1 financing
statements naming the Issuer as "secured party" and describing the Loans and
such other assets being sold by the Depositor to the Issuer with the office of
the Secretary of State of the state in which the principal place of business of
the Depositor is located.
Section 2.05 Delivery of Loan Documents.
(a) With respect to each Loan, on the Closing Date the Depositor has
delivered or caused to be delivered to the Custodian as the designated agent of
the Indenture Trustee each of the following documents (collectively, the
"Indenture Trustee's Loan Files"):
(i) The original Debt Instrument, endorsed by _________ in blank with
all prior and intervening endorsements showing a complete chain of
endorsement from origination of the Loan to ______
(ii) The original Mortgage with evidence of recording thereon (or, if
the original Mortgage has not been returned from the applicable public
recording office or is not otherwise available, a copy of the Mortgage
certified by a Responsible Officer of the Depositor or by the closing
attorney or by an officer of the title insurer or agent of the title
insurer which issued the related title insurance policy or commitment
therefor to be a true and complete copy of the original Mortgage submitted
for recording) and, if the Mortgage was executed pursuant to a power of
attorney, the original power of attorney with evidence of recording thereon
(or, if the original power of attorney has not been returned from the
applicable public recording office or is not otherwise available, a copy of
the power of attorney certified by a Responsible Officer of the Depositor
or by the closing attorney or by an officer of the title insurer or agent
of the title insurer
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which issued the related title insurance policy or commitment therefor, to
be a true and complete copy of the original power of attorney submitted for
recording);
(iii) The original executed Assignment of Mortgage, acceptable for
recording except with respect to any currently unavailable recording
information, from the Depositor to the Indenture Trustee in blank;
(iv) The original initial Assignment of Mortgage and any original
intervening Assignments of Mortgage, with evidence of recording thereon,
showing a complete chain of assignment from origination of the Loan to the
Depositor (or, if any such Assignment of Mortgage has not been returned
from the applicable public recording office or is not otherwise available,
a copy of such Assignment of Mortgage certified by a Responsible Officer of
the Depositor or by the closing attorney or by an officer of the title
insurer or agent of the title insurer which issued the related title
insurance policy or commitment therefor to be a true and complete copy of
the original Assignment of Mortgage submitted for recording); and
(v) the original, or a copy certified by the Depositor to be a true
and correct copy of the original, of each assumption, modification, written
assurance or substitution agreement, if any.
(b) With respect to any Mortgage referred to in Section 2.5(a)(ii) as to
which the original Mortgage is not available as of the Closing Date or the
Subsequent Transfer Date, as the case may be, and with respect to any Assignment
of Mortgage referred to in Section 2.5(a)(iii) or Section 2.5(a)(iv) as to which
the original Assignment of Mortgage is not available as of the Closing Date or
the Subsequent Transfer Date, as the case may be, the Depositor shall deliver,
prior to the Closing Date or the Subsequent Transfer Date, as the case may be, a
copy of such Mortgage or such Assignment of Mortgage, as the case may be,
certified by the Depositor to be a true and correct copy, to the Indenture
Trustee and shall also deliver the original Mortgage, or where the original
Mortgage is unavailable a copy thereof certified by the applicable public
recording office, and the original Assignment of Mortgage, or where the original
Assignment of Mortgage is unavailable a copy thereof certified by the applicable
public recording office, to the Indenture Trustee within five Business Days of
receipt thereof by the Depositor but in no event later than 360 days following
the date of origination of the related Loan or the date of such Assignment of
Mortgage to the Depositor. The failure of the Depositor to deliver to the
Indenture Trustee (x) any original Mortgage under Section 2.5(a)(ii) (or where
the original is unavailable a copy thereof certified by the applicable public
recording office), or (y) any original Assignment of Mortgage under Section
2.5(a)(iii) and (iv) (or where the original is unavailable a copy thereof
certified by the applicable public recording office), shall not be deemed a
breach of this Agreement for any purpose whatsoever until the expiration of such
360 day period.
The Depositor shall promptly (and in no event later than 35 Business Days
following the Closing Date and each Subsequent Transfer Date) submit for
recording, at the Depositor's expense, in the appropriate public office for real
property records, each original Assignment of Mortgage referred to in Section
2.5(a)(iii), as well as each original Assignment of Mortgage referred to in
Section 2.5(a)(iv) that was not previously submitted for recording; provided,
however, that Assignments of Mortgage shall not be required to be submitted for
recording with respect to any Loan if the Indenture Trustee and each of the
Rating Agencies shall have received an opinion of counsel satisfactory to the
Indenture Trustee and each of the Rating Agencies, stating that, in such
counsel's opinion, the failure to record such Assignment of Mortgage shall not
have a material adverse effect on the security interest of the Indenture Trustee
in the Mortgage. With respect to any original Assignment of Mortgage referred to
in Section 2.5(a)(iii) as to which the related recording information is
unavailable within five Business Days following the Closing Date or Subsequent
Transfer Date, as the case may be, such original Assignment of Mortgage shall be
submitted for recording within five Business Days after receipt of such
information (or any longer period as approved by the Indenture Trustee in
writing with respect to specific Loans upon the request of the
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Depositor pursuant to an Officer's Certificate in accordance with Accepted
Servicing Procedures stating the amount of time generally required by the
applicable recording office to record and return such documents submitted for
recordation) after the Closing Date or Subsequent Transfer Date. The Depositor
shall deliver each recorded Assignment of Mortgage referred to in Section
2.5(a)(iii) or, where the original is unavailable, a copy thereof certified by
the applicable public recording office to be a true and correct copy of the
original, to the Indenture Trustee no later than the earlier of (i) five
Business Days after receipt thereof and (ii) within 360 days of the Closing Date
or Subsequent Transfer Date. Any failure of the Depositor to deliver to the
Indenture Trustee, prior to the expiration of such 360 day period, any such
recorded Assignment of Mortgage, or such certified copy if such recorded
Assignment of Mortgage has not been received by it, shall not be deemed a breach
of this Agreement for any purpose. In the event that any such Assignment of
Mortgage is lost or returned unrecorded because of a defect therein, the
Depositor shall promptly prepare a substitute Assignment of Mortgage or cure
such defect, as the case may be, and thereafter cause each such Assignment of
Mortgage to be duly recorded.
The Servicer shall promptly upon receipt thereof (and in no event later
than the earlier of (i) five Business Days following such receipt and (ii) 360
days after the Closing Date or Subsequent Transfer Date, as the case may be,
deliver to the Indenture Trustee (a) the original recorded Mortgage in those
instances where a certified copy thereof was delivered to the Indenture Trustee;
(b) the original recorded Assignment of Mortgage or Assignment of Mortgages
showing a complete chain of assignment from origination of a Loan to the
Depositor in those instances where certified copies thereof were delivered to
the Indenture Trustee; (c) the original policy of title insurance or title
report, as applicable, or a copy certified by the Depositor to be a true and
correct copy in those instances where a commitment (binder) (including any
marked additions thereto or deletions therefrom) to issue such policy was
delivered to the Indenture Trustee; and (d) any other original documents
constituting a part of an Indenture Trustee's Loan File received with respect to
any Home Loan, including, but not limited to, any original documents evidencing
an assumption or modification of any Loan.
All original documents relating to the Loans that are not delivered to the
Indenture Trustee are and shall be held by the Depositor or the Servicer, as the
case may be, in trust for the benefit of the Indenture Trustee on behalf of the
Securityholders. In the event that any such original document is required
pursuant to the terms of this Section 2.5 to be a part of an Indenture Trustee's
Loan File, such document shall be delivered promptly to the Indenture Trustee.
Any original document that is not required pursuant to the terms of this Section
2.5 to be a part of an Indenture Trustee's Loan File delivered to or held by the
Indenture Trustee shall be delivered promptly to the Servicer.
In connection with the delivery of documentation provided by this Section
2.5, the Depositor hereby appoints the Indenture Trustee its attorney with full
power and authority to act in its stead for the purpose of executing and
certifying assignments and endorsing and certifying promissory notes which form
a part of each Indenture Trustee's Loan File to cure any deficiencies in such
documentation; provided, however, that the Indenture Trustee has no obligation
to exercise any such power unless it has received from the Depositor (i) written
instructions to do so, (ii) reimbursement for any associated expenses, and (iii)
indemnification satisfactory to the Indenture Trustee in connection therewith.
If the Depositor has not delivered all required documentation with respect
to any Loan within the time periods, if any, specified in this Agreement, the
Depositor shall be required to take action with respect to such Loan as and to
the extent provided in Section 2.6.
(c) All recordings required pursuant to this Section 2.5 shall be
accomplished by and at the expense of the Depositor.
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Section 2.06 Acceptance by Indenture Trustee of the Loans; Certain
Substitutions; Initial Certification by Indenture Trustee or Custodian.
(a) The Indenture Trustee agrees to execute and deliver on the Closing Date
an acknowledgment of receipt of the Indenture Trustee's Loan File for each Loan
received by the Indenture Trustee on the Closing Date, and the Indenture Trustee
agrees to execute and deliver on any Subsequent Transfer Date an acknowledgement
of receipt of the Indenture Trustee's Loan File for each Subsequent Loan
received by the Indenture Trustee on such Subsequent Transfer Date; such
acknowledgements of receipts shall be substantially in the form of Exhibit C. In
addition, the Indenture Trustee agrees to acknowledge the assignment to it of
all other assets included in clauses (i) through (v) of the definition of "Trust
Estate" and the Trust Accounts and declares that it holds and will hold such
documents and the other documents delivered to it constituting the Indenture
Trustee's Loan Files, and that it holds or will hold all such assets and such
other assets included in the definition of "Trust Estate" that are delivered to
it, in trust for the exclusive use and benefit of all present and future
Securityholders.
Within 30 Business Days of the Closing Date or Subsequent Transfer Date, as
applicable, the Indenture Trustee shall deliver to the Depositor and the
Servicer a certification in the form annexed hereto as Exhibit E, with any
applicable exceptions noted thereon. Neither the Indenture Trustee nor the
Issuer shall be under any duty or obligation (i) to inspect, review or examine
any such documents, instruments, certificates or other papers to determine that
they are genuine, enforceable, or appropriate for the represented purpose or
that they are other than what they purport to be on their face or (ii) to
determine if any Indenture Trustee's Loan File should include any document
specified in Section 2.5(a)(v).
After the delivery of the certification, the Indenture Trustee shall
provide to the Servicer and the Depositor, and the Depositor shall in turn
provide to the Indenture Trustee, no less frequently than quarterly, updated
certifications, a form of which is attached hereto as Exhibit F, indicating the
then current status of exceptions until all such exceptions have been
eliminated.
If in the process of reviewing the Indenture Trustee's Loan Files and
making or preparing the certifications referred to above the Indenture Trustee
finds any document or documents constituting a part of an Indenture Trustee's
Loan File to be missing or defective in any material respect, or at the end of
any 360-day period referenced above finds that all recorded Assignments of
Mortgage and all original Mortgages or certified copies thereof have not been
delivered to it, the Indenture Trustee shall promptly so notify the Depositor
and the Servicer. In performing any such review, the Indenture Trustee may
conclusively rely on the Depositor as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
Indenture Trustee's review of the items delivered to the Indenture Trustee
pursuant to Section 2.5, unless otherwise expressly stated, shall be limited
solely to confirming that the documents listed in Section 2.5 have been executed
and received, relate to the Loans in the Loan Schedule and conform as to the
loan number and address and description thereof in the Loan Schedule. Neither
the Indenture Trustee nor the Issuer shall have any responsibility for
determining whether any document is valid and binding, whether the text of any
assignment or endorsement is in proper or recordable form or whether a blanket
assignment is permitted in any applicable jurisdiction. In addition, upon the
discovery by the Depositor, the Servicer or the Indenture Trustee of a breach of
any of the representations and warranties made by the Depositor herein in
respect of any Loan which materially and adversely affects the value of such
Loan or the interests of the Securityholders in such Loan, the Person
discovering such breach shall give prompt written notice to the other Persons
set forth in this sentence.
At such time as any Loan becomes 90 days Delinquent, the Servicer shall
make, or cause to be made, a reasonable investigation to determine whether such
Loan satisfied the representations and
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warranties of the Depositor set forth in Section 3.4 as of the Closing Date;
provided, however, that only one such investigation shall be required for any
Loan.
If the Depositor has not delivered all required documentation with respect
to any Loan within the time periods specified in this Agreement (as such may
have been extended pursuant to Section 2.5(b)) or if a material defect exists
with respect to any documentation delivered by the Depositor, the Depositor
shall be required to take action with respect to such Loan as and to the extent
provided in Section 3.5.
(b) The Servicer's Loan File shall be held in the custody of the Servicer
for the benefit of, and as agent for, the Securityholders and the Indenture
Trustee as the owner thereof. It is intended that by the Servicer's agreement
pursuant to this Section 2.6(b) the Indenture Trustee shall be deemed to have
possession of the Servicer's Loan Files for purposes of Section 9-305 of the
Uniform Commercial Code of the state in which such documents or instruments are
located. The Servicer shall promptly report to the Indenture Trustee any failure
by it to hold the Servicer's Loan File as herein provided and shall promptly
take appropriate action to remedy any such failure. In acting as custodian of
such documents and instruments, the Servicer agrees not to assert any legal or
beneficial ownership interest in the Loans or such documents or instruments. The
Servicer agrees to indemnify the Securityholders and the Indenture Trustee for
any and all liabilities, obligations, losses, damages, payments, costs, or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Securityholders or the Indenture Trustee as the result of any act or
omission by the Servicer relating to the maintenance and custody of such
documents or instruments which have been delivered to the Servicer; provided,
however, that the Servicer will not be liable for any portion of any such amount
resulting from the negligence or misconduct of any Securityholder or the
Indenture Trustee and provided, further, that the Servicer will not be liable
for any portion of any such amount resulting from the Servicer's compliance with
any instructions or directions consistent with this Agreement issued to the
Servicer by the Indenture Trustee. The Indenture Trustee shall have no duty to
monitor or otherwise oversee the Servicer's performance as custodian hereunder.
(c) If the Custodian, during the process of reviewing the Indenture
Trustee's Loan Files, finds any document constituting a part of an Indenture
Trustee's Loan File which is not executed, has not been received, is unrelated
to any Loan identified in the Loan Schedule, does not conform to the
requirements of Section 2.5 or does not conform, in all material respects, to
the description thereof as set forth in the Loan Schedule, then the Custodian
shall promptly so notify the Depositor, the Servicer, the Indenture Trustee and
the Issuer. In performing any such review, the Custodian may conclusively rely
on the Depositor as to the purported genuineness of any such document and any
signature thereon. It is understood that the scope of the Custodian's review of
the Indenture Trustee's Loan Files is limited solely to confirming that the
documents listed in Section 2.5 have been received and further confirming that
any and all documents delivered pursuant to Section 2.5 have been executed and
relate to the Loans identified in the Loan Schedule. Neither the Issuer nor the
Custodian shall have any responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper or recordable form, whether any document has been recorded in accordance
with the requirements of any applicable jurisdiction, or whether a blanket
assignment is permitted in any applicable jurisdiction. If a material defect in
a document constituting part of an Indenture Trustee's Loan File is discovered,
then Depositor and _____ shall comply with the cure, substitution and repurchase
provisions of Section 3.5.
Section 2.07 Subsequent Transfers.
(a) Subject to the satisfaction of the conditions set forth in this Article
II and pursuant to the terms of the related Subsequent Transfer Agreement, in
consideration of the Indenture Trustee's delivery on each Subsequent Transfer
Date to or upon the order of the Depositor of all or a portion of the balance of
funds in the Pre-Funding Account, the Depositor shall on such Subsequent
Transfer Date sell, transfer,
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assign, set over and otherwise convey without recourse to the Issuer, all of its
right, title and interest in and to each Subsequent Loan listed on the related
Loan Schedule delivered by the Depositor on such Subsequent Transfer Date,
including (i) the related Principal Balance, all interest payments and all
collections in respect of principal received after the related Cut-Off Date;
(ii) any real property that secured such Subsequent Loan and that has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) all of its
interest in any insurance policies in respect of such Subsequent Loan; and (iv)
all proceeds of the foregoing. The transfer by the Depositor to the Issuer of
the Subsequent Loans set forth in the related Subsequent Transfer Agreement
shall be absolute and shall be intended by all parties hereto to be treated as a
sale by the Depositor to the Issuer in consideration of the funds released from
the Pre-Funding Account. If the assignment and transfer of the Subsequent Loans
and the other property specified in this Section 2.7(a) from the Depositor to
the Issuer pursuant to this Agreement is held or deemed not to be a sale or is
held or deemed to be a pledge of security for a loan, the Depositor intends that
the rights and obligations of the parties shall be established pursuant to the
terms of this Agreement and that, in such event, (i) the Depositor shall be
deemed to have granted and does hereby grant to the Indenture Trustee and
Co-Owner Trustee as of each Subsequent Transfer Date a perfected, first priority
security interest in the entire right, title and interest of the Depositor in
and to the related Subsequent Loans and all other property conveyed to the Owner
Trustee and Co-Owner Trustee pursuant to this Section 2.7(a) and all proceeds
thereof, and (ii) this Agreement shall constitute a security agreement under
applicable law. The amount released to the Depositor from the Pre-Funding
Account shall be one hundred percent (100%) of the aggregate of the Principal
Balances of the Subsequent Loans so transferred.
(b) The Indenture Trustee shall contribute from the Pre-Funding Account
funds in an amount equal to one-hundred percent (100%) of the aggregate
Principal Balances as of the related Cut-Off Date or Dates of the Subsequent
Loans so transferred to the Issuer and use such cash to purchase the Subsequent
Loans on behalf of the Issuer, along with the other property and rights related
thereto described in paragraph (a) above only upon the satisfaction of each of
the following conditions on or prior to the related Subsequent Transfer Dates:
(i) the Depositor shall have provided the Indenture Trustee, Owner
Trustee, the Co-Owner Trustee and the Rating Agencies with an Addition
Notice, which notice shall be given not less than four Business Days prior
to the related Subsequent Transfer Date and shall designate the Subsequent
Loans to be sold to the Issuer and the aggregate Principal Balances of such
Loans as of the related Cut-Off Date or Dates;
(ii) the Depositor shall have deposited in the Collection Account all
principal collected after the related Cut-Off Date and interest payments
collected after the related Cut-Off Date in respect of each Subsequent
Loan, and the related Subsequent Cut-Off Date Deposit;
(iii) the Depositor shall have delivered an Officer's Certificate to
the Indenture Trustee and the Co-Owner Trustee confirming that as of each
Subsequent Transfer Date, the Depositor was not insolvent, nor will it be
made insolvent by such transfer, nor is it aware of any pending insolvency;
(iv) the Pre-Funding Period shall not have ended;
(v) the Depositor shall have delivered to the Indenture Trustee an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b) and in the related Subsequent
Transfer Agreement;
(vi) the Depositor shall have delivered an Officer's Certificate to
the Indenture Trustee and the Co-Owner Trustee confirming that the
representations and warranties of the Depositor pursuant to Section 3.4
(other than to the extent representations and warranties relate to
statistical
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information as to the characteristics of the initial Loans in the
aggregate) and pursuant to Section 3.2 are true and correct with respect to
the Depositor and the Subsequent Loans, as applicable, as of the Subsequent
Transfer Date;
(vii) the Issuer shall not purchase any group of Subsequent Loans
unless the Depositor shall have delivered to the Indenture Trustee an
Officer's Certificate confirming that, as a result of such purchase, the
percentage of the Pool Principal Balance comprised of Mortgage Loans that
do not constitute "real estate mortgages" (as set forth in Section 3.4(af))
remains the same or increases.
(viii) the Depositor shall have provided the Indenture Trustee and the
Co-Owner Trustee with an Opinion of Counsel relating to the sale of the
Subsequent Loans to the Indenture Trustee;
(ix) the Issuer shall not purchase a Subsequent Loan unless it and the
Indenture Trustee shall each have received a certificate of the Depositor
indicating (a) the Rating Agencies shall have consented to the purchase
thereof (which consent shall not be unreasonably withheld) and (b) such
subsequent loan shall mature no later than six-months after the latest
maturing initial Loan; and
(x) in connection with the transfer and assignment of the Subsequent
Loans, the Depositor shall satisfy the document delivery requirements set
forth in Section 2.5.
(c) In connection with each Subsequent Transfer Date and on the related
Distribution Date, the Indenture Trustee shall determine (i) the amount and
correct dispositions of the Capitalized Interest Requirement and Pre-Funding
Account Earnings for such Distribution Date in accordance with the provisions of
this Agreement and (ii) any other necessary matters in connection with the
administration of the Pre-Funding Account and of the Capitalized Interest
Account. In the event that any amounts are released as a result of calculation
error by the Indenture Trustee from the Pre-Funding Account or from the
Capitalized Interest Account, the Indenture Trustee shall not be liable
therefor, and the Depositor shall immediately repay such amounts to the
Indenture Trustee.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to the Indenture Trustee, the
Owner Trustee and the Securityholders that as of the Closing Date or the
Subsequent Transfer Date, as the case may be (except as otherwise specifically
provided herein):
(a) The Depositor is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Carolina. and has all
licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or qualification
in order for the Depositor to conduct such business and to perform its
obligations as the Depositor hereunder, and in any event the Depositor is in
compliance with the laws of any such state to the extent necessary to ensure the
enforceability of the related Loans, and had at all relevant times, full
corporate power to originate or purchase the Loans, to own its property, to
carry on its business as presently conducted and to enter into and perform its
obligations under this Agreement;
(b) The execution and delivery of this Agreement by the Depositor and its
performance of and compliance with the terms of this Agreement will not violate
the Depositor's certificate of incorporation or by-laws or constitute a default
(or an event that, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Depositor is a party or
which may be applicable to the Depositor or any of its assets;
(c) The Depositor has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be consummated by
it, has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement. This Agreement,
assuming due authorization, execution and delivery by the Issuer, the Servicer,
and the Indenture Trustee, constitutes a valid, legal and binding obligation of
the Depositor, enforceable against it in accordance with the terms hereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);
(d) The Depositor is not in violation of, and the execution and delivery of
this Agreement by the Depositor and its performance and compliance with the
terms of this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or its properties or materially and adversely affect
the performance of its duties hereunder;
(e) There is no action, suit, proceeding or investigation pending or, to
the knowledge of the Depositor, threatened, before any court, administrative
agency or governmental tribunal against the Depositor which, either in any one
instance or in the aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets of the
Depositor, or in any material impairment of the right or ability of the
Depositor to carry on its business substantially as now conducted, or in any
material liability on the part of the Depositor, or which would draw into
question the validity of this Agreement, the Loans, or of any action taken or to
be taken in connection with the obligations of the Depositor contemplated
herein, or which would impair materially the ability of the Depositor to perform
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under the terms of this Agreement or that might prohibit its entering into this
Agreement or the consummation of any of the transactions contemplated hereby;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, this
Agreement or the Securities, or for the consummation of the transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to the Closing
Date;
(g) The Depositor has filed or will file the Prospectus and Prospectus
Supplement with the Commission in accordance with Rule 424(b) under the
Securities Act;
(h) The Depositor acquired title to the Loans in good faith, without notice
of any adverse claim;
(i) The collection practices, if any, used by the Depositor with respect to
the Loans have been, in all material respects, legal, proper, prudent and
customary in the non-conforming mortgage servicing business;
(j) No Officers' Certificate, statement, report or other document prepared
by the Depositor and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading;
(k) The Depositor is duly licensed where required as a "Licensee" or is
otherwise qualified in each state in which it transacts business and is not in
default of such state's applicable laws, rules and regulations, except where the
failure to so qualify or such default would not have a material adverse effect
on the ability of the Depositor to conduct its business or perform its
obligations hereunder;
(l) The Depositor 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. The Depositor is solvent and the sale of the Loans by the Depositor
pursuant to the terms of this Agreement will not cause the Depositor to become
insolvent. The sale of the Loans by the Depositor pursuant to the terms of this
Agreement was not undertaken with the intent to hinder, delay or defraud any of
the Depositor's creditors;
(m) Neither this Agreement nor the information contained in the Prospectus
Supplement under the captions "Summary __ The Loans," "Risk Factors",
"Underwriting Guidelines" and "____________" contains no untrue statement or
alleged untrue statement of a material fact or omits to state any material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading;
(n) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended;
(o) Upon the receipt of each Indenture Trustee's Loan File by the Issuer,
the Issuer will have good title to each related Loan and such other items
comprising the corpus of the Trust Estate free and clear of any lien created by
the Depositor (other than liens which will be simultaneously released);
(p) The consummation of the transactions contemplated by this Agreement are
in the ordinary course of business of the Depositor, and the transfer,
assignment and conveyance of the Debt Instruments and the Mortgages by the
Depositor pursuant to this Agreement are not subject to the bulk transfer or any
similar statutory provisions in effect in any applicable jurisdiction;
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(q) The Loans are not intentionally selected in a manner so as to affect
adversely the interests of the Issuer;
(r) The Depositor has determined that it will treat the disposition of the
Loans pursuant to this Agreement as a sale for accounting and tax purposes;
(s) The Depositor has not dealt with any broker or agent or anyone else
that may be entitled to any commission or compensation in connection with the
sale of the Loans to the Issuer other than to the Issuer or an affiliate
thereof;
(t) The consideration received by the Depositor upon the sale of the Loans
under this Agreement constitutes fair consideration and reasonably equivalent
value for the Loans.
(u) The Depositor did not sell the Loans to the Issuer with any intent to
hinder, delay or defraud any of its creditors; the Depositor will not be
rendered insolvent as a result of the sale of the Loans to the Issuer;
(v) As of the Closing Date, the Depositor had good title to, and was the
sole owner of, each Loan free and clear of any Lien other than any such Lien
released simultaneously with the sale contemplated herein, and, immediately upon
each transfer and assignment herein contemplated, the Depositor will have taken
all steps necessary so that the Issuer will have good title to, and will be the
sole owner of, each Loan free and clear of any lien; and
(w) The transfer, assignment and conveyance of the Debt Instruments and the
Mortgages by the Depositor pursuant to this Agreement are not subject to the
bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction.
It is understood and agreed that the representations and warranties set
forth in this Section 3.2 shall survive delivery of the respective Indenture
Trustee's Loan Files to the Custodian (as the agent of the Indenture Trustee)
and shall inure to the benefit of the Securityholders, the Servicer, the
Indenture Trustee, the Owner Trustee and the Issuer. Upon discovery by any of
the Depositor, the Servicer or the Indenture Trustee of a breach of any of the
foregoing representations and warranties that materially and adversely affects
the value of any Loan or the interests of the Securityholders therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties. The
obligations of the Depositor and [ _____ ] set forth in Section 3.5 to cure any
breach or to substitute for or repurchase an affected Loan shall constitute the
sole remedies available to the Securityholders, the Servicer, the Indenture
Trustee and the Owner Trustee respecting a breach of the representations and
warranties contained in this Section 3.2.
Section 3.02 Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents and warrants to and covenants with the Owner
Trustee, the Securityholders, and the Depositor that as of the Closing Date or
as of such date specifically provided herein:
(a) The Servicer is a federal savings bank duly organized, validly existing
and in good standing under the laws of the United States of America and has all
licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or qualification
in order for the Servicer to conduct such business and to perform its
obligations as the Servicer hereunder and is in any event in compliance with the
laws of each state in which any Mortgaged Property is located to the extent
necessary to ensure the enforceability of each Loan in accordance with the terms
of this Agreement;
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(b) The execution and delivery of this Agreement by the Servicer and its
performance of and compliance with the terms of this Agreement will not violate
the Servicer's charter or by-laws or constitute a default (or an event that,
with notice or lapse of time, or both, would constitute a default) under, or
result in the breach or acceleration of, any material contract, agreement or
other instrument to which the Servicer is a party or which may be applicable to
the Servicer or any of its assets;
(c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly authorized
the execution, delivery and performance of this Agreement, and has duly executed
and delivered this Agreement. This Agreement, assuming due authorization,
execution and delivery by the Issuer, the Indenture Trustee and the Owner
Trustee, constitutes a valid, legal and binding obligation of the Servicer,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally and those of creditors of a federal savings bank,
and by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(d) The Servicer is not in violation of, and the execution and delivery of
this Agreement by the Servicer and its performance and compliance with the terms
of this Agreement will not constitute a violation with respect to, any order or
decree of any court or any order or regulation of any federal, state, municipal
or governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer, materially and adversely affect the performance of its duties
hereunder or impair the ability of the Indenture Trustee (or the Servicer as
agent of the Indenture Trustee) to realize on the Loans or impair the value of
the Loans;
(e) There is no action, suit, proceeding or investigation pending or, to
the knowledge of the Servicer, threatened, before any court, administrative
agency or government tribunal against the Servicer that, either in any one
instance or in the aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets of the Servicer,
or in any material impairment of the right or ability of the Servicer to carry
on its business substantially as now conducted, or in any material liability on
the part of the Servicer, or which would draw into question the validity of this
Agreement, the Loans, or of any action taken or to be taken in connection with
the obligations of the Servicer contemplated herein, or which would impair
materially the ability of the Servicer to perform under the terms of this
Agreement or that might prohibit its entering into this Agreement or the
consummation of any of the transactions contemplated hereby;
(f) The Servicer will examine each Subservicing Agreement and will be
familiar with the terms thereof. Each designated Subservicer and the terms of
each Subservicing Agreement will be required to comply with the provisions of
Section 4.7. The terms of any Subservicing Agreement will not be inconsistent
with any of the provisions of 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 Servicer of, or compliance by the Servicer with, this
Agreement or the Securities, or for the consummation of the transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to the Closing
Date;
(h) The collection practices used by the Servicer with respect to the Loans
have been, in all material respects, legal, proper, prudent and customary in the
nonconforming mortgage servicing business;
(i) The transactions contemplated by this Agreement are in the ordinary
course of business of the Servicer;
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(j) The Servicer is duly licensed where required as a "licensee" or is
otherwise qualified in each state in which it transacts business and is not in
default of such state's applicable laws, rules and regulations, except where the
failure to so qualify or such default would not have a material adverse effect
on the ability of the Servicer to conduct its business or perform its
obligations hereunder;
(k) The Servicer is an Eligible Servicer and services mortgage loans in
accordance with Accepted Servicing Procedures;
(l) Neither this Agreement nor the information contained in the Prospectus
Supplement under the captions "Risk Factors Underwriting Guidelines" and
"_______________" contains any untrue statement or alleged untrue statement of a
material fact or omits to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they will be made, not misleading;
(m) No Officers' Certificate, statement, report or other document prepared
by the Servicer and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading;
(n) The Servicer is solvent and will not be rendered insolvent as a result
of the performance of its obligations pursuant to this Agreement;
(o) The Servicer has not waived any default, breach, violation or event of
acceleration under any Debt Instrument or the related Mortgage;
(p) The Servicer is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
(q) This Agreement, the Loan Purchase Agreement and the Custodial Agreement
were each approved by the board of directors or loan committee of _________,
which approval is reflected in the minutes of said board or committee, and will
be continuously maintained from the time of its execution as an official record
of _________.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.3 shall survive delivery of the respective
Indenture Trustee's Loan Files to the Indenture Trustee and shall inure to the
benefit of the Securityholders and the Indenture Trustee. Upon discovery by any
of the Depositor, the Servicer or the Indenture Trustee of a breach of any of
the foregoing representations, warranties and covenants that materially and
adversely affects the value of any Loan or the interests of the Securityholders
therein, the party discovering such breach shall give prompt written notice (but
in no event later than two Business Days following such discovery) to the other
parties. The obligations of the Servicer set forth in (x) Section 3.5 to cure
any breach or to purchase an affected Loan and (y) Section 9.1(a) to indemnify
and hold harmless the Issuer, the Depositor, the Indenture Trustee, and the
Securityholders shall constitute the sole remedies available to the Depositor,
the Securityholders, the Issuer, or the Indenture Trustee respecting a breach of
the representations, warranties and covenants contained in this Section 3.3.
Section 3.03 Representations and Warranties regarding Individual Loans.
Each of the [Servicer] and the Depositor hereby represents and warrants to
the Issuer, the Indenture Trustee and the Securityholders, with respect to each
Loan, as of the Closing Date and, with respect to each Subsequent Loan, as of
the related Subsequent Transfer Date (except as otherwise expressly stated):
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(a) The information set forth in each Loan Schedule is complete, true and
correct;
(b) The information to be provided by the Depositor to the Indenture
Trustee in connection with a Subsequent Loan will be true and correct in all
material respects at the date or dates respecting which such information is
furnished;
(c) Each Mortgage is a valid first or second lien on a fee simple (or its
equivalent under applicable state law) estate in the real property securing the
amount owed by the Mortgagor under the Debt Instrument subject only to (i) the
lien of current real property taxes and assessments which are not delinquent,
(ii) any related first mortgage loan, (iii) 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 in the area wherein
the related Mortgaged Property is located and specifically referred to in the
title insurance policy delivered to the originator of the Loan and referred to
or otherwise considered in the appraisal obtained in connection with the
origination of the related Loan and (iv) other matters to which like properties
are commonly subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage or the use, enjoyment, value
or marketability of the related Mortgaged Property;
(d) Immediately prior to the sale of the Loan to the Issuer (i) the
Depositor was the sole owner and holder of each Loan, (ii) each Loan was not
otherwise assigned or pledged, (iii) the Depositor had good, indefeasible and
marketable title thereto, (iv) the Depositor had full right to transfer and sell
the Loan therein to the Issuer hereunder free and clear of any encumbrance,
equity interest, participation interest, lien, pledge, charge, claim or security
interest, and (v) the Depositor had full right and authority subject to no
interest or participation of, or agreement with, any other party, to sell and
assign each Loan to the Issuer hereunder and the Issuer will own such Loan free
and clear of any encumbrance, equity interest, participation interest, lien,
pledge, charge, claim or security interest (other than the lien created by this
Agreement);
(e) As of the Cut-Off Date, no payment of principal or interest on or in
respect of any Loan remains unpaid for 30 or more days past the date the same
was due in accordance with the related Debt Instrument without regard to
applicable grace periods;
(f) No Fixed Rate Loan has a Loan Interest Rate less than, ___________% per
annum and the weighted average interest rate of the Fixed Rate Loans as of the
Cut-Off Date was ___________% and no Adjustable Rate Loan has a Lifetime Floor
less than _________% per annum and the weighted average interest rate of the
Adjustable Rate Loans as of the Cut-Off Date was ______%;
(g) At origination, no Loan had an original term to maturity of greater
than 360 months;
(h) As of the Cut-Off Date, the weighted average remaining term to maturity
of the Loans was 226 months;
(i) There is no mechanics' or similar lien or claim for work, labor or
material (and no rights are outstanding that under law could give rise to such
lien) affecting the Mortgaged Property; the related Mortgaged Property is not
subject to any lien or claim which is or may be a lien prior to, or equal or
coordinate with, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (af) below;
(j) There is no delinquent tax or assessment lien against any Mortgaged
Property;
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(k) Such Loan, the Mortgage, and the Debt Instrument, including, without
limitation, the obligation of the Mortgagor to pay the unpaid principal of and
interest on the Debt Instrument, are each not subject to any right of rescission
(or any such rescission right has expired in accordance with applicable law),
set-off, counterclaim, or defense, including the defense of usury, nor will the
operation of any of the terms of the Debt Instrument or the Mortgage, or the
exercise of any right thereunder, render either the Debt Instrument or 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;
(l) The Mortgaged Property is free of material damage and is in good
repair, and there is no pending or threatened proceeding for the total or
partial condemnation of the Mortgaged Property;
(m) The Depositor has not received a notice of default of any first
mortgage loan secured by the Mortgaged Property which has not been cured by a
party other than the Depositor;
(n) Each Debt Instrument and Mortgage are in substantially the forms
previously provided to the Indenture Trustee;
(o) No Loan had, at the date of origination, a Combined Loan-to-Value Ratio
in excess of 125%, and the weighted average Combined Loan-to-Value ratio of all
Loans as of the Cut-Off Date was _____________%;
(p) The Loan was not originated in a program in which the amount of
documentation in the underwriting process was limited in comparison to the
originator's normal documentation requirements for similar type loans;
(q) No more than the following percentages of the Loans by Principal
Balance as of the Cut-Off Date were secured by Mortgaged Properties located in
the following states
State Percent of
Principal Balance
[__________] [______]% [__________] [______]%
[__________] [______]% [__________] [______]%
[__________] [______]% [__________] [______]%
(r) The Loans were not selected by the Depositor for sale to the Issuer on
any basis adverse to the Issuer relative to the portfolio of similar mortgage
loans of the Depositor;
(s) None of the Loans constitutes a lien on leasehold interests;
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(t) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security including (A) in the case of a Mortgage designated as a deed of trust,
by trustee's sale and (B) otherwise by judicial foreclosure. To the best of the
Depositor's knowledge, there is no homestead or other exemption available to the
related Mortgagor which would materially interfere with the right to sell the
related Mortgaged Property at a trustee's sale or the right to foreclose the
related Mortgage. The Mortgage contains customary and enforceable provisions for
the acceleration of the payment of the Principal Balance of such Loan in the
event all or any part of the related Mortgaged Property is sold or otherwise
transferred without the prior written consent of the holder thereof;
(u) Each Loan has been closed and the proceeds of such Loan have been fully
disbursed, including reserves set aside by the Depositor, there is no
requirement for, and the Depositor shall not make any, future advances
thereunder. Any future advances made prior to the Cut-Off Date have been
consolidated with the principal balance secured by the Mortgage, and such
principal balance, as consolidated, bears a single interest rate and single
repayment term reflected on the applicable Loan Schedule. The Principal Balance
as of the Cut-Off Date does not exceed the original principal amount of such
Loan. Any and all requirements as to completion of any on-site or off site
improvements and as to disbursements of any escrow funds therefor have been
complied with. All costs, fees, and expenses incurred in making, or recording
such Loan have been paid and the related Mortgagor is not entitled to any refund
of any amounts paid or due under the related Debt Instrument or Mortgage;
(v) All Loans were originated in compliance with _________'s Underwriting
Guidelines and conform in all material respects to the description thereof set
forth in the Prospectus Supplement;
(w) The terms of the Mortgage and Debt Instrument have not been impaired,
waived, altered, or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interest of the Indenture
Trustee and which has been delivered to the Indenture Trustee. The substance of
any such alteration or modification is or as to Subsequent Loans will be
reflected on the applicable Loan Schedule and, to the extent necessary, has been
or will be approved by (i) the insurer under the applicable mortgage title
insurance policy, and (ii) the insurer under any other insurance policy required
hereunder for such Loan where such insurance policy requires approval and the
failure to procure approval would impair coverage under such policy;
(x) No instrument of release, satisfaction, subordination, rescission,
waiver, alteration, or modification has been executed in connection with such
Loan, no Loan has been satisfied, canceled, subordinated or rescinded, in whole
or in part, and no Loan has been released, in whole or in part, except in
connection with an assumption agreement which has been approved by the insurer
under any insurance policy required hereunder for such Loan where such policy
requires approval and the failure to procure approval would impair coverage
under such policy, and which is part of the Mortgage File and has been delivered
to the Indenture Trustee, and the terms of which are reflected in the applicable
Loan Schedule;
(y) There is no default, breach, violation, or event of acceleration
existing under the Mortgage or the Debt Instrument and no event which, with the
passage of time or with notice and the expiration of any grace or cure period,
would constitute such a default, breach, violation or event of acceleration, and
the Depositor has not waived any such default, breach, violation or event of
acceleration. All taxes, governmental assessments (including assessments payable
in future installments), insurance premiums, water, sewer, and municipal
charges, leaseholder payments, or ground rents which previously became due and
owing in respect of or affecting the related Mortgaged Property have been paid.
The Depositor has not advanced funds, or induced, solicited, or knowingly
received any advance of funds by a party other than the Mortgagor, directly or
indirectly, for the payment of any amount required by the Mortgage or the Debt
Instrument;
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(z) All of the improvements which were included for the purposes of
determining the Appraised Value of the Mortgaged Property were completed at the
time that such Loan was originated and lie wholly within the boundaries and
building restriction lines of such Mortgaged Property. No improvements on
adjoining properties encroach upon the Mortgaged Property. No improvement
located on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation. All inspections, licenses, and certificates
required to be made or issued with respect to all occupied portions of the
Mortgaged Property (including all such improvements which were included for the
purpose of determining such Appraised Value) and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriters certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied under
applicable law;
(aa) There do not exist any circumstances or conditions with respect to the
Mortgage, the Mortgaged Property, the Mortgagor, or the Mortgagor's credit
standing that can be reasonably expected to cause such Loan to become delinquent
or adversely affect the value or marketability of such Loan, other than any such
circumstances or conditions permitted under _________'s Underwriting Guidelines;
(bb) 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) (i) in compliance with any and
all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located and (ii) (A) organized under the laws of such
state, (B) qualified to do business in such state, (C) federal savings
associations or national banks, (D) not doing business in such state, or (E) not
required to qualify to do business in such state;
(cc) The Debt Instrument, the Mortgage and every other agreement, if any,
executed by the applicable Mortgagor in connection with such Loan, 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, moratorium, or other similar
laws affecting the enforcement of creditors' rights generally and except that
the equitable remedy of specific performance and other equitable remedies are
subject to the discretion of the courts. All parties to the Debt Instrument, the
Mortgage and every other such agreement had legal capacity to execute the Debt
Instrument, the Mortgage and every other such agreement and convey the estate
therein purported to be conveyed, and the Debt Instrument, the Mortgage and
every other such agreement have been duly and properly executed by such parties
or pursuant to a valid power-of-attorney that has been recorded with the
Mortgage;
(dd) The transfer of the Debt Instrument and the Mortgage as and in the
manner contemplated by this Agreement is sufficient either (i) fully to transfer
to the Issuer all right, title, and interest of the Depositor thereto as note
holder and mortgagee or (ii) to grant to the Issuer the security interest
referred to in Section 2.2. The Mortgage has been duly assigned and the Debt
Instrument has been duly endorsed. The assignment of Mortgage delivered to the
Indenture Trustee pursuant to Section 2.1(a) is in recordable form and is
acceptable for recording under the laws of the applicable jurisdiction. The
endorsement of the Debt Instrument, the delivery to the Indenture Trustee of the
endorsed Debt Instrument, and such assignment of Mortgage, and the delivery of
such assignment of Mortgage for recording to, and the due recording of such
assignment of Mortgage in, the appropriate public recording office in the
jurisdiction in which the Mortgaged Property is located are sufficient to permit
the Indenture Trustee to avail itself of all protection available under
applicable law against the claims of any present or future creditors of the
Depositor, and are sufficient to prevent any other sale, transfer, assignment,
pledge, or hypothecation of the Debt Instrument and Mortgage by the Depositor
from being enforceable;
(ee) Any and all requirements of any federal, state, or local law
including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity, or disclosure
laws applicable to such Loan have been complied with, and the Servicer shall
maintain in its possession, available for the Indenture Trustee's inspection,
and shall deliver to the
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Indenture Trustee or its designee upon demand, evidence of compliance with all
such requirements. The consummation of the transactions contemplated by this
Agreement will not cause the violation of any such laws;
(ff) On the Closing Date, [55]% or more (by aggregate Principal Balance) of
the Loans do not constitute "real estate mortgages" for the purpose of Treasury
Regulation "301.7701 under the Code. For this purpose a Loan does not constitute
a "real estate mortgage" if:
(i) The Loan is not secured by an interest in real property, and
(ii) The Loan is not an "obligation principally secured by an interest
in real property."
For this purpose an "obligation is principally secured by an interest
in real property" if it satisfies either the test set out in paragraph (1)
or paragraph (2) below.
(1) The 80-percent test. An obligation is principally secured by
an interest in real property if the fair market value of the interest
in real property securing the obligation
(A) was at least equal to 80 percent of the adjusted issue
price of the obligation at the time the obligation was originated
(or, if later, the time the obligation was significantly
modified); or
(B) is at least equal to 80 percent of the adjusted issue
price of the obligation on the Closing Date.
For purposes of this paragraph (1), the fair market value of the real
property interest must be first reduced by the amount of any lien on the
real property interest that is senior to the obligation being tested, and
must be further reduced by a proportionate amount of any lien that is in
parity with the obligation being tested, in each case before the
percentages set forth in (1)(A) and (1)(B) are determined. The adjusted
issue price of an obligation is its issue price plus the amount of accrued
original issue discount, if any, as of the date of determination.
(2) Alternative test. An obligation is principally secured by an
interest in real property if substantially all of the proceeds of the
obligation were used to acquire or to improve or protect an interest
in real property that, at the origination date, is the only security
for the obligation. For purposes of this test, loan guarantees made by
the United States or any state (or any political subdivision, agency,
or instrumentality of the United States or of any state), or other
third party credit enhancement are not viewed as additional security
for a loan. An obligation is not considered to be secured by property
other than real property solely because the obligor is personally
liable on the obligation. For this purpose only, substantially all of
the proceeds of the obligations means 66% or more of the gross
proceeds.
(gg) Such Loan, if a first lien, is covered by an ALTA mortgage title
insurance policy or such other generally used and acceptable form of policy and
such Loan, if a second lien, is covered by a PERT policy, issued by and the
valid and binding obligation of a title insurer qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring the Depositor,
and its successors and assigns, as to the first or second, as applicable,
priority lien, of the Mortgage in the original principal amount of such Loan.
The assignment to the Indenture Trustee of the Depositor's interest in such
mortgage title insurance policy does not require the consent of or notification
to the insurer. Such mortgage title insurance policy is in full force and effect
and will be in full force and effect and inure to
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the benefit of the Indenture Trustee upon the consummation of the transactions
contemplated by this Agreement. No claims have been made under such mortgage
title insurance policy and neither the Depositor nor any prior holder of the
Mortgage has done, by act or omission, anything which would impair the coverage
of such mortgage title insurance policy;
(hh) All improvements upon the Mortgaged Property are insured against loss
by fire, hazards of extended coverage, and such other hazards as are customary
in the area where the Mortgaged Property is located pursuant to insurance
policies conforming to the requirements of Section 4.8. If the Mortgaged
Property at origination was located in an area identified on a flood hazard
boundary map or flood insurance rate map issued by the Federal Emergency
Management Agency as having special flood hazards (and such flood insurance has
been made available), such Mortgaged Property was covered by flood insurance at
origination. Each individual insurance policy is the valid and binding
obligation of the insurer, is in full force and effect, and will be in full
force and effect and inure to the benefit of the Indenture Trustee upon the
consummation of the transactions contemplated by this Agreement, and contain a
standard mortgagee clause naming the originator of such Loan, and its successors
and assigns, as mortgagee and loss payee. All premiums thereon have been paid.
The Mortgage obligates the Mortgagor to maintain all such insurance at the
Mortgagor's cost and expense, and upon the Mortgagor's failure to do so,
authorizes the holder of the Mortgage to obtain and maintain such insurance at
the Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor, and neither the Depositor nor any prior holder of the Mortgage has
acted or failed to act so as to impair the coverage of any such insurance policy
or the validity, binding effect, and enforceability thereof;
(ii) If the Mortgage constitutes a deed of trust, a trustee, authorized and
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 Indenture Trustee or the
Certificateholders to the trustee under the deed of trust, except in connection
with a trustee's sale after default by the Mortgagor;
(jj) The Mortgaged Property consists of one or more parcels of real
property separately assessed for tax purposes. Each Mortgaged Property is
improved by a one-to-four-family residential dwelling, which does not include
(i) a unit in a cooperative apartment, (ii) a property constituting part of a
syndication, (iii) a time share unit, (iv) a property held in trust, (v) a
mobile home, (vi) a manufactured dwelling, (vii) a log-constructed home, or
(viii) a recreational vehicle, and each such Mortgaged Property does not
constitute other than real property under applicable state law;
(kk) There exist no material deficiencies with respect to escrow deposits
and payments, if such are required, for which customary arrangements for
repayment thereof have not been made or which the Depositor expects not to be
cured, and no escrow deposits or payments of other charges or payments due the
Depositor have been capitalized under the Mortgage or the Debt Instrument;
(ll) Such Loan was not originated at a below market interest rate. Such
Loan does not have a shared appreciation feature, or other contingent interest
feature;
(mm) The origination and collection practices used by the Depositor with
respect to such Loan have been in all respects legal, proper, prudent, and
customary in the mortgage origination and servicing business;
(nn) The Mortgagor has, to the extent required by applicable law, executed
a statement to the effect that the Mortgagor has received all disclosure
materials, if any, required by applicable law with respect to the making of
fixed-rate mortgage loans. The Servicer shall maintain or cause to be maintained
such statement in the Mortgage File;
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(oo) All amounts received by the Depositor with respect to such Loan after
the Cut-Off Date and required to be deposited in the Certificate Distribution
Account or Collection Account have been so deposited in the Certificate
Distribution Account or Collection Account and are, as of the Closing Date, or
will be as of the Subsequent Transfer Date, as applicable, in the Certificate
Distribution Account or Collection Account;
(pp) Any appraisal report with respect to a Mortgaged Property contained in
the Mortgage File was signed prior to the approval of the application for such
Loan by a qualified appraiser, duly appointed by the originator of such Loan,
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 such application;
(qq) When measured by the Cut-Off Date Principal Balances as of the Cut-Off
Date, the Mortgagors with respect to at least ____% of the Loans represented at
the time of origination that the Mortgagor would occupy the Mortgaged Property
as the Mortgagor's primary residence;
(rr) Each Debt Instrument is payable on the _____ day of each month. The
Loan Interest Rate and Monthly Payment with respect to the Adjustable Rate Loans
are adjusted in accordance with the terms of the related Debt Instrument. All
required notices of interest rate and payment amount adjustments have been sent
to the Mortgagor on a timely basis and the computations of such adjustments were
properly calculated. Installments of interest on the Adjustable Rate Loans are
subject to change due to the adjustments to the Loan Interest Rate on each
Interest Adjustment Date, with interest calculated and payable in arrears,
sufficient to amortize the Loan fully by the stated maturity date over the
original term of the Loan. All Loan Interest Rate adjustments have been made in
strict compliance with state and federal law and the terms of the related Debt
Instrument. Any interest required to be paid pursuant to state and local law has
been properly paid and credited. As of the Cut-Off Date, for each Adjustable
Rate Loan, the Lifetime Cap is not lower than approximately [________]% per
annum, the Lifetime Floor is not lower than approximately [________]% per annum,
the Gross Margin is not less than approximately [________]%, the related Debt
Instrument does not provide for negative amortization, limits in the amount of
monthly payments or a conversion feature, the Loan Interest Rate is subject to
adjustment on each Interest Adjustment Date to equal the sum of the LIBOR Index
plus the applicable Gross Margin, subject to rounding, the Periodic Rate Cap,
the applicable Lifetime Floor and the applicable Lifetime Cap on each Interest
Adjustment Date;
(ss) To the best of the Depositor's knowledge, 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. The Depositor has no
knowledge of any pending action or proceeding directly involving the related
Mortgaged Property in which compliance with any environmental law, rule or
regulation is in issue; and, to the best of the Depositor'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 employment of such
Mortgaged Property;
(tt) With respect to second lien Loans:
(i) the Depositor has no knowledge that the Mortgagor has received
notice from the holder of the prior mortgage that such prior mortgage is in
default;
(ii) no consent from the holder of the prior mortgage is needed for
the creation of the second lien Mortgage or, if required, has been obtained
and is in the related Mortgage File;
(iii) if the prior mortgage has a negative amortization features, the
Combined Loan-to-Value Ratio was determined using the maximum loan amount
of such prior mortgage;
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(iv) the related first mortgage loan encumbering the related Mortgaged
Property does not have a mandatory future advance provision;
(v) except with respect to ____________% of the second Loans that are
Balloon Loans, the related prior loan requires equal monthly payments; and
(vi) the maturity date of the Loan is prior to the maturity date of
the related prior lien if such provides for a balloon payment;
(uu) Each Loan conforms, and all such Loans in the aggregate conform, to
the individual and aggregate descriptions thereof in the Prospectus Supplement;
(vv) The Depositor further represents and warrants to the Indenture Trustee
and the Noteholders that as of the Subsequent Cut-Off Date all representations
and warranties set forth in clauses (a) through (at) above and clause (av)
through (be) below are correct in all material respects as to each Subsequent
Loan, and (i) each Subsequent Loan is not 30 or more days contractually
delinquent as of the related Subsequent Cut-Off Date; (ii) the original term to
maturity of each Subsequent Loan does not exceed 360 months; (iii) each
Subsequent Loan that is a Fixed Rate Loan has a Loan Interest Rate of at least
____%; and each Subsequent Loan that is an Adjustable Rate Loan has a Loan
Interest Rate of at least ____%; (iv) the purchase of the Subsequent Loans will
not cause the Rating Agencies to lower the ratings assigned to the Senior Notes;
(v) the principal balance of any Subsequent Loan that is a first lien does not
exceed $_____, and the principal balance of any Subsequent Mortgage loan that is
a second lien does not exceed $_____; (vi) no more than ____% of the Subsequent
Loans are second liens; (vii) no Subsequent Loan has a CLTV of more than 125%;
(viii) no more than ____% of the Subsequent Loans which are first lien Loans and
no more than ____% of the Subsequent Loans which are second lien Loans are
Balloon Loans; (ix) the Subsequent Loans which are first lien Loans have a
weighted average Loan Interest Rate of at least ____%, the Subsequent Loans
which are second lien Loans have a weighted average Loan Interest Rate of at
least ____%; and (ix) following the purchase of the Subsequent Loans by the
Issuer, the Loans (including the Subsequent Loans) (A) will have a weighted
average Loan Interest Rate of at least ____%; and (B) will have a weighted
average CLTV of not more than ____%;
(ww) To the best of the Depositor's knowledge, no error, omission,
misrepresentation, negligence, fraud or similar occurrence with respect to a
Loan has taken place on the part of any person, including without limitation the
Mortgagor, any appraiser, a builder or developer, or any other party involved in
the origination of the Loan or in the application of any insurance in relation
to such Loan;
(xx) Each Debt Instrument held by the Indenture Trustee is the sole
original Debt Instrument and no copies exist which are not stamped duplicate;
(yy) Each Mortgage was recorded, and all subsequent assignments of the
original Mortgage have been recorded in the appropriate jurisdictions wherein
such recordation is necessary to perfect the lien thereof as against creditors
of the Depositor;
(zz) No more than ____% of the Fixed Rate Loans, and ____% of the
Adjustable Rate Loans are secured by properties sharing a single ZIP code;
(aaa) Except with respect to ______________% of the Loans which are Balloon
Loans, with respect to each Loan, the payments required of the related Mortgagor
are and will be such that the Loan will fully amortize over its term;
(bbb) No Loan contains any provisions pursuant to which payments are paid
or partially paid with funds deposited in any separate account established by
the Depositor, the Mortgagor or anyone else
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on behalf of the Mortgagor, or paid by any source other than the Mortgagor. No
Loan contains any other similar provision which may constitute a "buydown"
provision. No Loan is a graduated payment mortgage loan. No Loan has a shared
appreciation or other contingent interest feature;
(ccc) The Loans are not being transferred with any intent to hinder, delay
or defraud any creditor;
(ddd) No Mortgagor has or will have a claim or defense under any express or
implied warranty or otherwise with respect to goods or services provided under
such Loan;
(eee) The Mortgage and the Debt Instrument contain the entire agreement of
the parties and all obligations of the seller or subcontractor under the related
Loan, and no other agreement defines, modifies, or expands the obligations of
the seller or subcontractor under the Loan.
Section 3.04 Purchase and Substitution.
(a) It is understood and agreed that the representations and warranties set
forth in Article III, shall survive the conveyance of the Loans to the Issuer,
the grant of the Loans to the Indenture Trustee and the delivery of the
Securities to the Securityholders. Upon discovery by the Servicer, the
Depositor, the Custodian, the Issuer, the Indenture Trustee or any
Securityholder of a breach of any of such representations and warranties which
materially and adversely affects the value of the Loans or the interest of the
Securityholders, or which materially and adversely affects the interests of the
Securityholders in the related Loan in the case of a representation and warranty
relating to a particular Loan (notwithstanding that such representation and
warranty was made to the Depositor's or the Servicer's best knowledge), the
party discovering such breach shall give prompt written notice to the others.
The Depositor or ________ shall within 60 days of the earlier of its discovery
or its receipt of notice of any breach of a representation or warranty, promptly
cure such breach in all material respects. If, however, within 60 days after the
earlier of the Depositor's or _________'s discovery of such breach or the
Depositor's or _________'s receiving notice thereof such breach has not been
remedied by either the Depositor or ______ and such breach materially and
adversely affects the interests of the Securityholders in, or the value of, the
related Loan (the "Defective Loan"), the Depositor or _______ shall on or before
the Determination Date next succeeding the end of such 60-day period either (i)
remove such Defective Loan from the Issuer (in which case it shall become a
"Deleted Loan") and substitute one or more Qualified Substitute Loans in the
manner and subject to the conditions set forth in this Section 3.5 or (ii)
purchase such Defective Loan at a purchase price equal to the Purchase Price (as
defined below) by depositing such Purchase Price in the Collection Account. The
Depositor or _____ shall provide the Servicer (if the certificate is to come
from the Depositor), the Indenture Trustee and the Issuer with a certification
of a Responsible Officer on the Determination Date next succeeding the end of
such 60-day period indicating whether the Depositor is purchasing the Defective
Loan or substituting in lieu of such Defective Loan a Qualified Substitute Loan.
With respect to the purchase of a Defective Loan pursuant to this Section 3.5,
the "Purchase Price" shall be equal to the Principal Balance of such Defective
Loan as of the date of purchase, plus all accrued and unpaid interest on such
Defective Loan to but not including the Due Date in the Due Period most recently
ended prior to such Determination Date computed at the applicable Loan Interest
Rate, plus the amount of any unreimbursed Servicing Advances and Nonrecoverable
Servicing Advances made by the Servicer with respect to such Defective Loan,
which Purchase Price shall be deposited in the Collection Account (after
deducting therefrom any amounts received in respect of such repurchased
Defective Loan and being held in the Collection Account for future distribution
to the extent such amounts represent recoveries of principal not yet applied to
reduce the related Principal Balance or interest (net of the Servicing Fee) for
the period from and after the Due Date in the Due Period most recently ended
prior to such Determination Date).
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Any substitution of Loans pursuant to this Section 3.5(a) and Section
2.6(a) shall be accompanied by payment by the Depositor or ______ of the
Substitution Adjustment, if any, to be deposited in the Collection Account. For
purposes of calculating the Available Collection Amount for any Distribution
Date, amounts paid by the Depositor or ______ pursuant to this Section 3.5 in
connection with the repurchase or substitution of any Defective Loan that are on
deposit in the Collection Account as of the Determination Date for such
Distribution Date shall be deemed to have been paid during the related Due
Period and shall be transferred to the Note Distribution Account as part of the
Available Collection Amount to be retained therein or transferred to the
Certificate Distribution Account, if applicable, pursuant to Section 5.1(c).
As to any Deleted Loan for which the Depositor or ______substitutes a
Qualified Substitute Loan or Loans, the Depositor or _____ shall effect such
substitution by delivering (i) to the Issuer a certification executed by a
Responsible Officer of the Depositor to the effect that the Substitution
Adjustment has been credited to the Collection Account and (ii) to the Indenture
Trustee (or the Custodian on behalf of the Indenture Trustee, as applicable) the
documents constituting the Indenture Trustee's Loan File for such Qualified
Substitute Loan or Loans.
(b) _____ shall deposit in the Collection Account all payments received in
connection with such Qualified Substitute Loan or Loans after the date of such
substitution. Monthly Payments received with respect to Qualified Substitute
Loans on or before the date of substitution will be retained by the Depositor
(or _________, if substituted by _________). The Issuer will be entitled to all
payments received on the Deleted Loan on or before the date of substitution, and
the Depositor or _________, as the case may be, shall thereafter be entitled to
retain all amounts subsequently received in respect of such Deleted Loan. The
Depositor or _____ shall give written notice to the Issuer, the Servicer, the
Indenture Trustee that such substitution has taken place and the Servicer shall
amend the Loan Schedule to reflect (i) the removal of such Defective Loan from
the terms of this Agreement and (ii) the substitution of the Qualified
Substitute Loan. The Depositor or _____ shall promptly deliver to the Issuer,
the Servicer and the Indenture Trustee, a copy of the amended Loan Schedule.
Upon such substitution, such Qualified Substitute Loan or Loans shall be subject
to the terms of this Agreement in all respects, and ____ and the Depositor shall
be deemed to have made with respect to such Qualified Substitute Loan or Loans,
as of the date of substitution, the covenants, representations and warranties
set forth in Section 3.4. On the date of such substitution, the Depositor or
_________, as the case may be, will deposit into the Collection Account an
amount equal to the related Substitution Adjustment, if any. In addition, on the
date of such substitution, the Issuer shall cause the Indenture Trustee to
release the Deleted Loan from the lien of the Indenture and the Issuer will
cause such Qualified Substitute Loan to be pledged to the Indenture Trustee
under the Indenture as part of the Trust Estate.
(c) It is understood and agreed that the obligations of the Depositor and
_____ set forth in this Section 3.5 to cure, purchase or substitute for a
Defective Loan constitute the sole remedies of the Issuer, the Indenture Trustee
and the Securityholders hereunder respecting a breach of the representations and
warranties contained in Section 3.4. Any cause of action against the Depositor
or _____ relating to or arising out of a defect in a Indenture Trustee's Loan
File as contemplated by Section 2.6 or against ____ or the Depositor relating to
or arising out of a breach of any representations and warranties made in Section
3.4 shall accrue as to any Loan upon (i) discovery of such defect or breach by
any party and notice thereof to the Depositor or ____ or notice thereof by the
Depositor or _____ to the Issuer, (ii) failure by the Depositor or ______ to
cure such defect or breach or to purchase or substitute such Loan as specified
above, and (iii) demand upon the Depositor by the Issuer or the Majority
Securityholders, as applicable, for all amounts payable in respect of such Loan.
(d) Neither the Issuer nor the Indenture Trustee shall have any duty to
conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any
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condition requiring the repurchase or substitution of any Loan pursuant to this
Section 3.5 or the eligibility of any Loan for purposes of this Agreement.
(e) With respect to all Defective Loans or other Loans repurchased by the
Depositor or ______ pursuant to this Agreement, upon the deposit of the Purchase
Price therefor in the Note Distribution Account, the Indenture Trustee shall
assign to the Depositor or _________, as the case may be, without recourse,
representation or warranty, all the Indenture Trustee's right, title and
interest in and to such Defective Loan or Loans, which right, title and interest
were conveyed to the Indenture Trustee pursuant to Section 2.1.
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ARTICLE IV.
ADMINISTRATION AND SERVICING OF THE LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor, shall
service and administer the Loans and shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement. Notwithstanding anything to the contrary
contained herein, the Servicer, in servicing and administering the Loans, shall
employ or cause to be employed procedures (including collection, foreclosure,
liquidation and Foreclosure Property management and liquidation procedures) and
exercise the same care that it customarily employs and exercises in servicing
and administering loans of the same type as the Loans for its own account, all
in accordance with Accepted Servicing Procedures of prudent lending institutions
and servicers of loans of the same type as the Loans and giving due
consideration to the Securityholders' reliance on the Servicer. The Servicer has
and shall maintain the facilities, procedures and experienced personnel
necessary to comply with the servicing standard set forth in this subsection (a)
and the duties of the Servicer set forth in this Agreement relating to the
servicing and administration of the Loans.
(b) Servicing Advances. In accordance with the preceding general servicing
standard, the Servicer, or any Subservicer on behalf of the Servicer, shall make
all Servicing Advances in connection with the servicing of each Loan hereunder.
Notwithstanding any provision to the contrary herein, neither the Servicer, nor
any Subservicer on behalf of the Servicer, shall have any obligation to advance
its own funds for any delinquent scheduled payments of principal and interest on
any Loan or to satisfy or keep current the indebtedness secured by any Superior
Liens on the related Mortgaged Property. No costs incurred by the Servicer or
any Subservicer in respect of Servicing Advances shall, for the purposes of
distributions to Securityholders, be added to the amount owing under the related
Loan. Notwithstanding any obligation by the Servicer to make a Servicing Advance
hereunder with respect to a Loan, before making any Servicing Advance that is
material in relation to the outstanding principal balance thereof, the Servicer
shall assess the reasonable likelihood of (i) recovering such Servicing Advance
and any prior Servicing Advances for such Loan, and (ii) recovering any amounts
attributable to outstanding interest and principal owing on such Loan for the
benefit of the Securityholders in excess of the costs, expenses and other
deductions to obtain such recovery, including without limitation any Servicing
Advances therefor and, if applicable, the outstanding indebtedness of all
Superior Liens. The Servicer shall only make a Servicing Advance with respect to
a Loan to the extent that the Servicer determines in its reasonable, good faith
judgment that such Servicing Advance would likely be recovered as aforesaid;
provided, however, that the Servicer will be entitled to be reimbursed for any
Nonrecoverable Servicing Advance pursuant to this Agreement.
(c) Waivers, Modifications and Extensions. The Servicer shall make
reasonably diligent efforts to collect all payments called for under the terms
and provisions of the Loans, and shall, to the extent such procedures shall be
consistent with this Agreement, follow Accepted Servicing Procedures. The
Servicer may in its discretion waive or permit to be waived any penalty interest
or any other fee or charge which the Servicer would be entitled to retain
hereunder as servicing compensation and extend the Due Date on a Debt Instrument
for a period (with respect to each payment as to which the Due Date is extended)
not greater than 90 days after the initially scheduled due date for such
payment. Notwithstanding anything in this Agreement to the contrary, the
Servicer shall not permit any additional extension or modification with respect
to any Loan other than that permitted by the immediately preceding sentence
unless the Loan is a Defaulted Loan.
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(d) Instruments of Satisfaction or Release. Without limiting the generality
of Section 4.1(c), the Servicer, in its own name or in the name of a
Subservicer, is hereby authorized and empowered when the Servicer believes it
appropriate in its best judgment and subject to the requirements of this
Agreement or Acceptable Servicing Procedures to execute and deliver, on behalf
of the Securityholders and the Issuer or any of them, and upon notice to the
Indenture Trustee, any and all instruments of satisfaction or cancellation, or
of partial or full release or discharge, and all other comparable instruments,
with respect to the Loans and the Mortgaged Properties and to institute
foreclosure proceedings or obtain a deed-in-lieu of foreclosure so as to convert
the ownership of such properties, and to hold or cause to be held title to such
properties, on behalf of the Issuer and Securityholders. The Servicer shall
service and administer the Loans in accordance with applicable state and federal
law and shall provide to the Mortgagors any reports required to be provided to
them thereby. The Indenture Trustee shall execute, at the written direction of
the Servicer, any limited or special powers of attorney and other documents
reasonably acceptable to the Indenture Trustee to enable the Servicer or any
Subservicer to carry out their servicing and administrative duties hereunder,
including, without limitation, limited or special powers of attorney with
respect to any Foreclosure Property, and the Indenture Trustee shall not be
accountable for the actions of the Servicer or any Subservicers under such
powers of attorney and shall be indemnified by such parties with respect to such
actions.
Section 4.02 Liquidation of Loans; Defaulted Loans.
(a) In the event that any payment due under any Loan and not postponed
pursuant to Section 4.1(c) is not paid when the same becomes due and payable, or
in the event the Mortgagor fails to perform any other covenant or obligation
under the Loan and such failure continues beyond any applicable grace period,
the Servicer shall, in accordance with the standard of care specified in Section
4.1(a), take such action as it shall deem to be in the best interest of the
Securityholders to collect or liquidate such Defaulted Loan in a manner that in
the reasonable judgment of the Servicer will be likely to maximize the net
proceeds realizable therefrom under the circumstances. The Servicer shall give
the Indenture Trustee notice of the election of remedies made pursuant to this
Section 4.2. The Servicer shall not be required to satisfy the indebtedness
secured by any Superior Liens on the related Mortgaged Property or to advance
funds to keep the indebtedness secured by such Superior Liens current. In
connection with any collection or liquidation activities, the Servicer shall
exercise collection or liquidation procedures with the same degree of care and
skill as it would exercise or use under the circumstances in the conduct of its
own affairs.
(b) During any Due Period occurring after a Loan becomes a Liquidated Loan,
the Servicer shall deposit into the Collection Account any proceeds received by
it with respect to such Liquidated Loan or the related Foreclosure Property
("Post Liquidation Proceeds").
(c) After a Loan has become a Liquidated Loan, the Servicer shall promptly
prepare and forward to the Issuer, the Indenture Trustee, and, upon request of
any Securityholder, to such Securityholder a Liquidation Report detailing the
following: (i) the Net Liquidation Proceeds, Insurance Proceeds or Released
Mortgaged Property Proceeds received in respect of such Liquidated Loan; (ii)
expenses incurred with respect thereto; (iii) any Net Loan Losses incurred in
connection therewith; and (iv) any Post Liquidation Proceeds.
(d) The Servicer may at its option purchase from the Issuer any Loan that
is 90 days or more Delinquent and which the Servicer determines in good faith
would otherwise become subject to foreclosure proceedings at a price equal to
the Purchase Price; provided, however, that the aggregate Principal Balance of
all Loans that may be so purchased by the Servicer shall not exceed an amount
equal to 10% of the Original Pool Principal Balance and provided, further, that,
as a result of such purchase the percentage of the Pool Principal Balance of
Loans that do not constitute real estate mortgages (as set forth in Section
3.4(af)) shall not be less than 55%. The Purchase Price for any Loan purchased
hereunder shall
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be deposited into the Collection Account and the Indenture Trustee, upon (i)
receipt of an Officer's Certificate of the Servicer as to the making of such
deposit and (ii) confirmation that such deposit has been made, shall release or
cause to be released to the Servicer the related Indenture Trustee's Loan File
and shall execute and deliver such instruments of transfer or assignment as are
furnished by the Depositor or the Servicer, as the case may be, in each case
without recourse, as shall be necessary to vest in the Depositor or the
Servicer, as the case may be, title to any Loan released pursuant hereto, and
the Indenture Trustee shall have no further responsibility or liability (except
as to its own acts) with regard to such Loan.
Section 4.03 Fidelity Bond; Errors and Omission Insurance.
The Servicer shall keep in force during the term of this Agreement a policy
or policies of insurance covering errors and omissions for failure in the
performance of the Servicer's obligations under this Agreement, which policy or
policies shall be in such form and amount that would meet the requirements of
FNMA or FHLMC if it were the purchaser of the Loans. The Servicer shall also
maintain a fidelity bond (the "Fidelity Bond") in the form and amount that would
meet the requirements of FNMA or FHLMC if it were the purchaser of the Loans.
The Servicer shall be deemed to have complied with this provision if an
affiliate of the Servicer has such errors and omissions and fidelity bond
coverage and, by the terms of such insurance policy or fidelity bond, the
coverage afforded thereunder extends to the Servicer. Any such errors and
omissions policy and fidelity bond shall not be canceled without thirty days'
prior written notice to the Indenture Trustee. Upon the request of the Indenture
Trustee, or any Securityholder, the Servicer shall furnish to the requesting
party copies of all binders and policies or certificates evidencing that such
bonds and insurance policies are in full force and effect. The Servicer shall
also cause each Sub-Servicer to maintain a policy of insurance covering errors
and omissions and a fidelity bond which would meet the requirements set forth
above.
Section 4.04 Title, Management and Disposition of Foreclosure Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (a "Foreclosure Property"), the
deed or certificate of sale shall be taken in the name of the Indenture Trustee
for the benefit of the Securityholders.
The Servicer shall manage, conserve, protect and operate each Foreclosure
Property for the Indenture Trustee and the Securityholders solely for the
purpose of its prudent and prompt disposition and sale. The Servicer shall,
either itself or through an agent selected by the Servicer, manage, conserve,
protect and operate the Foreclosure Property in the same manner that it manages,
conserves, protects and operates other foreclosure property for its own account.
The Servicer shall attempt to sell the same (and may temporarily lease the same)
on such terms and conditions as the Servicer deems to be in the best interest of
the Securityholders.
(a) The Servicer shall, consistent with the servicing standards set forth
herein, foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Loans as come into and continue in default and
as to which no satisfactory arrangements can be made for collection of
delinquent payments. In connection with realization upon defaulted Loans, the
Servicer shall follow such practices and procedures as it shall deem necessary
or advisable, as shall be normal and usual in accordance with Accepted Servicing
Procedures and the requirements of insurers under any insurance policy required
to be maintained hereunder with respect to the related Loan. The Servicer shall
be responsible for all costs and expenses incurred by it in any such
proceedings; provided, however, that such costs and expenses will be recoverable
as Servicing Advances by the Servicer as contemplated herein.
The Servicer shall not be required to make any Servicing Advance, to
foreclose upon any Mortgaged Property, or otherwise expend its own funds toward
the restoration of any Mortgaged Property
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that shall have suffered damage from an Uninsured Cause, unless it shall
determine in its reasonable judgment, as evidenced by a certificate of a
Servicing Officer, that such foreclosure or restoration, as the case may be,
will increase the proceeds of liquidation of the related Loan after
reimbursement to itself for Servicing Advances. Any Servicing Advances made with
respect to a Loan shall be recoverable by the Servicer only from recoveries on
such Loan except to the extent such Servicing Advance is deemed a Nonrecoverable
Servicing Advance.
The disposition of Foreclosure Property shall be carried out by the
Servicer at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Indenture Trustee and the
Securityholders and, as soon as practicable thereafter, the expenses of such
sale shall be paid. The Net Liquidation Proceeds or Post Liquidation Proceeds,
as applicable, from the conservation, disposition and sale of the Foreclosure
Property shall be promptly deposited by the Servicer in the Collection Account
in accordance with the Indenture and Section 5.1.
Prior to acquiring any Foreclosure Property, the Servicer shall cause a
review to be performed, in accordance with Accepted Servicing Procedures, on the
related Mortgaged Property by a company such as Equifax, Inc. or Toxicheck, and
the scope of such review shall be limited to the review of public records and
documents for indications that such Mortgaged Property has on it, under it or is
near, hazardous or toxic material or waste. If such review reveals that the
Mortgaged Property has on it, under it or is near hazardous or toxic material or
waste or reveals any other environmental problem, the Servicer shall provide a
copy to the Indenture Trustee of the related report with an attached
certification of a Responsible Officer that based on an analysis of all
available information (including potential clean up costs and liability claims)
at the time it is the best judgment of such Responsible Officer that such
foreclosure shall increase Net Liquidation Proceeds to the Indenture Trustee and
the Issuer shall take title to such Mortgaged Property. The Indenture Trustee
shall promptly forward such report and certification to the Securityholders.
The Servicer may contract with any independent contractor for the operation
and management of any Foreclosure Property, provided that:
(i) the terms and conditions of any such contract shall not be
inconsistent with this Agreement;
(ii) any such contract shall require, or shall be administered to
require, that the independent contractor pay all costs and expenses
incurred in connection with the operation and management of such
Foreclosure Property, remit all related revenues (net of such costs and
expenses) to the Servicer as soon as practicable, but in no event later
than thirty days following the receipt thereof by such independent
contractor;
(iii) none of the provisions of this Section 4.4 relating to any such
contract or to actions taken through any such independent contractor shall
be deemed to relieve the Servicer of any of its duties and obligations
hereunder with respect to the operation and management of any such
Foreclosure Property; and
(iv) the Servicer shall be obligated with respect thereto to the same
extent as if it alone were performing all duties and obligations in
connection with the operation and management of such Foreclosure Property.
The Servicer shall be entitled to enter into any agreement with any independent
contractor performing services for it related to its duties and obligations
hereunder for indemnification of the Servicer by such independent contractor,
and nothing in this Agreement shall be deemed to limit or modify such
indemnification. The Servicer shall not be liable for all fees owed by it to any
such independent
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contractor, and that any amounts so expended shall be deemed Servicing Advances.
Each liquidation of a Foreclosure Property shall be carried out by the Servicer
at such price and upon such terms and conditions as the Servicer shall deem
necessary or advisable, as shall be normal and usual in accordance with Accepted
Servicing Procedures, and the resulting Liquidation Proceeds shall be
distributed in accordance with the Section 5.1.
Section 4.05 Access to Certain Documentation and Information Regarding the
Loans.
The Servicer shall provide to the Issuer, the Indenture Trustee and the
Securityholders and the supervisory agents and examiners of each of the
foregoing access to the documentation regarding the Loans required by applicable
state and federal regulations, such access being afforded without charge but
only upon reasonable request and during normal business hours at the offices of
the Servicer designated by it.
Section 4.06 Subservicing.
(a) The Servicer may enter into Subservicing Agreements for any servicing
and administration of Loans with any institution which is in compliance with the
laws of each state necessary to enable it to perform its obligations under such
Subservicing Agreement and is an Eligible Servicer. The Servicer shall give
prior written notice to the Issuer and the Indenture Trustee of the appointment
of any Subservicer. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and to either directly service the related Loans or enter into a
Subservicing Agreement with a successor subservicer which qualifies hereunder.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Loans.
Each Subservicing Agreement shall include the provision that such agreement
may be immediately terminated by the Indenture Trustee in the event that the
Servicer shall, for any reason, no longer be the Servicer. In no event shall any
Subservicing Agreement require the Indenture Trustee, as Successor Servicer, for
any reason whatsoever to pay compensation to a Subservicer in order to terminate
such Subservicer.
(b) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain obligated and primarily liable to the Issuer, the
Indenture Trustee and Securityholders for the servicing and administering of the
Loans in accordance with the provisions of this Agreement without diminution of
such obligation or liability by virtue of such Subservicing Agreements or
arrangements or by virtue of indemnification from the Subservicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Loans. For purposes of this Agreement, the
Servicer shall be deemed to have received payments on Loans when the Subservicer
has actually received such payments and, unless the context otherwise requires,
references in this Agreement to actions taken or to be taken by the Servicer in
servicing the Loans include actions taken or to be taken by a Subservicer on
behalf of the Servicer. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
(c) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the successor Servicer,
on behalf of the Issuer, the Indenture Trustee and
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the Securityholders pursuant to Section 4.7, shall thereupon assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into, unless the successor Servicer elects to
terminate any Subservicing Agreement in accordance with its terms. The successor
Servicer shall be deemed to have assumed all of the servicer's interest therein
and to have replaced the Servicer as a party to each Subservicing Agreement to
the same extent as if the Subservicing Agreements had been assigned to the
assuming party, except that the Servicer shall not thereby be relieved of any
liability or obligations under the Subservicing Agreements which accrued prior
to the transfer of servicing to the successor Servicer. The Servicer at its
expense and without right of reimbursement therefor, shall, upon request of the
successor Servicer, deliver to the assuming party all documents and records
relating to each Subservicing Agreement and the Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Subservicing
Agreements to the assuming party.
(d) As part of its servicing activities hereunder, the Servicer, for the
benefit of the Issuer, the Indenture Trustee and the Securityholders, shall
enforce the obligations of each Subservicer under the related Subservicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims and the pursuit of other appropriate remedies, shall be in
such form and carried out to such an extent and at such time as the Servicer, in
its good faith business judgment, would require were it the owner of the related
Loans. The Servicer shall pay the costs of such enforcement at its own expense,
and shall be reimbursed therefor only (i) from a general recovery resulting from
such enforcement to the extent, if any, that such recovery exceeds all amounts
due in respect of the related Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
(e) Any Subservicing Agreement that may be entered into and any other
transactions or services relating to the Loans involving a Subservicer in its
capacity as such and not as an originator shall be deemed to be between the
Subservicer and the Servicer alone and none of the Issuer, the Indenture Trustee
or the Securityholders shall be deemed parties thereto or shall have any claims,
rights, obligations, duties or liabilities with respect to the Subservicer in
its capacity as such except as set forth in Section 4.6(c).
(f) In those cases where a Subservicer is servicing a Loan pursuant to a
Subservicing Agreement, the Subservicer will be required to establish and
maintain one or more accounts (collectively, the "Subservicing Account"). The
Subservicing Account shall be an Eligible Account. The Subservicer will be
required to deposit into the Subservicing Account no later than the first
Business Day after receipt all proceeds of Loans received by the Subservicer and
remit such proceeds to the Servicer for deposit in the Collection Account not
later than the Business Day following receipt thereof by the Subservicer.
Notwithstanding anything in this clause (f) to the contrary, the Subservicer
shall only be able to withdraw funds from the Subservicing Account for the
purpose of remitting such funds to the Servicer for deposit into the Collection
Account. The Servicer shall require the Subservicer to cause any collection
agent of the Subservicer to send a copy to the Servicer of each statement of
monthly payments collected by or on behalf of the Subservicer within five
Business Days after the end of every month, and the Servicer shall compare the
information provided in such reports with the deposits made by the Subservicer
into the Collection Account for the same period. The Servicer shall be deemed to
have received payments on the Loans on the date on which the Subservicer has
received such payments.
Section 4.07 Successor Servicers.
In the event that the Servicer is terminated pursuant to Section 10.1, or
resigns pursuant to Section 9.4 or otherwise becomes unable to perform its
obligations under this Agreement, the Indenture Trustee will become the
successor servicer or will appoint a successor servicer in accordance with the
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provisions of Section 10.2; provided that any successor servicer, including the
Indenture Trustee, shall satisfy the requirements of an Eligible Servicer and
shall be approved by the Rating Agencies.
Section 4.08 Maintenance of Hazard Insurance; Property Protection Expenses.
The Servicer shall cause to be maintained for each Loan fire and hazard
insurance naming the Servicer as loss payee thereunder providing extended
coverage in an amount which is at least equal to the least of (i) the maximum
insurable value of the improvements securing such Loan from time to time, (ii)
the combined principal balance owing on such Loan and any mortgage loan senior
to such Loan and (iii) the minimum amount required to compensate for damage or
loss on a replacement cost basis. The Servicer shall also maintain on property
acquired upon foreclosure, or by deed in lieu of foreclosure, hazard insurance
with extended coverage in an amount which is at least equal to the least of (i)
the maximum insurable value from time to time of the improvements which are a
part of such property, (ii) the combined principal balance owing on such Loan
and any mortgage loan senior to such Loan and (iii) the minimum amount required
to compensate for damage or loss on a replacement cost basis at the time of such
foreclosure, fire and or deed in lieu of foreclosure.
Any amounts to be collected by the Servicer under any such policies (other
than amounts to be applied to the restoration or repair of the property subject
to the related Mortgage or amounts to be released to the Mortgagor in accordance
with Accepted Servicing Procedures, subject to the terms and conditions of the
related Mortgage and Debt Instrument) shall be deposited in the Collection
Account, subject to withdrawal as set forth herein.
Any cost incurred by the Servicer in maintaining any such insurance shall
not, for the purpose of calculating distributions to Securityholders, be added
to the Principal Balance of the related Loan, notwithstanding that the terms of
such Loan so permit. It is understood and agreed that no earthquake or other
additional insurance is to be required of any Mortgagor other than pursuant to
such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance. If the Mortgaged Property or
Foreclosure Property is located at the time of origination of the Loan in a
federally designated special flood hazard area (and if the flood insurance
policy referenced herein has been made available), the Servicer will cause to be
maintained flood insurance in respect thereof. Such flood insurance shall be in
an amount equal to the least of (i) the sum of the Principal Balance of the
related Loan and any Senior Lien, (ii) the maximum insurable value of the
related Mortgaged Property, and (iii) the maximum amount of such insurance
available for the related Mortgaged Property under the national flood insurance
program (assuming that the area in which such Mortgaged Property is located is
participating in such program).
Section 4.09 Maintenance of Mortgage Impairment Insurance Policy.
In the event that the Servicer shall obtain and maintain a blanket policy
with an insurer having a general policy rating of A:VIII or better in Best's Key
Rating Guide, insuring against fire and hazards of extended coverage on all of
the Loans, then, to the extent such policy names the Servicer as loss payee and
provides coverage in an amount equal to the aggregate unpaid principal balance
on the Loans without co-insurance, and otherwise complies with the requirements
of Section 4.8, the Servicer shall be deemed conclusively to have satisfied its
obligations with respect to fire and hazard insurance coverage under Section
4.8, it being understood and agreed that such blanket policy may contain a
deductible clause that is in form and substance consistent with standard
industry practice for servicers of mortgage loans comparable to the Loans, in
which case the Servicer shall, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with Section
4.8, and there shall have been a loss which would have been covered by such
policy, deposit in the Collection Account the difference, if any, between the
amount that would have been payable under a policy complying with Section 4.8
and the amount paid under such blanket policy. Upon the request of the Indenture
Trustee or
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any Securityholder, the Servicer shall cause to be delivered to the Indenture
Trustee or such Certificateholder, as the case may be, a certified true copy of
such policy. In connection with its activities as administrator and servicer of
the Loans, the Servicer agrees to prepare and present, on behalf of itself, the
Indenture Trustee and Securityholders, claims under any such policy in a timely
fashion in accordance with the terms of such policy.
Section 4.10 Reports to the Securities and Exchange Commission.
The Indenture Trustee shall, on behalf of the Issuer, cause to be filed
with the Securities and Exchange Commission all reports on Forms 8-K and 10-K
required to be filed under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder. Upon the request of the Indenture Trustee, each of the
Servicer and the Depositor shall cooperate with the Indenture Trustee in the
preparation of any such report and shall provide to the Indenture Trustee in a
timely manner all such information or documentation as the Indenture Trustee may
reasonably request in connection with the performance of its duties and
obligations under this Section 4.10.
Section 4.11 Payment of Taxes, Insurance and Other Charges.
The Servicer may and, if required by the Servicer, the Subservicers shall,
establish and maintain one or more accounts (the "Servicing Accounts"), into
which any collections from the Mortgagors (or related advances from
Subservicers) for the payment of taxes, assessments, hazard insurance premiums,
and comparable items for the account of the Mortgagors shall be deposited and
retained. Servicing Accounts shall be Eligible Accounts. Withdrawals of amounts
so collected from a Servicing Account may be made only to (i) effect timely
payment of taxes, assessments, hazard insurance premiums, and comparable items;
(ii) reimburse the Servicer (or a Subservicer to the extent provided in the
related Subservicing Agreement) out of related collections for any advances with
respect to taxes, assessments and insurance premiums and with respect to hazard
insurance; (iii) refund to Mortgagors any sums as may be determined to be
overages; (iv) pay interest, if required and as described below, to Mortgagors
on balances in the Servicing Account; or (v) clear and terminate the Servicing
Account at the termination of this Agreement in accordance with Section 11.1. As
part of its servicing duties, the Servicer or Subservicers shall pay to the
Mortgagors interest on funds in Servicing Accounts, to the extent required by
law and, to the extent that interest earned on funds in the Servicing Accounts
is insufficient, to pay such interest from its or their own funds, without any
reimbursement from the Issuer, the Indenture Trustee, or any Securityholder
therefor. Upon request of the Indenture Trustee, the Depositor or the Servicer
shall cause the bank, savings association or other depository for each Servicing
Account to forward to the Indenture Trustee copies of such statements or reports
as the Indenture Trustee, the Depositor, or any Securityholder shall reasonably
request.
Section 4.12 Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by ______ or the Depositor, respectively, with respect to the assets
conveyed to the Issuer or the Depositor, as the case may be, shall prepare, have
executed by the necessary parties and file in the proper jurisdictions all
financing and continuation statements necessary to maintain the liens, security
interests, and priorities of such liens and security interests that have been
granted by ______ or the Depositor, as the case may be, and ______ Savings Bank,
Federal Savings Bank or ______ Investments Holdings, Inc, as the case may be
shall continue to file on or before each fifth anniversary of the filing of any
financing and continuation statements such additional financing and continuation
statements until the Issuer has been dissolved pursuant to Section 9.1 of the
Trust Agreement. The Indenture Trustee agrees to cooperate with ______ and the
Depositor in preparing, executing and filing such statements. The Indenture
Trustee agrees to notify ______ and the Depositor on the third Distribution Date
prior to each such fifth anniversary of the
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requirement to file such financing and continuation statements. The filing of
any such statement with respect to ______ and the Depositor shall not be
construed as any indication of an intent of any party contrary to the expressed
intent set forth in Section 2.2 or Section ____ of the Loan Purchase Agreement
or Section ____ of the Loan Sale Agreement. If ______ or the Depositor has
ceased to do business whenever any such financing and continuation statements
must be filed or ______ or the Depositor fails to file any such financing
statements or continuation statements at least one month prior to the expiration
thereof and the Indenture Trustee is notified of such failure or has actual
knowledge thereof, the Indenture Trustee shall perform the services required
under this Section 4.12.
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ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.
(a) (1) Establishment of Collection Account. The Servicer, for the benefit
of the Securityholders, shall cause to be established and maintained one or more
Collection Accounts, which shall be separate Eligible Accounts, which may be
interest-bearing, entitled "Collection Account, _____________________________,
as Indenture Trustee, in trust for the First Union Home Loan Asset Backed
Securities, Series __________". The Collection Account may be maintained with
the Indenture Trustee or any other depository institution which satisfies the
requirements set forth in the definition of Eligible Account. The creation of
any Collection Account other than one maintained with the Indenture Trustee
shall be evidenced by a letter agreement in the form attached hereto as Exhibit
H between the Servicer and the depository institution. A copy of such letter
agreement shall be furnished to the Indenture Trustee and, upon request of any
Securityholder, to such Securityholder. Funds in the Collection Account shall be
invested in accordance with Section 5.3.
The Collection Account shall be established, as of the Closing Date, with
the Indenture Trustee as an Eligible Account pursuant to the definition thereof.
The Collection Account may, upon written notice to the Issuer and the Indenture
Trustee, be transferred to a different depository institution so long as such
transfer is to an Eligible Account reasonably acceptable to the Indenture
Trustee.
(2) Establishment of Note Distribution Account. No later than the Closing
Date, the Servicer, for the benefit of the Securityholders, shall cause to be
established and maintained with the Indenture Trustee one or more Note
Distribution Accounts, which shall be separate Eligible Accounts, which may be
interest-bearing and which shall be entitled "Note Distribution Account,
_____________________________________, as Indenture Trustee, in trust for the
First Union Home Loan Asset Backed Securities, Series ______________". Funds in
the Note Distribution Account shall be invested in accordance with Section 5.3.
(b) (1) Deposits to Collection Account. The Servicer shall use its best
efforts to deposit or cause to be deposited (without duplication) within two (2)
Business Days, of receipt thereof in the Collection Account and retain therein
in trust for the benefit of the Securityholders:
(i) all payments on account of interest and principal on the Loans
collected after the Cut-Off Date;
(ii) all Net Liquidation Proceeds and Post Liquidation Proceeds
pursuant to Section 4.2 or Section 4.4;
(iii) all Insurance Proceeds;
(iv) all Released Mortgaged Property Proceeds;
(v) any amounts payable in connection with the repurchase of any Loan
and the amount of any Substitution Adjustment pursuant to Section 2.6 and
Section 3.5;
(vi) any amount required to be deposited in the Collection Account
pursuant to the receipt of proceeds from any insurance policies under
Section 4.3 or the deposit of the Termination Price under Section 11.2; and
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(vii) any amounts to be transferred from the Capitalized Interest
Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts (such as assumption fees, modification fees, and
other administrative fees, insufficient funds charges, prepayment penalties,
late payment charges and investment income on earnings on the Trust Accounts
(other than on the Note Distribution Account)) received with respect to a Loan
that constitute additional Servicing Compensation pursuant to Section 7.3, and
such amounts retained by the Servicer during a Due Period shall be excluded from
the calculation of the Servicing Compensation that is distributable to the
Servicer from the Note Distribution Account on the next Distribution Date
following such Due Period.
(2) Deposits to Note Distribution Account. On the Remittance Date of each
month the Servicer shall instruct the Indenture Trustee to withdraw from the
Collection Account the Available Collection Amount and deposit such Available
Collection Amount into the Note Distribution Account for such month's
Distribution Date. In addition, on each of the first three Distribution Dates,
the Indenture Trustee shall withdraw from the Prefunding Account the amounts of
any Pre-Funding Earnings for the related Due Period or any amounts referred to
in Section 5.5(b) or Section 5.5(c), and deposit such into the Note Distribution
Account.
(3) Withdrawals from Collection Account. The Indenture Trustee, at the
direction of the Servicer shall also make the following withdrawals from the
Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) on each Distribution Date, to pay to the Servicer any accrued and
unpaid Servicing Fees and any additional Servicing Compensation pursuant to
Section 7.3 not withheld pursuant to Section 5.1(b)(1);
(iii) on each Distribution Date, to pay to the Servicer any
unreimbursed Servicing Advances; provided, however, that the Servicer's
right to reimbursement for unreimbursed Servicing Advances shall be limited
to late collections (excluding the scheduled monthly payments) on the
related Loans, including, without limitation, late collections constituting
Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds, Post Liquidation Proceeds and such other amounts as may be
collected by the Servicer from the related Mortgagor or otherwise relating
to the Loan in respect of which such unreimbursed amounts are owed;
(iv) on each Distribution Date, to reimburse the Servicer for any
Servicing Advances determined by the Servicer in good faith to have become
Nonrecoverable Servicing Advances.
(v) make payments set forth in Section 9.1(e).
(c) Withdrawals from Note Distribution Account. To the extent funds are
available in the Note Distribution Account, the Indenture Trustee (based on the
information provided by the Servicer contained in the Servicer's Monthly
Remittance Report for such Distribution Date) shall make withdrawals therefrom
by 11:00 a.m. (New York City time) on each Distribution Date, for application in
the following order of priority:
(i) to distribute on such Distribution Date the following amounts
pursuant to the Indenture in the following order: (a) to the Servicer, an
amount equal to the Servicing Compensation (net of any amounts retained
prior to deposit into the Collection Account pursuant to Section 5.1(b)(1))
and all unpaid Servicing Compensation from prior due periods, (b) to the
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Indenture Trustee, an amount equal to the Indenture Trustee Fee and all
unpaid Indenture Trustee Fees from prior Distribution Dates, (c) to the
Depositor, in trust for the Owner Trustee, an amount equal to the Owner
Trustee Fee and all unpaid Owner Trustee Fees from prior Distribution Dates
and (d) to the Custodian, an amount equal to the Custodian Fee and all
unpaid Custodian Fees from prior Distribution Dates; and
(ii) to deposit into the Certificate Distribution Account the
applicable portions of the Available Distribution Amount distributable in
respect of the Residual Interests calculated pursuant to Section 5.1(d) and
Section 5.1(e) below on such Distribution Date;
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Collection Account and
the Note Distribution Account hereunder until the Class Principal Balance of
each Class of Securities has been reduced to zero.
(d) On each Distribution Date the Indenture Trustee shall distribute the
Regular Distribution Amount from the Note Distribution Account (in the case of
all amounts distributable to Noteholders), in the following order of priority:
(i) to the holders of the Senior Notes, the Senior Noteholders'
Interest Distributable Amount for such Distribution Date allocated to each
Class of Senior Notes, pro rata, based on the amount of interest
distributable in respect of each such Class based on the related Note
Interest Rate;
(ii) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, their respective portions of the Class M-1
Noteholders' Interest Distributable Amount and the Class M-2 Noteholders'
Interest Distributable Amount, respectively, for such Distribution Date;
(iii) to the holders of the Class B Notes, the Class B Noteholders'
Interest Distributable Amount for such Distribution Date;
(iv) if with respect to such Distribution Date the Pre-Funding Pro
Rata Distribution Trigger has occurred, the amount on deposit in the
Pre-Funding Account at the end of the Pre-Funding Period will be
distributed as principal to all Classes of Notes and the Residual Interests
(which initially are represented by the Overcollateralization Amount on the
Closing Date), pro rata, based on the Original Class Principal Balances
thereof and the Residual Interests as so represented in relation to the sum
of the Original Pool Principal Balance and the Original Pre-Funded Amount;
(v) sequentially, to the holders of the Class A-1, Class A-2, Class
A-3, Class A-4 Notes, in that order, until the respective Class Principal
Balances thereof are reduced to zero, the amount necessary to reduce the
aggregate Class Principal Balance of the Senior Notes to the Senior Optimal
Principal Balance for such Distribution Date;
(vi) sequentially, to the holders of the Class M-1 and the Class M-2
Notes, in that order, the amount necessary to reduce the Class Principal
Balances thereof to the Class M-1 Optimal Principal Balance and the Class
M-2 Optimal Principal Balance, respectively, for such Distribution Date;
(vii) to the holders of the Class B Notes, the amount necessary to
reduce the Class Principal Balance thereof to zero;
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(viii) to the holders of the Class M-1 Notes, Class M-2 Notes and the
Class B Notes, in that order, until their respective Loss Reimbursement
Deficiencies have been paid in full first, as a payment of principal and
then as a payment of interest; and
(ix) any remaining amount to the holders of the Residual Interests.
(e) On each Distribution Date prior to the termination of the Spread
Deferral Period, the Indenture Trustee shall deposit the Excess Spread, if any,
to the Certificate Distribution Account for distribution to the holders of the
Residual Interests; on each Distribution Date following (and to the extent of)
the termination of the Spread Deferral Period, the Indenture Trustee shall
distribute the Excess Spread, if any, in the following order of priority (in
each case, after giving effect to the distributions in Section 5.1(d)):
(i) in an amount equal to the Overcollateralization Deficiency Amount,
if any, as follows:
(A) to the holders of the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes, in that order, until each respective Class Principal
Balance thereof is reduced to zero, the amount necessary to reduce the
aggregate Class Principal Balance of the Senior Notes to the Senior
Optimal Principal Balance for such Distribution Date;
(B) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, the amount necessary to reduce the Class
Principal Balances thereof to the Class M-1 Optimal Principal Balance
and Class M-2 Optimal Principal Balance, respectively, for such
Distribution Date; and
(C) to the holders of the Class B Notes, until the Class
Principal Balance thereof has been reduced to zero; and
(ii) sequentially, to the Class M-1, the Class M-2 and the Class B
Notes, in that order, until their respective Loss Reimbursement
Deficiencies, if any, have been paid in full, first as a payment of
principal and then as a payment of interest; and
(iii) any remaining amount to the holders of the Residual Interests.
(f) Notwithstanding the priorities specified above, on any Distribution
Date as to which the Class Principal Balances of each of the Class M-1, Class
M-2 and Class B Notes and the Overcollateralization Amount have been reduced to
zero, distributions of principal on the Classes of Senior Notes will be applied
to such Classes pro rata based on their respective Class Principal Balances.
Section 5.02 Certificate Distribution Account and Distributions on the
Notes.
(a) Establishment. No later than the Closing Date, the Servicer, for the
benefit of the Securityholders, shall cause to be established and maintained
with the Indenture Trustee for the benefit of the Owner Trustee on behalf of the
Certificateholders one or more separate Eligible Accounts, which Trust
Account(s) shall be entitled "Certificate Distribution Account, ________
________________________________, as Indenture Trustee, in trust for the
_______________ Trust Series ______". Funds in the Certificate Distribution
Account shall be invested in accordance with Section 5.3.
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(b) Distributions. On each Distribution Date the Indenture Trustee shall
withdraw from the Note Distribution Account all amounts required to be deposited
in the Certificate Distribution Account with respect to such Distribution Date
pursuant to Section 5.1(c)(ii) and will remit such amount to the Owner Trustee
or the Co-Owner Trustee for deposit into the Certificate Distribution Account.
The Indenture Trustee shall distribute all remaining amounts on deposit in the
Note Distribution Account to the holders of the Notes to the extent of amounts
due and unpaid on the Notes for principal thereof and interest thereon. The
Owner Trustee or the Co-Owner Trustee shall distribute all amounts on deposit in
the Certificate Distribution Account to the holders of the Residual Interests.
(c) All distributions made on the Notes on each Distribution Date will be
made on a pro rata basis among the Noteholders of record of such Class on the
next preceding Record Date based on the Percentage Interest represented by their
respective Notes, and except as otherwise provided in the next succeeding
sentence, shall be made by wire transfer of immediately available funds to the
account of such Noteholder, if such Noteholder shall own of record Notes which
have original denominations aggregating at least $________________ and shall
have so notified the Indenture Trustee, and otherwise by check mailed to the
address of such Noteholder appearing in the Notes Register. The final
distribution on each Note will be made in like manner, but only upon presentment
and surrender of such Note at the location specified in the notice to
Noteholders of such final distribution.
(d) All distributions made on the Residual Interests on each Distribution
Date will be made on a pro rata basis among the holders of the Residual
Interests of record on the next preceding Record Date based on the Percentage
Interest represented by their respective Residual Interests, and except as
otherwise provided in the next succeeding sentence, shall be made by wire
transfer of immediately available funds to the account of each such holder, if
such holder shall own of record a Residual Interest having an original
denomination aggregating at least a _______% Percentage Interest thereof and
shall have so notified the Owner Trustee or Co-Owner Trustee. The final
distribution on each Residual Interest will be made in like manner, but only
upon presentment and surrender of such Residual Interest at the location
specified in the notice to holders of the Residual Interests of such final
distribution.
Section 5.03 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. In addition to the
provisions hereunder, each of the Trust Accounts shall also be established and
maintained pursuant to the Indenture. Amounts distributed from each Trust
Account in accordance with the Indenture and this Agreement shall be released
from the lien of the Indenture upon such distribution thereunder or hereunder.
The Indenture Trustee shall possess all right, title and interest in all funds
on deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account) and in all proceeds thereof (excluding all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Trust Estate. If, at any time, any Trust Account ceases
to be an Eligible Account, the Indenture Trustee (or the Servicer on its behalf)
shall within 10 Business Days (or such longer period, not to exceed 30 calendar
days, as to which each Rating Agency may consent) (i) establish a new Trust
Account as an Eligible Account, (ii) terminate the ineligible Trust Account, and
(iii) transfer any cash and investments from such ineligible Trust Account to
such new Trust Account.
With respect to the Trust Accounts (other than the Certificate Distribution
Account), the Indenture Trustee agrees, by its acceptance hereof, that each such
Trust Account shall be subject to the sole and exclusive custody and control of
the Indenture Trustee for the benefit of the Securityholders and the Issuer, as
the case may be, and the Indenture Trustee shall have sole signature and
withdrawal authority with respect thereto.
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In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder also shall be subject to and
established and maintained in accordance with the Trust Agreement. Subject to
rights of the Indenture Trustee hereunder and under the Indenture, the Owner
Trustee or Co-Owner Trustee shall possess all right, title and interest for the
benefit of the Certificateholders in all funds on deposit from time to time in
the Certificate Distribution Account and in all proceeds thereof (excluding all
income thereon) and all such funds, investments, proceeds and income shall be
part of the Trust Account Property and the Trust Estate. Subject to the rights
of the Indenture Trustee, the Owner Trustee and Co-Owner Trustee agree, by its
acceptance hereof, that such Certificate Distribution Account shall be subject
to the sole and exclusive custody and control of the Owner Trustee and Co-Owner
Trustee for the benefit of the Issuer and the parties entitled to distributions
therefrom, including without limitation, the Certificateholders, and the Owner
Trustee and the Co-Owner Trustee shall have sole signature and withdrawal
authority with respect to the Certificate Distribution Account. Notwithstanding
the preceding, the distribution of amounts from the Certificate Distribution
Account in accordance with Section 5.2(b) also shall be made for the benefit of
the Indenture Trustee (including without limitation with respect to its duties
under the Indenture and this Agreement relating to the Trust Estate), and the
Indenture Trustee (in its capacity as Indenture Trustee) shall have the right,
but not the obligation to take custody and control of the Certificate
Distribution Account and to cause the distribution of amounts therefrom in the
event that the Owner Trustee fails to distribute such amounts in accordance with
Section 5.2(d) and Section 5.2(e).
Servicer shall have the power, revocable by the Indenture Trustee or by the
Owner Trustee or Co-Owner Trustee with the consent of the Indenture Trustee, to
instruct the Indenture Trustee or Owner Trustee to make withdrawals and payments
from the Trust Accounts for the purpose of permitting the Servicer to carry out
its duties hereunder or permitting the Indenture Trustee or Owner Trustee to
carry out its respective duties herein or under the Indenture or the Trust
Agreement, as applicable.
(b) (1) Investment of Funds. So long as no Event of Default shall have
occurred and be continuing, the funds held in any Trust Account may be invested
(to the extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed by the Servicer in writing or by telephone or
facsimile transmission confirmed in writing by the Servicer, except that funds
held in the Note Distribution Account shall be invested by the Indenture Trustee
in Permitted Investments selected by it. In any case, funds in any Trust Account
must be available for withdrawal without penalty, and any Permitted Investments
must mature or otherwise be available for withdrawal, not later than the
Business Day immediately preceding the Distribution Date next following the date
of such investment and shall not be sold or disposed of prior to its maturity
subject to Section 5.3(b)(2). All interest and any other investment earnings on
amounts or investments held in the Collection Account shall be deposited into
the Collection Account immediately upon receipt by the Indenture Trustee, or in
the case of the Certificate Distribution Account, the Owner Trustee or Co-Owner
Trustee, as applicable but shall be payable to the Servicer as additional
Servicing Compensation and may be withdrawn from the Collection Account pursuant
to Section 5.1(b)(3)(ii). All interest and any other investment earnings on
amounts or investments held in the Note Distribution Account shall be payable to
the Indenture Trustee. All Permitted Investments in which funds in any Trust
Account (other than the Certificate Distribution Account) are invested must be
held by or registered in the name of
"__________________________________________, as Indenture Trustee, in trust for
the First Union Home Loan Asset Backed Securities, Series ________". While the
Co-Owner Trustee holds the Certificate Distribution Account, all Permitted
Investments in which funds in the Certificate Distribution Account are invested
shall be held by or registered in the name of "_______________________________,
as Co-Owner Trustee, in trust for the First Union Home Loan Asset Backed
Securities, Series ________".
(2) Insufficiency and Losses in Trust Accounts. If any amounts are needed
for disbursement from any Trust Account held by or on behalf of the Indenture
Trustee and sufficient uninvested funds are
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not available to make such disbursement, the Indenture Trustee, or Owner Trustee
or Co-Owner Trustee in the case of the Certificate Distribution Account, shall
cause to be sold or otherwise converted to cash a sufficient amount of the
investments in such Trust Account. The Indenture Trustee, or Owner Trustee or
Co-Owner Trustee in the case of the Certificate Distribution Account, shall not
be liable for any investment loss or other charge resulting therefrom, unless
such loss or charge is caused by the failure of the Indenture Trustee or Owner
Trustee or Co-Owner Trustee, respectively, to perform in accordance with this
Section 5.3.
If any losses are realized in connection with any investment in any Trust
Account pursuant to this Agreement and the Indenture, then the Servicer shall
deposit the amount of such losses (to the extent not offset by income from other
investments in such Trust Account) in such Trust Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in any Trust Account shall be taxed to the Issuer and for federal
and state income tax purposes the Issuer shall be deemed to be the owner of each
Trust Account.
(c) Subject to Section 6.1 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Account held
by the Indenture Trustee resulting from any investment loss on any Permitted
Investment included therein (except to the extent that the Indenture Trustee is
the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(A) any Trust Account Property that is held in deposit accounts shall
be held solely in Eligible Accounts, subject to the last sentence of the
first paragraph of Section 5.3(a); and each such Eligible Account shall be
subject to the exclusive custody and control of the Indenture Trustee, and
the Indenture Trustee shall have sole signature authority with respect
thereto;
(B) any Trust Account Property that constitutes Physical Property
shall be delivered to the Indenture Trustee in accordance with paragraph
(a) of the definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Indenture Trustee or a financial intermediary
(as such term is defined in Section 8-313(4) of the UCC) acting solely for
the Indenture Trustee;
(C) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Indenture Trustee,
pending maturity or disposition, through continued book-entry registration
of such Trust Account Property as described in such paragraph; and
(D) any Trust Account Property that is an "uncertificated security"
under Article 8 of the UCC and that is not governed by clause (C) above
shall be delivered to the Indenture Trustee in accordance with paragraph
(c) of the definition of "Delivery" and shall be maintained by the
Indenture Trustee, pending maturity or disposition, through continued
registration of the Indenture Trustee's (or its nominee's) ownership of
such security.
(e) The Servicer shall have the power, revocable by the Indenture Trustee
or by the Issuer with the consent of the Indenture Trustee, to instruct the
Indenture Trustee to make withdrawals and payments from the Trust Accounts for
the purpose of permitting the Servicer or the Issuer to carry out
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their respective duties hereunder or permitting the Indenture Trustee to carry
out its duties under the Indenture.
Section 5.04 Allocation of Losses.
(a) In the event that Net Liquidation Proceeds, Insurance Proceeds or
Released Mortgaged Property Proceeds on a Liquidated Loan are less than the
related Principal Balance plus accrued interest thereon, or any Mortgagor makes
a partial payment of any Monthly Payment due on a Loan, such Net Liquidation
Proceeds, Insurance Proceeds, Released Mortgaged Property Proceeds or partial
payment shall be applied to payment of the related Debt Instrument, first to
interest accrued at the Loan Interest Rate and then to principal.
(b) On any Distribution Date, any Allocable Loss Amounts shall be applied
to the reduction of the Class Principal Balances of the Class B, the Class M-1
and Class M-2 Notes in accordance with the Allocable Loss Amount Priority.
Section 5.05 Pre-Funding Account.
(a) The Servicer, for the benefit of the Noteholders, shall establish and
maintain in the name of the Indenture Trustee an Eligible Deposit Account (the
"Pre-Funding Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Securityholders.
On the Closing Date, the Owner Trustee will deposit in the Pre-Funding
Account the Pre-Funded Amount from the net proceeds of the sale of the Notes. On
each Subsequent Transfer Date, upon satisfaction of the conditions set forth in
Section 2.7 with respect to such transfer, the Indenture Trustee shall withdraw
from the Pre-Funding Account an amount equal to 100% of the Principal Balances
of the Subsequent Loans transferred to the Issuer on such Subsequent Transfer
Date, and to distribute such amount to or upon the order of the Depositor.
(b) If the Pre-Funded Amount has not been reduced to zero on the last day
of the Pre-Funding Period after giving effect to any reductions in the
Pre-Funded Amount on such date pursuant to paragraph (a) above, the Indenture
Trustee in writing shall withdraw from the Pre-Funding Account on the Mandatory
Redemption Date and (i) if the Pre-Funded Amount is less than $50,000 deposit
such amount in the Note Distribution Account to be applied to reduce the
Outstanding Amount of the Class of Notes then entitled to distributions of
principal and (ii) if the Pre-Funded Amount is greater than or equal to $50,000,
deposit such amounts to the Note Distribution Account for distribution pursuant
to Section 5.1(d)(iv).
(c) On the Business Day preceding each of the second and third Distribution
Dates, if applicable, the Indenture Trustee shall withdraw the related
Pre-Funding Earnings for the related Due Period and deposit such amounts into
the Note Distribution Account.
Section 5.06 Capitalized Interest Account.
(a) The Servicer, for the benefit of the Noteholders, shall establish and
maintain in the name of the Indenture Trustee an Eligible Account (the
"Capitalized Interest Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the Noteholders.
(b) On each Determination Date during the Pre-Funding Period (including the
Determination Date in the month following the Due Period during which the
Pre-Funding Period ends), the Indenture Trustee will withdraw from the
Capitalized Interest Account an amount equal to the Capitalized Interest
Requirement and deposit such amount into the Collection Account.
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(c) On the Mandatory Redemption Date, any amounts remaining in the
Capitalized Interest Account shall be paid to the Depositor.
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ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver to
the Indenture Trustee (i) a printed report setting forth the payments and
collections received with respect to the Loans during the Due Period for the
month immediately preceding the month in which such Determination Date occurs
(each such tape, a "Servicer Remittance Report") and (ii),if not included in the
Servicer Remittance Report, a printed report and an electromagnetic tape in
computer readable format, setting forth the information described in clauses (A)
- --(I) of Section 6.1(b) for the month immediately preceding the month in which
such Determination Date occurs (such report, a "Delinquency Report").
Furthermore, no later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee a magnetic tape or computer disk providing such
information regarding the Servicer's activities in servicing the Loans during
the related Due Period as the Indenture Trustee may reasonably require.
(b) On each Distribution Date, Indenture Trustee shall distribute, based on
information provided by the Servicer, a monthly statement (the "Distribution
Statement"), to the Depositor, the Securityholders and the Rating Agencies,
stating the date of original issuance of the Securities (day, month and year),
the name of the Issuer (i.e. "_______________ Trust ____________"), the series
designation of the Notes (i.e., "Series ___________"), the date of this
Agreement and the following information:
(i) the Available Collection Amount and Available Distribution Amount
for the related Distribution Date;
(ii) the Class Principal Balance of each Class of Notes before and
after giving effect to distributions made to the holders of such Securities
on such Distribution Date, and the Pool Principal Balance as of the first
and last day of the related Due Period;
(iii) the Class Factor with respect to each Class of the Securities
then outstanding;
(iv) the amount of principal and interest received on the Loans during
the related Due Period;
(v) with respect to each Class of Notes, the Optimal Principal Balance
thereof;
(vi) the Overcollateralization Deficiency Amount, and any amount to be
distributed to the Noteholders or the holders of the Residual Interests on
such Distribution Date;
(vii) the Servicing Compensation, the Indenture Trustee Fee, the Owner
Trustee Fee and the Custodial Fee for such Distribution Date;
(viii) the Overcollateralization Amount on such Distribution Date, the
Overcollateralization Target Amount as of such Distribution Date, the Net
Loan Losses incurred during the related Due Period, the cumulative Net Loan
Losses as of such Distribution Date and Allocable Loss Amount for such
Distribution Date;
(ix) the weighted average maturity of the Loans and the weighted
average Loan Interest Rate of the Loans;
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(x) certain performance information, including delinquency and
foreclosure information with respect to the Loans, as set forth in the
Servicer's Monthly Remittance Report; and
(xi) the Pre-Funding Amount at the end of the related Due Period.
In addition, on each Distribution Date the Indenture Trustee shall
distribute to each Securityholder, together with the information described
above, the following information based solely upon information provided to the
Indenture Trustee pursuant to Section 6.1(a) upon which the Indenture Trustee
may conclusively rely without independent verification:
(A) the number and aggregate Principal Balance (including the
percentage equivalent relative to the aggregate Principal Balance of
all Loans) of Loans (i) 30-59 days delinquent, (ii) 60-89 days
delinquent and (iii) 90 days or more delinquent (which statistics
shall include Loans in foreclosure and bankruptcy but which shall
exclude Foreclosure Properties), as of the close of business on the
last day of the calendar month next preceding such Distribution Date
and the aggregate Principal Balances of all Loans as of such date;
(B) the number of, and aggregate Principal Balance of, all Loans
in foreclosure proceedings (other than any Loans described in clause
(C)) and the percent of the aggregate Principal Balances of such Loans
to the aggregate Principal Balances of all Loans, all as of the close
of business on the last day of the calendar month next preceding such
Distribution Date;
(C) the number of, and the aggregate Principal Balance of, the
related Loans in bankruptcy proceedings (other than any Loans
described in clause (B)) and the percent of the aggregate Principal
Balances of such Loans to the aggregate Principal Balances of all
Loans, all as of the close of business on the last day of the calendar
month next preceding such Distribution Date;
(D) the number of Foreclosure Properties, the aggregate Principal
Balances of the related Loans, the book value of such Foreclosure
Properties and the percent of the aggregate Principal Balances of such
Loans to the aggregate Principal Balances of all Loans, all as of the
close of business on the last day of the calendar month next preceding
such Distribution Date;
(E) for each Foreclosure Property, the Principal Balance of the
related Loan, the loan number of such Loan, the value of the Mortgaged
Property, the value established by any new appraisal, the estimated
cost of disposing of the Loan and the amount of any unreimbursed
Servicing Advances;
(F) for each Loan which is in foreclosure, the Principal Balance
of such Loan, the book value of the Mortgaged Property, the combined
loan-to-value ratio as of the date of origination, the combined
loan-to-value ratio as of the close of business on the last day of the
calendar month next preceding such Distribution Date and the last
paid-to-date;
(G) the principal balance of each Loan that was modified or
extended pursuant to the terms hereof;
(H) during the related Due Period, the number of and aggregate
Principal Balance and the loan numbers of Loans for each of the
following: (A)
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that became Liquidated Loans, (B) that became Defective Loans pursuant
to Section 3.5 as a result of such Defective Loans being Defective
Loans, and (C) that became Defaulted Loans;
(I) from the Closing Date through the most current Due Period,
the number of and cumulative aggregate Principal Balance of Loans for
each of the following: (A) that became Liquidated Loans, (B) that
became Defective Loans pursuant to Section 3.5 as a result of such
Deleted Home loans being Defective Loans, and (C) that became
Defective Loans pursuant to Section 3.5 as a result of such Defective
Loans being Defaulted Loans or a Loan in default or imminent default,
including the foregoing amounts by loan type (i.e. Combination Loans
or Debt Consolidation Loans); and
(J) the Net Delinquency Calculation Amount for such Distribution
Date.
All reports prepared by the Indenture Trustee of the withdrawals from and
deposits in the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a Securityholder, such information as is
reasonably necessary to provide to such Person a statement containing the
information set forth in subclauses (b)(iv) and (vii) above, aggregated for such
calendar year or applicable portion thereof during which such Person was a
Securityholder. Such obligation of the Indenture Trustee shall be deemed to have
been satisfied to the extent that comparable information shall be prepared and
furnished by the Indenture Trustee to the Securityholders pursuant to any
requirements of the Code as are from time to time in effect.
(d) On each Distribution Date, the Indenture Trustee shall forward to the
holder of each Residual Interest a copy of the Distribution Statement in respect
of such Distribution Date and a statement setting forth the amounts actually
distributed to such holders of the Residual Interests on such Distribution Date,
together with such other information as the Indenture Trustee deems necessary or
appropriate.
(e) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a holder of a Residual Interest, if requested
in writing by such Person, such information as is reasonably necessary to
provide to such Person a statement containing the information provided pursuant
to the previous paragraph aggregated for such calendar year or applicable
portion thereof during which such Person was a holder of a Residual Interest.
(f) Upon reasonable advance notice in writing, the Servicer will provide to
each Securityholder which is a savings and loan association, bank or insurance
company access to information and documentation regarding the Loans sufficient
to permit such Securityholder to comply with applicable regulations of the FDIC
or other regulatory authorities with respect to investment in such Securities.
(g) The Indenture Trustee shall forward to each Noteholder and the holder
of a Residual Interest, during the term of this Agreement, such periodic,
special, or other reports, including information tax returns or reports required
with respect to the Notes and the Residual Interests, including Internal
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Revenue Service Forms 1099 and (if instructed in writing by the Depositor on the
basis of the advice of legal counsel) Form 1066, Schedule Q and other similar
reports that are required to be filed by the Indenture Trustee or its agent and
the holder of a Residual Interest, whether or not provided for herein, as shall
be necessary, reasonable, or appropriate with respect to the Noteholders or the
holder of a Residual Interest, or otherwise with respect to the purposes of this
Agreement, all such reports or information to be provided by and in accordance
with such applicable instructions and directions as the Noteholders or the
holder of a Residual Interest may reasonably require.
(h) Reports and computer tapes furnished by the Servicer and the Indenture
Trustee pursuant to this Agreement shall be deemed confidential and of a
proprietary nature, and shall not be copied or distributed except in connection
with the purposes and requirements of this Agreement. No Person entitled to
receive copies of such reports or tapes shall use the information therein for
the purpose of soliciting the customers of the Depositor or the Servicer or for
any other purpose except as set forth in this Agreement.
Section 6.02 Reports of Foreclosure and Abandonment of Mortgaged Property.
Each year beginning in 1998 the Servicer, at its expense, shall make the
reports of foreclosures and abandonments of any Mortgaged Property required by
Section 6050J of the Code. The reports from the Servicer shall be in form and
substance sufficient to meet the reporting requirements imposed by such Section
6050J of the Code.
Section 6.03 Specification of Certain Tax Matters.
Each Securityholder in whose name a Security is registered shall provide
the Indenture Trustee with a completed and executed Form W-9 or Form W-8, as
applicable, prior to purchasing a Security. The Indenture Trustee shall comply
with all requirements of the Code, and applicable state and local law, with
respect to the withholding from any distributions made to any Securityholder of
any applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
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ARTICLE VII.
GENERAL SERVICING PROCEDURE
Section 7.01 Assumption Agreements.
Except as otherwise provided in the next sentence, the Servicer will, to
the extent it has knowledge of any conveyance or prospective conveyance of any
Mortgaged Property by any Mortgagor (whether by absolute conveyance or by
contract of sale, and whether or not the Mortgagor remains or is to remain
liable under the Debt Instrument and/or the Mortgage), exercise its rights to
accelerate the maturity of such Loan under the "due-on-sale" clause, if any,
applicable thereto. If the Servicer reasonably believes it is unable under
applicable law to enforce such "due-on-sale" clause or enforcement would
materially increase the risk of default or delinquency on, or impair the
security for, the Loan, the Servicer will enter into an assumption and
modification agreement from or with the person to whom such property has been
conveyed or is proposed to be conveyed, pursuant to which such person becomes
liable under the Debt Instrument and, to the extent permitted by applicable
state law, the Mortgagor remains liable thereon. The Servicer is also authorized
to enter into a substitution of liability agreement with such person, pursuant
to which the original Mortgagor is released from liability and such person is
substituted as the Mortgagor and becomes liable under the Debt Instrument. In
connection with any assumption or substitution, the Servicer shall apply
Accepted Servicing Procedures. Any fee collected by the Servicer in respect of
an assumption or substitution of liability agreement will be retained by the
Servicer as additional servicing compensation. In connection with any such
assumption, no material term of the Debt Instrument (including, but not limited
to, the related Loan Interest Rate and the amount of the Monthly Payment) may be
amended or modified, except as otherwise required pursuant to the terms thereof.
The Servicer shall notify the Indenture Trustee that any such substitution or
assumption agreement has been completed by forwarding to the Indenture Trustee
the original copy of such substitution or assumption agreement, which copy shall
be added to the related Indenture Trustee's Loan File and shall, for all
purposes, be considered a part of such Indenture Trustee's Loan File to the same
extent as all other documents and instruments constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Loan by operation of law or by the terms of the Debt Instrument or any
assumption which the Servicer believes in good faith that it may be restricted
by law from preventing, for any reason whatever. For purposes of this Section
7.1, the term "assumption" is deemed to also include a sale (of the Mortgaged
Property) subject to the Mortgage that is not accompanied by an assumption or
substitution of liability agreement.
Section 7.02 Satisfaction of Mortgages and Release of Indenture Trustee's
Loan Files.
Upon the payment in full of any Loan, or the receipt by the Servicer of a
notification that payment in full shall be escrowed in a manner customary for
such purposes, the Servicer will notify the Indenture Trustee by an appropriate
certification of a Servicing Officer in the form of Exhibit D and shall request
delivery to it of the Indenture Trustee's Loan File. Upon receipt of such
certification and request, the Indenture Trustee shall promptly release the
related Indenture Trustee's Loan File to the Servicer. The Servicer shall
provide for preparation of the appropriate instrument of satisfaction covering
any Loan that pays in full and, on behalf of the Indenture Trustee the Servicer
shall execute or, to the extent that the Servicer cannot so execute on behalf of
the Indenture Trustee, the Indenture Trustee shall cooperate in the execution
and return of such instrument to provide for its delivery or recording as may be
required. No expenses incurred in connection with any instrument of satisfaction
or deed of reconveyance shall be chargeable to any Trust Account or shall be
otherwise chargeable to the Issuer, the Indenture Trustee or the
Securityholders.
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From time to time and as appropriate for the servicing or foreclosure of
any Loan, the Indenture Trustee shall, upon request of the Servicer and delivery
to the Indenture Trustee of a Request for Release of Indenture Trustee's Loan
File in the form of Exhibit D, release the related Indenture Trustee's Loan File
to the Servicer, and the Indenture Trustee shall, at the direction of the
Servicer, execute such documents as shall be necessary to the prosecution of any
such proceedings. Such Request for Release shall obligate the Servicer to return
each and every Indenture Trustee's Loan File previously requested from the
Indenture Trustee's Loan File to the Indenture Trustee when the need therefor by
the Servicer no longer exists, unless the Loan has been liquidated and the Net
Liquidation Proceeds relating to the Indenture Trustee's Loan File have been
deposited in the Collection Account or the Indenture Trustee's Loan File or such
document has been delivered to an attorney, or to a public trustee or other
public official as required by law, for purposes of initiating or pursuing legal
action or other proceedings for the foreclosure of the Mortgaged Property either
judicially or non-judicially, and the Servicer has delivered to the Indenture
Trustee a certificate of a Servicing Officer certifying as to the name and
address of the Person to which such Indenture Trustee's Loan File was delivered
and the purpose or purposes of such delivery. Upon receipt of a certificate of a
Servicing Officer stating that such Loan was liquidated and that all amounts
received or to be received in connection with such liquidation which are
required to be deposited into the Collection Account have been so deposited, a
copy of the Request for Release shall be released by the Indenture Trustee to
the Servicer.
On behalf of the Indenture Trustee, the Servicer shall execute or, to the
extent that the Servicer cannot so execute on behalf of the Indenture Trustee,
upon written certification of a Servicing Officer, the Indenture Trustee shall
execute and deliver to the Servicer, any court pleadings, requests for trustee's
sale or other documents necessary to the foreclosure or trustee's sale in
respect of a Mortgaged Property or to any legal action brought to obtain
judgment against any Mortgagor on the Debt Instrument or Mortgage or to obtain a
deficiency judgment, or to enforce any other remedies or rights provided by the
Debt Instrument or Mortgage or otherwise available at law or in equity. Each
such certification shall include a request that such pleadings or documents be
executed by the Indenture Trustee and a statement as to the reason such
documents or pleadings are required and that the execution and delivery thereof
by the Indenture Trustee will not invalidate or otherwise affect the lien of the
Mortgage, except for the termination of such a lien upon completion of the
foreclosure or trustee's sale.
The Indenture Trustee shall execute and deliver to the Servicer any court
pleadings, requests for trustee's sale or other documents necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal
action brought to obtain judgment against any Mortgagor on the Debt Instrument
or Mortgage or to obtain a deficiency judgment, or to enforce any other remedies
or rights provided by the Debt Instrument or Mortgage or otherwise available at
law or in equity. Together with such documents or pleadings, the Servicer shall
deliver to the Indenture Trustee a certificate of a Servicing Officer requesting
that such pleadings or documents be executed by the Indenture Trustee and
certifying as to the reason such documents or pleadings are required and that
the execution and delivery thereof by the Indenture Trustee will not invalidate
or otherwise affect the lien of the Mortgage, except for the termination of such
a lien upon completion of the foreclosure or trustee's sale. The Indenture
Trustee shall, upon receipt of a written request from a Servicing Officer,
execute any document provided to the Indenture Trustee by the Servicer or take
any other action requested in such request that is, in the opinion of the
Servicer as evidenced by such request, required by any state or other
jurisdiction to discharge the lien of a Mortgage upon the satisfaction thereof
and the Indenture Trustee will sign and post, but will not guarantee receipt of,
any such documents to the Servicer, or such other party as the Servicer may
direct, within five Business Days, or more promptly if needed, of the Indenture
Trustee's receipt of such certificate or documents. Such certificate or
documents shall establish to the Indenture Trustee's satisfaction that the
related Loan has been paid in full by or on behalf of the Mortgagor and that
such payment has been deposited in the Collection Account.
Section 7.03 Servicing Compensation.
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As compensation for its services hereunder, the Servicer shall be entitled
to retain from amounts otherwise required to be deposited into the Collection
Account, the Servicing Fee out of which the Servicer shall pay any servicing
fees owed or payable to any Subservicer. Additional servicing compensation in
the form of assumption fees, modification fees, and other administrative fees,
insufficient funds charges, prepayment penalties, amounts remitted pursuant to
Section 7.1, late payment charges and investment income on earnings on the Trust
Accounts shall be part of the Servicing Compensation payable to the Servicer
hereunder and shall be paid either by the Servicer retaining such additional
servicing compensation prior to deposit in the Collection Account pursuant to
Section 5.1(b)(1) or if deposited into the Collection Account as part of the
Servicing Compensation withdrawn from the Note Distribution Account pursuant to
Section 5.1(b)(3).
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The Servicer
also agrees to pay all annual Rating Agency monitoring fees.
Section 7.04 Statement as to Compliance and Financial Statements.
The Servicer will deliver to the Indenture Trustee and the Depositor not
later than 90 days following the end of each Servicer's Fiscal Year (beginning
with ____________ which will cover activities during the fiscal year ________),
an Officers' Certificate stating, as to each signatory thereof, that (i) a
review of the activities of the Servicer during the preceding year and of
performance under this Agreement has been made under such officer's supervision
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all of its obligations under this Agreement throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officers and the nature
and status thereof.
Contemporaneously with the submission of the Officers' Certificate required
by the preceding paragraph, the Servicer shall deliver to the Trustee a copy of
its annual audited financial statements prepared in the ordinary course of
business. The Servicer shall, upon the request of the Depositor, deliver to such
party any unaudited quarterly financial statements of the Servicer.
The Servicer agrees to make available on a reasonable basis to the
Depositor a knowledgeable officer of the Servicer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the Depositor or the
Underwriters on reasonable notice to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying the Depositor or the
Underwriters that the Servicer has the ability to service the Loans in
accordance with this Agreement.
The Servicer shall also furnish and certify to the requesting party such
other information as to (i) its organization, activities and personnel relating
to the performance of the obligations of the Servicer hereunder, (ii) its
financial condition, (iii) the Loans and (iv) the performance of the obligations
of any Subservicer under the related Subservicing Agreement, in each case as the
Indenture Trustee or the Depositor may reasonably request from time to time.
Section 7.05 Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each Servicer's Fiscal Year
(beginning with __________ which will cover activities during the fiscal year
______), the Servicer at its expense shall cause any of Arthur Andersen & Co.,
Coopers & Lybrand, Deloitte & Touche, Ernst & Young, KPMG Peat Marwick and Price
Waterhouse & Co. or such other nationally recognized firm of Independent
Certified Public Accountants (which may also render other services to the
Servicer) to furnish a statement to the Trustee and the Depositor to the effect
that such firm has examined certain documents and records
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relating to the servicing of the Loans under this Agreement or of mortgage loans
under pooling and servicing agreements (including the Loans and this Agreement)
substantially similar to one another (such statement to have attached thereto a
schedule setting forth the pooling and servicing agreements covered thereby) and
that, on the basis of such examination conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FHLMC, such firm confirms that such servicing
has been conducted in compliance with such pooling and servicing agreements
except for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Attestation Program for Mortgage Bankers or the
Attestation Program for Mortgages serviced for FHLMC requires it to report, each
of which errors and omissions shall be specified in such statement. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of independent public
accountants with respect to the related Subservicer.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, the Indenture Trustee, the Issuer and each of their
respective agents shall have the right upon reasonable prior notice, during
normal business hours and as often as reasonably required, to examine, audit and
copy, at the expense of the Person making such examination, any and all of the
books, records or other information of the Servicer (including without
limitation any Subservicer to the extent provided in the related Subservicing
Agreement) whether held by the Servicer or by another on behalf of the Servicer,
which may be relevant to the performance or observance by the Servicer of the
terms, covenants or conditions of this Agreement. Each Securityholder, the
Indenture Trustee and the Issuer agree that any information obtained pursuant to
the terms of this Agreement shall be held confidential.
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements.
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Servicer shall forward
to the Indenture Trustee a statement, certified by a Servicing Officer, setting
forth the status of the Collection Account as of the close of business on the
preceding Record Date and showing, for the period covered by such statement, the
aggregate of deposits into the Collection Account for each category of deposit
specified in Section 5.1(b)(1), the aggregate of withdrawals from the Collection
Account for each category of withdrawal specified in Section 5.1(b)(2) and
Section 5.1(b)(3) for the related Due Period.
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ARTICLE VIII.
REPORTS TO BE PROVIDED BY SERVICER
Section 8.01 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Securities, Securityholders may request that the Servicer make available to the
Securityholders and to prospective Securityholders annual audited financial
statements of the Servicer for one or more of the most recently completed five
fiscal years for which such statements are available, which request shall not be
unreasonably denied.
The Servicer also agrees to make available on a reasonable basis to the
Securityholders or any prospective Securityholder a knowledgeable financial or
accounting officer for the purpose of answering reasonable questions respecting
recent developments affecting the Servicer or the financial statements of the
Servicer and to permit the Securityholders and any prospective Securityholder to
inspect the Servicer's servicing facilities during normal business hours for the
purpose of satisfying the Securityholders and such prospective Securityholder
that the Servicer has the ability to service the Loans in accordance with this
Agreement.
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ARTICLE IX.
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer shall indemnify the Depositor, the Issuer, the Owner
Trustee, the Co-Owner Trustee, and the Indenture Trustee (each an "Indemnified
Party") and hold harmless each of them against any and all claims, losses,
damages, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
any of the Servicer's representations and warranties and covenants contained in
this Agreement or in any way relating to the failure of the Servicer to perform
its duties and service the Loans in compliance with the terms of this Agreement;
provided, however, that if the Servicer is not liable pursuant to the provisions
of Section 9.1(d) for its failure to perform its duties and service the Loans in
compliance with the terms of this Agreement, then the provisions of this Section
9.1 shall have no force and effect with respect to such failure.
(b) The Depositor, the Owner Trustee, the Co-Owner Trustee, or the
Indenture Trustee, as the case may be, shall promptly notify the Servicer if a
claim is made by a third party with respect to a breach of any of the Servicer's
representations and warranties and covenants contained in this Agreement or in
any way relating to the failure of the Servicer to perform its duties and
service the Loans in compliance with the terms of this Agreement. The Servicer
shall promptly notify the Indenture Trustee and the Depositor of any claim of
which it has been notified pursuant to this Section 9.1 by a Person other than
the Depositor, and, in any event, shall promptly notify the Depositor of its
intended course of action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon notice to
the Indemnified Party, assume the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Servicer, but the
fees and expenses of such counsel will be at the expense of such Indemnified
Party, unless (a) the employment of counsel by the Indemnified Party at its
expense has been authorized in writing by the Servicer, (b) the Servicer has not
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both the Servicer and one or more Indemnified Parties, and the
Indemnified Parties shall have been advised by counsel that there may be one or
more legal defenses available to them which are different from or additional to
those available to the Servicer. The Servicer shall not be liable for any
settlement of any such claim or action unless the Servicer shall have consented
thereto or be in default on its obligations hereunder. Any failure by an
Indemnified Party to comply with the provisions of this Section 9.1 shall
relieve the Servicer of liability only if such failure is materially prejudicial
to the position of the Servicer and then only to the extent of such prejudice.
(d) Neither the Depositor nor the Servicer or any of the directors,
officers, employees or agents of the Depositor or the Servicer, or members or
affiliates of the Depositor shall be under any liability to the Issuer or the
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Depositor, the
Servicer or any such person against the remedies provided herein for the breach
of any warranties, representations or covenants made herein, or against any
specific liability imposed on the Depositor or the Servicer herein, or against
any liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of the duties of the Servicer or the
Depositor, as the case may be, or by reason of reckless disregard of the
obligations and duties of the Servicer or the Depositor, as the case may be,
hereunder. The Depositor, the Servicer and
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any director, officer, employee or agent of the Depositor or the Servicer, or
any member or affiliate of the Depositor may rely in good faith on any document
of any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.
(e) The Servicer and the Depositor and any director, officer, employee or
agent of the Servicer or the Depositor shall be indemnified by the Issuer and
held harmless against any loss, liability or expense incurred in connection with
any audit, controversy or judicial proceeding relating to a governmental taxing
authority or any legal action relating to this Agreement or the Securities,
other than any loss, liability or expense related to any specific Loan or Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. Except as otherwise provided herein, neither the Depositor nor the
Servicer shall be under any obligation to appear in, prosecute or defend any
legal action that is not related to its respective duties under this Agreement;
provided, however, that, except as otherwise provided herein, either the
Depositor or the Servicer may, with the prior consent of the Indenture Trustee,
in its discretion undertake any such action which it may deem necessary or
desirable with respect to this Agreement and the rights and duties of the
parties hereto and the interests of the Securityholders hereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom shall be expenses, costs and liabilities of the Issuer, and the
Depositor and the Servicer shall be entitled to be reimbursed therefor out of
the Collection Account.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and franchises
as a corporation, and will obtain and preserve its qualification to do business
as a foreign corporation and maintain such other licenses and permits, in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Loans and to perform its duties under this Agreement.
Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee and the Issuer.
Section 9.03 Limitation on Liability of the Servicer and Others.
(a) The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
Section 9.01, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Loans in accordance with this Agreement.
(b) It is expressly understood and agreed by the parties hereto that (i)
this Agreement is executed and delivered by _____________________, not
individually or personally but solely as trustee of the Issuer under the Trust
Agreement, in the exercise of the powers and authority conferred and vested in
it, (ii) each of the representations, undertaking and agreements herein made on
the part of the Issuer is made and intended not as personal representations,
undertakings and agreements by _____________________________ but is made and
intended for the purpose for binding only the Issuer, (iii) nothing herein
contained shall be construed as creating any liability on
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________________________________, individually or personally, to perform any
covenant either expressed or implied contained herein, all such liability, if
any, being expressly waived by the parties hereto and by any Person claiming by,
through or under the parties hereto and (iv) under no circumstances shall
___________________________ be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representations, warranty or covenant made or undertaken by the
Issuer under this Agreement or the other Basic Documents.
Section 9.04 Servicer Not to Resign; Assignment.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) by the consent of the Indenture Trustee or (b) upon
determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee. No resignation of the Servicer shall become
effective until the Indenture Trustee or a successor servicer, appointed
pursuant to the provisions of Section 10.2 and satisfying the requirements of
Section 4.7 with respect to the qualifications of a successor Servicer, shall
have assumed the Servicer's responsibilities, duties, liabilities (other than
those liabilities arising prior to the appointment of such successor) and
obligations under this Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder, without the prior written consent of the Indenture
Trustee, and absent such written consent any agreement, instrument or act
purporting to effect any such assignment, transfer, delegation or appointment
shall be void.
Section 9.05 Relationship of Servicer to Issuer and the Indenture Trustee.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer and the Indenture Trustee under
this Agreement is intended by the parties hereto to be that of an independent
contractor and not of a joint venturer, agent or partner of the Issuer or the
Indenture Trustee.
Section 9.06 Servicer May Own Notes.
Each of the Servicer and any affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Notes with the
same rights as it would have if it were not the Servicer or an affiliate thereof
except as otherwise specifically provided herein. Notes so owned by or pledged
to the Servicer or such affiliate shall have an equal and proportionate benefit
under the provisions of this Agreement, without preference, priority, or
distinction as among all of the Notes; provided, however, that any Notes owned
by the Servicer or any affiliate thereof, during the time such Notes are owned
by any of them, shall be without voting rights for any purpose set forth in this
Agreement. The Servicer shall notify the Indenture Trustee promptly after it or
any of its affiliates becomes the owner or pledgee of a Note.
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ARTICLE X.
DEFAULT
Section 10.01 Events of Default.
(a) In case one or more of the following Events of Default by the Servicer
shall occur and be continuing, that is to say:
(i) any failure by the Servicer to deposit in the Collection Account
in accordance with Section 5.1(b) any payments in respect of the Loans
received by the Servicer no later than the second Business Day following
the day on which such payments were received; or
(ii) failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in this Agreement, which failure continues unremedied
for a period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied and stating that such notice is
a "Notice of Default" hereunder, shall have been given (a) to the Servicer
by the Indenture Trustee or the Issuer, or (b) to the Servicer, the
Indenture Trustee or the Issuer by any Majority Securityholder; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its inability to pay its debts
as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations;
(b) then, and in each and every such case, so long as an Event of Default
shall not have been remedied, the Majority Securityholders, the Indenture
Trustee or the Issuer by notice in writing to the Servicer may, in addition to
whatever rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, may terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Loans and the
proceeds thereof, as servicer under this Agreement. Upon receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Loans or otherwise, shall, subject to
Section 10.2, pass to and be vested in a successor servicer, or the Indenture
Trustee if a successor servicer cannot be retained in a timely manner, and the
successor servicer, or Indenture Trustee, as applicable, is hereby authorized
and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments and
do or cause to be done all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, including, but not limited
to, the transfer and endorsement or assignment of the Loans and related
documents. The Servicer agrees to cooperate with the successor servicer in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the successor servicer
for administration by it of all amounts which shall at the time be credited by
the Servicer to each Collection Account or thereafter received with respect to
the Loans.
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Section 10.02 Indenture Trustee to Act; Appointment of Successor.
On and after the date the Servicer receives a notice of termination
pursuant to Section 10.1, or the Indenture Trustee receives the resignation of
the Servicer evidenced by an opinion of counsel or accompanied by the consents
required by Section 9.4, or the Servicer is removed as servicer pursuant to this
Article X, then, subject to Section 4.7, the Indenture Trustee shall appoint a
successor servicer to be the successor in all respects to the Servicer in its
capacity as Servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof; provided, however, that the successor servicer shall not be liable for
any actions of any servicer prior to it; provided further, however, that if a
successor servicer cannot be retained in a timely manner, the Indenture Trustee
shall act as successor Servicer. In the event the Indenture Trustee assumes the
responsibilities of the Servicer pursuant to this Section 10.2, the Indenture
Trustee will make reasonable efforts consistent with applicable law to become
licensed, qualified and in good standing in each Mortgaged Property State the
laws of which require licensing or qualification, in order to perform its
obligations as Servicer hereunder or, alternatively, shall retain an agent who
is so licensed, qualified and in good standing in any such Mortgaged Property
State.
In the case that the Indenture Trustee serves as successor servicer, the
Indenture Trustee in such capacity shall not be liable for any servicing of the
Loans prior to its date of appointment, and shall not be subject to any
obligations to repurchase any Loans. The successor servicer shall be obligated
to make Servicing Advances hereunder. As compensation therefor, the successor
servicer appointed pursuant to the following paragraph, shall be entitled to all
funds relating to the Loans which the Servicer would have been entitled to
receive from the Note Distribution Account pursuant to Section 5.1(c) as if the
Servicer had continued to act as servicer hereunder, together with other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Section 7.1 and Section 7.3.
Any collections received by the Servicer after removal or resignation shall
be endorsed by it to the Indenture Trustee and remitted directly to the
Indenture Trustee or, at the direction of the Indenture Trustee, to the
successor servicer. The compensation of any successor servicer (including,
without limitation, the Indenture Trustee) so appointed shall be the Servicing
Fees, together with other Servicing Compensation provided for herein. In the
event the Indenture Trustee is required to solicit bids to appoint a successor
servicer, the Indenture Trustee shall solicit, by public announcement, bids from
housing and home finance institutions, banks and mortgage servicing institutions
that: (i) have a net worth of not less than $25,000,000, (ii) have a blanket
fidelity bond and errors and omissions insurance coverage satisfying the
requirements set forth in Section 4.3 and (iii) would not cause any rating of
any Class of the Securities in effect immediately prior to such assignment to be
qualified, downgraded or withdrawn, as evidenced by a letter from each Rating
Agency to such effect. Such public announcement shall specify that the successor
servicer shall be entitled to the full amount of the Servicing Fee and Servicing
Compensation provided for herein. Within thirty days after any such public
announcement, the Indenture Trustee shall negotiate and effect the sale,
transfer and assignment of the servicing rights and responsibilities hereunder
to the qualified party submitting the highest qualifying bid. The Indenture
Trustee shall deduct from any sum received by the Indenture Trustee from the
successor to the Servicer in respect of such sale, transfer and assignment all
costs and expenses of any public announcement and of any sale, transfer and
assignment of the servicing rights and responsibilities hereunder and the amount
of any unpaid Servicing Fees and unreimbursed Servicing Advances made by the
Indenture Trustee. After such deductions, the remainder of such sum shall be
paid by the Indenture Trustee to the Servicer at the time of such sale, transfer
and assignment to the Servicer's successor. The Indenture Trustee, the Issuer,
any Custodian, the Servicer and any such successor servicer shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. The Servicer agrees to cooperate with the Indenture Trustee and
any successor servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Indenture
Trustee or such successor servicer, as applicable, all documents and records
reasonably requested by it to enable it to assume the Servicer's functions
hereunder and shall promptly also transfer to the Indenture Trustee or such
successor servicer, as
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applicable, all amounts which then have been or should have been deposited in
any Trust Account maintained by the Servicer or which are thereafter received
with respect to the Loans. Neither the Indenture Trustee nor any other successor
servicer shall be held liable by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof caused by (i) the
failure of the Servicer to deliver, or any delay in delivering, cash, documents
or records to it, or (ii) restrictions imposed by any regulatory authority
having jurisdiction over the Servicer hereunder. No appointment of a successor
to the Servicer hereunder shall be effective until written notice of such
proposed appointment shall have been provided by the Indenture Trustee to each
Securityholder, the Issuer and the Depositor and, except in the case of the
appointment of the Indenture Trustee as successor to the Servicer (when no
consent shall be required).
Pending appointment of a successor to the Servicer hereunder, the Indenture
Trustee shall act as servicer hereunder as hereinabove provided. In connection
with such appointment and assumption, the Indenture Trustee may make such
arrangements for the compensation of such successor servicer out of payments on
the Loans as it and such successor servicer shall agree; provided, however, that
no such compensation shall be in excess of that permitted the Servicer pursuant
to Section 7.3, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in this
Agreement.
In connection with any transfer of servicing responsibilities pursuant to
this Section 10.2, the successor Servicer shall be responsible for all costs and
expenses in connection with such transfer, other than the costs and expenses of
transferring the files and records relating to the Loans which shall be at the
expense of the Servicer being replaced.
Section 10.03 Waiver of Defaults.
The Majority Securityholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article X, provided, however, that the
Majority Securityholders may not waive a default in making a required
distribution on a Note or Residual Interest without the consent of the related
Noteholder or holders of the Residual Interests. Upon any waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer shall,
at its own expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Trust Account
maintained by the Servicer;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee all Loan Files and related documents
and statements held by it hereunder and a Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee, the Issuer and the Securityholders a
full accounting of all funds, including a statement showing the Monthly
Payments collected by it and a statement of monies held in trust by it for
payments or charges with respect to the Loans; and
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(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.
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ARTICLE XI.
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either: (a) the later of (i) the satisfaction and discharge of the Indenture
pursuant to the provisions thereof or (ii) the disposition of all funds with
respect to the last Loan and the remittance of all funds due hereunder and the
payment of all amounts due and payable to the Indenture Trustee, the Owner
Trustee, the Co-Owner Trustee, the Issuer and the Custodian; or (b) the mutual
consent of the Servicer, the Depositor and all Securityholders in writing.
Section 11.02 Optional Termination.
The Majority Residual Interestholders may, at their option, effect an early
termination of the Issuer on or after any Distribution Date on which the Pool
Principal Balance declines to ___% or less of the Maximum Collateral Amount. The
Majority Residual Interestholders shall effect such early termination by
providing notice thereof to the Indenture Trustee and Owner Trustee and by
purchasing all of the Loans at a price not less than the Termination Price.
Any such early termination by the Majority Residual Interestholders shall
be accomplished by depositing into the Collection Account on the Determination
Date immediately preceding the Distribution Date on which the purchase is to
occur the amount of the Termination Price to be paid. The Termination Price and
any amounts then on deposit in the Collection Account (other than any amounts
not required to have been deposited therein pursuant to Section 5.1(b)(1) and
any amounts withdrawable therefrom by the Indenture Trustee pursuant to Section
5.1(b)(3)) shall be transferred to the Note Distribution Account pursuant to
Section 5.1(b)(2) for distribution to Securityholders on the succeeding
Distribution Date; and any amounts received with respect to the Loans and
Foreclosure Properties subsequent to the Due Period immediately preceding such
final Distribution Date shall belong to the purchaser thereof. For purposes of
calculating the Available Distribution Amount for such final Distribution Date,
amounts transferred to the Note Distribution Account immediately preceding such
final Distribution Date shall in all cases be deemed to have been received
during the related Due Period, and amounts so transferred shall be applied
pursuant to Section 5.1(c) and Section 5.1(d).
Section 11.03 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Issuer shall be sent (i) by the Indenture Trustee to the
Noteholders in accordance with Section 2.06(b) of the Indenture and (ii) by the
Owner Trustee to the Residual Interestholders in accordance with Section 9.1(d)
of the Trust Agreement.
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ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders.
Except as otherwise specifically provided herein, whenever Securityholder
action, consent or approval is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Securityholders if the Majority Securityholders
agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Servicer, the
Depositor and the Issuer by written agreement with notice thereof to the
Securityholders, without the consent of any of the Securityholders, to cure any
error or ambiguity, to correct or supplement any provisions hereof which may be
defective or inconsistent with any other provisions hereof or to add any other
provisions with respect to matters or questions arising under this Agreement;
provided, however, that such action will not adversely affect in any material
respect the interests of the Securityholders. An amendment described above shall
be deemed not to adversely affect in any material respect the interests of the
Securityholders if either (i) an opinion of counsel is obtained to such effect,
and (ii) the party requesting the amendment obtains a letter from each of the
Rating Agencies confirming that the amendment, if made, would not result in the
downgrading or withdrawal of the rating then assigned by the respective Rating
Agency to any Class of Securities then outstanding.
(b) This Agreement may also be amended from time to time by the Servicer,
the Depositor and the Issuer by written agreement, with the prior written
consent of the Majority Securityholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Securityholders;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, collections of payments on Loans or
distributions which are required to be made on any Security, without the consent
of the holders of 100% of each Class of Notes affected thereby, (ii) adversely
affect in any material respect the interests of the holders of any Class of
Notes in any manner other than as described in (i), without the consent of the
holders of 100% of such Class of Notes, or (iii) reduce the percentage of any
Class of Notes, the holders of which are required to consent to any such
amendment, without the consent of the holders of 100% of such Class of Notes.
(c) It shall not be necessary for the consent of Securityholders under this
Section 12.2 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer shall
be entitled to receive and rely upon an opinion of counsel stating that the
execution of such amendment is authorized or permitted by this Agreement. The
Issuer may, but shall not be obligated to, enter into any such amendment which
affects the Issuer's own rights, duties or immunities under this Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected
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by the Servicer at the Securityholders' expense on direction of the Majority
Securityholders but only when accompanied by an opinion of counsel to the effect
that such recordation materially and beneficially affects the interests of the
Securityholders or is necessary for the administration or servicing of the
Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as
herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
overnight mail, certified mail or registered mail, postage prepaid, to: (i) in
the case of the Issuer, _______________ Trust _______,
____________________________________________
__________________________________________, Attention:______________, or such
other address as may hereafter be furnished to the Securityholders and the other
parties hereto, (ii) in the case of the Depositor and the Servicer, [ADDRESS],
Attention: _____________, or such other address as may hereafter be furnished to
the Securityholders and the other parties hereto in writing by the Servicer or
the Depositor, (iii) in the case of the Indenture Trustee or Co-Owner Trustee,
____________________________________, ___________________, _______________
_________________________, Attention: _______________________________, and (iv)
in the case of the Securityholders, as set forth in the applicable Note
Register. Any such notices shall be deemed to be effective with respect to any
party hereto upon the receipt of such notice by such party, except that notices
to the Securityholders shall be effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
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This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Depositor, the Issuer and the Securityholders and their respective
successors and permitted assigns.
Section 12.11 Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Servicer or the Issuer. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
Section 12.12.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.
(d) The Depositor, the Servicer or the Issuer may require additional proof
of any matter referred to in this Section 12.12 as it shall deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Servicer shall provide or cause the Indenture Trustee to provide or
cause to be provided to each Rating Agency copies of statements, reports and
notices, to the extent received or prepared in connection herewith, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Loans;
(iii) notice of any termination, replacement, succession, merger or
consolidation of either the Servicer, any Custodian or the Issuer;
(iv) notice of final payment on the Notes;
(v) notice of any Event of Default;
(vi) copies of the annual independent auditor's report delivered
pursuant to Section 7.5, and copies of any compliance reports delivered by
the Servicer hereunder including Section 7.4; and
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(vii) copies of any Distribution Statement pursuant to Section 6.1(b).
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to [Moody's, 99 Church Street, New York, New York 10007,
Attention: [___________],] (ii) and if to [Fitch, One State Street Plaza, New
York, NY 10004, Attention: [__________________].]
Section 12.14 Holders of the Residual Interests.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Trust Agreement to the holders of the Residual Interests shall be paid to such
holders pro rata based on their percentage holdings in the Residual Interests;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interests, such consent or
approval shall be capable of being given by the Majority Residual
Interestholder.
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IN WITNESS WHEREOF, the Servicer, the Issuer, the Indenture Trustee, the
Co-Owner Trustee and the Depositor have caused their names to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written, to this SALE AND SERVICING AGREEMENT.
_______________ TRUST ____________,
BY: ______________________________, NOT IN
ITS INDIVIDUAL CAPACITY BUT SOLELY AS OWNER
TRUSTEE
BY: ___________________________________
NAME:
TITLE:
_______________________, AS SERVICER
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
RESIDENTIAL ASSET FUNDING CORPORATION,
AS DEPOSITOR
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
______________________________________ , AS
INDENTURE TRUSTEE AND CO-OWNER TRUSTEE
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
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THE STATE OF DELAWARE )
)
COUNTY OF NEW CASTLE )
BEFORE ME, the undersigned authority, a notary public, on this day
personally appeared __________________________, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said ______________________________, not in
its individual capacity but in its capacity as owner trustee of _______________
TRUST __________as Issuer, and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___th day of _______,
________.
__________________________________________
Notary Public in the State of Delaware
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STATE OF _______________
COUNTY OF ______________
On _________________, _____, before me, _____________________ a Notary
Public in and for said County and State, personally appeared
____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Notary Public
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STATE OF __________________
COUNTY OF ________________
On _________________, ______, before me ________________, a Notary Public
in and for said County and State, personally appeared ____________________.,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Notary Public
89
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STATE OF _________________
COUNTY OF _______________
On _________________, _______________, before me __________________, a
Notary Public in and for said County and State, personally appeared
_________________., personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Notary Public
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STATE OF _______________
COUNTY OF _____________
On _________________, ____________, before me _________________, a Notary
Public in and for said County and State, personally appeared __________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Notary Public
91
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EXHIBIT A
SCHEDULE OF LOANS
92
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EXHIBIT B
RESERVED
93
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EXHIBIT C
INDENTURE TRUSTEE'S ACKNOWLEDGMENT OF RECEIPT
______________________________________, in its capacity as Indenture
Trustee under that certain Sale and Servicing Agreement, dated as of
_________________ among _______, the Depositor, the Indenture Trustee and the
Issuer (the "Sale and Servicing Agreement"), hereby acknowledges receipt by it
in good faith without notice of adverse claims, of the Debt Instruments and, in
accordance with Section 2.6 of the Sale and Servicing Agreement, acknowledges
receipt of the remaining contents of the Indenture Trustee's Loan Files, in each
case delivered to the Indenture Trustee on the Subsequent Transfer Date except,
in each case, with respect to the list of exceptions attached hereto and
declares that it holds and will hold such documents and the other documents
delivered to it constituting the Indenture Trustee's Loan Files, and that it
holds or will hold all such assets and such other assets included in the
definition of "Trust Estate" that are delivered to it, in trust for the
exclusive use and benefit of all present and future Securityholders. The
Indenture Trustee has made no independent examination of any such documents
beyond the review specifically required in the Sale and Servicing Agreement. The
Indenture Trustee makes no representation as to and shall not be responsible to
verify (i) the validity, legality, enforceability, sufficiency, recordability or
genuineness of any document in the Indenture Trustee's Loan Files or of any such
Loan or (ii) the collectability, insurability, effectiveness or suitability of
any Loan.
The Schedule of Loans is attached to this Acknowledgment of Receipt.
Capitalized terms used herein and not defined shall have the respective
meanings assigned to them in the Sale and Servicing Agreement.
______________________________, as
Indenture Trustee
By: ______________________________
Name:
Title:
Dated: __________________
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EXHIBIT D
REQUEST FOR RELEASE OF INDENTURE TRUSTEE'S LOAN FILE
[Date]
To: _________________________________________________, as Custodian
______________________________
______________________________
Attn: ________________________________
Re: Custodial Agreement dated as of ________________ (the "Custodial
Agreement"), among HOME EQUITY SECURITIZATION CORP., as Depositor and
Servicer, _______________________, as Custodian,
__________________________________, as Indenture Trustee and
_______________ TRUST ______, as Issuer
In connection with the Indenture Trustee's Loan Files held by
____________________ _________________________, as the Custodian, we request the
release, and acknowledge receipt, of the Indenture Trustee's Loan File for the
Loan described below, for the reason indicated.
Mortgagor's Name, Address & Zip Code:
Loan Number:
Reason for Requesting Documents (check one)
___ 1 Loan Paid in Full. Servicer hereby certifies that all amounts
received in connection therewith have been credited to the Collection Account.
___ 2. (a) Loan in foreclosure or another method of liquidation pursuant
to Section 4.2 of the Sale and Servicing Agreement.
(b) Loan subject to documentation corrections for errors and
ambiguities. Servicer hereby certifies that the Indenture Trustee's Loan File
released pursuant to this Request for Release of the Indenture Trustee's Loan
File has errors or ambiguities that require correction and that such
documentation shall be corrected in a prompt manner and returned to the
Custodian in accordance with the Sale and Servicing Agreement.
___ 3. Loan repurchased or substituted pursuant to Article II or III of
the Sale and Servicing Agreement. Servicer hereby certifies that the Purchase
Price or Substitution Adjustment has been credited to the Collection Account.
___ 4. Loan Liquidated. Servicer hereby certifies that all proceeds of
foreclosure, insurance or other liquidation have been finally received and
credited to the Collection Account.
___ 5. Loan repurchased pursuant to Section 11.2 of the Sale and
Servicing Agreement.
If box 1 or 4 above is checked, and if the Indenture Trustee's Loan File
was previously released to us, please release to us our previous receipt on file
with you relating to the above specified Loan.
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If box 2,3 or 5 above is checked, upon our return of all of the above
Indenture Trustee's Loan File to ________________, as Custodian, please
acknowledge your receipt by signing in the space indicated below, and returning
this form.
Capitalized words used and not otherwise defined herein have the meanings
assigned to them in the Custodial Agreement.
_____________________________,
as Servicer
By: ___________________________________
Name: _________________________________
Title: ________________________________
Date: _________________________________
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_____________________________________,
as Indenture Trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
Receipt of documents returned to Custodian:
_____________________________________,
as Custodian
By: ___________________________________
Name: _________________________________
Title: ________________________________
97
<PAGE>
EXHIBIT E
FORM OF INDENTURE TRUSTEE'S CERTIFICATION
_________________________
ADDRESS
Attention: _____________
Re: Sale and Servicing Agreement, dated as of ___________________ among First
Union Asset Backed Securites, Inc., and _______________________________;
_______________ Trust, Series ______ Loan Asset-Backed Notes
Ladies and Gentlemen:
This certification is being delivered to you in accordance with Section 2.6
of the above-captioned Sale and Servicing Agreement.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-referenced Sale and Servicing Agreement.
The Indenture Trustee hereby certifies that it has reviewed the Indenture
Trustee's Loan Files with respect to the Loans listed in the related Loan
Schedule, and that except as noted on the list of exceptions attached hereto and
without making any determination as to whether any Indenture Trustee's Loan File
includes any of the documents specified in Section 2.5 of the Sale and Servicing
Agreement, as to each Loan listed in the Loan Schedule, (1) all documents
constituting part of each such Indenture Trustee's Loan File required to be
delivered to it pursuant to the Sale and Servicing Agreement are in its
possession, (2) such documents have been reviewed by it and appear to have been
properly executed and regular on their face and to relate to such Loan and (3)
based on its examination and only as to the foregoing documents, the information
set forth in the Loan Schedule relating to such Loans which corresponds to items
(i), (ii) and (iv)-(viii) of the definition of "Loan Schedule" accurately
reflects information set forth in the Indenture Trustee's Loan File.
The Indenture Trustee has made no independent examination of any documents
contained in each Indenture Trustee's Loan File beyond the review specifically
required in the above-referenced Sale and Servicing Agreement. The Indenture
Trustee makes no representations as to: (i) the validity, legality, sufficiency,
enforceability, execution by a Responsible Officer or genuineness of any of the
documents contained in any Indenture Trustee's Loan File of any of the Loans
identified on the Loan Schedule, or (ii) the collectability, insurability,
effectiveness or suitability of any such Loan or (iii) the existence of any
document specified in clause (v) of Section 2.5(a) of the Sale and Servicing
Agreement. Pursuant to the terms of the Sale and Servicing Agreement, the scope
of the Indenture Trustee's review of the items delivered to the Indenture
Trustee pursuant to Section 2.5 of the Sale and Servicing Agreement was limited
solely to confirming that the documents listed in such Section 2.5 have been
executed and received, relate to the Loan in the Loan Schedule and conform as to
borrower, loan number and address to the correlative information set forth in
the Loan Schedule.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Sale and Servicing Agreement.
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______________________________________
______________________, as Indenture Trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
99
<PAGE>
EXHIBIT E
FORM OF SUBSEQUENT TRANSFER AGREEMENT
____________, ____
SUBSEQUENT TRANSFER AGREEMENT (the "Agreement") by and among
_____________________________, as owner trustee (the "Owner Trustee"),
__________________ ("____________"), Residential Asset Funding Corporation,
a North Carolina. corporation (the "Depositor") and ___________________________,
as indenture trustee and co-owner trustee under the Indenture (in such
capacities, the "Indenture Trustee" and the "Co-Owner Trustee," respectively).
Reference is hereby made to the Sale and Servicing Agreement (the "Sale and
Servicing Agreement") dated as of ___________________________, among
_______________ Trust ________________, _________, the Depositor, the Indenture
Trustee and the Co-Owner Trustee.
WHEREAS, the Depositor wishes to sell the Subsequent Loans set forth in
Schedule A hereto to the Issuer, and the Issuer wishes to purchase such
Subsequent Loans and to pledge such Subsequent Loans to the Indenture Trustee,
all in accordance with the provisions of the Sale and Servicing Agreement and
the Indenture;
NOW, THEREFORE, the Depositor, _________, the Owner Trustee, the Indenture
Trustee and the Co-Owner Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Sale and
Servicing Agreement.
Section 2. Subsequent Loans. Schedule A attached hereto sets forth the
Subsequent Loans being transferred hereby by the Depositor to the Issuer having
an aggregate principal balance of $_______________________ as of ______________,
_______ (the "Subsequent Cutoff Date").
Section 3. Transfer of Subsequent Loans to the Issuer. Pursuant to and upon
the representations, warranties and agreements on the part of the Depositor in
the Sale and Servicing Agreement and in consideration of the purchase price of
$_______________________, the Depositor does hereby sell, assign, transfer and
otherwise convey unto the Issuer, without recourse (except as expressly provided
in the Sale and Servicing Agreement), all right, title and interest of ______ in
and to the Subsequent Loans and all monies received thereon on or after the
Subsequent Cutoff Date, together with the related Subsequent Loans and the
interest in any property which secured a Subsequent Loan, and all payments
thereon and proceeds of the conversion, voluntary or involuntary, of the
foregoing; and proceeds of all the foregoing. The foregoing sale does not
constitute and is not intended to result in any assumption by the Issuer of any
obligation of ______ to the Mortgagors, insurers or any other person in
connection with the Subsequent Loans, the Indenture Trustee's Loan Files, any
insurance policies or any agreement or instrument relating to any of them.
Section 4. Withdrawal from the Pre-Funding Account. Pursuant to Section 5.5
of the Sale and Servicing Agreement, the Indenture Trustee shall withdraw
$_____________________ from the Pre-Funding Account to pay to the Depositor.
Section 5. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
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<PAGE>
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 6. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 7. Headings. The headings of the various Sections herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
Section 8. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
* * *
101
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Subsequent Transfer
Agreement to be duly executed by their respective officers as of the day and
year first above written.
_______________ TRUST ____________,
BY: ______________________________, NOT IN
ITS INDIVIDUAL CAPACITY BUT SOLELY AS OWNER
TRUSTEE
BY: ___________________________________
NAME:
TITLE:
_______________________, AS SERVICER
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
RESIDENTIAL ASSET FUNDING CORPORATION,
AS DEPOSITOR
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
______________________________________ , AS
INDENTURE TRUSTEE AND CO-OWNER TRUSTEE
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
102
<PAGE>
SCHEDULE A TO
SUBSEQUENT TRANSFER AGREEMENT
SCHEDULE OF SUBSEQUENT LOANS
103
<PAGE>
EXHIBIT F
FORM OF INDENTURE TRUSTEE'S EXCEPTION REPORT
, 199__
ADDRESS
Attention: __________
Re: Sale and Servicing Agreement, dated as of _______________, Home Equity
Securitization Corp., and _________________________; _______________ Trust,
Series ________ Loan Asset Backed Notes
Ladies and Gentlemen:
In accordance with Section 2.6 of the above-referenced Sale and Servicing
Agreement, the undersigned, as Indenture Trustee, hereby sets forth an updated
exception report from the previous Indenture Trustee's Certification issued
[INSERT DATE].
The Indenture Trustee has made no independent examination of any documents
contained in each Indenture Trustee's Loan File beyond the review specifically
required in the above-referenced Sale and Servicing Agreement. The Indenture
Trustee makes no representations as to: (i) the validity, legality, sufficiency,
enforceability, execution by a Responsible Officer, or genuineness of any of the
documents contained in each Indenture Trustee's Loan File of any of the Loans
identified on the Loan Schedule, or (ii) the collectability, insurability,
effectiveness or suitability of any such Loan or (iii) the existence of any
document specified in clause (v) of Section 2.5(a) of the Sale and Servicing
Agreement.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Sale and Servicing Agreement.
______________________________________
______________________, as Indenture Trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
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EXHIBIT G
TRUST RECEIPT
105
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS .................................................... 1
Section 1.01 Definitions. ....................................... 1
Section 1.02 Other Definitional Provisions ...................... 22
ARTICLE II. CONVEYANCE OF THE LOANS ....................................... 23
Section 2.01 Conveyance of the Loans ............................ 23
Section 2.02 Intended Characterization; Grant of Security Interest 23
Section 2.03 Ownership and Possession of Indenture Trustee's Loan
Files ............................................. 23
Section 2.04 Books and Records ................................. 24
Section 2.05 Delivery of Loan Documents ......................... 24
Section 2.06 Acceptance by Indenture Trustee of the Loans;
Certain Substitutions; Initial Certification by
Indenture Trustee or Custodian ..................... 27
Section 2.07 Subsequent Transfers ............................... 28
ARTICLE III. REPRESENTATIONS AND WARRANTIES ............................... 31
Section 3.01 Representations and Warranties of the Depositor .... 31
Section 3.02 Representations, Warranties and Covenants of the
Servicer ........................................... 33
Section 3.03 Representations and Warranties regarding Individual
Loans .............................................. 35
Section 3.04 Purchase and Substitution .......................... 44
ARTICLE IV. ADMINISTRATION AND SERVICING OF THE LOANS ..................... 47
Section 4.01 Duties of the Servicer ............................. 47
Section 4.02 Liquidation of Loans; Defaulted Loans .............. 48
Section 4.03 Fidelity Bond; Errors and Omission Insurance ....... 49
Section 4.04 Title, Management and Disposition of Foreclosure
Property ........................................... 49
Section 4.05 Access to Certain Documentation and Information
Regarding the Loans ................................ 51
Section 4.06 Subservicing ....................................... 51
Section 4.07 Successor Servicers ................................ 52
Section 4.08 Maintenance of Hazard Insurance; Property Protection
Expenses ........................................... 53
Section 4.09 Maintenance of Mortgage Impairment Insurance Policy 53
Section 4.10 Reports to the Securities and Exchange Commission .. 54
Section 4.11 Payment of Taxes, Insurance and Other Charges ...... 54
Section 4.12 Filing of Continuation Statements .................. 54
ARTICLE V. ESTABLISHMENT OF TRUST ACCOUNTS ................................ 56
Section 5.01 Collection Acount and Note Distribution Account .... 56
Section 5.02 Certificate Distribution Account and Distributions
on the Notes ....................................... 59
Section 5.03 Trust Accounts; Trust Account Property ............. 60
Section 5.04 Allocation of Losses ............................... 63
Section 5.05 Pre-Funding Account ................................ 63
Section 5.06 Capitalized Interest Account ....................... 63
ARTICLE VI. STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS .......... 65
Section 6.01 Statements ......................................... 65
Section 6.02 Reports of Foreclosure and Abandonment of
Mortgaged Property ................................. 68
Section 6.03 Specification of Certain Tax Matters ............... 68
ARTICLE VII. GENERAL SERVICING PROCEDURE .................................. 69
Section 7.01 Assumption Agreements .............................. 69
Section 7.02 Satisfaction of Mortgages and Release of Indenture
Trustee's Loan Files ............................... 69
Section 7.03 Servicing Compensation ............................. 70
Section 7.04 Statement as to Compliance and Financial Statements. 71
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Section 7.05 Independent Public Accountants' Servicing Report ... 71
Section 7.06 Right to Examine Servicer Records .................. 72
Section 7.07 Reports to the Indenture Trustee; Collection
Account Statements ................................. 72
ARTICLE VIII. REPORTS TO BE PROVIDED BY SERVICER .......................... 73
Section 8.01 Financial Statements ............................... 73
ARTICLE IX. THE SERVICER .................................................. 74
Section 9.01 Indemnification; Third Party Claims ................ 74
Section 9.02 Merger or Consolidation of the Servicer ............ 75
Section 9.03 Limitation on Liaiblity of the Servicer and Others . 75
Section 9.04 Servicer Not to Resign; Assignment ................. 76
Section 9.05 Relationship of Servicer to Issuer and the Indenture
Trustee ............................................ 76
Section 9.06 Servicer May Own Notes ............................. 76
ARTICLE X. DEFAULT ........................................................ 77
Section 10.01 Events of Default .................................. 77
Section 10.02 Indenture Trustee to Act; Appointment of Successor . 78
Section 10.03 Waiver of Defaults ................................. 79
Section 10.04 Accounting Upon Termination of Servicer ............ 79
ARTICLE XI. TERMINATION ................................................... 81
Section 11.01 Termination ........................................ 81
Section 11.02 Optional Termination ............................... 81
Section 11.03 Notice of Termination .............................. 81
ARTICLE XII. MISCELLANEOUS PROVISIONS ..................................... 82
Section 12.01 Acts of Securityholders ............................ 82
Section 12.02 Amendment .......................................... 82
Section 12.03 Recordation of Agreement ........................... 82
Section 12.04 Duration of Agreement .............................. 83
Section 12.05 Governing Law ...................................... 83
Section 12.06 Notices ............................................ 83
Section 12.07 Severability of Provisions ......................... 83
Section 12.08 No Partnership ..................................... 83
Section 12.09 Counterparts ....................................... 83
Section 12.10 Successors and Assigns ............................. 83
Section 12.11 Headings ........................................... 84
Section 12.12 Actions of Securityholders ......................... 84
Section 12.13 Reports to Rating Agencies ......................... 84
Section 12.14 Holders of the Residual Interests .................. 85
EXHIBIT A - SCHEDULE OF LOANS ............................................. 92
EXHIBIT B - RESERVED ...................................................... 93
EXHIBIT C - INDENTURE TRUSTEE'S ACKNOWLEDGMENT OF RECEIPT ................. 94
EXHIBIT D - REQUEST FOR RELEASE OF INDENTURE TRUSTEE'S LOAN FILE .......... 95
EXHIBIT E - FORM OF INDENTURE TRUSTEE'S CERTIFICATION ..................... 98
EXHIBIT E - FORM OF SUBSEQUENT TRANSFER AGREEMENT ......................... 100
EXHIBIT F - FORM OF INDENTURE TRUSTEE'S EXCEPTION REPORT .................. 104
EXHIBIT G - TRUST RECEIPT ................................................. 105
107
EXHIBIT 4.4
FORM OF MORTGAGE LOAN PURCHASE AGREEMENT
<PAGE>
This Loan Purchase Agreement, dated as of [ ], by and between [ ],
a [ ] corporation, its successors and assigns (the "Transferor"), and Home
Equity Securitization Corp., a [ ] corporation and its successors (the
"Depositor").
W I T N E S S E T H:
WHEREAS, Exhibit A attached hereto and made a part hereof as such Exhibit A
may be amended from time to time to reflect additions and deletions lists
certain Loans (as defined herein) owned by the Transferor that the Transferor
desires to sell to the Depositor and that the Depositor desires to purchase;
WHEREAS, it is the intention of the Transferor and the Depositor that
simultaneously with the Transferor's conveyance of the Loans to the Depositor on
the Closing Date, (a) the Depositor shall sell, transfer, assign, set over and
otherwise convey to the Issuer, all of the right, title and interest of the
Depositor in and to the Trust Estate pursuant to a Sale and Servicing Agreement
to be dated as of [ ] (the "Sale and Servicing Agreement"), to be entered
into by and among the Depositor, as depositor, [ ], as transferor (the
"Transferor"), [ ], as servicer (in such capacity, the "Servicer")
and [ ], as indenture trustee (the "Indenture Trustee") and co-owner trustee
(the "Co-Owner Trustee") and (b) the Issuer shall pledge to the Indenture
Trustee the Trust Estate and the Indenture Trustee, pursuant to the written
instructions of the Issuer, shall execute and cause to be authenticated and
delivered the Notes to the Depositor or its designee, upon the order of the
Issuer. Upon the formation of the Issuer and prior to the Issuer's purchase of
the Loans from the Depositor, the Owner Trustee pursuant to the instructions of
the owners of the Residual Interests, shall execute (not in its individual
capacity, but solely as Owner Trustee on behalf of the Issuer) and cause to be
authenticated and delivered the Residual Interests to the initial
Certificateholders designated in the Trust Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used herein, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Capitalized terms used herein and not otherwise
defined shall have the respective meanings ascribed thereto in the Sale and
Servicing Agreement.
Agreement: This Loan Purchase Agreement and all amendments hereof and
supplements hereto.
Class: With respect to the Notes, all Notes bearing the same Class
designation.
Class A1 Note, Class A2 Note, Class A3 Note, Class A4 Note, Class M1 Note,
Class M2 Note and Class B Note: The respective meanings assigned thereto in the
Indenture.
2
<PAGE>
Cut-Off Date: With respect to the Initial Loans, the close of business on [
].
Defective Loan: As defined in Section 3.4 of this Agreement.
Depositor: Residential Asset Funding Corporation, a North Carolina
corporation, and any successor thereto.
Indenture: The Indenture, dated as of [ ], between the Issuer and the
Indenture Trustee.
Loan: Any home loan sold pursuant to the terms hereof as indicated by its
designation on the Loan Schedule attached hereto as Exhibit A. As applicable, a
Loan shall be deemed to refer to the related Debt Instrument, Mortgage and any
related Foreclosure Property. The term "Loan" includes any Subsequent Loan.
Loan File: As defined in Section 2.4.
Loan Sale Agreement: The loan sale agreement between [ ] as Seller and the
Transferor, as Purchaser, dated as of [ ].
Loan Schedule: The schedule of Loans attached hereto as Exhibit A, such
schedule identifying each Loan by address (including the related state and Zip
code) of the related Mortgaged Property, if any, and the name(s) of each
Mortgagor and setting forth as to each Loan the following information: (i) the
Principal Balance as of the Cut-Off Date, (ii) the account number, (iii) the
original principal amount, (iv) the Due Date, (v) whether such Loan is a Fixed
Rate Loan or an Adjustable Rate Loan, (vi) for each Fixed Rate Loan, the Loan
Interest Rate and for each Adjustable Rate Loan, the Gross Margin, (vii) the
first date on which a Monthly Payment is due under the related Debt Instrument,
(viii) the Monthly Payment, (ix) the maturity date of the related Debt
Instrument, and (x) the remaining number of months to maturity as of the Cut-Off
Date.
Officer's Certificate: A certificate delivered to the Depositor signed by
the President or a Vice President or an Assistant Vice President of the
Transferor, in each case, as required by this Agreement.
Purchase Price: As defined in Section 2.2 herein.
Purchaser: The Transferor as Purchaser under the Loan Sale Agreement.
Purchaser's Loan File: As defined in Section 2.5(c).
Qualified Substitute Loan: A home loan or home loans substituted for a
Defective Loan pursuant to Section 2.6 or 3.5, which (i) is a Fixed Rate Loan if
the related Defective Loan is a Fixed Rate Loan, (ii) has or have an interest
rate or rates of not less than two percentage points fewer and not more than two
percentage points greater than the Loan Interest Rate for the Defective Loan,
(iii) matures or mature not more than two years later than and not more than two
years earlier than the Defective Loan (provided, however, that no such Qualified
Substitute Loan shall mature later than the latest maturing Loan in the Trust as
of the Closing Date), (iv) has or
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have a principal balance or principal balances (after application of all
payments received on or prior to the date of substitution) equal to or less than
the Principal Balance of the Defective Loan as of such date, (v) has or have a
lien priority equal or superior to that of the Defective Loan, (vi) has or have
a borrower with a comparable credit grade classification to the credit grade
classification of the borrower with respect to the Deleted Loans, including a
FICO Score that is no more than 10 points below that of such Deleted Loan; and
(vii) complies or comply as of the date of substitution with each representation
and warranty set forth in Section 3.4 (including without limitation satisfaction
of the condition set forth in Section 3.3(af) as not constituting a "real estate
mortgage" if the related Defective Loan did not constitute a "real estate
mortgage") and is or are not more than 29 days delinquent as of the date of
substitution for such Deleted Loan. For purposes of determining whether multiple
mortgage loans proposed to be substituted for one or more Deleted Loans pursuant
to Section 2.6 or 3.5 are in fact "Qualified Substitute Loans" as provided
above, the criteria specified in clauses (i) and (iii) above may be considered
on an aggregate or weighted average basis, rather than on a loan-by-loan basis
(e.g. so long as the weighted average Loan Interest Rate of any loans proposed
to be substituted is not less than two percentage points fewer than and not more
than two percentage points greater than the Loan Interest Rate for the
designated Deleted Loan or Loans, the requirements of clause (i) above would be
deemed satisfied).
Repurchased Loan: Any Loan that has been repurchased pursuant to clause
(ii) of the fourth sentence of Section 3.4(a).
Registration Statement: means that certain registration statement on Form
S3, as amended (Registration No. _________________) relating to the offering by
the Depositor from time to time of its ________________________________
(Issuable in Series) as heretofore declared effective by the Commission.
Seller: [ ] as Seller under the Loan Sale Agreement.
Termination Event: means the existence of any one or more of the following
conditions:
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(a) a stop order suspending the effectiveness of the Registration
Statement shall have been issued or a proceeding for that purpose shall
have been initiated or threatened by the Commission; or
(b) subsequent to the execution and delivery of this Agreement, a
downgrading, or public notification of a possible change, without
indication of direction, shall have occurred in the rating afforded any of
the debt securities or claims paying ability of any person providing any
form of credit enhancement for any of the Notes, by any "nationally
recognized statistical rating organization," as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Securities Act; or
(c) subsequent to the execution and delivery of this Agreement, there
shall have occurred an adverse change in the condition, financial or
otherwise, earnings, affairs, regulatory situation or business prospects of
the Seller reasonably determined by the Depositor to be material; or
(d) subsequent to the date of this Agreement there shall have occurred
any of the following: (i) a suspension or material limitation in trading in
securities substantially similar to the Notes; (ii) a general moratorium on
commercial banking activities in New York declared by either Federal or New
York State authorities; or (iii) the engagement by the United States in
hostilities, or the escalation of such hostilities, or any calamity or
crisis, if the effect of any such event specified in this clause (iii) in
the reasonable judgment of the Depositor makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Notes on the terms and in the manner contemplated in the Prospectus
Supplement. Transferor: [ ], in its capacity as the transferor hereunder.
Trust Agreement: The Trust Agreement dated as of [ ], among the
Depositor, the Company, the Co-Owner Trustee and the Owner Trustee.
Trust Estate: The assets subject to the Sale and Servicing Agreement, the
Trust Agreement and the Indenture and assigned to the Issuer, which assets
consist of: (i) such Loans and other home loans as from time to time are subject
to the Sale and Servicing Agreement as listed in the loan schedule attached to
the Sale and Servicing Agreement, as the same may be amended or supplemented
from time to time including the addition of Subsequent Loans, the removal of
Deleted Loans and the addition of Qualified Substitute Loans (as defined in the
Sale and Servicing Agreement and not as defined herein), together with the
Servicer's Loan Files and the Trustee's Loan Files relating thereto and all
proceeds thereof, (ii) all payments in respect of interest received with respect
to the Loans and any other home loans as from time to time are subject to the
Sale and Servicing Agreement as listed in the loan schedule attached to the Sale
and Servicing Agreement, as the same may be amended or supplemented from time to
time including the addition of Subsequent Loans, the removal of Deleted Loans
and the addition of Qualified Substitute Loans (as defined in the Sale and
Servicing Agreement and not as defined herein) on or after the Cut-Off Date or
Subsequent Cut-Off Date as applicable and all payments received with respect to
principal, on or after the Cut-Off Date or Subsequent Cut-Off Date as
applicable, (iii) such assets as from time to time are identified as Foreclosure
Property, (iv) such assets and funds as are from time to time are deposited in
the Collection Account, the Note
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Distribution Account and the Certificate Distribution Account, including amounts
on deposit in such accounts which are invested in Permitted Investments, (v) the
Transferor's and the Seller's rights under all insurance policies with respect
to the Loans and any Insurance Proceeds, (vi) Net Liquidation Proceeds, Post
Liquidation Proceeds and Released Mortgaged Property Proceeds, (vii) all right,
title and interest of the Servicer and the Transferor in and to the rights and
obligations of any Subservicer, pursuant to any Subservicing Agreement, and
(viii) all rights, title and interest of the Depositor in and to the obligations
of the Transferor under this Agreement.
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ARTICLE II
PURCHASE, SALE AND CONVEYANCE OF LOANS
Section 2.1 Agreement to Purchase. (a) Subject to the terms and conditions
of this Agreement, the Transferor hereby sells, transfers, conveys, and assigns
and the Depositor hereby purchases the Loans.
(b) The Depositor and the Transferor have agreed upon which of the
Transferor's Loans are purchased by the Depositor pursuant to this
Agreement, and the Transferor has prepared a Loan Schedule. The Loan
Schedule is attached hereto as Exhibit A.
(c) The closing for the purchase and sale of the Loans shall take
place at the offices of [ ], at 10:00 a.m., [ ] time, on [ ] or
such other place and time as the parties shall agree (such time being
herein referred to as the "Closing Date").
Section 2.2 Purchase Price. On the Closing Date, as full consideration for
the Transferor's sale of the Loans to the Depositor, the Depositor will deliver
to the Transferor an amount in cash equal to $_____________________, payable in
immediately available funds.
Section 2.3 Conveyance of Loans; Possession of Loan Schedule. (a) Effective
as of the Closing Date, the Transferor hereby sells, transfers, assigns, sets
over and conveys to the Depositor, without recourse but subject to the terms of
this Agreement, all right, title and interest in and to the Loans, the insurance
policies relating to each such Loan, if any, and all right, title and interest
in and to the proceeds of such insurance policies from and after the Closing
Date.
(b) Upon the sale of such Loans, the ownership of each related Debt
Instrument, each related Mortgage and the contents of the related Loan File
shall immediately vest in the Depositor and the ownership of all related
records and documents with respect to each Loan prepared by or which come
into the possession of the Transferor shall immediately vest in the
Depositor.
(c) Pursuant to the Sale and Servicing Agreement, the Depositor shall,
on the Closing Date, irrevocably transfer, assign, set over and otherwise
convey all of its right, title and interest in and to the applicable Loans
and all of its rights (exclusive of its obligations) under this Agreement
to the Issuer for the benefit of the Indenture Trustee.
(d) Pursuant to the Indenture, the Issuer shall pledge to the
Indenture Trustee, on the Closing Date, all of its right, title and
interest in and to the Trust Estate and all of its right, title and
interest in the Sale and Servicing Agreement. Section
2.4 Delivery of Loan Documents. (a) On or prior to the Closing Date, the
Transferor shall cause the Seller to deliver to the Indenture Trustee each of
the following documents for each applicable Loan (collectively, the "Loan
Files"):
(i) The original Debt Instrument, endorsed by the Seller in blank
or in the following form: "Pay to the order of [ ], as Indenture
Trustee and Co-Owner Trustee, ___________ Trust, without recourse",
with all prior and
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intervening endorsements showing a complete chain of endorsement from
origination of the Loan to the Seller;
(ii) The original Mortgage with evidence of recording thereon
(or, if the original Mortgage has not been returned from the
applicable public recording office or is not otherwise available, a
copy of the Mortgage certified by a Responsible Officer of the Seller
or by the closing attorney or by an officer of the title insurer or
agent of the title insurer which issued the related title insurance
policy or commitment therefor to be a true and complete copy of the
original Mortgage submitted for recording) and, if the Mortgage was
executed pursuant to a power of attorney, the original power of
attorney with evidence of recording thereon (or, if the original power
of attorney has not been returned from the applicable public recording
office or is not otherwise available, a copy of the power of attorney
certified by a Responsible Officer of the Seller or by the closing
attorney or by an officer of the title insurer or agent of the title
insurer which issued the related title insurance policy or commitment
therefor, to be a true and complete copy of the original power of
attorney submitted for recording);
(iii) The original executed Assignment of Mortgage, acceptable
for recording except with respect to any currently unavailable
recording information, from the Seller to the Indenture Trustee in
blank or in the following form "[ ] to ______________________,
____________________, as Indenture Trustee and Co-Owner Trustee,
_______________ Trust, without recourse";
(iv) The original Assignment of Mortgage and any original
intervening Assignments of Mortgage, with evidence of recording
thereon, showing a complete chain of assignment from origination of
the Loan to the Seller (or, if any such Assignment of Mortgage has not
been returned from the applicable public recording office or is not
otherwise available, a copy of such Assignment of Mortgage certified
by a Responsible Officer of the Seller]or by the closing attorney or
by an officer of the title insurer or agent of the title insurer which
issued the related title insurance policy or commitment therefor to be
a true and complete copy of the original Assignment submitted for
recording); and
(v) The original, or a copy certified by the Seller to be a true
and correct copy of the original, of each assumption, modification,
written assurance or substitution agreement, if any.
(b) With respect to any Mortgage referred to in Section 2.4(a)(ii)
above as to which the original Mortgage is not available as of the Closing
Date and with respect to any Assignment of Mortgage referred to in Section
2.4(a)(iii) or 2.4(a)(iv) as to which the original Assignment of Mortgage
is not available as of the Closing Date, the Transferor shall cause the
Seller to deliver, prior to the Closing Date, a copy of such Mortgage or
such Assignment of Mortgage, as the case may be, certified by the Seller to
be a true and correct copy, to the Indenture Trustee and shall also deliver
the original Mortgage, or where the original Mortgage is unavailable a copy
thereof certified by the applicable public recording office, and the
original Assignment of Mortgage, or where the original Assignment of
Mortgage is unavailable a copy thereof certified by the applicable public
recording office, to the Indenture Trustee within five
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Business Days of receipt thereof by the Seller but in no event later than
360 days following the date of origination of the related Loan or the date
of such Assignment of Mortgage to the Seller. The failure of the Seller to
deliver to the Indenture Trustee (x) any original Mortgage as required
under Section 2.4(a)(ii) (or where the original is unavailable a copy
thereof certified by the applicable public recording office), or (y) any
original Assignment of Mortgage as required under Section 2.4(a)(iii) and
(iv) (or where the original is unavailable a copy thereof certified by the
applicable public recording office), shall not be deemed a breach of this
Agreement by the Transferor for any purpose whatsoever until the expiration
of such 360 day period.
The Transferor shall cause the Seller to promptly upon receipt thereof (and
in no event later than the earlier of (i) five Business Days following such
receipt and (ii) 360 days after the Closing Date, deliver to the Indenture
Trustee (a) the original recorded Mortgage in those instances where a certified
copy thereof was delivered to the Indenture Trustee; (b) the original recorded
Assignment of Mortgage or Assignment of Mortgages showing a complete chain of
assignment from origination of a Loan to the Indenture Trustee in those
instances where certified copies thereof were delivered to the Indenture
Trustee; (c) the original policy of title insurance or title report, as
applicable, or a copy certified by the Seller to be a true and correct copy in
those instances where a commitment (binder) (including any marked additions
thereto or deletions therefrom) to issue such policy was delivered to the
Indenture Trustee; and (d) any other original documents constituting a part of a
Loan File received with respect to any Home Loan, including, but not limited to,
any original documents evidencing an assumption or modification of any Loan.
All original documents relating to the Loans that are not delivered to the
Indenture Trustee are and shall be held by the Seller, in trust for the benefit
of the Transferor and the Depositor or any of their assignees. In the event that
any such original document is required pursuant to the terms of this Section 2.4
to be a part of a Loan File, such document shall be delivered promptly to, or
upon the instruction of, the Depositor. Any original document that is not
required pursuant to the terms of this Section to be a part of a Loan File shall
be delivered promptly to the Seller.
In connection with the delivery of documentation provided by this Section
2.4, the Transferor hereby appoints the Depositor its attorney with full power
and authority to act in its stead for the purpose of executing and certifying
assignments and endorsing and certifying promissory notes which make a part of
each Loan File to cure any deficiencies in such documentation.
If the Seller has not delivered all required documentation with respect to
any Loan within the time periods, if any, specified in this Agreement, the
Transferor shall be required to take action with respect to such Loan as and to
the extent provided in Section 2.5 hereof.
(c) All loan documents held by the Indenture Trustee are referred to
herein as the "Indenture Trustee's Loan File." All recordings required
pursuant to this Section 2.4 shall be accomplished by and at the expense of
the Transferor.
Section 2.5 Acceptance of Loans. (a) The Depositor acknowledges receipt by
the Indenture Trustee on behalf of the Depositor on the Closing Date, in good
faith without
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notice of adverse claims, subject to the provisions of Sections 2.5(a)(ii) and
2.5(b) of the Sale and Servicing Agreement and to any exceptions noted on the
Indenture Trustee's receipt in the form annexed as Exhibit C to the Sale and
Servicing Agreement of (x) the documents referred to in Section 2.4(a)(i), (ii),
(iii), (iv) and (v) above (except that any such applicable document may be
endorsed in blank upon receipt) with respect to the Loans listed on the Loan
Schedule delivered to the Depositor on the Closing Date; in addition, the
Depositor acknowledges the assignment to it by the Transferor and the assignment
by it to the Issuer of all other assets included in clauses (i) through (v) of
the definition of "Trust Estate" declares that such documents and the other
documents delivered to the Indenture Trustee constituting the Loan Files and all
such assets and such other assets included in the definition of "Trust Estate"
that are delivered to the Indenture Trustee are held or will be held in trust
for the exclusive use and benefit of all present and future Securityholders.
If in the process of reviewing the Loan Files and making or preparing
the certifications referred to in the Sale and Servicing Agreement, the
Indenture Trustee finds any document or documents constituting a part of a Loan
File to be missing or defective in any material respect, or at the end of any
360day period referenced above finds that all recorded Assignments of Mortgage
and all original Mortgages or certified copies thereof have not been delivered
to it, the Indenture Trustee has agreed to promptly so notify the Transferor,
the Depositor, the Seller and the Servicer. In performing any such review, the
Indenture Trustee may conclusively rely on the Seller as to the purported
genuineness of any such document and any signature thereon. It is understood
that the scope of the Indenture Trustee's review of the items delivered to the
Indenture Trustee pursuant to Section 2.5 of the Sale and Servicing Agreement,
unless otherwise expressly stated in the Sale and Servicing Agreement, shall be
limited solely to confirming that the documents listed in Section 2.5 of the
Sale and Servicing Agreement have been executed and received, relate to the
Loans in the Loan Schedule and conform as to the loan number and address and
description thereof in the Loan Schedule. The Sale and Servicing Agreement also
provides that upon the discovery by the Transferor, the Depositor, the Servicer
or the Indenture Trustee of a breach of any of the representations and
warranties made by the Transferor or the Servicer therein in respect of any Loan
which materially and adversely affects the value of such Loan or the interests
of the Securityholders in such Loan, the Person discovering such breach shall
give prompt written notice to the other Persons set forth in this sentence.
If the Seller has not delivered all required documentation with respect to
any Loan within the time periods specified in this Agreement (as such may have
been extended pursuant to Section 2.4(b) hereof), the Transferor shall be
required to take action with respect to such Loan as and to the extent provided
in Section 3.4 hereof.
(b) The Transferor shall cause the Servicer to hold the Servicer's
Loan File in the custody of the Servicer for the benefit of, and as agent
for, the Securityholders and the Indenture Trustee as the owner thereof. It
is intended by this Section 2.5(b) that the Indenture Trustee shall be
deemed to have possession of the Servicer's Loan Files for purposes of
Section 9305 of the Uniform Commercial Code of the state in which such
documents or instruments are located. The Servicer has agreed to promptly
report to the Indenture Trustee any failure by it to hold the Servicer's
Loan File as herein provided and shall promptly take appropriate action to
remedy any such failure. In acting as custodian of such
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documents and instruments, the Servicer has agreed not to assert any legal
or beneficial ownership interest in the Loans or such documents or
instruments. The Indenture Trustee shall have no duty to monitor or
otherwise oversee the Servicer's performance as custodian.
(c) If the Custodian, during the process of reviewing the Indenture
Trustee's Loan Files, finds any document constituting a part of a Indenture
Trustee's Loan File which is not executed, has not been received, is
unrelated to any Loan identified in the Loan Schedule, does not conform to
the requirements of Section 2.4 or does not conform, in all material
respects, to the description thereof as set forth in the Loan Schedule,
then the Custodian shall promptly so notify the Transferor, the Servicer,
the Indenture Trustee, the Issuer and the Depositor. In performing any such
review, the Custodian may conclusively rely on the Seller as to the
purported genuineness of any such document and any signature thereon. It is
understood that the scope of the Custodian's review of the Indenture
Trustee's Loan Files is limited solely to confirming that the documents
listed in Section 2.4 have been received and further confirming that any
and all documents delivered pursuant to Section 2.4 have been executed and
relate to the Loans identified in the Loan Schedule. None of the Issuer,
the Depositor or the Custodian shall have any responsibility for
determining whether any document is valid and binding, whether the text of
any assignment or endorsement is in proper or recordable form, whether any
document has been recorded in accordance with the requirements of any
applicable jurisdiction, or whether a blanket assignment is permitted in
any applicable jurisdiction. If a material defect in a document
constituting part of a Indenture Trustee's Loan File is discovered, then
Transferor shall comply with the cure, substitution and repurchase
provisions of Section 3.5 hereof. Section
2.6 Transfer of Loans; Assignment of Agreement. The Transferor hereby
acknowledges and agrees that the Depositor may sell, transfer and assign its
interest under this Agreement to the Depositor, who in accordance with the Sale
and Servicing Agreement may assign its interest to the Indenture Trustee as may
be required to effect the purposes of the Sale and Servicing Agreement, without
further notice to, or consent of, the Purchaser or Transferor, and the Indenture
Trustee shall succeed to such of the rights and obligations of the Depositor as
shall be so assigned.
Section 2.7 Books and Records. The sale of each Loan shall be reflected on
the Transferor's balance sheets and other financial statements as a sale of
assets by the Transferor to the Depositor under generally accepted accounting
principles ("GAAP").
Section 2.8 Cost of Delivery and Recordation of Documents. The costs
relating to the delivery and recordation of the documents specified in this
Article II in connection with the Loans shall be borne by the Seller.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties as to the Transferor. The
Transferor hereby represents and warrants to the Depositor, as of the Closing
Date, that:
(a) The Transferor is a [ ] corporation duly organized, validly
existing and in good standing under the laws of the State of [ ] and has
all licenses necessary to carry on its business as now being conducted and
is licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or
qualification in order for the Transferor to conduct such business and to
perform its obligations as the Transferor hereunder and is in any event in
compliance with the laws of each state in which any Mortgaged Property is
located to the extent necessary to ensure the enforceability of each Loan
in accordance with the terms of this Agreement;
(b) The execution and delivery of this Agreement by the Transferor and
its performance of and compliance with the terms of this Agreement will not
violate the Transferor's Certificate of Incorporation or bylaws or
constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to
which the Transferor is a party or which may be applicable to the
Transferor or any of its assets;
(c) The Transferor has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly
authorized the execution, delivery and performance of this Agreement, and
has duly executed and delivered this Agreement. This Agreement, assuming
due authorization, execution and delivery by the Depositor, constitutes a
valid, legal and binding obligation of the Transferor, enforceable against
it in accordance with the terms hereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(d) The Transferor is not in violation of, and the execution and
delivery of this Agreement by the Transferor and its performance and
compliance with the terms of this Agreement will not constitute a violation
with respect to, any order or decree of any court or any order or
regulation of any federal, state, municipal or governmental agency having
jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Transferor,
materially and adversely affect the performance of its duties hereunder or
impair the ability of the Indenture Trustee (or the Transferor as agent of
the Indenture Trustee) to realize on the Loans or impair the value of the
Loans;
(e) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Transferor, threatened, before any court,
administrative agency or government tribunal against the Transferor which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties
or assets of the Transferor, or in any material impairment of the right or
ability of the Transferor to carry on its business substantially as now
conducted, or in any material liability on
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the part of the Transferor, or which would draw into question the validity
of this Agreement, the Loans, or of any action taken or to be taken in
connection with the obligations of the Transferor contemplated herein, or
which would impair materially the ability of the Transferor to perform
under the terms of this Agreement or that might prohibit its entering into
this Agreement or the consummation of any of the transactions contemplated
hereby;
(f) The Transferor will examine each Subservicing Agreement and will
be familiar with the terms thereof. Each designated Subservicer and the
terms of each Subservicing Agreement will be required to comply with the
provisions of Section 4.7 of the Sale and Servicing Agreement. The terms of
any Subservicing Agreement will not be inconsistent with any of the
provisions of 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 Transferor of, or compliance by the Transferor with,
this Agreement or the Securities, or for the consummation of the
transactions contemplated by this Agreement, except for such consents,
approvals, authorizations and orders, if any, that have been obtained prior
to the Closing Date;
(h) The collection practices used by the Seller with respect to the
Loans have been, in all material respects, legal, proper, prudent and
customary in the nonconforming mortgage servicing business; (i) The
transactions contemplated by this Agreement are in the ordinary course of
business of the Transferor;
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Transferor.
(j) The Transferor is duly licensed where required as a "licensee" or
is otherwise qualified in each state in which it transacts business and is
not in default of such state's applicable laws, rules and regulations,
except where the failure to so qualify or such default would not have a
material adverse effect on the ability of the Transferor to conduct its
business or perform its obligations hereunder;
(k) The Seller is an Eligible Servicer and services mortgage loans in
accordance with Accepted Servicing Procedures;
(l) This Agreement contains no untrue statement or alleged untrue
statement of a material fact or omits to state any material fact necessary
to make the statements contained herein or therein, in light of the
circumstances under which they will be made, not misleading
(m) No Officers' Certificate, statement, report or other document
prepared by the Transferor and furnished or to be furnished by it pursuant
to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein
not misleading;
(n) The Transferor is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to this Agreement;
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(o) The Transferor has not waived any default, breach, violation or
event of acceleration under any Debt Instrument or the related Mortgage;
(p) The Transferor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
(q) This Agreement, the Sale and Servicing Agreement and the Custodial
Agreement were each approved by the board of directors or loan committee of
the Seller, which approval is reflected in the minutes of said board or
committee, and will be continuously maintained from the time of its
execution as an official record of the Seller.
Section 3.2 Representations and Warranties Relating to the Loans. The
Transferor represents and warrants to the Depositor as of the Closing Date that,
as to each Loan, immediately prior to the sale and transfer of such Loan by the
Transferor to the Depositor:
(a) The information set forth in the Loan Schedule is complete, true
and correct;
(b) [reserved];
(c) Each Mortgage is a valid first or second lien on a fee simple (or
its equivalent under applicable state law) estate in the real property
securing the amount owed by the Mortgagor under the Debt Instrument subject
only to (i) the lien of current real property taxes and assessments which
are not delinquent, (ii) any related first mortgage loan, (iii) 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 in the area wherein the property subject to the Mortgage is
located and specifically referred to in the title insurance policy
delivered to the originator of the Loan and referred to or otherwise
considered in the appraisal obtained in connection with the origination of
the related Loan obtained by the Transferor and (iv) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage or
the use, enjoyment, value or marketability of the related Mortgaged
Property;
(d) Immediately prior to the sale of the Loan to the Depositor (i) the
Transferor was the sole owner and holder of each Loan, (ii) each Loan was
not otherwise assigned or pledged, (iii) the Transferor had good,
indefeasible and marketable title thereto, (iv) the Transferor had full
right to transfer and sell the Loan therein to the Depositor hereunder free
and clear of any encumbrance, equity interest, participation interest,
lien, pledge, charge, claim or security interest, and (v) the Transferor
had full right and authority subject to no interest or participation of, or
agreement with, any other party, to sell and assign each Loan to the
Depositor hereunder and following the sale of each Loan by the Depositor,
the Depositor will own such Loan free and clear of any encumbrance, equity
interest, participation interest, lien, pledge, charge, claim or security
interest;
(e) As of the Cut-Off Date, no payment of principal or interest on or
in respect of any Loan remains unpaid for 30 or more days past the date the
same was due in accordance with the related Debt Instrument without regard
to applicable grace periods;
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(f) No Fixed Rate Loan has a Loan Interest Rate less than 8.00% per
annum and the weighted average interest rate of the Fixed Rate Loans as of
the Cut-Off Date was 13.385% and no Adjustable Rate Loan has a Loan
Interest Rate less than 8.625% per annum and the weighted average interest
rate of the Adjustable Rate Loans as of the Cut-Off Date was 11.00%;
(g) At origination, no Loan had an original term to maturity of
greater than ____ months;
(h) As of the Cut-Off Date, the weighted average maturity of the Loans
was ____ months;
(i) There is no mechanics' or similar lien or claim for work, labor or
material (and no rights are outstanding that under law could give rise to
such lien) affecting the premise; subject to any Mortgage which is or may
be a lien prior to, or equal or coordinate with, the lien of such Mortgage,
except those which are insured against by the title insurance policy
referred to in (af) below;
(j) There is no delinquent tax or assessment lien against any
Mortgaged Property;
(k) Such Loan, the Mortgage, and the Debt Instrument, including,
without limitation, the obligation of the Mortgagor to pay the unpaid
principal of and interest on the Debt Instrument, are each not subject to
any right of rescission (or any such rescission right has expired in
accordance with applicable law), setoff, counterclaim, or defense,
including the defense of usury, nor will the operation of any of the terms
of the Debt Instrument or the Mortgage, or the exercise of any right
thereunder, render either the Debt Instrument or the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
setoff, counterclaim, or defense, including the defense of usury, and no
such right of rescission, setoff, counterclaim, or defense has been
asserted with respect thereto;
(l) The Mortgaged Property is free of material damage and is in good
repair, and there is no pending or threatened proceeding for the total or
partial condemnation of the Mortgaged Property;
(m) The Transferor has not received a notice of default of any first
mortgage loan secured by the Mortgaged Property which has not been cured by
a party other than the Transferor;
(n) Each Debt Instrument and Mortgage are in substantially the forms
previously provided to the Depositor;
(o) No Loan had, at the date of origination, a Combined Loan-to-Value
Ratio in excess of ____%, and the weighted average Combined Loan-to-Value
ratio of all Loans as of the Cut-Off Date was [ ]%;
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(p) The Loan was not originated in a program in which the amount of
documentation in the underwriting process was limited in comparison to the
originator's normal documentation requirements for similar type loans;
(q) No more than the following percentages of the Loans by Principal
Balance as of the Cut-Off Date were secured by Mortgaged Properties located
in the following states.
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State Percent of
Principal Balance
---------------- [ ]%
---------------- [ ]%
---------------- [ ]%
---------------- [ ]%
(r) The Loans were not selected by the Transferor for sale to the
Depositor on any basis adverse to the Depositor relative to the portfolio
of similar mortgage loans of the Depositor;
(s) None of the Loans constitutes a lien on leasehold interests;
(t) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. To the
best of the Transferor's knowledge, there is no homestead or other
exemption available to the related Mortgagor which would materially
interfere with the right to sell the related Mortgaged Property at a
trustee's sale or the right to foreclose the related Mortgage. The Mortgage
contains customary and enforceable provisions for the acceleration of the
payment of the Principal Balance of such Loan in the event all or any part
of the related Mortgaged Property is sold or otherwise transferred without
the prior written consent of the holder thereof;
(u) Each Loan has been closed and the proceeds of such Loan have been
fully disbursed, including reserves set aside by the Transferor, there is
no requirement for, and the Transferor shall not make any, future advances
thereunder. Any future advances made prior to the Cut-Off Date have been
consolidated with the principal balance secured by the Mortgage, and such
principal balance, as consolidated, bears a single interest rate and single
repayment term reflected on the applicable Loan Schedule. The Principal
Balance as of the Cut-Off Date does not exceed the original principal
amount of such Loan. Any and all requirements as to completion of any
onsite or off site improvements and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees, and expenses incurred in
making, or recording such Loan have been paid and the related Mortgagor is
not entitled to any refund of any amounts paid or due under the related
Debt Instrument or Mortgage;
(v) All Loans were originated in compliance with the Seller's
Underwriting Guidelines and the Seller's Underwriting Guidelines conform in
all material respects to the description thereof set forth in the
Prospectus Supplement;
(w) The terms of the Mortgage and Debt Instrument have not been
impaired, waived, altered, or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the interest
of the Depositor and which has been delivered to the Depositor. The
substance of any such alteration or modification is reflected on the Loan
Schedule and, to the extent necessary, has been approved by (i) the insurer
under the applicable mortgage title insurance policy, and (ii) the insurer
under any other insurance policy required
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hereunder for such Loan where such insurance policy requires approval and
the failure to procure approval would impair coverage under such policy;
(x) No instrument of release, satisfaction, subordination, rescission,
waiver, alteration, or modification has been executed in connection with
such Loan, no Loan has been satisfied, canceled, subordinated or rescinded,
in whole or in part, and no Loan has been released, in whole or in part,
except in connection with an assumption agreement which has been approved
by the insurer under any insurance policy required hereunder for such Loan
where such policy requires approval and the failure to procure approval
would impair coverage under such policy, and which is part of the Loan File
and has been delivered to the Depositor, and the terms of which are
reflected in the applicable Loan Schedule;
(y) There is no default, breach, violation, or event of acceleration
existing under the Mortgage or the Debt Instrument and no event which, with
the passage of time or with notice and the expiration of any grace or cure
period, would constitute such a default, breach, violation or event of
acceleration, and the Transferor has not waived any such default, breach,
violation or event of acceleration. All taxes, governmental assessments
(including assessments payable in future installments), insurance premiums,
water, sewer, and municipal charges, leaseholder payments, or ground rents
which previously became due and owing in respect of or affecting the
related Mortgaged Property have been paid. The Transferor has not advanced
funds, or induced, solicited, or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the Mortgage or the Debt Instrument;
(z) All of the improvements which were included for the purposes of
determining the Appraised Value of the Mortgaged Property were completed at
the time that such Loan was originated and lie wholly within the boundaries
and building restriction lines of such Mortgaged Property. No improvements
on adjoining properties encroach upon the Mortgaged Property. No
improvement located on or being part of the Mortgaged Property is in
violation of any applicable zoning law or regulation. All inspections,
licenses, and certificates required to be made or issued with respect to
all occupied portions of the Mortgaged Property (including all such
improvements which were included for the purpose of determining such
Appraised Value) and, with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy and fire
underwriters certificates, have been made or obtained from the appropriate
authorities and the Mortgaged Property is lawfully occupied under
applicable law;
(aa) There do not exist any circumstances or conditions with respect
to the Mortgage, the Mortgaged Property, the Mortgagor, or the Mortgagor's
credit standing that can be reasonably expected to cause such Loan to
become delinquent or adversely affect the value or marketability of such
Loan, other than any such circumstances or conditions permitted under the
Seller's Underwriting Guidelines;
(bb) 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) (i) in compliance with
any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located and (ii) (A)
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<PAGE>
organized under the laws of such state, (B) qualified to do business in
such state, (C) federal savings and loan associations or national banks,
(D) not doing business in such state, or (E) not required to qualify to do
business in such state;
(cc) The Debt Instrument, the Mortgage and every other agreement, if
any, executed by the applicable Mortgagor in connection with such Loan, 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,
moratorium, or other similar laws affecting the enforcement of creditors'
rights generally and except that the equitable remedy of specific
performance and other equitable remedies are subject to the discretion of
the courts. All parties to the Debt Instrument, the Mortgage and every
other such agreement had legal capacity to execute the Debt Instrument, the
Mortgage and every other such agreement and convey the estate therein
purported to be conveyed, and the Debt Instrument, the Mortgage and every
other such agreement have been duly and properly executed by such parties
or pursuant to a valid power-of-attorney that has been recorded with the
Mortgage;
(dd) The transfer of the Debt Instrument and the Mortgage as and in
the manner contemplated by this Agreement is sufficient either (i) fully to
transfer to the Depositor all right, title, and interest of the Transferor
thereto as note holder and mortgagee or (ii) to grant to the Depositor the
security interest referred to in Section 6.7 hereof. The Mortgage has been
duly assigned and the Debt Instrument has been duly endorsed. The
assignment of Mortgage delivered to the Depositor pursuant to Section
2.1(a) is in recordable form and is acceptable for recording under the laws
of the applicable jurisdiction. The endorsement of the Debt Instrument, the
delivery to the Depositor of the endorsed Debt Instrument, and such
assignment of Mortgage, and the delivery of such assignment of Mortgage for
recording to, and the due recording of such assignment of Mortgage in, the
appropriate public recording office in the jurisdiction in which the
Mortgaged Property is located are sufficient to permit the Depositor to
avail itself of all protection available under applicable law against the
claims of any present or future creditors of the Transferor, and are
sufficient to prevent any other sale, transfer, assignment, pledge, or
hypothecation of the Debt Instrument and Mortgage by the Seller from being
enforceable;
(ee) Any and all requirements of any federal, state, or local law
including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit
opportunity, or disclosure laws applicable to such Loan have been complied
with, and the Seller shall maintain in its possession, available for the
Depositor's inspection, and shall deliver to the Depositor or its designee
upon demand, evidence of compliance with all such requirements. The
consummation of the transactions contemplated by this Agreement will not
cause the violation of any such laws;
(ff) On the Closing Date, [ ]% or more (by aggregate Principal
Balance) of the Loans do not constitute "real estate mortgages" for the
purpose of Treasury Regulation ss.301.7701 under the Code. For this purpose
a Loan does not constitute a "real estate mortgage" if:
(i) The Loan is not secured by an interest in real property, and
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<PAGE>
(ii) The Loan is not an "obligation principally secured by an
interest in real property." For this purpose an " obligation is
principally secured by an interest in real property" if it satisfies
either the test set out in paragraph (1) or paragraph (2) below.
(1) The 80percent test. An obligation is principally secured by
an interest in real property if the fair market value of the interest
in real property securing the obligation
(A) was at least equal to 80 percent of the adjusted issue
price of the obligation at the time the obligation was originated
(or, if later, the time the obligation was significantly
modified); or
(B) is at least equal to 80 percent of the adjusted issue
price of the obligation on the Closing Date.
For purposes of this paragraph (1), the fair market value of the real
property interest must be first reduced by the amount of any lien on the
real property interest that is senior to the obligation being tested, and
must be further reduced by a proportionate amount of any lien that is in
parity with the obligation being tested, in each case before the
percentages set forth in (1)(A) and (1)(B) are determined. The adjusted
issue price of an obligation is its issue price plus the amount of accrued
original issue discount, if any, as of the date of determination.
(2) Alternative test. An obligation is principally secured by an
interest in real property if substantially all of the proceeds of the
obligation were used to acquire or to improve or protect an interest in
real property that, at the origination date, is the only security for the
obligation. For purposes of this test, loan guarantees made by the United
States or any state (or any political subdivision, agency, or
instrumentality of the United States or of any state), or other third party
credit enhancement are not viewed as additional security for a loan. An
obligation is not considered to be secured by property other than real
property solely because the obligor is personally liable on the obligation.
For this purpose only, substantially all of the proceeds of the obligations
means 66% or more of the gross proceeds.
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<PAGE>
(gg) Such Loan, if a first lien, is covered by an ALTA mortgage title
insurance policy or such other generally used and acceptable form of policy
and such Loan, if a second lien, is covered by a PERT policy, issued by and
the valid and binding obligation of a title insurer qualified to do
business in the jurisdiction where the Mortgaged Property is located,
insuring the Transferor, and its successors and assigns, as to the first
priority lien, of the Mortgage in the original principal amount of such
Loan. The assignment to the Depositor of the Transferor's interest in such
mortgage title insurance policy does not require the consent of or
notification to the insurer. Such mortgage title insurance policy is in
full force and effect and will be in full force and effect and inure to the
benefit of the Depositor upon the consummation of the transactions
contemplated by this Agreement. No claims have been made under such
mortgage title insurance policy and neither the Transferor nor any prior
holder of the Mortgage has done, by act or omission, anything which would
impair the coverage of such mortgage title insurance policy;
(hh) All improvements upon the Mortgaged Property are insured against
loss by fire, hazards of extended coverage, and such other hazards as are
customary in the area where the Mortgaged Property is located pursuant to
insurance policies conforming to the requirements of Section 4.8 of the
Sale and Servicing Agreement. If the Mortgaged Property at origination was
located in an area identified on a flood hazard boundary map or flood
insurance rate map issued by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance has been made
available), such Mortgaged Property was covered by flood insurance at
origination. Each individual insurance policy is the valid and binding
obligation of the insurer, is in full force and effect, and will be in full
force and effect and inure to the benefit of the Indenture Trustee upon the
consummation of the transactions contemplated by this Agreement, and
contain a standard mortgagee clause naming the originator of such Loan, and
its successors and assigns, as mortgagee and loss payee. All premiums
thereon have been paid. The Mortgage obligates the Mortgagor to maintain
all such insurance at the Mortgagor's cost and expense, and upon the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to
obtain and maintain such insurance at the Mortgagor's cost and expense and
to seek reimbursement therefor from the Mortgagor, and neither the
Transferor nor any prior holder of the Mortgage has acted or failed to act
so as to impair the coverage of any such insurance policy or the validity,
binding effect, and enforceability thereof;
(ii) If the Mortgage constitutes a deed of trust, a trustee,
authorized and 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
Depositor or its assignees to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the Mortgagor;
(jj) The Mortgaged Property consists of one or more parcels of real
property separately assessed for tax purposes. Each Mortgaged Property is
improved by a one-to-four-family residential dwelling, which does not
include (i) a unit in a cooperative apartment, (ii) a property constituting
part of a syndication, (iii) a time share unit, (iv) a property held in
trust, (v) a mobile home, (vi) a manufactured dwelling, (vii) a
log-constructed home, or (viii) a recreational vehicle, and each such
Mortgaged Property does not constitute other than real property under
applicable state law;
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<PAGE>
(kk) There exist no material deficiencies with respect to escrow
deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made or which the
Transferor expects not to be cured, and no escrow deposits or payments of
other charges or payments due the Transferor have been capitalized under
the Mortgage or the Debt Instrument;
(ll) Such Loan was not originated at a below market interest rate.
Such Loan does not have a shared appreciation feature, or other contingent
interest feature;
(mm) The origination and collection practices used by the Transferor
with respect to such Loan have been in all respects legal, proper, prudent,
and customary in the mortgage origination and servicing business;
(nn) The Mortgagor has, to the extent required by applicable law,
executed a statement to the effect that the Mortgagor has received all
disclosure materials, if any, required by applicable law with respect to
the making of mortgage loans. The Servicer shall maintain or cause to be
maintained such statement in the Loan File;
(oo) All amounts received by the Transferor with respect to such Loan
after the Cut-Off Date and required to be deposited in the Certificate
Distribution Account or Collection Account have been so deposited in the
Certificate Distribution Account or Collection Account and are, as of the
Closing Date in the Certificate Distribution Account or Collection Account;
(pp) Any appraisal report with respect to a Mortgaged Property
contained in the Loan File was signed prior to the approval of the
application for such Loan by a qualified appraiser, duly appointed by the
originator of such Loan, 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 such
application;
(qq) When measured by the Cut-Off Date Principal Balances as of the
Cut-Off Date, the Mortgagors with respect to at least 99.00% of the Loans
represented at the time of origination that the Mortgagor would occupy the
Mortgaged Property as the Mortgagor's primary residence;
(rr) Each Debt Instrument is payable on the _____ day of each month.
The Loan Interest Rate and Monthly Payment with respect to the Adjustable
Rate Loans are adjusted in accordance with the terms of the related Debt
Instrument. All required notices of interest rate and payment amount
adjustments have been sent to the Mortgagor on a timely basis and the
computations of such adjustments were properly calculated. Installments of
interest on the Adjustable Rate Loans are subject to change due to the
adjustments to the Loan Interest Rate on each Interest Adjustment Date,
with interest calculated and payable in arrears, sufficient to amortize the
Loan fully by the stated maturity date over an original term of no more
than 30 years from the closing date of the Loan. All Loan Interest Rate
adjustments have been made in strict compliance with state and federal law
and the terms of the related Debt Instrument. Any interest required to be
paid pursuant to state and local law has been properly paid and credited.
As of the Cut-Off Date, for each Adjustable Rate Loan, the Lifetime Cap is
not lower than approximately ____% per annum, the Lifetime Floor is not
lower than
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<PAGE>
approximately ____% per annum, the Gross Margin is not less than
approximately ____%, the related Debt Instrument does not provide for
negative amortization, limits in the amount of monthly payments or a
conversion feature, the Loan Interest Rate is subject to adjustment on each
Interest Adjustment Date to equal the sum of the Index, plus the applicable
Gross Margin, subject to rounding, the Periodic Rate Cap, the applicable
Lifetime Floor and the applicable Lifetime Cap on each Interest Adjustment
Date;
(ss) To the best of the Transferor's knowledge, 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. The Transferor has no knowledge of any pending action or
proceeding directly involving the related Mortgaged Property in which
compliance with any environmental law, rule or regulation is in issue; and,
to the best of the Transferor'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 employment of such
Mortgaged Property;
(tt) With respect to second lien Loans:
(i) the Transferor has no knowledge that the Mortgagor has
received notice from the holder of the prior mortgage that such prior
mortgage is in default;
(ii) no consent from the holder of the prior mortgage is needed
for the creation of the second lien Mortgage or, if required, has been
obtained and is in the related Loan File;
(iii) if the prior mortgage has a negative amortization, the
Combined Loan-to-Value Ratio was determined using the maximum loan
amount of such prior mortgage;
(iv) the related first mortgage loan encumbering the related
Mortgaged Property does not have a mandatory future advance provision;
(v) except with respect to ____% of the second Loans which are
Balloon Loans, the related prior loan requires equal monthly payments;
and
(vi) the maturity date of the Loan is prior to the maturity date
of the related prior lien if such provides for a balloon payment; (uu)
Each Loan conforms, and all such Loans in the aggregate conform, to
the individual and aggregate descriptions thereof in the Prospectus
Supplement;
(uu) Each Loan conforms, and all such Loans in the aggregate conform,
to the individual and aggregate descriptions thereof in the Prospectus
Supplement.
(vv) [reserved];
(ww) To the best of the Transferor's knowledge, no error, omission,
misrepresentation, negligence, fraud or similar occurrence with respect to
a Loan has taken place on the part of any person, including without
limitation the Mortgagor, any appraiser, a builder or
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<PAGE>
developer, or any other party involved in the origination of the Loan or in
the application of any insurance in relation to such Loan;
(xx) Each Debt Instrument held by the Depositor is the sole original
Debt Instrument and no copies exist which are not stamped duplicate;
(yy) Each Mortgage was recorded, and all subsequent assignments of the
original Mortgage have been recorded in the appropriate jurisdictions
wherein such recordation is necessary to perfect the lien thereof as
against creditors of the Transferor;
(zz) No more than ____% of the Fixed Rate Loans, and ____% of the
Adjustable Rate Loans are secured by properties sharing a single zip code;
(aaa) Except with respect to ____% of the Loans which are balloon
loans, with respect to each Loan, the payments required of the related
Mortgagor are and will be such that the Loan will fully amortize over its
term;
(bbb) No Loan contains any provisions pursuant to which payments are
paid or partially paid with funds deposited in any separate account
established by the Transferor, the Mortgagor or anyone else on behalf of
the Mortgagor, or paid by any source other than the Mortgagor. No Loan
contains any other similar provision which may constitute a "buydown"
provision. No Loan is a graduated payment mortgage loan. No Loan has a
shared appreciation or other contingent interest feature;
(ccc) The Loans are not being transferred with any intent to hinder,
delay or defraud any creditor;
(ddd) No Mortgagor has or will have a claim or defense under any
express or implied warranty or otherwise with respect to goods or services
provided under such Loan;
(eee) The Mortgage and the Debt Instrument contain the entire
agreement of the parties and all obligations of the seller or subcontractor
under the related Loan, no other agreement defines, modifies, or expands
the obligations of the seller or subcontractor under the Loan.
Section 3.3 Representations and Warranties of the Depositor. The Depositor
hereby represents, warrants and covenants to the Transferor, as of the date of
execution of this Agreement and the Closing Date, that:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of North Carolina and has
all licenses necessary to carry on its business as now being conducted and
is licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or
qualification in order for the Depositor to conduct such business and to
perform its obligations as the Depositor hereunder, and in any event the
Depositor is in compliance with the laws of any such state to the extent
necessary to ensure the enforceability of the related Loans, and had at all
relevant times, full corporate power to originate or purchase the Loans, to
own its property, to
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<PAGE>
carry on its business as presently conducted and to enter into and perform
its obligations under this Agreement;
(b) The execution and delivery of this Agreement by the Depositor and
its performance of and compliance with the terms of this Agreement will not
violate the Depositor's articles of incorporation or bylaws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach or acceleration of,
any material contract, agreement or other instrument to which the Depositor
is a party or which may be applicable to the Depositor or any of its
assets;
(c) The Depositor has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be
consummated by it, has duly authorized the execution, delivery and
performance of this Agreement, and has duly executed and delivered this
Agreement. This Agreement, assuming due authorization, execution and
delivery by the Transferor, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the
terms hereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in
a proceeding in equity or at law);
(d) The Depositor is not in violation of, and the execution and
delivery of this Agreement by the Depositor and its performance and
compliance with the terms of this Agreement will not constitute a violation
with respect to, any order or decree of any court or any order or
regulation of any federal, state, municipal or governmental agency having
jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or its
properties or materially and adversely affect the performance of its duties
hereunder;
(e) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Depositor, threatened, before any court,
administrative agency or governmental tribunal against the Depositor which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties
or assets of the Depositor, or in any material impairment of the right or
ability of the Depositor to carry on its business substantially as now
conducted, or in any material liability on the part of the Depositor, or
which would draw into question the validity of this Agreement, the Loans,
or of any action taken or to be taken in connection with the obligations of
the Depositor contemplated herein, or which would impair materially the
ability of the Depositor to perform under the terms of this Agreement or
that might prohibit its entering into this Agreement or the consummation of
any of the transactions contemplated hereby;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, this
Agreement, or for the consummation of the transactions contemplated by this
Agreement, except for such consents, approvals, authorizations and orders,
if any, that have been obtained prior to the Closing Date;
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<PAGE>
(g) The Depositor acquired title to the Loans in good faith, without
notice of any adverse claim;
(h) The collection practices used by the Depositor with respect to the
Loans have been, in all material respects, legal, proper, prudent and
customary in the nonconforming mortgage servicing business;
(i) No Officers' Certificate, statement, report or other document
prepared by the Depositor and furnished or to be furnished by it pursuant
to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein
not misleading;
(j) The Depositor is duly licensed where required as a "Licensee" or
is otherwise qualified in each state in which it transacts business and is
not in default of such state's applicable laws, rules and regulations,
except where the failure to so qualify or such default would not have a
material adverse effect on the ability of the Depositor to conduct its
business or perform its obligations hereunder;
(k) The Depositor 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;
(l) This Agreement contains no untrue statement or alleged untrue
statement of a material fact or omits to state any material fact necessary
to make the statements contained herein or therein, in light of the
circumstances under which they will be made, not misleading;
(m) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended; and
(n) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Depositor.
Section 3.4 Purchase and Substitution.
(a) It is understood and agreed that the representations and
warranties set forth in Article III, shall survive the conveyance of the
Loans to the Depositor. Upon discovery by the Depositor or any of its
assignees of a breach of any of such representations and warranties which
materially and adversely affects the value of the Loans or the interest of
the Securityholders, or which materially and adversely affects the
interests of the Securityholders in the related Loan in the case of a
representation and warranty relating to a particular Loan (notwithstanding
that such representation and warranty was made to the Transferor's best
knowledge), the party discovering such breach shall give prompt written
notice to the others. The Transferor shall within 60 days of the earlier of
its discovery or its receipt of notice of any breach of a representation or
warranty, promptly cure such breach in all material respects. If, however,
within 60 days after the earlier of the Transferor's discovery of such
breach or the Transferor's receiving notice thereof such breach has not
been remedied by either the Transferor and such breach materially and
adversely affects the interests of the Securityholders or in the
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<PAGE>
related Loan (the "Defective Loan"), the Transferor shall on or before the
Determination Date next succeeding the end of such 60day period either (i)
remove such Defective Loan from the Issuer (in which case it shall become a
"Deleted Loan") and substitute one or more Qualified Substitute Loans in
the manner and subject to the conditions set forth in this Section 3.4 or
(ii) purchase such Defective Loan at a purchase price equal to the Purchase
Price by depositing such Purchase Price in the Collection Account. The
Transferor shall provide the Depositor with a certification of a
Responsible Officer on the Determination Date next succeeding the end of
such 60day period indicating whether the Purchaser is purchasing the
Defective Loan or substituting in lieu of such Defective Loan a Qualified
Substitute Loan.
Any substitution of Loans pursuant to this Section 3.4(a) and Section
2.5(b) shall be accompanied by payment by the Transferor of the Substitution
Adjustment, if any, to be deposited in the Collection Account. For purposes of
calculating the Available Collection Amount for any Distribution Date, amounts
paid by the Purchaser or [ ] pursuant to this Section 3.4 in connection with the
repurchase or substitution of any Defective Loan that are on deposit in the
Collection Account as of the Determination Date for such Distribution Date shall
be deemed to have been paid during the related Due Period and shall be
transferred to the Note Distribution Account as part of the Available Collection
Amount to be retained therein or transferred to the Certificate Distribution
Account, if applicable, pursuant to Section 5.1(c) of the Sale and Servicing
Agreement.
As to any Deleted Loan for which the Transferor substitutes a Qualified
Substitute Loan or Loans, the Transferor shall effect such substitution by
delivering to the Depositor (i) a certification executed by a Responsible
Officer of the Transferor to the effect that the Substitution Adjustment has
been credited to the Collection Account and (ii) the documents constituting the
Indenture Trustee's Loan File for such Qualified Substitute Loan or Loans.
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<PAGE>
(b) The Transferor shall cause the Seller to deposit in the Collection
Account all payments received in connection with such Qualified Substitute
Loan or Loans after the date of such substitution. Monthly Payments
received with respect to Qualified Substitute Loans on or before the date
of substitution will be retained by the Transferor. The Depositor will be
entitled to all payments received on the Defective Loan on or before the
date of substitution, and the Transferor, as the case may be, shall
thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Loan. The Transferor shall give written notice to
the Depositor that such substitution has taken place and the Servicer shall
amend the Loan Schedule to reflect (i) the removal of such Defective Loan
from the terms of this Agreement and (ii) the substitution of the Qualified
Substitute Loan. The Transferor shall promptly deliver to the Depositor, a
copy of the amended Loan Schedule. Upon such substitution, such Qualified
Substitute Loan or Loans shall be subject to the terms of this Agreement in
all respects, and the Transferor shall be deemed to have made with respect
to such Qualified Substitute Loan or Loans, as of the date of substitution,
the covenants, representations and warranties set forth in Section 3.1. On
the date of such substitution, the Transferor, will deposit into the
Collection Account an amount equal to the related Substitution Adjustment,
if any. In addition, on the date of such substitution, the Depositor and
its assigns shall cause the Indenture Trustee to release the Deleted Loan
from the lien of the Indenture and the Issuer will cause such Qualified
Substitute Loan to be pledged to the [Indenture Trustee] under the
Indenture as part of the Trust Estate.
(c) It is understood and agreed that the obligations of the Transferor
set forth in this Section 3.5 to cure, purchase or substitute for a
Defective Loan constitute the sole remedies of the Depositor and its
assigns hereunder respecting a breach of the representations and warranties
contained in Section 3.1. Any cause of action against the Transferor
relating to or arising out of a defect in a Indenture Trustee's Loan File
as contemplated by Section 2.6 or against the Transferor relating to or
arising out of a breach of any representations and warranties made in
Section 3.1 shall accrue as to any Loan upon (i) discovery of such defect
or breach by any party and notice thereof to the Transferor or notice
thereof by the Transferor to the Depositor or its assigns, (ii) failure by
the Transferor or the Seller to cure such defect or breach or purchase or
substitute such Loan as specified above, and (iii) demand upon the
Transferor, as applicable, by the Depositor or its assigns for all amounts
payable in respect of such Loan.
(d) None of the Depositor or its assigns shall have any duty to
conduct any affirmative investigation other than as specifically set forth
in this Agreement as to the occurrence of any condition requiring the
repurchase or substitution of any Loan pursuant to this Section or the
eligibility of any Loan for purposes of this Agreement.
(e) With respect to all Defective Loans or other Loans repurchased by
the Transferor pursuant to this Agreement, upon the deposit of the Purchase
Price therefor in the Note Distribution Account, the Depositor or its
assigns shall assign to the Transferor, as the case may be, without
recourse, representation or warranty, all its title and interest in and to
such Defective Loans or Loans, which right, title and interest were
conveyed to the Depositor pursuant to Section 2.3.
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ARTICLE IV
THE TRANSFEROR
Section 4.1 Covenants of the Transferor. The Transferor covenants to the
Depositor as follows:
(a) The Transferor shall cooperate with the Depositor in making
available all information and taking all steps reasonably necessary to
permit accountants' letters to be delivered as necessary.
(b) The Transferor agrees to satisfy or cause to be satisfied on or
prior to the Closing Date, all of the conditions to the Depositor's
obligations set forth in Section 5.1 hereof that are within the
Transferor's (or its agents') control.
(c) The Transferor hereby agrees to do all acts, transactions, and
things and to execute and deliver all agreements, documents, instruments,
and papers by and on behalf of the Transferor as the Depositor or its
counsel may reasonably request in order to consummate the transfer of the
Loans to the Depositor and the subsequent transfer thereof to the
Depositor.
Section 4.2 Merger or Consolidation. The Transferor will keep in full
effect its existence, rights and franchises as a [ ] corporation and will obtain
and preserve its qualification to do business as a foreign corporation, in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Loans and to perform its duties under this Agreement.
Section 4.3 Indemnification. (a) The Transferor agrees to indemnify and to
hold the Depositor harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any other
costs, fees and expenses that the Depositor may sustain in any way related to
the failure of the Transferor to perform its duties in compliance with the terms
of this Agreement. The Depositor shall immediately notify the Transferor if a
claim is made by a third party with respect to this Agreement, and the
Transferor shall have the right to assume the defense of any such claim and will
pay or cause to be paid all expenses in connection therewith, including
reasonable counsel fees, and will promptly cause to be paid, discharged and
satisfied, any judgment or decree which may be entered against the Transferor or
the Depositor in respect of such claim. Pursuant to the Sale and Servicing
Agreement, the Trustee shall reimburse the Depositor in accordance with the Loan
Purchase Agreement for all amounts advanced by the Depositor in accordance with
the preceding sentence except when the claim relates directly to the failure of
the Transferor to perform its duties in compliance with the terms of this
Agreement.
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ARTICLE V
CONDITIONS OF CLOSING
Section 5.1 Conditions of Depositor's Obligations. The obligations of the
Depositor to purchase the Loans will be subject to the satisfaction on the
Closing Date and on each Subsequent Transfer Date of the following conditions.
Upon payment of the purchase price for the Loans, such conditions shall be
deemed satisfied or waived.
(a) Each of the obligations of the Transferor required to be performed
by it on or prior to the Closing Date or such Subsequent Transfer Date
pursuant to the terms of this Agreement shall have been duly performed and
complied with and all of the representations and warranties of the
Transferor under this Agreement shall be true and correct as of the Closing
Date or such Subsequent Transfer Date and no event shall have occurred
which, with notice or the passage of time, would constitute a default under
this Agreement.
(b) The Loans will be acceptable to the Depositor, in its sole
discretion.
(c) The Depositor shall have received the Loan Schedule and an
executed receipt acknowledging the delivery of consideration in exchange
for the Loans.
(d) The Transferor shall have furnished the Depositor with such other
certificates of its officers or others and such other documents or opinions
as the Depositor or its counsel may reasonably request.
Section 5.2 Conditions of Transferor's Obligations. The obligations of the
Transferor under this Agreement shall be subject to the satisfaction, on the
Closing Date or such Subsequent Transfer Date and on each Subsequent Transfer
Date, of the following conditions:
(a) Each of the obligations of the Depositor required to be performed
by it at or prior to the Closing Date or such Subsequent Transfer Date
pursuant to the terms of this Agreement shall have been duly performed and
complied with and all of the representations and warranties of the
Depositor contained in this Agreement shall be true and correct as of the
Closing Date or such Subsequent Transfer Date.
(b) The Transferor shall have received an executed receipt
acknowledging delivery of the Loans and the Loan Schedule to the Depositor.
(c) The Depositor shall have furnished the Transferor with such other
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Agreement as the Transferor
may reasonably request.
Section 5.3 Termination of Depositor's Obligations. The Depositor may
terminate its obligations hereunder by notice to the Transferor at any time
before delivery of and payment of the purchase price for the Loans if: (a) any
of the conditions set forth in Section 5.1 are not satisfied when and as
provided therein; (b) there shall have been the entry of a decree or order by a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a conservator, receiver or liquidator in any insolvency,
readjustment of debt,
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<PAGE>
marshalling of assets and liabilities or similar proceedings of or relating to
the Transferor, or for the winding up or liquidation of the affairs of the
Transferor; (c) there shall have been the consent by the Transferor to the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Transferor or of or relating to substantially
all of the property of the Transferor; (d) any purchase and assumption agreement
with respect to the Transferor or the assets and properties of the Transferor
shall have been entered into; or (e) a Termination Event shall have occurred.
The termination of the Depositor's obligations hereunder shall not terminate the
Depositor's rights hereunder or its right to exercise any remedy available to it
at law or in equity.
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ARTICLE VI
MISCELLANEOUS
Section 6.1 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by overnight mail, certified mail or registered mail,
postage prepaid, to: the address for the Transferor and the Depositor set forth
in Section 12.6 of the Sale and Servicing Agreement. Any such notices shall be
deemed to be effective with respect to any party hereto upon the receipt of such
notice by such party, except that notices to the Securityholders shall be
effective upon mailing or personal delivery.
Section 6.2 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other covenants, agreements, provisions or terms of this
Agreement.
Section 6.3 Agreement of Transferor. The Transferor agrees to execute and
deliver such instruments and take such actions as the Depositor may, from time
to time, reasonably request in order to effectuate the purpose and to carry out
the terms of this Agreement.
Section 6.4 Survival. The parties to this Agreement agree that the
representations, warranties and agreements made by each of them herein and in
any certificate or other instrument delivered pursuant hereto shall be deemed to
be relied upon by the other party hereto, notwithstanding any investigation
heretofore or hereafter made by such other party or on such other party's
behalf, and that the representations, warranties and agreements made by the
parties hereto in this Agreement or in any such certificate or other instrument
shall survive the delivery of and payment for the Loans.
Section 6.5 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 6.6 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Except as expressly permitted by the terms
hereof, this Agreement may not be assigned, pledged or hypothecated by any party
hereto to a third party without the written consent of the other party to this
Agreement; provided, however, that the Depositor may assign its rights hereunder
without the consent of the Transferor.
Section 6.7 Confirmation of Intent; Grant of Security Interest. It is the
intention of the parties hereto that the conveyance by the Transferor of the
Trust Estate to the Depositor shall constitute a purchase and sale of such Trust
Estate and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that the transaction evidenced hereby constitutes a
loan and not a purchase and sale, it is the intention of the parties hereto that
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<PAGE>
this Agreement shall constitute a security agreement under applicable law, and
that the Transferor shall be deemed to have granted and hereby grants to the
Depositor, a first priority perfected security interest in all of the
Transferor's right, title and interest in, to and under the Trust Estate to
secure a loan in an amount equal to the purchase price of the Loans.
Section 6.8 Miscellaneous. This Agreement supersedes all prior agreements
and understandings relating to the subject matter hereof.
Section 6.9 Amendments. This Agreement may be amended from time to time by
the Transferor and the Depositor by written agreement.
Section 6.10 Third Party Beneficiaries. The Transferor intends that the
Issuer and the Indenture Trustee are third party beneficiaries of each of the
Transferor's representations and warranties and covenants stated herein.
Section 6.11 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW
YORK.
Section 6.12 Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties to this Loan Purchase Agreement have caused
their names to be signed by their respective officers thereunto duly authorized
as of the date first above written.
RESIDENTIAL ASSET FUNDING CORPORATION, as Depositor
By:___________________________
Name:
Title:
[ ], as Transferor
By:___________________________
Name:
Title:
34
<PAGE>
STATE OF [ ]
COUNTY OF [ ]
On ________________,[ ] before me, ______________, a Notary Public in and
for said County and State, personally appeared __________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacity, and that by his signature
on the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
<PAGE>
STATE OF [ ]
COUNTY OF [ ]
On _________________,[ ] before me, ______________, a Notary Public in and
for said County and State, personally appeared _______________., personally
known to me or proved to me on the basis of satisfactory evidence to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacity, and that by his signature
on the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS .........................................................2
Section 1.1 Definitions. .............................................2
ARTICLE II PURCHASE, SALE AND CONVEYANCE OF LOANS .............................7
Section 2.1 Agreement to Purchase.................................... 7
Section 2.2 Purchase Price. ..........................................7
Section 2.3 Conveyance of Loans; Possession of LoanSchedule...........7
Section 2.4 Delivery of Loan Documents. ..............................7
Section 2.5 Acceptance of Loans. .....................................9
Section 2.6 Transfer of Loans; Assignment of Agreement. .............11
Section 2.7 Books and Records. ......................................11
Section 2.8 Cost of Delivery and Recordation of Documents ...........11
ARTICLE III REPRESENTATIONS AND WARRANTIES ...................................12
Section 3.1 Representations and Warranties as to the Transferor.....12
Section 3.2 Representations and Warranties Relating to the Loans. ...14
Section 3.3 Representations and Warranties of the Depositor..........24
Section 3.4 Purchase and Substitution. ..............................26
ARTICLE IV THE TRANSFEROR ....................................................29
Section 4.1 Covenants of the Transferor. ............................29
Section 4.2 Merger or Consolidation. ................................29
Section 4.3 Indemnification. ........................................29
ARTICLE V CONDITIONS OF CLOSING ..............................................30
Section 5.1 Conditions of Depositor's Obligations. ..................30
Section 5.2 Conditions of Transferor's Obligations. .................30
Section 5.3 Termination of Depositor's Obligations. .................30
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ARTICLE VI MISCELLANEOUS .....................................................32
Section 6.1 Notices. ................................................32
Section 6.2 Severability of Provisions. .............................32
Section 6.3 Agreement of Transferor. ................................32
Section 6.4 Survival. ...............................................32
Section 6.5 Effect of Headings and Table of Contents. ...............32
Section 6.6 Successors and Assigns. .................................32
Section 6.7 Confirmation of Intent; Grant of Security Interest. .....32
Section 6.8 Miscellaneous. ..........................................33
Section 6.9 Amendments. .............................................33
Section 6.10 Third Party Beneficiaries. .............................33
Section 6.11 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL .................................33
Section 6.12 Execution in Counterparts. .............................33
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<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
RESIDENTIAL ASSET FUNDING CORPORATION
DEPOSITOR
and
[-------------------------------]
TRANSFEROR
Dated as of [______________]
EXHIBIT 4.5
FORM OF TRUST AGREEMENT
TRUST AGREEMENT
among
RESIDENTIAL ASSET FUNDING CORPORATION,
as Depositor and General Partner
________________________________
as Owner Trustee
and
________________________________
as Co-Owner Trustee
Dated as of__________________
__________ TRUST _________
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS ...................................................... 1
SECTION 1.1 CAPITALIZED TERMS .......................................... 1
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS .............................. 5
ARTICLE II ORGANIZATION .................................................... 5
SECTION 2.1 NAME ....................................................... 5
SECTION 2.2 OFFICE ..................................................... 5
SECTION 2.3 PURPOSES AND POWERS ........................................ 5
SECTION 2.4 APPOINTMENT OF OWNER TRUSTEE ............................... 6
SECTION 2.5 INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE ......... 6
SECTION 2.6 DECLARATION OF TRUST ....................................... 6
SECTION 2.7 LIABILITY OF THE GENERAL PARTNER ........................... 7
SECTION 2.8 TITLE TO TRUST PROPERTY .................................... 7
SECTION 2.9 SITUS OF TRUST ............................................. 7
SECTION 2.10 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR;
COVENANT OF THE DEPOSITOR ............................................... 8
SECTION 2.11 FEDERAL INCOME TAX ALLOCATIONS ............................. 9
SECTION 2.12 COVENANTS OF THE GENERAL PARTNER ........................... 9
SECTION 2.13 COVENANTS OF THE CERTIFICATEHOLDERS ........................ 10
ARTICLE III RESIDUAL INTEREST INSTRUMENTS AND TRANSFER OF INTERESTS ........ 11
SECTION 3.1 INITIAL OWNERSHIP .......................................... 11
SECTION 3.2 THE RESIDUAL INTEREST INSTRUMENTS .......................... 11
SECTION 3.3 EXECUTION, AUTHENTICATION AND DELIVERY OF RESIDUAL
INTEREST INSTRUMENTS .................................................... 11
SECTION 3.4 REGISTRATION OF TRANSFER AND EXCHANGE OF RESIDUAL
INTEREST INSTRUMENTS .................................................... 11
SECTION 3.5 MUTILATED. DESTROYED. LOST OR STOLEN RESIDUAL
INTEREST INSTRUMENTS .................................................... 12
SECTION 3.6 PERSONS DEEMED CERTIFICATEHOLDERS .......................... 12
SECTION 3.7 ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES
AND ADDRESSES ........................................................... 13
SECTION 3.8 MAINTENANCE OF OFFICE OR AGENCY ............................ 13
SECTION 3.9 APPOINTMENT OF PAYING AGENT ................................ 13
SECTION 3.10 RESTRICTIONS ON TRANSFER OF RESIDUAL INTEREST
INSTRUMENTS ............................................................. 14
SECTION 3.11 SECURITIES MATTERS ......................................... 15
ARTICLE IV ACTIONS BY OWNER TRUSTEE ........................................ 16
SECTION 4.1 PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT
TO CERTAIN MATTERS ...................................................... 16
SECTION 4.2 ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS ......................................................... 17
SECTION 4.3 ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
BANKRUPTCY .............................................................. 18
SECTION 4.4 RESTRICTIONS ON CERTIFICATEHOLDERS' POWER .................. 18
SECTION 4.5 MAJORITY CONTROL ........................................... 18
ARTICLE V APPLICATION OF TRUST FUNDS; CERTAIN DUTIES ....................... 18
SECTION 5.1 ESTABLISHMENT OF TRUST ACCOUNT ............................. 18
SECTION 5.2 APPLICATION OF TRUST FUNDS ................................. 18
SECTION 5.3 METHOD OF PAYMENT .......................................... 19
SECTION 5.4 SEGREGATION OF MONEYS: NO INTEREST ......................... 19
SECTION 5.5 ACCOUNTING AND REPORTS TO THE CERTIFICATEHOLDERS,
THE INTERNAL REVENUE SERVICE AND OTHERS ................................. 19
SECTION 5.6 SIGNATURE ON RETURNS: TAX MATTERS PARTNER .................. 20
ARTICLE VI AUTHORITY AND DUTIES OF OWNER TRUSTEE ........................... 20
SECTION 6.1 GENERAL AUTHORITY .......................................... 20
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SECTION 6.2 GENERAL DUTIES ............................................ 21
SECTION 6.3 ACTION UPON INSTRUCTION ................................... 21
SECTION 6.4 NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT,
THE BASIC DOCUMENTS OR IN INSTRUCTIONS ................................. 22
SECTION 6.5 NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS ............................................................ 22
SECTION 6.6 RESTRICTIONS .............................................. 22
ARTICLE VII CONCERNING THE OWNER TRUSTEE ................................... 23
SECTION 7.1 ACCEPTANCE OF TRUSTS AND DUTIES ........................... 23
SECTION 7.2 FURNISHING OF DOCUMENTS ................................... 24
SECTION 7.3 REPRESENTATIONS AND WARRANTIES ............................ 24
SECTION 7.4 RELIANCE; ADVICE OF COUNSEL ............................... 25
SECTION 7.5 NOT ACTING IN INDIVIDUAL CAPACITY ......................... 25
SECTION 7.6 OWNER TRUSTEE NOT LIABLE FOR RESIDUAL INTEREST
INSTRUMENTS OR LOANS .................................................... 25
SECTION 7.7 OWNER TRUSTEE MAY OWN RESIDUAL INTEREST INSTRUMENTS
AND NOTES ............................................................... 26
SECTION 7.8 LICENSES .................................................. 26
SECTION 7.9 RIGHTS OF CO-OWNER TRUSTEE ................................ 26
ARTICLE VIII COMPENSATION OF OWNER TRUSTEE AND CO-OWNER TRUSTEE ............ 26
SECTION 8.1 OWNER TRUSTEE'S FEES AND EXPENSES ......................... 26
SECTION 8.2 INDEMNIFICATION ........................................... 26
SECTION 8.3 PAYMENTS TO THE OWNER TRUSTEE AND THE CO-OWNER TRUSTEE .... 27
ARTICLE IX TERMINATION OF TRUST AGREEMENT .................................. 27
SECTION 9.1 TERMINATION OF TRUST AGREEMENT ............................ 27
SECTION 9.2 DISSOLUTION UPON BANKRUPTCY OF THE GENERAL PARTNER ........ 28
ARTICLE X SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES ........... 29
SECTION 10.1 ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE ................ 29
SECTION 10.2 RESIGNATION OR REMOVAL OF OWNER TRUSTEE OR CO-OWNER
TRUSTEE ................................................................. 29
SECTION 10.3 SUCCESSOR OWNER TRUSTEE OR CO-OWNER TRUSTEE ............... 30
SECTION 10.4 MERGER OR CONSOLIDATION OF OWNER TRUSTEE OR CO-OWNER
TRUSTEE ................................................................. 30
SECTION 10.5 APPOINTMENT OF CO-OWNER TRUSTEE OR SEPARATE OWNER
TRUSTEE ................................................................. 30
ARTICLE XI MISCELLANEOUS ................................................... 32
SECTION 11.1 SUPPLEMENTS AND AMENDMENTS ................................ 32
SECTION 11.2 NO LEGAL TITLE TO OWNER TRUST ESTATE IN
CERTIFICATEHOLDERS ...................................................... 33
SECTION 11.3 LIMITATIONS ON RIGHTS OF OTHERS ........................... 33
SECTION 11.4 NOTICES ................................................... 33
SECTION 11.5 SEVERABILITY .............................................. 34
SECTION 11.6 SEPARATE COUNTERPARTS ..................................... 34
SECTION 11.7 SUCCESSORS AND ASSIGNS .................................... 34
SECTION 11.8 NO PETITION ............................................... 34
SECTION 11.9 NO RECOURSE ............................................... 34
SECTION 11.10 HEADINGS .................................................. 34
SECTION 11.11 GOVERNING LAW ............................................. 34
SECTION 11.12 BANKRUPTCY MATTERS ........................................ 34
EXHIBIT A Form of Residual Interest
EXHIBIT B Form of Certificate of Trust
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TRUST AGREEMENT, dated as of ____________________, among RESIDENTIAL
ASSET FUNDING CORPORATION, a North Carolina corporation, as General Partner
and Holder of the Non-Transferable Residual Interest Instrument (the
"Depositor"),_____________________________ a Delaware banking corporation, as
Owner Trustee (the "Owner Trustee") not in its individual capacity but
solely as Owner Trustee, and ____________________________, Co-Owner Trustee
(the "Co-Owner Trustee").
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended and
supplemented from time to time.
"Administration Agreement" shall mean the Administration Agreement, dated
as of __________________ among the Issuer, _____________________ and
______________________, as Administrator.
"Administrator" shall mean _____________________________ or any successor
in interest thereto, in its capacity as Administrator under the Administration
Agreement.
"Basic Documents" shall mean this Agreement, the Sale and Servicing
Agreement, the Indenture, the Administration Agreement, the Custodial Agreement,
the Note Depository Agreement, and the other documents and certificates
delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
3.11.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from time to
time.
"Certificate Distribution Account" shall have the meaning assigned to such
term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in the form of
Exhibit C to be filed for the Trust pursuant to Section 3810(a) of the Business
Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the register
mentioned and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Residual Interest Instrument is registered.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
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"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Co-Owner Trustee" shall mean ____________________________________.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee, the
principal corporate trust office of the Owner Trustee located at
____________________________________________, Attention: Corporate Trust
Administration; or at such other address in the State of Delaware as the Owner
Trustee may designate by notice to the Certificateholders and the Depositor, or
the principal corporate trust office of any successor Owner Trustee (the address
(which shall be in the State of Delaware) of which the successor owner trustee
will notify the Certificateholders and the Depositor).
"Definitive Certificates" means a certificated form of security that
represents a Residual Interest Instrument.
"Demand Note" shall have the meaning assigned to such term in Section
2.11(b).
"DTC" shall mean The Depository Trust Company, as the initial Clearing
Agency.
"ERISA" shall have the meaning assigned thereto in Section 3.10.
"Event of Default" shall have the meaning assigned to such term in Section
5.1 of the Indenture.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"General Partner" shall mean initially the Depositor, or the successor
permitted by the Agreement.
"Indenture" shall mean the Indenture, dated as of ______________________,
by and between the Issuer and the Indenture Trustee.
"Indenture Trustee" means __________________________, as Indenture Trustee
under the Indenture.
"Insolvency Event" shall have occurred with respect to the Depositor if:
(i) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Depositor
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days; or
(ii) the Depositor shall consent to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating
to the Depositor or of or relating to all or substantially all of the
Depositor's property;
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(iii) the board of directors of the Depositor shall voluntarily
dissolve the Depositor; or
(iv) the Depositor shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations;
provided, however, that the substantive consolidation of the Depositor with
an entity in respect of which the events described in (i) - (iv) above have
occurred shall not constitute an Insolvency Event with respect to the Depositor.
"Issuer" shall mean _______________ Trust ________, the Delaware business
trust created pursuant to this Agreement.
"Majority Residual Interestholders" The Holders of more than an aggregate
50% Percentage Interest of the Residual Interest.
"Minimum Net Worth" means as of any date of determination, and with respect
to the General Partner, net worth equal to ____% of the aggregate value of the
Residual Interest Instruments. For the purpose of the determination of Minimum
Net Worth: (i) any Demand Note issued to the General Partner shall be valued at
par, (ii) assets subject to a lien shall be valued at zero, (iii) the Residual
Interest Instruments or any other interests in any entity taxable as a
partnership for federal income tax purposes shall be valued at zero, (iv)
investments shall be valued at their respective purchase prices plus accrued
interest, and (v) demand notes _______________, issued as contributions to the
General Partner in connection with its status as a general partner of any other
entity that is to be treated, for income or franchise tax purposes as a
partnership formed pursuant to trust agreements substantially similar to this
Agreement shall be valued at an amount equal to the excess, if any, of (a) the
aggregate current amount of all such demand notes over (b) ___% of the aggregate
value of the Residual Interest Instruments, all Residual Interest Instruments
issued by such entities, as of such date of determination.
"Non-permitted Foreign Holder" shall have the meaning set forth in Section
3.10.
"Non-Transferable Residual Interest Instrument" shall mean an instrument
substantially in the form attached as Exhibit B.
"Non-U.S. Person" shall mean an individual, corporation, partnership or
other person other than a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate that
is subject to U.S. federal income tax regardless of the source of its income, or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
trustees have authority to control all substantial decisions of the trust.
"Owner Trust Estate" shall mean the contribution of $100 referred to in
Section 2.5 and the Collateral (as defined in the Indenture).
"Owner Trustee" shall mean [ ______________________ ], a Delaware banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor owner trustee hereunder.
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"Paying Agent" shall mean the Co-Owner Trustee or any successor in interest
thereto or any other paying agent or co-paying agent appointed pursuant to
Section 3.9 and authorized by the Issuer to make payments to and distributions
from the Certificate Distribution Account, including payment of principal of or
interest on the Residual Interest Instruments on behalf of the Issuer.
"Percentage Interest" shall mean with respect to each Residual Interest
Instrument, the percentage portion of all of the Residual Interest evidenced
thereby as stated on the face of such Residual Interest Instrument.
"Prospective Certificateholder" shall have the meaning set forth in Section
3.10.
"Rating Agency Condition" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Rating Agencies shall have notified the
Depositor, the Owner Trustee and the Co-Owner Trustee in writing that such
action will not result in a reduction or withdrawal of the then current rating
of the Notes and Residual Interest Instruments.
"Record Date" shall mean as to each Distribution Date the last Business Day
of the month immediately preceding the month in which such Distribution Date
occurs.
"Residual Interest" shall mean the right to receive distributions of Excess
Spread, if any, and certain other funds, if any, on each Distribution Date,
pursuant to Section 5.2 of the Sale and Servicing Agreement.
"Residual Interest Instrument" shall mean an instrument substantially in
the form attached as Exhibit A or Exhibit B hereto and evidencing the Residual
Interest.
"Residual Interestholders" shall mean any Holder of a Percentage Interest
of the Residual Interest. On the Closing Date, the Depositor will receive 1--%
Percentage Interest of the Residual Interest.
"Sale and Servicing Agreement" shall mean the Sale and Servicing Agreement
dated as of September 4, among the Trust, as Issuer, the Depositor, as Seller,
the Indenture Trustee, as Indenture Trustee and Co-Owner Trustee, and
______________________, as Servicer.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Transferrable Residual Interest Instrument" shall mean an instrument
substantially in the form attached as Exhibit A.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Underwriters" shall mean ____________________________.
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Section 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Sale and Servicing Agreement or, if not defined
therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in any such certificate or other document, and accounting terms
partly defined in this Agreement or in any such certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles. To the extent that the definitions of
accounting terms in this Agreement or in any such certificate or other document
are inconsistent with the meanings of such terms under generally accepted
accounting principles, the definitions contained in this Agreement or in any
such certificate or other document shall control.
(d) The words "hereof', "herein", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section and Exhibit references
contained in this Agreement are references to Sections and Exhibits in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
ORGANIZATION
Section 2.1 Name. The Trust created hereby shall be known as
"________________ Trust ______________", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.2 Office. The office of the Trust shall be in care of the Owner
Trustee at the Corporate Trust Office or at such other address in Delaware as
the Owner Trustee may designate by written notice to the Certificateholders and
the Depositor.
Section 2.3 Purposes and Powers. (a) The purpose of the Trust is to engage
in the following activities:
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(i) to issue the Notes pursuant to the Indenture and to sell such
Notes;
(ii) with the proceeds of the sale of the Notes, to purchase the
Loans, to fund the Pre-Funding Account and the Capitalized Interest
Account, to pay the organizational, start-up and transactional expenses of
the Trust and to pay the balance to the Depositor;
(iii) to purchase, from time to time, from the Depositor with funds
deposited to the Pre-Funding Account, the Subsequent Loans;
(iv) to assign, grant, transfer, pledge, mortgage and convey the Owner
Trust Estate pursuant to the Indenture and to hold, manage and distribute
to the Certificateholders pursuant to the terms of the Sale and Servicing
Agreement any portion of the Owner Trust Estate released from the lien of,
and remitted to the Trust pursuant to, the Indenture;
(v) to enter into and perform its obligations under the Basic
Documents and all other documents connected therewith to which it is to be
a party;
(vi) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith;
(vii) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation of
the Owner Trust Estate and the making of distributions to the
Certificateholders and the Noteholders; and
(viii) to issue the Residual Interest Instruments pursuant to this
Agreement.
The Trust is hereby authorized to engage in the foregoing activities. The
Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the Basic Documents.
Section 2.4 Appointment of Owner Trustee. The Depositor hereby appoints the
Owner Trustee as trustee of the Trust effective as of the date hereof, to have
all the rights, powers and duties set forth herein.
Section 2.5 Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $100. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contributions, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Depositor
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee.
Section 2.6 Declaration of Trust. The Owner Trustee hereby declares that it
will hold the Owner Trust Estate in trust upon and subject to the conditions set
forth herein for the use and benefit of the Certificateholders, subject to the
obligations of the Trust under the Basic Documents. It is the intention of the
parties hereto that the Trust constitute a business trust under
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the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, solely for income and franchise tax purposes (i) so long as there is a
sole Certificateholder, the Trust shall be treated as a security arrangement,
with the assets of the Trust being the Loans and other assets held by the Trust,
the owner of the Loans being the sole Certificateholder and the Notes being
non-recourse debt of the sole Certificateholder, and (ii) if there is more than
one Certificateholder, the Trust shall be treated as a partnership for income
and franchise purposes, with the assets of the partnership being the Loans and
other assets held by the Trust, the partners of the partnership being the
holders of the Residual Interest Instruments and the Notes being non-recourse
debt of the partnership. The parties agree that, unless otherwise required by
appropriate tax authorities, the Trust will file or cause to be filed annual or
other necessary returns, reports and other forms consistent with the
characterization of the Trust as provided in the preceding sentence for such tax
purposes. Effective as of the date hereof, the Owner Trustee shall have all
rights, powers and duties set forth herein and in the Business Trust Statute
with respect to accomplishing the purposes of the Trust.
Section 2.7 Liability of the General Partner. (a) The General Partner shall
be liable directly to and will indemnify the injured party for all losses,
claims, damages, liabilities and expenses of the Issuer (including Expenses, to
the extent not paid out of the Trust Estate) to the extent that the General
Partner would be liable if the Issuer were a partnership under the Delaware
Revised Uniform Limited Partnership Act in which the General Partner were a
general partner; provided, however, that the General Partner shall not be liable
for any losses incurred by a Holder in the capacity of an investor in the
Residual Interest Instruments or a Noteholder in the capacity of an investor in
the Notes. In addition, any third party creditors of the Issuer (other than in
connection with the obligations described in the preceding sentence for which
the General Partner shall not be liable) shall be deemed third party
beneficiaries of this paragraph. The obligations of the General Partner under
this paragraph shall be evidenced by the Residual Interest Instruments described
in Section 3.2, which for purposes of the Business Trust Statute shall be deemed
to be a separate class of Residual Interest Instruments from all other Residual
Interest Instruments issued by the Issuer.
(b) No Certificateholder, other than to the extent set forth in clause (a),
shall have any personal liability or obligation to the Issuer.
Section 2.8 Title to Trust Property.
(a) Subject to the Indenture, legal title to all the Owner Trust Estate
shall be vested at all times in the Trust as a separate legal entity except
where applicable law in any jurisdiction requires title to any part of the Owner
Trust Estate to be vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Owner Trustee, the Co-Owner Trustee and/or a separate
trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any part of the
Owner Trust Estate. No transfer by operation of law or otherwise of any interest
of the Certificateholders shall operate to terminate this Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of any part of the Owner Trust Estate.
Section 2.9 Situs of Trust. The Trust will be located and administered in
the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York, except with respect to the Co-Owner Trustee. The Trust shall not have
any employees; provided, however, that nothing herein shall
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restrict or prohibit the Owner Trustee from having employees within or without
the State of Delaware. Payments will be received by the Trust only in Delaware
or New York, and payments will be made by the Trust only from Delaware or New
York, except with respect to the Co-Owner Trustee. The only office of the Trust
will be at the Corporate Trust Office in Delaware.
Section 2.10 Representations and Warranties of the Depositor; Covenant of
the Depositor.
(a) The Depositor hereby represents and warrants to the Owner Trustee and
the Co-Owner Trustee that:
(i) It is duly organized and validly existing as a corporation in good
standing under the laws of the State of Delaware, with power and authority
to own its properties and to conduct its business as such properties are
currently owned and such business is currently conducted.
(ii) It is duly qualified to do business as a foreign corporation in
good standing, and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of
its business shall require such qualifications.
(iii) It has the power and authority to execute and deliver this
Agreement and to carry out its terms; and the execution, delivery and
performance of this Agreement have been duly authorized by it by all
necessary corporate action.
(iv) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, its certificate
of incorporation or by-laws, or any material indenture, agreement or other
instrument to which it is a party or by which it is bound; nor result in
the creation or imposition of any lien upon any of its properties pursuant
to the terms of any such indenture, agreement or other instrument (other
than pursuant to the Basic Documents); nor violate any law or, to the best
of the its knowledge, any order, rule or regulation applicable to it of any
court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over it or its
properties.
(v) There are no proceedings or investigations pending or, to its best
knowledge, threatened, before any court, regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over it or
its properties: (i) asserting the invalidity of this Agreement, (ii)
seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or (iii) seeking any determination or ruling that might
materially and adversely affect the performance by it of its obligations
under, or the validity or enforceability of, this Agreement.
(vi) The Depositor represents and warrants that it has been duly
capitalized so as to make its aggregate net worth at least equal to the
Minimum Net Worth.
(vii) If the Depositor is capitalized, in whole or in part by the
delivery of a demand note (a "Demand Note") from ______________, the
proceeds of such Demand Note will not be used to pay (i) any of the
expenses of _______________ in connection with the transactions
contemplated by the Basic Documents or (ii) the purchase price for the
Residual Interest Instruments purchased pursuant to Section 3.2. Such
Demand Note shall be enforceable
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against ______________, subject to its terms, and subject to applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization
and similar laws now or hereafter in effect relating to creditors' rights
generally subject to general principles of equity (whether applied in a
proceeding at law or in equity). Such Demand Note may be retired, forgiven,
or otherwise cancelled or disposed of, subject to its terms, provided that
the Depositor shall deliver to the Owner Trustee and the Indenture Trustee
an Opinion of Counsel to the effect that such cancellation shall not cause
the Issuer to be an association taxable as a corporation or a publicly
traded partnership for California Franchise Tax purposes.
(b) The Depositor covenants with the Owner Trustee and the Co-Owner Trustee
that during the continuance of this Agreement it will comply in all respects
with the provisions of its certificate of incorporation in effect from time to
time.
Section 2.11 Federal Income Tax Allocations. Net income (or loss) of the
Issuer for any month as determined for federal income tax purposes (and each
item of income, gain, loss, credit and deduction entering into the computation
thereof) shall be allocated among the Certificateholders as of the first Record
Date following the end of such month, in proportion to their Percentage Interest
ownership of Residual Interest Instruments on such date.
Section 2.12 Covenants of the General Partner. The General Partner agrees
and covenants for the benefit of each Certificateholder and the Owner Trustee,
during the term of this Agreement, and to the fullest extent permitted by
applicable law, that:
(a) it shall not assign, sell, convey, pledge, transfer, reconvey,
cancel, forgive, compromise or otherwise dispose of any Demand Note held by
it, in whole or in part;
(b) it shall not sell, assign, transfer, give or encumber, by
operation of law or otherwise, in whole or in part, the interest evidenced
by its Residual Interest Instrument acquired pursuant to Section 3.2;
(c) it shall not create, incur or suffer to exist any indebtedness or
engage in any business, except, in each case, as permitted by its
certificate of incorporation and the Basic Documents;
(d) it shall not, for any reason, institute proceedings for the Issuer
to be adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Issuer, or file a petition
seeking or consenting to reorganization or relief under any applicable
federal or state law relating to the bankruptcy of the Issuer, or consent
to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Issuer or a substantial
part of the property of the Issuer or cause or permit the Issuer to make
any assignment for the benefit of creditors, or admit in writing the
inability of the Issuer to pay its debts generally as they become due, or
declare or effect a moratorium on the debt of the Issuer or take any action
in furtherance of any such action;
(e) it shall obtain from each counterparty to each Basic Document to
which it or the Issuer is a party and each other agreement entered into on
or after the date hereof to which it or the Issuer is a party, an agreement
by each such counterparty that prior to the occurrence of the event
specified in Section 9.1(f) such counterparty shall not institute against,
or join any other Person in instituting against, it or the Issuer, any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceedings under the laws of the United
States or any state of the United States;
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(f) it shall not, for any reason, withdraw or attempt to withdraw from
this Agreement, dissolve, institute proceedings for it to be adjudicated a
bankrupt or insolvent, or consent to the institution of bankruptcy or
insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
it or a substantial part of its property, or make any assignment for the
benefit of creditors, or admit in writing its inability to pay its debts
generally as they become due, or declare or effect a moratorium on its debt
or take any action in furtherance of any such action; and
(g) it shall not make any distribution other than to the Issuer or
unless the aggregate net worth of the General Partner following such
distribution shall be at least equal to the Minimum Net Worth unless the
General Partner shall deliver to the Owner Trustee and the Indenture
Trustee an Opinion of Counsel to the effect that the failure to maintain
such Minimum Net Worth shall not cause the Issuer to be an association
taxable as a corporation or a publicly traded partnership for California
Franchise Tax purposes.
Section 2.13 Covenants of the Certificateholders. Each Holder agrees by its
acceptance of a Residual Interest Instrument:
(a) to be bound by the terms and conditions of the Residual Interest
Instruments of which such Certificateholder is the owner and of this
Agreement, including any supplements or amendments hereto and to perform
the obligations of an Certificateholder as set forth therein or herein, in
all respects as if it were a signatory hereto. This undertaking is made for
the benefit of the Issuer, the Owner Trustee, and all other
Certificateholders present and future;
(b) to hereby appoint the General Partner as such Certificateholder's
agent and attorney-in-fact to sign any federal income tax information
return filed on behalf of the Issuer and agree that, if requested by the
Issuer, it will sign such federal income tax information return in its
capacity as holder of an interest in the Issuer. Each Certificateholder
also hereby agrees that in its tax returns it will not take any position
inconsistent with those taken in any tax returns filed by the Issuer;
(c) if such Certificateholder is other than an individual or other
entity holding its Residual Interest Instrument through a broker who
reports securities sales on Form 1099-B, to notify the Owner Trustee of any
transfer by it of a Residual Interest Instrument in a taxable sale or
exchange, within 30 days of the date of the transfer, and
(d) until the completion of the events specified in Section 9.1(f),
not to, for any reason, institute proceedings for the Issuer or the General
Partner to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the Issuer, or
file a petition seeking or consenting to reorganization or relief under any
applicable federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Issuer or a substantial part of its
property, or cause or permit the Issuer to make any assignment for the
benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or declare or effect a moratorium on
its debt or take any action in furtherance of any such action.
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ARTICLE III
RESIDUAL INTEREST INSTRUMENTS AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Residual Interest Instruments, the Depositor shall be the sole owner of the
Trust.
Section 3.2 The Residual Interest Instruments. The Residual Interest
Instruments shall not be issued with a principal amount. The Residual Interest
Instruments shall be executed on behalf of the Trust by manual or facsimile
signature of a Trust Officer of the Owner Trustee or the Co-Owner Trustee.
Residual Interest Instruments bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Residual Interest Instruments or did not hold such offices at the date
of authentication and delivery of such Residual Interest Instruments.
A transferee of a Residual Interest Instrument shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder and under the Sale and Servicing
Agreement, upon such transferee's acceptance of a Residual Interest Instrument
duly registered in such transferee's name pursuant to Section 3.4.
Section 3.3 Execution, Authentication and Delivery of Residual Interest
Instruments. Concurrently with the initial sale of the Loans to the Issuer
pursuant to the Sale and Servicing Agreement, the Owner Trustee or Co-Owner
Trustee shall cause the Residual Interest Instruments representing 100% of the
Percentage Interests of the Residual Interest to be executed on behalf of the
Issuer, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any vice
president, without further corporate action by the Depositor, in authorized
denominations. No Residual Interest Instrument shall entitle its holder to any
benefit under this Agreement, or shall be valid for any purpose, unless there
shall appear on such Residual Interest Instrument a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee or the Administrator, as the Owner Trustee's authenticating agent,
by manual or facsimile signature; such authentication shall constitute
conclusive evidence that such Residual Interest Instrument shall have been duly
authenticated and delivered hereunder. All Residual Interest Instruments shall
be dated the date of their authentication.
Section 3.4 Registration of Transfer and Exchange of Residual Interest
Instruments. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Residual Interest Instruments and
of transfers and exchanges of Residual Interest Instruments as herein provided,
[______________________] shall be the initial Certificate Registrar.
The Depositor shall provide the Indenture Trustee with a list of the names
and addresses of the Certificateholders on the Closing Date in such form as
shall be delivered to the Certificate Registrar by the Depositor. Upon any
transfers of Residual Interest Instruments, the Certificate Registrar shall
notify the Indenture Trustee of the name and address of the transferee in
writing, by facsimile.
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Upon surrender for registration of transfer of any Residual Interest
Instrument at the office or agency maintained pursuant to Section 3.8, the Owner
Trustee shall execute, authenticate and deliver (or shall cause its
authenticating agent to authenticate and deliver), in the name of the designated
transferee or transferees, one or more new Residual Interest Instruments in
authorized denominations and of a like aggregate amount dated the date of
authentication by the Owner Trustee or any authenticating agent. At the option
of a Holder, Residual Interest Instruments may be exchanged for other Residual
Interest Instruments of the same class in authorized denominations of a like
aggregate amount upon surrender of the Residual Interest Instruments to be
exchanged at the office or agency maintained pursuant to Section 3.8.
Every Residual Interest Instrument presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Certificateholder or his attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Certificate Registrar,
which requirements include membership or participation in the Securities
Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Certificate Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Exchange Act. Each Residual
Interest Instrument surrendered for registration of transfer or exchange shall
be canceled and subsequently disposed of by the Owner Trustee in accordance with
its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Residual Interest Instruments, but the Owner Trustee or the
Certificate Registrar may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer or
exchange of Residual Interest Instruments.
Notwithstanding the preceding provisions of this Section 3.4, the Owner
Trustee shall not be required to make, and the Certificate Registrar shall not
be required to register, transfers or exchanges of Residual Interest Instruments
for a period of 15 days preceding the due date for any payment with respect to
the Residual Interest Instrument.
Section 3.5 Mutilated, Destroyed, Lost or Stolen Residual Interest
Instruments. If (a) any mutilated Residual Interest Instrument shall be
surrendered to the Certificate Registrar, or if the Certificate Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Residual Interest Instrument and (b) there shall be delivered to the Certificate
Registrar and the Owner Trustee such security or indemnity as may be required by
them to save each of them harmless, then in the absence of notice that such
Residual Interest Instrument shall have been acquired by a bona fide purchaser,
the Owner Trustee or Co-Owner Trustee on behalf of the Trust shall execute and
the Owner Trustee, or the Administrator as the Owner Trustee's authenticating
agent, shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Residual Interest Instrument, a new
Residual Interest Instrument of like tenor and denomination. In connection with
the issuance of any new Residual Interest Instrument under this Section 3.5, the
Owner Trustee or the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Residual Interest Instrument issued pursuant
to this Section 3.5 shall constitute conclusive evidence of ownership in the
Trust, as if originally issued, whether or not the lost, stolen or destroyed
Residual Interest Instrument shall be found at any time.
Section 3.6 Persons Deemed Certificateholders. Prior to due presentation of
a Residual Interest Instrument for registration of transfer, the Owner Trustee
or the Certificate Registrar may treat the Person in whose name any Residual
Interest Instrument shall be registered
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in the Certificate Register as the owner of such Residual Interest Instrument
for the purpose of receiving distributions pursuant to Section 5.3 and for all
other purposes whatsoever, and neither the Owner Trustee nor the Certificate
Registrar shall be bound by any notice to the contrary.
Section 3.7 Access to List of Certificateholders' Names and Addresses. The
Owner Trustee shall furnish or cause to be furnished to the Servicer, the
Depositor and the Indenture Trustee, within 15 days after receipt by the Owner
Trustee of a request therefor from the Servicer, the Depositor or the Indenture
Trustee in writing, a list, in such form as the Servicer, the Depositor or the
Indenture Trustee may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. Each Certificateholder, by
receiving and holding a Residual Interest Instrument, shall be deemed to have
agreed not to hold any of the Depositor, the Certificate Registrar or the Owner
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
Section 3.8 Maintenance of Office or Agency. The Owner Trustee shall
maintain an office or offices or agency or agencies where Residual Interest
Instruments may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Owner Trustee in respect of the
Residual Interest Instruments and the Basic Documents may be served. The Owner
Trustee initially designates the Administrator's office in Minneapolis,
Minnesota as its principal corporate trust office for such purposes. The Owner
Trustee shall give prompt written notice to the Depositor and to the Residual
Interestholders of any change in the location of the Certificate Register or any
such office or agency.
Section 3.9 Appointment of Paying Agent. The Owner Trustee hereby appoints
the Co-Owner Trustee as Paying Agent under this Agreement. The Paying Agent
shall make distributions to Residual Interestholders from the Certificate
Distribution Account pursuant to Section 5.3 hereof and Section 5.1 of the Sale
and Servicing Agreement and shall report the amounts of such distributions to
the Owner Trustee. The Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. In the event that the Co-Owner Trustee shall no
longer be the Paying Agent hereunder, the Owner Trustee shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company). The
Owner Trustee shall cause such successor Paying Agent or any additional Paying
Agent appointed by the Owner Trustee to execute and deliver to the Owner Trustee
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Owner Trustee that as Paying Agent, such successor Paying
Agent or additional Paying Agent will hold all sums, if any, held by it for
payment to the Owners in trust for the benefit of the Residual Interestholders
entitled thereto until such sums shall be paid to such Certificateholders. The
Paying Agent shall return all unclaimed funds to the Owner Trustee, and upon
removal of a Paying Agent, such Paying Agent shall also return all funds in its
possession to the Owner Trustee. The provisions of Section 7.1, Section 7.3,
Section 7.4 and Section 8.1 shall apply to the Co-Owner Trustee also in its role
as Paying Agent, for so long as the Co-Owner Trustee shall act as Paying Agent
and, to the extent applicable, to any other paying agent appointed hereunder.
Any reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise. Notwithstanding anything herein to
the contrary, the Co-Owner Trustee and the Paying Agent shall be the same entity
as the Indenture Trustee under the Indenture and the Sale and Servicing
Agreement. If the Co-Owner Trustee and the Paying Agent cease to be the same
entity as the Indenture Trustee under the Indenture and the Sale and Servicing
Agreement, the Co-Owner Trustee and the Paying Agent shall resign and the Owner
Trustee shall assume the duties and obligations of the Co-Owner Trustee and the
Paying Agent hereunder and under the Sale and Servicing Agreement.
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Section 3.10 Restrictions on Transfer of Residual Interest Instruments.
(a) Disposition by the General Partner. On the Closing Date, the Depositor,
as General Partner, shall purchase for adequate consideration and retain
beneficial and record ownership of Residual Interest Instruments representing at
least 1% of the initial Certificate Balance, which Residual Interest Instruments
shall be issued in definitive form. Any attempted transfer of any Residual
Interest Instrument that would reduce such interest by the General Partner shall
be void; provided, however, that such Residual Interest Instrument may be
transferred to a successor General Partner pursuant to Section 9.2. The Owner
Trustee shall cause any Residual Interest Instrument issued to the General
Partner to contain a legend stating "THIS Residual Interest Instrument IS NOT
TRANSFERRABLE, EXCEPT UNDER THE LIMITED CONDITIONS SPECIFIED IN THE TRUST
AGREEMENT". The Residual Interest Instrument issued to the Depositor shall be
non-transferrable and shall bear a legend to such effect.
(b) Each prospective purchaser and any subsequent transferee of a Residual
Interest Instrument (each, a "Prospective Certificateholder"), other than the
Depositor, shall represent and warrant, in writing, to the Owner Trustee and the
Certificate Registrar and any of their respective successors that:
(i) Such Person is (A) a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act of 1933, as amended (the "Securities
Act"), and is (x) aware that the seller of the Residual Interest Instrument
may be relying on the exemption from the registration requirements of the
Securities Act provided by Rule 144A and (y) acquiring such Residual
Interest Instrument for its own account or for the account of one or more
qualified institutional buyers for which it is authorized to act, or (B) a
Person involved in the organization or operation of the Trust or an
affiliate of such Person within the meaning of Rule 3a-7 of the Investment
Company Act of 1940, as amended (including, but not limited to, the
Depositor).
(ii) Such Person understands that the Residual Interest Instruments
have not been and will not be registered under the Securities Act and may
be offered, sold, pledged or otherwise transferred only to a Person whom
the seller reasonably believes is (A) a qualified institutional buyer or
(B) a Person involved in the organization or operation of the Trust or an
affiliate of such Person, in a transaction meeting the requirements of Rule
144A under the Securities Act and in accordance with any applicable
securities laws of any state of the United States.
(iii) Such Person understands that the Residual Interest Instruments
bear a legend to the following effect:
"THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INTEREST MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF
(INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A AND OF SUCH
LAWS OR (II) A PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR
AN AFFILIATE OF SUCH A PERSON WITHIN THE
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MEANING OF RULE 3a-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING, BUT NOT LIMITED TO, RESIDENTIAL ASSET FUNDING CORPORATION) IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INTEREST UNDER THE ACT OR
ANY STATE SECURITIES LAWS."
(c) Each Prospective Certificateholder, other than the Depositor, shall
represent and warrant, in writing, to the Owner Trustee and the Certificate
Registrar and any of their respective successors that the Prospective
Certificateholder is not (i) an "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is subject to the provisions of Title I of ERISA, (ii) a "plan"
within the meaning of Section 4975(e)(1) of the Code that is subject to Section
4975 of the Code or (iii) any entity, including an insurance company separate
account or general account, whose underlying assets are deemed to include assets
of a plan described in (i) or (ii) above by reason of such plan's investment in
the entity.
(d) By its acceptance of a Residual Interest Instrument, each Prospective
Certificateholder agrees and acknowledges that no legal or beneficial interest
in all or any portion of the Residual Interest Instruments may be transferred
directly or indirectly to an individual, corporation, partnership or other
person unless such transferee is not a Non-U.S. Person (any such person being
referred to herein as a "Non-permitted Foreign Holder"), and any such purported
transfer shall be void and have no effect.
(e) The Owner Trustee or the Co-Owner Trustee shall not execute, and shall
not countersign and deliver, a Residual Interest Instrument in connection with
any transfer thereof unless the transferor shall have provided to the Owner
Trustee and the Certificate Registrar a certificate signed by the transferee, a
Book-Entry Nominee or a Non-permitted Foreign Holder, which certificate shall
contain the consent of the transferee to any amendments of this Agreement as may
be required to effectuate further the foregoing restrictions on transfer of the
Residual Interest Instruments to Book-Entry Nominees or Non-permitted Foreign
Holders, and an agreement by the transferee that it will not transfer a Residual
Interest Instrument without providing to the Owner Trustee and the Certificate
Registrar a substantially identical certificate signed by the Prospective
Certificateholder to whom the Residual Interest Instrument is to be transferred.
(f) The Residual Interest Instruments shall bear an additional legend
referring to the foregoing restrictions contained in paragraphs (c), (d) and (e)
above.
(g) The Prospective Certificateholder shall obtain an opinion of counsel to
the effect that, as a matter of federal income tax law, such Prospective
Certificateholder is permitted to accept the transfer of a Residual Interest
Instrument.
Section 3.11 Securities Matters. Notwithstanding anything contained herein
to the contrary, neither the Owner Trustee nor the Certificate Registrar shall
be responsible for ascertaining whether any transfer complies with the
registration provisions or exemptions from the Securities Act of 1933, as
amended, the Securities Act of 1934, as amended, applicable state securities law
or the Investment Company Act of 1934, as amended, applicable state securities
law or the Investment Company Act; provided, however, that if a certificate is
specifically required to be delivered to the Owner Trustee by a purchaser or
transferee of a Residual Interest
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Instrument, the Owner Trustee shall be under a duty to examine the same to
determine whether it conforms to the requirements of this Trust Agreement and
shall promptly notify the party delivering the same if such certificate does not
so conform.
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Certificateholders with Respect to Certain
Matters. With respect to the following matters, the Owner Trustee shall not take
action, and the Certificateholders shall not direct the Owner Trustee to take
any action, unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Certificateholders shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or the Certificateholders have provided
alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of the Loans) and the
compromise of any action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for
collection of the Loans);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business
Trust Statute);
(c) the amendment or other change to this Agreement or any Basic
Document in circumstances where the consent of any Noteholder is required;
(d) the amendment or other change to this Agreement or any Basic
Document in circumstances where the consent of any Noteholder is not
required and such amendment materially adversely affects the interest of
the Certificateholders;
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement
of a successor Certificate Registrar, or the consent to the assignment by
the Note Registrar, Paying Agent or Indenture Trustee or Certificate
Registrar of its obligations under the Indenture or this Agreement, as
applicable;
(f) the consent to the calling or waiver of any default of any Basic
Document,
(g) the consent to the assignment by the Indenture Trustee or Servicer
of their respective obligations under any Basic Document;
(h) except as provided in Article IX hereof, dissolve, terminate or
liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any other entity, or
convey or transfer all or substantially all of the Trust's assets to any
other entity;
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(j) cause the Trust to incur, assume or guaranty any indebtedness
other than as set forth in this Agreement;
(k) do any act that conflicts with any other Basic Document;
(1) do any act which would make it impossible to carry on the ordinary
business of the Trust;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to property, for
other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth in this
Trust Agreement.
In addition, the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness, operating expenses from its own
funds, and the Trust shall not pay the indebtedness, operating expenses and
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Depositor, and any of its affiliates.
The Owner Trustee shall not have the power, except upon the direction of
the Certificateholders, and to the extent otherwise consistent with the Basic
Documents, to (i) remove or replace the Servicer or the Indenture Trustee, (ii)
institute proceedings to have the Trust declared or adjudicated a bankrupt or
insolvent, (iii) consent to the institution of bankruptcy or insolvency
proceedings against the Trust, (iv) file a petition or consent to a petition
seeking reorganization or relief on behalf of the Trust under any applicable
federal or state law relating to bankruptcy, (v) consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or any similar official)
of the Trust or a substantial portion of the property of the Trust, (vi) make
any assignment for the benefit of the Trust's creditors, (vii) cause the Trust
to admit in writing its inability to pay its debts generally as they become due,
(viii) take any action, or cause the Trust to take any action, in furtherance of
any of the foregoing (any of the above, a "Bankruptcy Action"). So long as the
Indenture remains in effect, no Certificateholder shall have the power to take,
and shall not take, any Bankruptcy Action with respect to the Trust or the
Depositor or direct the Owner Trustee to take any Bankruptcy Action with respect
to the Trust or the Depositor.
Section 4.2 Action by Certificateholders with Respect to Certain Matters.
[The Owner Trustee shall not have the power, except upon the direction of the
Certificateholders, to (a) remove the Administrator under the Administration
Agreement pursuant to Section 9 thereof, (b) appoint a successor Administrator
pursuant to Section 9 of the Administration Agreement, (c) remove the Servicer
under the Sale and Servicing Agreement pursuant to Section 10.1 thereof or (d)
sell the Loans after the termination of the Indenture. The Owner Trustee shall
take the actions referred to in the preceding sentence only upon written
instructions signed by the Certificateholders.]
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Section 4.3 Action by Certificateholders with Respect to Bankruptcy. The
Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder certifying that such Certificateholder reasonably believes
that the Trust is insolvent.
Section 4.4 Restrictions on Certificateholders' Power. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 nor shall the Owner Trustee be
obligated to follow any such direction, if given.
Section 4.5 Majoritv Control. Except as expressly provided herein, any
action that may be taken by the Certificateholders under this Agreement may be
taken by the Majority Residual Interestholders. Except as expressly provided
herein, any written notice of the Certificateholders delivered pursuant to this
Agreement shall be effective if signed by the Majority Residual Interestholders
at the time of the delivery of such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account. The Owner Trustee shall cause
the Servicer, for the benefit of the Certificateholders, to establish and
maintain with __________________________ for the benefit of the Owner Trustee or
Co-Owner Trustee one or more Eligible Accounts which so long as the Co-Owner
Trustee holds such Trust Account shall be entitled "Certificate Distribution
Account, ___________________________ as Indenture Trustee, in trust for the
_______________ Trust, Series ________". Funds shall be deposited in the
Certificate Distribution Account as required by the Sale and Servicing
Agreement.
All of the right, title and interest of the Co-Owner Trustee or Owner
Trustee in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the benefit
of the Certificateholders and such other persons entitled to distributions
therefrom. Except as otherwise expressly provided herein or in the Sale and
Servicing Agreement, the Certificate Distribution Account shall be under the
sole dominion and control of the Owner Trustee or Co-Owner Trustee for the
benefit of the Certificateholders and the Servicer.
In addition to the foregoing, the Certificate Distribution Account is a
Trust Account under the Sale and Servicing Agreement and constitutes part of the
Trust Estate pledged by the Trust to the Indenture Trustee under the Indenture.
The Certificate Distribution Account shall be subject to and established and
maintained in accordance with the applicable provisions of the Sale and
Servicing Agreement and the Indenture, including, without limitation, the
provisions of Section 5.1(e) of the Sale and Servicing Agreement regarding
distributions from the Certificate Distribution Account.
Section 5.2 Application Of Trust Funds.
(a) On each Distribution Date, the Owner Trustee or Co-Owner Trustee shall
direct the Paying Agent to distribute to the Servicer and the Residual
Interestholders from
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amounts on deposit in the Certificate Distribution Account the distributions as
provided in Section 5.2(b) of the Sale and Servicing Agreement with respect to
such Distribution Date.
(b) On each Distribution Date, the Owner Trustee shall cause the Paying
Agent to send to each Residual Interestholder the statement provided to the
Owner Trustee by the Servicer pursuant to Section 6.1 of the Sale and Servicing
Agreement with respect to such Distribution Date.
(c) In the event that any withholding tax is imposed on the Trust's payment
(or allocations of income) to a Certificateholder, such tax shall reduce the
amount otherwise distributable to the Certificateholder in accordance with this
Section 5.2. Each of the Owner Trustee and the Paying Agent is hereby authorized
and directed to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Owner Trustee
from contesting any such tax in appropriate proceedings, and withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a Certificateholder shall
be treated as cash distributed to such Certificateholder at the time it is
withheld by the Trust and remitted to the appropriate taxing authority. If there
is a possibility that withholding tax is payable with respect to a distribution
(such as a distribution to a non-U.S. Certificateholder), the Owner Trustee or
the Paying Agent may in its sole discretion withhold such amounts in accordance
with this paragraph (c). In the event that a Certificateholder wishes to apply
for a refund of any such withholding tax, the Owner Trustee shall reasonably
cooperate with such owner in making such claim so long as such Certificateholder
agrees to reimburse the Owner Trustee for any out-of-pocket expenses incurred.
Section 5.3 Method of Payment. Subject to Section 3.9, distributions
required to be made to Certificateholders on any Distribution Date shall be made
to each Certificateholder of record on the preceding Record Date either by wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Distribution Date
and such Holder's Certificates in the aggregate evidence a denomination of not
less than $1,000,000; or, if not, by check mailed to such Certificateholder at
the address of such holder appearing in the Certificate Register; provided,
however, that the initial Residual Interestholder shall receive all payments by
wire transfer, in immediately available funds.
Section 5.4 Segregation of Moneys: No Interest. Subject to Section 4.1 and
Section 5.2, moneys received by the Owner Trustee hereunder and deposited into
the Certificate Distribution Account will be segregated except to the extent
required otherwise by law or the Sale and Servicing Agreement and shall be
invested in Permitted Investments at the direction of the Servicer. The Owner
Trustee shall not be liable for payment of any interest in respect of such
moneys.
Section 5.5 Accounting and Reports to the Certificateholders, the Internal
Revenue Service and Others. The Owner Trustee shall deliver to each
Certificateholder such information, reports or statements as may be required by
the Code and applicable Treasury Regulations and as may be required to enable
each Certificateholder to prepare its federal and state income tax returns.
Consistent with the Trust's characterization for tax purposes, as a security
arrangement for the issuance of non-recourse debt, no federal income tax return
shall be filed on behalf of the Trust unless either (i) the Owner Trustee shall
receive an Opinion of Counsel that, based on a change in applicable law
occurring after the date hereof, or as a result of a transfer by the
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Depositor permitted by Section 3.4, the Code requires such a filing or (ii) the
Internal Revenue Service shall determine that the Trust is required to file such
a return. Notwithstanding the preceding sentence, the Owner Trustee shall file
Internal Revenue Service Form 8832 and elect for the Trust to be treated as a
domestic eligible entity with a single owner that is disregarded as a separate
entity, which election shall remain in effect so long as the Depositor or any
other party is the sole Certificateholder. In the event that the Trust is
required to file tax returns, the Owner Trustee shall prepare or shall cause to
be prepared any tax returns required to be filed by the Trust and shall remit
such returns to the Depositor (or if the Depositor no longer owns any Residual
Interest Instruments, the Certificateholder designated for such purpose by the
Depositor to the Owner Trustee in writing) at least five (5) days before such
returns are due to be filed. The Depositor (or such designee Owner, as
applicable) shall promptly sign such returns and deliver such returns after
signature to the Owner Trustee and such returns shall be filed by the Owner
Trustee with the appropriate tax authorities. In no event shall the Owner
Trustee or the Depositor (or such designee Certificateholder, as applicable) be
liable for any liabilities, costs or expenses of the Trust or the Noteholders
arising out of the application of any tax law, including federal, state, foreign
or local income or excise taxes or any other tax imposed on or measured by
income (or any interest, penalty or addition with respect thereto or arising
from a failure to comply therewith) except for any such liability, cost or
expense attributable to any act or omission by the Owner Trustee or the
Depositor (or such designee Certificateholder, as applicable), as the case may
be, in breach of its obligations under this Agreement. The Owner Trustee shall
sign all tax information returns prepared and filed pursuant to this Section 5.5
and any other returns as may be required by law, and in doing so shall rely
entirely upon, and shall have no liability for information provided by,
documents prepared by or calculations provided by, the General Partner, as the
case may be. The Owner Trustee shall elect under Section 1278 of the Code to
include in income currently any market discount that accrues with respect to the
Loans. The Owner Trustee shall not make the election provided under Section 754
of the Code.
Section 5.6 Signature on Returns: Tax Matters Partner.
(a) Notwithstanding the provisions of Section 5.5, the Owner Trustee shall
sign on behalf of the Issuer the tax returns of the Issuer, unless applicable
law requires a Certificateholder to sign such documents, in which case such
documents shall be signed by the General Partner.
(b) The General Partner shall be the "tax matters partner" of the Issuer
pursuant to the Code.
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority. The Owner Trustee is authorized and directed
to execute and deliver or cause to be executed and delivered the Notes, the
Residual Interest Instruments and the Basic Documents to which the Trust is to
be a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described in Article III, in each
case, in such form as the Depositor shall approve, as evidenced conclusively by
the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver Classes of Securities in the
following aggregate principal amounts: Class A-1 Notes, $_______; Class A-2
Notes, $________; Class A-3 Notes, $_________; Class A-4 Notes, $________; Class
M-1 Notes, $________; Class M-2
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Notes, $_____; and Class B Notes, $_______. In addition to the foregoing, the
Owner Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust, pursuant to the Basic Documents. The General Partner may
execute any other closing certificates or receipts on behalf of the Issuer.
Section 6.2 General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents to which the
Trust is a party and to administer the Trust in the interest of the
Certificateholders, subject to the Basic Documents and in accordance with the
provisions of this Agreement. Notwithstanding the foregoing, the Owner Trustee
shall be deemed to have discharged its duties and responsibilities hereunder and
under the Basic Documents to the extent the Administrator or the Co-Owner
Trustee has agreed in the Administration Agreement or this Agreement,
respectively, to perform any act or to discharge any duty of the Owner Trustee
or the Trust hereunder or under any Basic Document, and the Owner Trustee shall
not be held liable for the default or failure of the Administrator, the General
Partner or the Co-Owner Trustee to carry out its obligations under the
Administration Agreement or this Agreement, respectively; and
(b) to obtain and preserve the Issuer's qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, the
Collateral and each other instrument and agreement included in the Trust Estate.
Section 6.3 Action upon Instruction.
(a) Subject to Article IV and in accordance with the terms of the Basic
Documents, the Certificateholders may by written instruction direct the Owner
Trustee in the management of the Trust but only to the extent consistent with
the limited purpose of the Trust. Such direction may be exercised at any-time by
written instruction of the Certificateholders pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action hereunder or
under any Basic Document if the Owner Trustee shall have reasonably determined,
or shall have been advised by counsel, that such action is likely to result in
liability on the part of the Owner Trustee or is contrary to the terms hereof or
of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Certificateholders
requesting instruction from the Certificateholders as to the course of action to
be adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Certificateholders received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within 10 days of
such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders, and shall have no liability to
any Person for such action or inaction.
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(d) In the event that the Owner Trustee is unsure as to the application of
any provision of this Agreement or any Basic Document or any such provision is
ambiguous as to its application, or is, or appears to be, in conflict with any
other applicable provision, or in the event that this Agreement permits any
determination by the Owner Trustee or is silent or is incomplete as to the
course of action that the Owner Trustee is required to take with respect to a
particular set of facts, the Owner Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the Certificateholders
requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
Section 6.4 No Duties Except as Specified in this Agreement, the Basic
Documents or in Instructions. The Owner Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Owner Trustee is a party, except as expressly
provided by the terms of this Agreement, any Basic Document or in any document
or written instruction received by the Owner Trustee pursuant to Section 6.3;
and no implied duties or obligations shall be read into this Agreement or any
Basic Document against the Owner Trustee. The Owner Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any
Securities and Exchange Commission filing for the Trust or to record this
Agreement or any Basic Document. The Owner Trustee nevertheless agrees that it
will, at its own cost and expense, promptly take all action as may be necessary
to discharge any liens on any part of the Owner Trust Estate that result from
actions by, or claims against, the Owner Trustee in its individual capacity that
are not related to the ownership or the administration of the Owner Trust
Estate.
Section 6.5 No Action Except Under Specified Documents or Instructions. The
Owner Trustee shall not manage, control, use, sell, dispose of or otherwise deal
with any part of the Owner Trust Estate except (i) in accordance with the powers
granted to and the authority conferred upon the Owner Trustee pursuant to this
Agreement, (ii) in accordance with the Basic Documents and (iii) in accordance
with any document or instruction delivered to the Owner Trustee pursuant to
Section 6.3.
Section 6.6 Restrictions. The Owner Trustee shall not take any action (a)
that is inconsistent with the purposes of the Trust set forth in Section 2.3 or
(b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section 6.6.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties. The Owner Trustee accepts the
trusts hereby created and agrees to perform its duties hereunder with respect to
such trusts but only upon the terms of this Agreement and the Basic Documents.
The Owner Trustee also agrees to disburse all moneys actually received by it
constituting part of the Owner Trust Estate upon the terms of the Basic
Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct or gross negligence or (ii) in the
case of the inaccuracy of any representation or warranty contained in Section
7.3 expressly made by the Owner Trustee in its individual capacity. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of
the Administrator or the Certificateholders;
(c) no provision of this Agreement or any Basic Document shall require
the Owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or
under any Basic Document if the Owner Trustee shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution
hereof by the Depositor or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or
in respect of the validity or sufficiency of the Basic Documents, other
than the certificate of authentication on the Residual Interest
Instruments, and the Owner Trustee shall in no event assume or incur any
liability, duty, or obligation to any Noteholder or to any
Certificateholder, other than as expressly provided for herein and in the
Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller, the Depositor, the Indenture
Trustee, the General Partner or the Servicer under any of the Basic
Documents or otherwise and the Owner Trustee shall have no obligation or
liability to perform the obligations of the Trust under this Agreement or
the Basic Documents that are required to be performed by the Administrator
under the Administration Agreement, the Indenture Trustee under the
Indenture or the Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation
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under this Agreement or otherwise or in relation to this Agreement or any Basic
Document, at the request, order or direction of any of the Certificateholders,
unless such Certificateholders have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its gross negligence or willful misconduct in the
performance of any such act provided, that the Owner Trustee shall be liable for
its negligence or willful misconduct in the event that it assumes the duties and
obligations of the Co-Owner Trustee under the Sale and Servicing Agreement
pursuant to Section 10.5.
Section 7.2 Furnishing of Documents. The Owner Trustee shall furnish (a) to
the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents and (b) to Noteholders promptly upon written request
therefor, copies of the Sale and Servicing Agreement, the Administration
Agreement and the Trust Agreement.
Section 7.3 Representations and Warranties.
(a) The Owner Trustee hereby represents and warrants to the Depositor for
the benefit of the Certificateholders, that:
(i) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of North Carolina. It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this Agreement
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will contravene
any federal or North Carolina law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment
or order binding on it, or constitute any default under its charter
documents or bylaws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound.
(b) The Co-Owner Trustee hereby represents and warrants to the Depositor
that:
(i) It is a national banking association duly organized and validly
existing in good standing under the laws of the United States. It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
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(iii) Neither the execution nor the delivery by it of this Agreement
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will contravene
any federal or ______________ law, governmental rule or regulation
governing the banking or trust powers of the Co-Owner Trustee or any
judgment or order binding on it, or constitute any default under its
charter documents or by-laws or any indenture, mortgage, contract,
agreement or instrument to which it is a party or by which any of its
properties may be bound.
Section 7.4 Reliance: Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in acting upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond, or other document or paper believed by it to be genuine
and believed by it to be signed by the proper party or parties. The Owner
Trustee may accept a certified copy of a resolution of the board of directors or
other governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the method of the determination of which is
not specifically prescribed herein, the Owner Trustee may for all purposes
hereof rely on a certificate, signed by the president or any vice president or
by the treasurer or other authorized officers of the relevant party, as to such
fact or matter and such certificate shall constitute full protection to the
Owner Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in the
performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and not contrary to this Agreement or
any Basic Document.
Section 7.5 Not Acting in Individual Capacity. Except as provided in this
Article VII, in accepting the trusts hereby created [_________________] acts
solely as Owner Trustee hereunder and not in its individual capacity and all
Persons having any claim against the Owner Trustee by reason of the transactions
contemplated by this Agreement or any Basic Document shall look only to the
Owner Trust Estate for payment or satisfaction thereof.
Section 7.6 Owner Trustee Not Liable for Residual Interest Instruments or
Loans. The recitals contained herein and in the Residual Interest Instruments
(other than the signature and countersignature of the Owner Trustee on the
Residual Interest Instruments) shall be taken as the statements of the
Depositor, and the Owner Trustee assumes no responsibility for the correctness
thereof. The Owner Trustee makes no representations as to the validity or
sufficiency of this Agreement, of any Basic Document or of the Residual Interest
Instruments (other than the signature and countersignature of the Owner Trustee
on the Residual Interest Instruments and as specified in Section 7.3) or the
Notes, or of any Loans or related documents. The Owner Trustee shall at no time
have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Loan, or the perfection and priority of any
security interest created by any Loan or the maintenance of any such perfection
and priority, or for or with respect to the sufficiency of the Owner Trust
Estate or its ability to generate the payments to be distributed to
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Certificateholders under this Agreement or the Noteholders under the Indenture,
including, without limitation: the existence, condition and ownership of any
Mortgaged Property; the existence and enforceability of any insurance thereon;
the existence and contents of any Loan on any computer or other record thereof;
the validity of the assignment of any Loan to the Trust or of any intervening
assignment; the completeness of any Loan; the performance or enforcement of any
Loan; the compliance by the Depositor or the Servicer with any warranty or
representation made under any Basic Document or in any related document or the
accuracy of any such warranty or representation or any action of the
Administrator, the Indenture Trustee or the Servicer or any Subservicer taken in
the name of the Owner Trustee.
Section 7.7 Owner Trustee May Own Residual Interest Instruments and Notes.
The Owner Trustee in its individual or any other capacity may become the owner
or pledgee of Residual Interest Instruments or Notes and may deal with the
Depositor, the Administrator, the Indenture Trustee and the Servicer in banking
transactions with the same rights as it would have if it were not Owner Trustee.
Section 7.8 Licenses. The Owner Trustee shall with the advice of the
Servicer and upon the authorization of the Depositor cause the Trust to use its
best efforts to obtain and maintain the effectiveness of any licenses required
in connection with this Agreement and the Basic Documents and the transactions
contemplated hereby and thereby until such time as the Trust shall terminate in
accordance with the terms hereof.
Section 7.9 Rights of Co-Owner Trustee. The Co-Owner Trustee shall be
entitled to all the rights and benefits, but none of the liabilities, conferred
upon the Owner Trustee in Article VII.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND CO-OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Servicer and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Servicer for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder. The Co-Owner
Trustee shall receive as compensation for its services hereunder such fees, if
any, as have been separately agreed upon between the Depositor and the Co-Owner
Trustee on or before the date hereof.
Section 8.2 Indemnification. The Depositor shall be liable as primary
obligor, and the Servicer as secondary obligor pursuant to the Administration
Agreement, for, and shall indemnify the Owner Trustee (in its individual and
trust capacities), the Co-Owner Trustee and their successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and against, any and
all liabilities; obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee (in its individual and trust capacities) or
any Indemnified Party in any way relating to or arising out of this Agreement,
the Basic Documents, the Owner Trust Estate, the administration of the Owner
Trust Estate or the action or inaction of the Owner Trustee or the Co-Owner
Trustee hereunder, except only that the
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Depositor shall not be liable for or required to indemnify an Indemnified Party
from and against Expenses arising or resulting from any of the matters described
in the third sentence of Section 7.1 of this Trust Agreement. The indemnities
contained in this Section 8.2 shall survive the resignation or termination of
the Owner Trustee or the Co-Owner Trustee or the termination of this Agreement.
In any event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section 8.2, the Owner Trustee's or Co-Owner Trustee's
choice of legal counsel shall be subject to the approval of the Depositor, which
approval shall not be unreasonably withheld.
Section 8.3 Payments to the Owner Trustee and the Co-Owner Trustee. Any
amounts paid to the Owner Trustee and/or Co-Owner Trustee pursuant to this
Article VIII shall be deemed not to be a part of the Owner Trust Estate
immediately after such payment.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust shall terminate
and be of no further force or effect on the earliest of: (i) the satisfaction
and discharge of the Indenture pursuant to Section 4.01 of the Indenture and the
termination of the Sale and Servicing Agreement; (ii) the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy (the
late ambassador of the United States to the Court of St. James's) alive on the
date hereof and (iii) an Act of Insolvency with respect to the Depositor. Other
than as set forth in clause (iii) above, the bankruptcy, liquidation,
dissolution, death or incapacity of any Certificateholder shall not (x) operate
to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or Owner Trust Estate nor (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) The Residual Interest Instruments shall be subject to an early
redemption or termination at the option of the Depositor in the manner and
subject to the provisions of Section 11.2 of the Sale and Servicing Agreement.
(c) Except as provided in Section 9.1(a) and Section 9.1(b), neither the
Depositor nor any Certificateholder shall be entitled to revoke or terminate the
Trust.
(d) Notice of any termination of the Trust, specifying the Distribution
Date upon which the Certificateholders shall surrender their Residual Interest
Instruments to the Paying Agent for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Certificateholders and
the Rating Agencies mailed within five Business Days of receipt by the Owner
Trustee of notice of such termination pursuant to Section 9.1(a) or Section
9.1(b), which notice given by the Owner Trustee shall state (i) the Distribution
Date upon or with respect to which final payment of the Residual Interest
Instruments shall be made upon presentation and surrender of the Residual
Interest Instruments at the office of the Paying Agent therein designated, (ii)
the amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Residual Interest Instruments at the
office of the Paying Agent therein specified. The Owner Trustee shall give such
notice to the Certificate Registrar (if other than the Owner Trustee) and the
Paying Agent at the time such notice is given to
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Certificateholders. Upon presentation and surrender of the Residual Interest
Instruments, the Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Distribution Date pursuant to
Section 5.2 of the Sale and Servicing Agreement.
In the event that all of the Certificateholders shall not surrender their
Residual Interest Instruments for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Residual Interest Instruments for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Residual Interest Instruments shall not have been surrendered for
cancellation, the Owner Trustee may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Residual Interest Instruments, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Co-Owner Trustee to the General
Partner and the Residual Interestholders shall look solely to the General
Partner for payment.
(e) Any funds held by the Issuer after funds for final distribution have
been distributed or set aside for distribution shall be distributed by the
Co-Owner Trustee to the General Partner.
(f) Upon the winding up of the Trust and its termination, the Owner Trustee
shall cause the Certificate of Trust to be canceled by filing a certificate of
cancellation with the Secretary of State in accordance with the provisions of
Section 3820 of the Business Trust Statute.
Section 9.2 Dissolution upon Bankruptcy of the General Partner. In the
event that an Insolvency Event shall occur with respect to the General Partner,
this Agreement shall be terminated in accordance with Section 9.1 90 days after
the date of such Insolvency Event, unless, before the end of such 90-day period,
the Owner Trustee shall have received written instructions from
Certificateholders holding a majority of the Percentage Interest (other than the
General Partner) to the effect that each such party disapproves of the
liquidation of the Loans and dissolution of the Issuer. Promptly after the
occurrence of any Insolvency Event with respect to the General Partner, (i) the
General Partner shall give the Indenture Trustee and the Owner Trustee written
notice of such Insolvency Event, (ii) the Owner Trustee shall, upon the receipt
of such written notice from the General Partner, give prompt written notice to
the Certificateholders and the Indenture Trustee of the occurrence of such event
and (iii) the Indenture Trustee shall, upon receipt of written notice of such
Insolvency Event from the Owner Trustee or the General Partner, give prompt
written notice to the Noteholders of the occurrence of such event; provided,
however, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a dissolution of the Issuer pursuant to the
first sentence of this Section 9.2. Upon a dissolution pursuant to this Section
9.2, the Owner Trustee shall direct the Indenture Trustee promptly to sell the
assets of the Trust Estate in a commercially reasonable manner and on
commercially reasonable terms. The proceeds of such a sale of the assets of the
Issuer shall be treated as collections under the Sale and Servicing Agreement
and shall be distributed in accordance with Section 5.1 thereof.
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ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee. The Owner Trustee
shall at all times be a corporation satisfying the provisions of Section 3807(a)
of the Business Trust Statute; authorized to exercise corporate powers; having a
combined capital and surplus of at least $_______________ and subject to
supervision or examination by federal or state authorities; and having (or
having a parent which has) a short-term rating of at least "_____" by [Moody's]
and "______" by [Fitch]. If such corporation shall publish reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section 10.1,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Owner Trustee shall cease to be eligible
in accordance with the provisions of this Section 10.1, the Owner Trustee shall
resign immediately in the manner and with the effect specified in Section
10.2(b).
Section 10.2 Resignation or Removal of Owner Trustee or Co-Owner Trustee
(a) If an Event of Default under the Sale and Servicing Agreement or an
Event of Default under the Indenture should occur and be continuing, then the
Co-Owner Trustee will resign in the manner specified in Section 10.2(b) and the
Owner Trustee will assume the duties of the Co-Owner Trustee under this
Agreement.
(b) The Owner Trustee or Co-Owner Trustee may at any time resign and be
discharged from the trusts hereby created by giving written notice thereof to
the Administrator and the Indenture Trustee. Upon receiving such notice of
resignation, the Administrator shall promptly appoint a successor Owner Trustee
or Co-Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee or Co-Owner Trustee
and one copy to the successor Owner Trustee or Co-Owner Trustee. If no successor
Owner Trustee or Co-Owner Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Owner Trustee or Co-Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee or Co-Owner
Trustee.
If at any time the Owner Trustee or Co-Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail to
resign after written request therefor by the Administrator, or if at any time
the Owner Trustee or Co-Owner Trustee shall be legally unable to act, or shall
be adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or
Co-Owner Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Owner Trustee or Co-Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Administrator may remove the Owner Trustee or Co-Owner
Trustee. If the Administrator shall remove the Owner Trustee or Co-Owner Trustee
under the authority of the immediately preceding sentence, the Administrator
shall promptly appoint a successor Owner Trustee or Co-Owner Trustee by written
instrument in duplicate, one copy of which instrument shall be delivered to the
outgoing Owner Trustee or Co-Owner Trustee so removed and one copy to the
successor Owner Trustee or Co-Owner Trustee, and shall be responsible for the
payment of all fees owed to the outgoing Owner Trustee or Co-Owner Trustee.
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Any resignation or removal of the Owner Trustee or Co-Owner Trustee and
appointment of a successor Owner Trustee or Co-Owner Trustee pursuant to any of
the provisions of this Section 10.2 shall not become effective until acceptance
of appointment by the successor Owner Trustee or Co-Owner Trustee pursuant to
Section 10.3 and payment of all fees and expenses owed to the outgoing Owner
Trustee or Co-Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee or Co-Owner Trustee to each of the
Rating Agencies.
Section 10.3 Successor Owner Trustee or Co-Owner Trustee. Any successor
Owner Trustee or Co-Owner Trustee appointed pursuant to Section 10.2(b) shall
execute, acknowledge and deliver to the Administrator and to its predecessor
Owner Trustee or Co-Owner Trustee an instrument accepting such appointment under
this Agreement, and thereupon the resignation or removal of the predecessor
Owner Trustee or Co-Owner Trustee shall become effective and such successor
Owner Trustee or Co-Owner Trustee, without any further act, deed or conveyance,
shall become fully vested with all the rights, powers, duties, and obligations
of its predecessor under this Agreement, with like effect as if originally named
as Owner Trustee or Co-Owner Trustee. The predecessor Owner Trustee or Co-Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee or Co-Owner Trustee all documents and statements and monies held
by it under this Agreement; and the Administrator and the predecessor Owner
Trustee or Co-Owner Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Owner Trustee or Co-Owner Trustee all such
rights, powers, duties, and obligations.
No successor Owner Trustee or Co-Owner Trustee shall accept appointment as
provided in this Section 10.3 unless at the time of such acceptance such
successor Owner Trustee or Co-Owner Trustee shall be eligible pursuant to
Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee or Co-Owner
Trustee pursuant to this Section 10.3, the Administrator shall mail notice of
the successor of such Owner Trustee or Co-Owner Trustee to all Owners, the
Indenture Trustee, the Noteholders and the Rating Agencies. If the Administrator
fails to mail such notice within 10 days after acceptance of appointment by the
successor Owner Trustee or Co-Owner Trustee, the successor Owner Trustee or
Co-Owner Trustee shall cause such notice to be mailed at the expense of the
Administrator.
Section 10.4 Merger or Consolidation of Owner Trustee or Co-Owner Trustee.
Any corporation into which the Owner Trustee or Co-Owner Trustee may be merged
or converted or with which it may be consolidated or any corporation resulting
from any merger, conversion or consolidation to which the Owner Trustee or
Co-Owner Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Owner Trustee or
Co-Owner Trustee, shall be the successor of the Owner Trustee Co-Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided further that the Owner Trustee or Co-Owner Trustee shall mail notice of
such merger or consolidation to the Rating Agencies.
Section 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Mortgaged Property may at the time be located,
and for the purpose of performing certain duties and obligations of the Owner
Trustee with respect to the Trust under the Sale and Servicing
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Agreement, the Administrator and the Owner Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee to act as co-owner trustee, jointly with
the Owner Trustee, or separate trustee or separate trustees, of all or any part
of the Owner Trust Estate, and to vest in such Person, in such capacity, such
title to the Trust, or any part thereof, and, subject to the other provisions of
this Section 10.5, such powers, duties, obligations, rights and trusts as the
Administrator and the Owner Trustee may consider necessary or desirable. If the
Administrator shall not have joined in such appointment within 25 days after the
receipt by it of a request so to do, the Owner Trustee shall have the power to
make such appointment. No co-owner trustee or separate owner trustee under this
Agreement shall be required to meet the terms of eligibility as a successor
trustee pursuant to Section 10.3 and no notice of the appointment of any
co-trustee or separate owner trustee shall be required pursuant to Section 10.3.
The Owner Trustee hereby appoints the Indenture Trustee as Co-Owner Trustee
for the purpose of establishing and maintaining the Certificate Distribution
Account and making the distributions therefrom to the Persons entitled thereto
pursuant to Section 5.2 of the Sale and Servicing Agreement.
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed
by the Owner Trustee and such separate owner trustee or co-owner trustee
jointly (it being understood that such separate owner trustee or co-owner
trustee is not authorized to act separately without the Owner Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties, and obligations
(including the holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
owner trustee or co-owner trustee, but solely at the direction of the Owner
Trustee; provided that Co-Owner Trustee, in performing its duties and
obligations under the Sale and Servicing Agreement, may act separately in
its capacity as Co-Owner Trustee without the Owner Trustee joining in such
Acts.
(ii) no owner trustee under this Agreement shall be personally liable
by reason of any act or omission of any other owner trustee under this
Agreement; and
(iii) the Administrator and the Owner Trustee acting jointly may at
any time accept the resignation of or remove any separate owner trustee or
co-owner trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to the separate owner trustees and co-owner trustees,
as if given to each of them. Every instrument appointing any separate owner
trustee or co-owner trustee, other than this Agreement, shall refer to this
Agreement and to the conditions of this Article X. Each separate owner trustee
and co-owner trustee, upon its acceptance of appointment, shall be vested with
the estates specified in its instrument of appointment, either jointly with the
Owner Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Owner Trustee. Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.
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Any separate owner trustee or co-owner trustee may at any time appoint the
Owner Trustee as its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate owner trustee or
co-owner trustee shall die, become incapable of acting, resign or be removed,
all of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee. The Owner Trustee and the Co-Owner
Trustee each agree that upon the occurrence and continuation of an Event of
Default, the Co-Owner Trustee shall resign and, upon ten Business Days' notice
from the Co-Owner Trustee, the Owner Trustee shall assume the duties and
obligations of the Co-Owner Trustee under the Sale and Servicing Agreement and
this Agreement, including without limitation, the obligations of the Co-Owner
Trustee as Paying Agent pursuant to Section 3.9 hereof.
The Co-Owner Trustee, in its capacity as Co-Owner Trustee, shall not have
any rights, duties or obligations except as expressly provided in this Agreement
and the Sale and Servicing Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments. This Agreement may be amended by
the Depositor and the Owner Trustee, with prior written notice to the Rating
Agencies, but without the consent of any of the Noteholders or the
Certificateholders or the Indenture Trustee, to cure any ambiguity, to correct
or supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions in
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders provided, however, that such action shall not adversely
affect in any material respect the interests of any Noteholder or
Certificateholder. An amendment described above shall be deemed not to adversely
affect in any material respect the interests of any Noteholder or
Certificateholder if (i) an opinion of counsel is obtained to such effect, and
(ii) the party requesting the amendment satisfies the Rating Agency Condition
with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor and
the Owner Trustee, with the prior written consent of the Rating Agencies and
with the prior written consent of the Indenture Trustee, the Holders (as defined
in the Indenture) of Notes evidencing more than 50% of the Outstanding Amount of
the Notes and the Majority Residual Interestholders, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the Loans or distributions that shall be
required to be made for the benefit of the Noteholders (b) reduce the aforesaid
percentage of the Outstanding Amount of the Notes or the Percentage Interests
required to consent to any such amendment, in either case of clause (a) or (b)
without the consent of the holders of all the outstanding Notes, and in the case
of clause (b) without the consent of the holders of all the outstanding Residual
Interest Instruments.
Promptly after the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment or
consent to each Residual Interestholder, the Indenture Trustee and each of the
Rating Agencies.
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It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Indenture Trustee pursuant to this Section 11.1 to approve
the particular form of any proposed amendment or consent, but it shall be
sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents (and any other consents of Certificateholders provided
for in this Agreement or in any other Basic Document) and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of Trust,
the Owner Trustee shall cause the filing of such amendment with the Secretary of
State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
Section 11.2 No Legal Title to Owner Trust Estate in Certificateholders.
The Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided ownership interest therein only in accordance with
Article V and Article IX. No transfer, by operation of law or otherwise, of any
right, title, or interest of the Certificateholders to and in their ownership
interest in the Owner Trust Estate shall operate to terminate this Agreement or
the trusts hereunder or entitle any transferee to an accounting or to the
transfer to it of legal title to any part of the Owner Trust Estate.
Section 11.3 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Owner Trustee, the Depositor, the
Owners, the Administrator and, to the extent expressly provided herein, the
Indenture Trustee and the Noteholders, and nothing in this Agreement, whether
express or implied, shall be construed to give to any other Person any legal or
equitable right, remedy or claim in the Owner Trust Estate or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
Section 11.4 Notices. (a) Unless otherwise expressly specified or permitted
by the terms hereof, all notices shall be in writing and shall be deemed given
upon receipt by the intended recipient or three Business Days after mailing if
mailed by certified mail, postage prepaid (except that notice to the Owner
Trustee shall be deemed given only upon actual receipt by the Owner Trustee), at
the following addresses: (i) if to the Owner Trustee, its Corporate Trust
Office; (iii) if to the Depositor, Residential Asset Funding Corporation,
Attention:_________________; (iv) if to the Co-Owner Trustee,
_______________________, _______________, Attention: __________________________;
or, as to each such party, at such other address as shall be designated by
such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Certificateholder as shown in the Certificate Register. Any notice so mailed
within the time prescribed in this Agreement shall be conclusively presumed to
have been duly given, whether or not the Certificateholder receives such notice.
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<PAGE>
Section 11.5 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 11.6 Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 11.7 Successors and Assigns. All covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the Depositor, the
Owner Trustee, the Co-Owner Trustee and its successors and each
Certificateholder and its successors and permitted assigns, all as herein
provided. Any request, notice, direction, consent, waiver or other instrument or
action by a Certificateholder shall bind the successors and assigns of such
Certificateholder.
Section 11.8 No Petition. The Owner Trustee (not in its individual capacity
but solely as Owner Trustee) and the Co-Owner Trustee, by entering into this
Agreement, each Certificateholder, by accepting a Residual Interest Instrument,
and the Indenture Trustee and each Noteholder by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the General Partner, the Depositor or the Trust, or join in any
institution against the General Partner or the Trust of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Residual Interest
Instruments, the Notes, this Agreement or any of the Basic Documents.
Section 11.9 No Recourse. Each Certificateholder by accepting a Residual
Interest Instrument acknowledges that such Certificateholder's Residual Interest
Instrument represents a beneficial interest in the Trust only and does not
represent an interest in or an obligation of the Servicer, the Depositor, the
Administrator, the Owner Trustee, the Co-Owner Trustee or any affiliate thereof
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated in this Agreement, the Residual Interest
Instruments or the Basic Documents.
Section 11.10 Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
Section 11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.12 Bankruptcy Matters. No party to this Agreement shall take any
action to cause the Issuer to dissolve in whole or in part or file a voluntary
petition or otherwise initiate proceedings to have the Issuer adjudicated
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against the Issuer, or file a petition seeking or consenting to
reorganization or relief of the Issuer as debtor under any applicable federal or
state law relating
34
<PAGE>
to bankruptcy, insolvency or other relief for debtors with respect to the
Issuer; or seek or consent to the appointment of any trustee, receiver,
conservator, assignee, sequestrator, custodian, liquidator (or other similar
official) of the Issuer or of all or any substantial part of the properties and
assets of the Issuer, or cause the Issuer to make any general assignment for the
benefit of creditors of the Issuer or take any action in furtherance of any of
the above actions unless each Certificateholder shall have provided its written
consent, stating that it reasonably believes the Issuer to be insolvent.
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
RESIDENTIAL ASSET FUNDING CORPORATION
By: _______________________________
Name: _____________________________
Title: ____________________________
________________________________, not in
its individual capacity but solely as Owner
Trustee
By: _______________________________
Name: _____________________________
Title: ____________________________
_______________________________, not in
its individual capacity but solely as
Co-Owner Trustee and Paying Agent
By: _______________________________
Name: _____________________________
Title: ____________________________
35
<PAGE>
FORM OF RESIDUAL INTEREST INSTRUMENT
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INTEREST MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF
(INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A AND SUCH
LAWS OR (II) A PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR
AN AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (INCLUDING, BUT NOT LIMITED TO, RESIDENTIAL
ASSET FUNDING CORPORATION) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO
REGISTER THIS RESIDUAL INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS RESIDUAL INTEREST INSTRUMENT OR ANY BENEFICIAL INTEREST
THEREIN SHALL BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE AND THE CERTIFICATE
REGISTRAR HAVE RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT
SUCH TRANSFEREE IS NOT (I) AN "EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF
SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), THAT IS SUBJECT TO TITLE I OF ERISA, (II) OF "PLAN" WITHIN THE
MEANING OF SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), THAT IS SUBJECT TO SECTION 4975 OF THE CODE OR (III) AN ENTITY,
INCLUDING AN INSURANCE COMPANY SEPARATE ACCOUNT OR GENERAL ACCOUNT, WHOSE
UNDERLYING ASSETS ARE DEEMED TO INCLUDE ASSETS OF A PLAN DESCRIBED IN (I) OR
(II) ABOVE BY REASON OF SUCH PLAN'S INVESTMENT IN THE ENTITY.
__________ TRUST _____
RESIDUAL INTEREST CERTIFICATE
No. 1-T
THIS CERTIFIES THAT _______________, (the "Owner") is the registered
owner of a 99% residual interest in ________________ Trust _______ (the "Trust")
existing under the laws of the State of Delaware and created pursuant to the
Trust Agreement dated as of __________________ (the "Trust Agreement") among
Residential Asset Funding Corporation, as the Depositor, [ ______________ ],
not in its individual capacity but solely in its fiduciary capacity as owner
trustee under the Trust Agreement (the "Owner Trustee") and
________________________________, as Co-Owner Trustee (the "Co-Owner Trustee").
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<PAGE>
Capitalized terms used but not defined herein have the meanings assigned to them
in the Trust Agreement. The Owner Trustee, on behalf of the Issuer and not in
its individual capacity, has executed this Residual Interest Instrument by one
of its duly authorized signatories as set forth below. This Residual Interest
Instrument is one of the Residual Interest Instruments referred to in the Trust
Agreement and is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement to which the holder of this Residual Interest
Instrument by virtue of the acceptance hereof agrees and by which the holder
hereof is bound. Reference is hereby made to the Trust Agreement and the Sale
and Servicing Agreement for the rights of the holder of this Residual Interest
Instrument, as well as for the terms and conditions of the Trust created by the
Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this Residual
Interest Instrument except in accordance with terms and provisions of the
Agreement.
THIS RESIDUAL INTEREST INSTRUMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Residual Interest Instrument to be duly
executed.
_____________ TRUST 1997-2
By: _______________________, not in its
individual capacity but solely as
Owner Trustee under the Trust Agreement
By:______________________________
Authorized Signatory
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<PAGE>
DATED:___________
CERTIFICATE OF AUTHENTICATION
This is one of the Residual Interest referred to in the within-mentioned
Agreement.
___________________________________ as
Authenticating Agent
By:_____________________________
Authorized Signatory
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_______________________________________________________________________________
(Please print or type name and address, including postal zip code, of
assignee)
_______________________________________________________________________________
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
____________________________________________________________________ Attorney to
transfer said Instrument on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:________________
_________________________________________*/
Signature Guaranteed:
_________________________________________*/
_______________________
*/ NOTICE: The signature to this assignment must correspond with the name as
it appears upon the face of the within Residual Interest Instrument in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by a member firm of the New York Stock Exchange or
a commercial bank or trust company.
39
EXHIBIT 5.1
September 1, 1998
- -----------------------
301 South College Street
Charlotte, North Carolina 28202-6001
Ladies and Gentlemen:
We have acted as counsel to ______________________, a North Carolina
corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") relating to
the proposed offering from time to time in one or more series (each, a "Series")
of up to $500,000,000.00 aggregate principal amount of asset backed notes (the
"Notes") and asset backed certificates (the "Certificates," and, together with
the Notes, the "Securities"). The Registration Statement will be filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). As set forth in the Registration Statement,
each Series of Securities is to be issued under and pursuant to the terms of a
separate pooling and servicing agreement, sale and servicing agreement, pooling
agreement, trust agreement or indenture (each, an "Agreement") among the
Company, an independent trustee (the "Trustee") and where appropriate, a
servicer (the "Servicer"), each to be identified in the prospectus supplement
for such Series of Securities.
As such counsel, we have examined copies of the Articles of Incorporation
and Bylaws of the Company, the Registration Statement, the Prospectus and each
form of Prospectus Supplement included therein, the form of each Agreement, and
originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinion hereinafter expressed. In our examination of such
materials, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to original
documents of all copies submitted to us.
<PAGE>
We do not express any opinion herein concerning any law other than the
federal laws of the United States of America and the laws of the States of New
York and North Carolina.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the Notes have been duly executed and delivered, authenticated by the
Trustee and sold as described in the Registration Statement, the Notes will
constitute valid and binding obligations of the issuer thereof in accordance
with their terms and the terms of such Agreement or Agreements, and will be
legally issued, fully paid and non-assessable. This opinion is subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto and we express no opinion with respect to the application
of equitable principles or remedies in any proceeding, whether at law or in
equity.
2. When the Certificates have been duly executed and delivered, authenticated by
the Trustee and sold as described in the Registration Statement, the
Certificates will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the Prospectus which forms a part of the Registration
Statement. In giving such consent, we do not admit hereby that we come within
the category of persons whose consent is required under Section 7 of the Act or
the Rules and Regulations of the Commission thereunder.
Very truly yours,
EXHIBIT 8.1
September 1, 1998
- ------------------------
301 South College Street
Charlotte, North Carolina 28202
Re: Registration Statement 333-44409
--------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to _____________ , a North
Carolina corporation (the "Company") in connection with the Prospectus filed by
the company.
The term "Prospectus" means the prospectus included in the
Registration Statement. The term "Registration Statement" means (i) the
Registration Statement on Form S-3 (No. 333-44409), including the exhibits
thereto and (ii) any post-effective amendment filed and declared effective prior
to the date of issuance of the Securities.
We have examined the question of whether the Securities will have
the tax treatment described in the Prospectus. Our analysis is based on the
provisions of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder as in effect on the date hereof and on
existing judicial and administrative interpretations thereof. These authorities
are subject to change and to differing interpretations, which could apply
retroactively. The opinion of special tax counsel is not binding on the courts
or the Internal Revenue Service (the "IRS").
In general, whether a transaction constitutes the issuance of
indebtedness or the sale of assets for federal income tax purposes is a question
of fact, the resolution of which is based primarily upon the economic substance
of the instruments and the transaction pursuant to which they are issued rather
than the form of the transaction or the manner in which the instruments are
labeled. The IRS and the courts have set forth various factors to be taken into
account in determining whether or not a transaction constitutes the issuance of
indebtedness or the sale of assets for federal income tax purposes, which we
have reviewed as they apply to the transactions described on the Prospectus.
<PAGE>
- ---------------------
September 1, 1998
Page 2
Based on the foregoing, and such legal and factual investigations as
we have deemed appropriate, we are of the opinion that for federal income tax
purposes:
(1) The Securities, assuming they are issued in accordance with the
Prospectus, will have the federal income tax treatment described in the
Prospectus.
(2) We hereby adopt and confirm the information appearing under the
caption "Material Federal Income Tax Consequences" in the Prospectus and confirm
that it represents our opinion with respect to the matters discussed therein.
This opinion is furnished by us as counsel to the Registrant. We
hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to Dewey Ballantine LLP in the Registration
Statement and the related prospectus under the heading "Legal Matters."
Very truly yours,
