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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
Registration No. 333-44409
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT
NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------
HOME EQUITY SECURITIZATION CORP.
(Exact Name of Registrant as Specified in its Charter)
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301 South College Street
NORTH CAROLINA Charlotte, North Carolina 28202-6001 56-2064715
(State or other jurisdiction (Address, including zip code, and telephone number, I.R.S Employer Identification
of incorporation or inluding area code, of registrant's principal Number
organization) executive offices)
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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
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 divivend 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 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
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Title of each class of Amount to be Proposed Maximum Proposed Maximum Amount of
securities registered Registered Aggregate Price Per Unit Aggregate Offering Price Registration Fee
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Asset Backed Securities $1,000,000 100% $1,000,000(1) $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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HOME EQUITY SECURITIZATION CORP.
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K)
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Item Location in Form S-3
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1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus................................................. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus............. Inside Front and Outside
Back Cover Pages**
3. Summary Information; Risk Factors and Ratio of Earnings to
Fixed Charges* ..................................................... Prospectus Summary**; Risk
Factors**;*
4. Use of Proceeds .................................................... Use of Proceeds
5. Determination of Offering Price .................................... *
6. Dilution .......................................................... *
7. Selling Security Holders ........................................... *
8. Plan of Distribution ............................................... Underwriting **
9. Description of Securities to be Registered ......................... Outside Front cover Page**;
Prospectus Summary**;
The Trust Fund**;
Description of Certificates**
10. Interests of Named Experts and Counsel ............................. *
11. Material Changes ................................................... *
12. Incorporation of Certain Information by Reference .................. Incorporation of Certain
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
HOME EQUITY SECURITIZATION CORP.
(DEPOSITOR)
Home Equity Securitization Corp. (the "Depositor") may offer from time
to time under this Prospectus and 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").
As specified in the related Prospectus Supplement, 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, as described herein. As specified in
the related Prospectus Supplement, the Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness of the related
Trust Fund. The Trust Fund for a Series of Securities will include assets
purchased from the seller or sellers specified in the related Prospectus
Supplement (the "Seller") composed of (a) Primary Assets, which may include one
or more pools of (i) closed-end home equity loans (the "Mortgage Loans"),
secured by mortgages on one- to four-family residential or mixed-use properties,
(ii) home improvement installment sales contracts and installment loan
agreements (the "Home Improvement Contracts") which are either unsecured or
secured by mortgages on one- to four-family residential or mixed-use properties,
or by purchase money security interests in the home improvements financed
thereby (the "Home Improvements") and (iii) securities backed or secured by
Mortgage Loans and/or Home Improvement Contracts, (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 Home Improvement Contracts
(collectively, the "Loans"), which servicer may also be the Seller, specified in
the related Prospectus Supplement (the "Servicer"), (c) if specified 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 amount initially
deposited in a pre-funding account for a Series of Securities will not exceed
fifty percent of the aggregate principal amount of such series of Securities.
(COVER CONTINUED ON NEXT PAGE)
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, 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 SELLER, THE
TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS
OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON OR
ENTITY. 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 CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION HEREIN UNDER "RISK FACTORS" BEGINNING ON PAGE
15.
--------------------
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 Corp. 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 Corp. 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.
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FIRST UNION CAPITAL MARKETS CORP.
JANUARY __, 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, 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. If so specified 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 Loans 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.
If specified in the related Prospectus Supplement, an election may be
made to treat certain assets comprising the Trust Fund for a Series as a "real
estate mortgage investment conduit" (a "REMIC") for federal income tax purposes.
See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" herein.
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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 Seller 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) whether a REMIC election
will be made with respect to some or all of the Trust Fund for such Series.
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. Unless otherwise specified in the related Prospectus Supplement, such
reports will not be examined and reported on by an independent public
accountant. If so specified in the Prospectus Supplement for a Series of
Securities, such Series or one or more Classes of such Series will be issued in
book-entry form. In such event, (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 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, N.W.,
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. 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. 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. If so
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 ...........................................Home Equity Securitization Corp. (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 or other affiliate of the
Depositor, the Servicer, the Trustee or the Seller has
guaranteed or is otherwise obligated with respect to the
Securities of any Series. See "THE DEPOSITOR."
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 Loans or Underlying
Loans relating to the
Private Securities, as
applicable and/or as
prepayments occur with
respect to such Loans 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
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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."
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 Loans
or Underlying Loans
relating to the Private
Securities, as applicable,
in the related Trust Fund.
Unless otherwise specified
in the related Prospectus
Supplement, the actual
final Distribution Date of
any Security is likely to
occur earlier and may occur
substantially earlier or
may occur later than its
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
Loans 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
Loans 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 the
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Depositor's or the
Servicer's option, at such
time and under the
circumstances specified in
the related Prospectus
Supplement, at the price
set forth therein. If so
specified in the related
Prospectus Supplement for a
Series of Securities, the
Depositor, the Servicer, or
such other entity that is
specified in the related
Prospectus Supplement, may,
at its option, cause an
early termination of the
related Trust Fund by
repurchasing all of the
Primary Assets remaining in
the Trust Fund on or after
a specified date, or on or
after such time as the
aggregate principal balance
of the Securities of the
Series or the Primary
Assets relating to such
Series, as specified in the
related Prospectus
Supplement, is less than
the amount or percentage
specified in the related
Prospectus Supplement. See
"DESCRIPTION OF THE
SECURITIES--Optional
Redemption, Purchase or
Termination."
In addition, the Prospectus
Supplement may provide
other circumstances under
which Holders of Securities
of a Series could be fully
paid significantly earlier
than would otherwise be the
case if payments or
distributions were solely
based on the activity of
the related Primary Assets.
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 purchased from the Seller or may be purchased
by the Depositor in the open market or in privately
negotiated transactions, including transactions with
entities affiliated with the Depositor.
(1) Loans..................................Primary Assets for a Series will consist, in whole or in
part, of Loans. Some Loans may be delinquent or
non-performing as specified in the related Prospectus
Supplement. Loans may be originated by or acquired from an
affiliate of the Depositor and an affiliate of the Depositor
may be an obligor with respect to any such Loan. The Loans
will be conventional contracts or contracts insured by the
Federal Housing Administration ("FHA") or partially
guaranteed by the Veterans Administration ("VA"). See "The
Trust Funds--The Loans" for a discussion of such
guarantees. To the extent provided in the related
Prospectus Supplement, additional Loans may be periodically
added to the Trust Fund, or may be removed from time to time
if certain asset value tests are met, as described in the
related Prospectus Supplement.
The "Loans" for a Series
will consist of (i)
closed-end home equity
loans (the "Mortgage
Loans") and (ii) home
improvement installment
sales contracts and
installment loan agreements
(the "Home Improvement
Contracts"). The Mortgage
Loans and the Home
Improvement Contracts are
collectively referred to
herein as the "Loans."
Loans may, as specified in
the related Prospectus
Supplement, have various
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payment characteristics,
including balloon or other
irregular payment features,
and may accrue interest at
a fixed rate or an
adjustable rate. As
specified in the related
Prospectus Supplement, the
Mortgage Loans will and the
Home Improvement Contracts
may 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,
as described in the related
Prospectus Supplement. As
specified in the related
Prospectus Supplement, Home
Improvement Contracts may
be unsecured or secured by
purchase money security
interests in the Home
Improvements financed
thereby. The Mortgaged
Properties and the Home
Improvements are
collectively referred to
herein as the "Properties."
The related Prospectus
Supplement will describe
certain characteristics of
the Loans for a Series,
including, without
limitation, and to the
extent relevant: (a) the
aggregate unpaid principal
balance of the Loans (or
the aggregate unpaid
principal balance included
in the Trust Fund for the
related Series); (b) the
range and weighted average
Loan Rate on the 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 the
average outstanding
principal balance of the
Loans; (d) the weighted
average original and
remaining term-to-stated
maturity of the Loans and
the range of original and
remaining terms-to-stated
maturity, if applicable;
(e) the range and Combined
Loan-to-Value Ratios or
Loan-to-Value Ratios, as
applicable, of the Loans,
computed in the manner
described in the related
Prospectus Supplement; (f)
the percentage (by
principal balance as of the
Cut-off Date) of Loans that
accrue interest at
adjustable or fixed
interest rates; (g) any
Credit Enhancement relating
to the Loans; (h) the
percentage (by principal
balance as of the Cut-off
Date) of Loans that are
secured by Mortgaged
Properties, Home
Improvements or are
unsecured; (i) the
geographic distribution of
any Mortgaged Properties
securing the Loans; (j) the
use and type of each
Mortgaged Property securing
a Loan; (k) the lien
priority of the Loans; and
(l) the delinquency status
and year of origination of
the Loans.
(2) 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 Loans (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 or (b) purchased 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 sale (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
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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." Unless
otherwise specified in the
Prospectus Supplement
relating to a Series of
Securities, payments on the
Private Securities will be
distributed directly to the
Trustee as registered owner
of such Private Securities.
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 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; and (ix) the
terms on which substitute
Underlying Loans may be
delivered to replace those
initially deposited with
the PS Trustee. See "THE
TRUST FUNDS--Additional
Information" herein.
B. Collection and Distribution
Accounts....................................Unless otherwise provided
in the related Prospectus
Supplement, 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. Unless
otherwise provided in the
related Prospectus
Supplement, 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
9
<PAGE>
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. All
amounts deposited in such
Distribution Account will
be available, unless
otherwise specified in the
related Prospectus
Supplement, 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 (an
"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....................................If specified in the related
Prospectus Supplement, a
Trust Fund will include one
or more segregated trust
accounts (each, a
"Pre-Funding Account")
established and maintained
with the Trustee for the
related Series. If so
specified, 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,
not to exceed six months,
specified in the related
Prospectus Supplement (the
"Pre-Funding Period"). The
Primary Assets to be so
purchased will be required
to have certain
characteristics specified
in the related Prospectus
Supplement. 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. The
amount initially deposited
in a pre-funding account
for a Series of Securities
will not exceed fifty
percent of the aggregate
principal amount of such
Series of Securities.
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) if specified in
the related Prospectus
Supplement, 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
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<PAGE>
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.
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 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."
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......................If stated in the related Prospectus Supplement, 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.
B. .............................................Insurance If stated in the related Prospectus Supplement,
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, as specified in such Prospectus Supplement, 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
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<PAGE>
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, as provided in the related Prospectus
Supplement. See "CREDIT ENHANCEMENT--Minimum Principal
Payment Agreement."
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."
Servicing............................................The Servicer will be responsible for servicing, managing and
making collections on the Loans for a Series. In addition,
the Servicer, if so specified in the related Prospectus
Supplement, will act as custodian and will be responsible
for maintaining custody of the Loans and related
documentation on behalf of the Trustee. Advances with
respect to delinquent payments of principal or interest on a
Loan 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,
unless otherwise specified in the related Prospectus
Supplement, reimbursable to the Servicer from scheduled
payments of principal and interest, late collections, or
from the proceeds of liquidation of the related Loans or
from other recoveries relating to such Loans (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 Loans 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 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"
12
<PAGE>
("REMIC Regular
Securities") or "residual
interests" ("REMIC Residual
Securities") in a Trust
treated as a REMIC (or, in
certain instances,
containing one or more
REMIC's) 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 in a
Trust treated as a FASIT
(or, in certain
circumstances containing
one or more FASITs under
Sections 860H through 860L
of the Code. .
Investors are advised 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. See "ERISA
CONSIDERATIONS."
Legal Investment ....................................Unless otherwise specified in the related Prospectus
Supplement, Securities of each Series offered by this
Prospectus and the related Prospectus Supplement will not
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."
Use of Proceeds .....................................The Depositor will use the net proceeds from the sale of
each Series for one or more of the following purposes: (i)
to purchase 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. If so specified in the related
Prospectus Supplement, the purchase of the Primary Assets
for a Series will be effected by an exchange of Securities
with the Seller of such Primary Assets. See "USE OF
PROCEEDS."
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
13
<PAGE>
recommendation to buy, hold or sell securities and does not
address the effect that the rate of prepayments on Loans 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."
</TABLE>
14
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
NO SECONDARY MARKET
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.
PRIMARY ASSETS ARE ONLY SOURCE OF REPAYMENT
The Depositor does not have, nor is it expected to have, any
significant assets. 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, unless otherwise stated in
the related Prospectus Supplement, at the times 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. The
Depositor does not have, and is not expected in the future to have, any
significant assets with which to meet any obligation to repurchase Primary
Assets with respect to which there has been a breach of any representation or
warranty. If, for example, the Depositor were required to repurchase a Primary
Asset, its only sources of funds to make such repurchase would be from funds
obtained from the enforcement of a corresponding obligation, if any, on the part
of the originator of the Primary Assets, the Servicer or the Seller, as the case
may be, or from a Reserve Fund established to provide funds for such
repurchases.
LIMITED PROTECTION AGAINST LOSSES
Although any Credit Enhancement is intended to reduce the risk of
delinquent payments or losses to holders of Securities entitled to the benefit
thereof, the amount of such Credit Enhancement will be limited, as set forth in
the related Prospectus Supplement, 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. See "CREDIT ENHANCEMENT."
15
<PAGE>
YIELD MAY VARY
The yield to maturity experienced by a Holder of Securities may be
affected by the rate of payment of principal of the 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 Loans or
Underlying Loans relating to the Private Securities, as applicable, which
prepayments may be influenced by a variety of factors; (ii) the manner of
allocating principal payments among the Classes of Securities of a Series as
specified in the related Prospectus Supplement; and (iii) the exercise by the
party entitled thereto of any right of optional termination. See "DESCRIPTION OF
THE SECURITIES--Weighted Average Life of Securities." Prepayments may also
result from repurchases of Loans or Underlying Loans, as applicable, due to
material breaches of the Seller's or the Depositor's warranties.
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."
PROPERTY VALUES MAY BE INSUFFICIENT
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 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.
There are several factors that could adversely affect the value of
Properties such that the outstanding balance of the related Loan, together with
any senior financing on the Properties, would equal or exceed the value of the
Properties. Among the factors that could adversely affect the value of the
Properties are an overall decline in the residential real estate market in the
areas in which the Properties are located or a decline in the general condition
of the Properties as a result of failure of borrowers to maintain adequately the
Properties or of natural disasters that are not necessarily covered by
insurance, such as earthquakes and floods. Any such decline could extinguish the
value of a junior interest in a 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.
PRE-FUNDING MAY ADVERSELY AFFECT INVESTMENT
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Loans 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 issuance 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.
The ability of a Trust Fund to invest in subsequent Loans during the
related Pre-Funding Period will be dependant on the ability of the Seller to
originate or acquire Loans that satisfy the requirements for transfer to the
Trust Fund. The ability of the Seller to originate or acquire such Loans will be
affected by a variety of social and
16
<PAGE>
economic factors, including the prevailing level of market interest rates,
unemployment levels and consumer perceptions of general economic conditions.
Although subsequent Loans must satisfy the characteristics described in
the related Prospectus Supplement, such Loans may have been originated more
recently than the Loans originally transferred to the Trust Fund and may be of a
lesser credit quality. As a result, the addition of subsequent Loans may
adversely affect the performance of the related Securities.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONDITIONS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the 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 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.
CONSUMER PROTECTION LAWS MAY AFFECT 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 Loans. 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 Loans,
may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the owner of the Loan to damages and administrative
enforcement.
The Loans are also 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 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) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit
experience.
The Home Improvement Contracts are also subject to the Preservation of
Consumers' Claims and Defenses regulations of the Federal Trade Commission and
other similar federal and state statutes and regulations (collectively, the
"Holder in Due Course Rules"), which protect the homeowner from defective
craftsmanship or incomplete work by a contractor. These laws permit the obligor
to withhold payment if the work does not meet the quality and durability
standards agreed to by the homeowner and the contractor. The Holder in Due
Course Rules have the effect of subjecting any assignee of the seller in a
consumer credit transaction to all claims and defenses which the obligor in the
credit sale transaction could assert against the seller of the goods.
Violations of certain provisions of these Federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Loans and in addition could subject the Trust Fund to damages and
administrative enforcement. See "CERTAIN LEGAL ASPECTS OF THE LOANS."
17
<PAGE>
CONTRACTS WILL NOT BE STAMPED
In order to give notice of the right, title and interest of
Securityholders to the Home Improvement Contracts, the Depositor will cause a
UCC-1 financing statement to be executed by the Depositor or the Seller
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Home Improvement Contracts will not be stamped or
otherwise marked to reflect their assignment to the Trust Fund. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Home Improvement Contracts without notice of such
assignment, the interest of Securityholders in the Home Improvement Contracts
could be defeated. See "CERTAIN LEGAL ASPECTS OF THE LOANS--The Home Improvement
Contracts."
RATINGS ARE NOT RECOMMENDATIONS
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. 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.
DESCRIPTION OF THE SECURITIES
GENERAL
Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Trust Fund 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 Loans, 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 Seller 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.
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, as described in the related Prospectus Supplement, 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. If specified in the
related Prospectus Supplement, one or more Classes of a Series may be available
in book-entry form only.
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Unless otherwise provided in the related Prospectus Supplement,
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. Unless otherwise provided in the related
Prospectus Supplement, all 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 directly into the Collection Account. If provided in the
related Prospectus Supplement, 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."
VALUATION OF THE PRIMARY ASSETS
If specified in the related Prospectus Supplement for a Series of
Notes, each Primary Asset included in the related Trust Fund for a Series will
be assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, at any time the Asset Value of the Primary Assets will be
equal to the product of the Asset Value Percentage as set forth in the Indenture
and the lesser of (a) the stream of remaining regularly scheduled payments on
the Primary Assets, net, unless otherwise provided in the related Prospectus
Supplement, of certain amounts payable as expenses, together with income earned
on each such scheduled payment received through the day preceding the next
Distribution Date at the Assumed Reinvestment Rate, if any, discounted to
present value at the highest interest rate on the Notes of such Series over
periods equal to the interval between payments on the Notes, and (b) the then
principal balance of the Primary Assets. Unless otherwise specified in the
related Prospectus Supplement, the initial Asset Value of the Primary Assets
will be at least equal to the principal amount of the Notes of the related
Series at the date of issuance thereof.
The "Assumed Reinvestment Rate," if any, for a Series will be the
highest rate permitted by the Rating Agency or a rate insured by means of a
surety bond, guaranteed investment contract, Deposit Agreement or other
arrangement satisfactory to the Rating Agency. If the Assumed Reinvestment Rate
is so insured, the related Prospectus Supplement will set forth the terms of
such arrangement.
PAYMENTS OF INTEREST
The Securities of each Class by their terms entitled to receive
interest will bear interest (calculated, unless otherwise specified in the
related Prospectus Supplement, on the basis of a 360 day year of twelve 30-day
months) 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
Loans 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 Loans 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
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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.
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, unless otherwise
specified 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.
SPECIAL REDEMPTION
If so specified in the Prospectus Supplement relating to a Series of
Securities having other than monthly Distribution Dates, one or more Classes of
Securities of such Series may be subject to special redemption, in whole or in
part, on the day specified in the related Prospectus Supplement (a "special
Redemption Date") if, as a consequence of prepayments on the Loans or Underlying
Loans, as applicable, relating to such Securities or low yields then available
for reinvestment the entity specified in the related Prospectus Supplement
determines, based on assumptions specified in the applicable Agreement that the
amount available for the payment of interest that will have accrued on such
Securities (the "Available Interest Amount") through the designated interest
accrual date specified in the related Prospectus Supplement is less than the
amount of interest that will have accrued on such Securities to such date. In
such event and as further described in the related Prospectus Supplement, the
Trustee will redeem a principal amount of outstanding Securities of such Series
as will cause the Available Interest Amount to equal the amount of interest that
will have accrued through such designated interest accrual date for such Series
of Securities outstanding immediately after such redemption.
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION
The Depositor or the Servicer may, at its option, redeem, in whole or
in part, one or more Classes of Notes or purchase one or more Classes of
Certificates of any Series, on any Distribution Date under the circumstances, if
any, specified in the Prospectus Supplement relating to such Series.
Alternatively, if so specified in the related Prospectus Supplement for a Series
of Certificates, the Depositor, the Servicer, or another entity designated in
the related Prospectus Supplement may, at its option, cause an early termination
of a Trust Fund by repurchasing all of the Primary Assets from such Trust Fund
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
Certificates or Primary Assets, as specified in the related Prospectus
Supplement is less than the amount or percentage specified in the related
Prospectus Supplement. 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 will be set forth in the related
Prospectus
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Supplement. If specified 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.
In addition, the Prospectus Supplement may provide other circumstances
under which Holders of Securities of a Series could be fully paid significantly
earlier than would otherwise be the case if payments or distributions were
solely based on the activity of the related Primary Assets.
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. Unless otherwise specified in the
related Prospectus Supplement, the weighted average life of the Securities of a
Class will be influenced by the rate at which the amount financed under the
Loans or Underlying Loans relating to the Private Securities, as applicable,
included in the Trust Fund for a Series is paid, which 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 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.
There is, however, no assurance that prepayment of the Loans 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 Loans or
Underlying Loans either from time to time or over the lives of such 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
Loans 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 Loans 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 Loans or Underlying Loans relating to the Private Securities,
as applicable. If any Loans 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.
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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 purchased from the Seller composed of (i) the Primary
Assets, (ii) amounts available from the reinvestment of payments on such Primary
Assets at the Assumed Reinvestment Rate, if any, specified in the related
Prospectus Supplement, (iii) any Credit Enhancement, (iv) any Property that
secured a Loan but which is acquired by foreclosure or deed in lieu of
foreclosure or 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.
The Securities will be non-recourse obligations of the related Trust
Fund. The assets of the Trust Fund specified in the related Prospectus
Supplement for a Series of Securities, unless otherwise specified in the related
Prospectus Supplement, will serve as collateral only for that Series of
Securities. 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 sold by the Seller to the
Depositor or purchased by the Depositor in the open market or in privately
negotiated transactions, which may include transactions with affiliates and will
be transferred by the Depositor to the Trust Fund. Loans relating to a Series
will be serviced by the Servicer, which may be the Seller, 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.
If so specified in the related Prospectus Supplement, 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 Loans and Private Securities, to the extent and as specified
in the related Prospectus Supplement.
THE LOANS
MORTGAGE LOANS. The Primary Assets for a Series may consist, in whole
or in part, of closed-end home equity loans (the "Mortgage Loans") secured by
mortgages primarily on Single Family Properties 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.
Unless otherwise described in the related Prospectus Supplement, the
full principal amount of a Mortgage Loan is advanced at origination of the loan
and generally is repayable in equal (or substantially equal) installments
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of an amount sufficient to fully amortize such loan at its stated maturity. As
more fully described in the related Prospectus Supplement, interest on each
Mortgage Loan is calculated on the basis of the outstanding principal balance of
such loan multiplied by the Loan Rate thereon 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 is the
number of days in the annual period for which interest accrues on such loan.
Unless otherwise described in the related Prospectus Supplement the original
terms to stated maturity of Mortgage Loans will not exceed 360 months.
The Mortgaged Properties will include Single Family Property (i.e.,
one-to four-family residential housing, including Condominium Units and
Cooperative Dwellings) and mixed-use property. Mixed-use properties will consist
of structures of no more than three stories, which include one to four
residential dwelling units and space used for retail, professional or other
commercial uses. Such uses, which will not involve more than 50% of the space in
the structure, may include doctor, dentist or law offices, real estate agencies,
boutiques, newsstands, convenience stores or other similar types of uses
intended to cater to individual customers as specified in the related Prospectus
Supplement. The properties may be located in suburban or metropolitan districts.
Any such non-residential use will be in compliance with local zoning laws and
regulations. 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 ten years (unless
otherwise provided in the related Prospectus Supplement) greater than the term
of the related Loan. 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.
Unless otherwise specified in the related Prospectus Supplement,
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. Unless otherwise specified in the 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.
Unless otherwise specified in the related Prospectus Supplement, the
initial Combined Loan-to-Value Ratio of a Loan is computed in the manner
described in the related Prospectus Supplement, taking into account the amounts
of any related senior mortgage loans.
HOME IMPROVEMENT CONTRACTS. The Primary Assets for a Series may
consist, in whole or part, of home improvement installment sales contracts and
installment loan agreements (the "Home Improvement Contracts") originated by a
home improvement contractor in the ordinary course of business. As specified in
the related Prospectus Supplement, the Home Improvement Contracts will either be
unsecured or secured by the Mortgages primarily on Single Family Properties
which are generally subordinate to other mortgages on the same Mortgaged
Property or by purchase money security interests in the Home Improvements
financed thereby. Unless otherwise specified in the applicable Prospectus
Supplement, the Home Improvement Contracts will be fully amortizing and 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.
Unless otherwise specified in the related Prospectus Supplement, the
home improvements (the "Home Improvements") securing the Home Improvement
Contracts include, but are not limited to, replacement windows, house siding,
new roofs, swimming pools, satellite dishes, kitchen and bathroom remodeling
goods and solar heating
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panels. The initial Loan-to-Value Ratio of a Home Improvement Contract will be
computed in the manner described in the related Prospectus Supplement.
ADDITIONAL INFORMATION. The selection criteria which will apply with
respect to the 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 Loans for a Series may include 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. As further described in the
related Prospectus Supplement, the Loans for a Series may include Loans that do
not have a specified stated maturity.
The Loans will be conventional contracts or contracts insured by the
Federal Housing Administration ("FHA") or partially guaranteed by the Veterans
Administration ("VA"). Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. Such Loans will be insured under various
FHA programs. These programs generally limit the principal amount and interest
rates of the mortgage loans insured. Loans insured by the FHA generally require
a minimum down payment of approximately 5% of the original principal amount of
the loan. No FHA-insured Loans relating to a Series may have an interest rate or
original principal amount exceeding the applicable FHA limits at the time of
origination of such loan.
The insurance premiums for Loans insured by the FHA are collected by
lenders approved by the Department of Housing and Urban Development ("HUD") and
are paid to the FHA. The regulations governing FHA single-family mortgage
insurance programs provide that insurance benefits are payable either upon
foreclosure (or other acquisition of possession) and conveyance of the mortgaged
premises to HUD or upon assignment of the defaulted Loan to HUD. With respect to
a defaulted FHA-insured Loan, the Servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by circumstances beyond the mortgagor's control, the
Servicer is expected to make an effort to avoid foreclosure by entering, if
feasible, into one of a number of available forms of forbearance plans with the
mortgagor. Such plans may involve the reduction or suspension of regular
mortgage payments for a specified period, with such payments to be made upon or
before the maturity date of the mortgage, or the recasting of payments due under
the mortgage up to or beyond the maturity date. In addition, when a default
caused by such circumstances is accompanied by certain other criteria, HUD may
provide relief by making payments to the Servicer in partial or full
satisfaction of amounts due under the Loan (which payments are to be repaid by
the mortgagor to HUD) or by accepting assignment of the loan from the Servicer.
With certain exceptions, at least three full monthly installments must be due
and unpaid under the Loan and HUD must have rejected any request for relief from
the mortgagor before the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Currently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA-insured Loan will be obligated
to purchase any such debenture issued in satisfaction of such Loan upon default
for an amount equal to the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted Loan adjusted to reimburse
the Servicer for certain costs and expenses and to deduct certain amounts
received or retained by the Servicer after default. When entitlement to
insurance benefits results from foreclosure (or other acquisition of possession)
and conveyance to HUD, the Servicer is compensated for no more than two-thirds
of its foreclosure costs, and is compensated for interest accrued and unpaid
prior to such date but in general only to the extent it was allowed pursuant to
a forbearance plan approved by HUD. When entitlement to insurance benefits
results from assignment of the Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Loan, bears
interest from a date 30 days after the mortgagor's first uncorrected failure to
perform any obligation to make any payment due under the Loan and, upon
assignment, from the date of assignment to the date of payment of the claim, in
each case at the same interest rate as the applicable HUD debenture interest
rate as described above.
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Loans designated in the related Prospectus Supplement as guaranteed by
the VA will be partially guaranteed by the VA under the Serviceman's
Readjustment Act of 1944, as amended (a "VA Guaranty"). The Serviceman's
Readjustment Act of 1944, as amended, permits a veteran (or in certain instances
the spouse of a veteran) to obtain a mortgage loan guaranty by the VA covering
mortgage financing of the purchase of a one- to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchaser and permits the guarantee of
mortgage loans of up to 30 years' duration.
The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. The
liability on the guaranty is reduced or increased pro rata with any reduction or
increase in the amount of indebtedness, but in no event will the amount payable
on the guaranty exceed the amount of the original guaranty. The VA may, at its
option and without regard to the guaranty, make full payment to a mortgage
holder of unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed Loan, the Servicer is, absent
exceptional circumstances, authorized to announce its intention to foreclose
only when the default has continued for three months. Generally, a claim for the
guaranty is submitted after liquidation of the Mortgaged Property.
The amount payable under the guaranty will be the percentage of the
VA-insured Loan originally guaranteed applied to indebtedness outstanding as of
the applicable date of computation specified in the VA regulations. Payments
under the guaranty will be equal to the unpaid principal amount of the loan,
interest accrued on the unpaid balance of the loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guaranty may in no event exceed
the amount of the original guaranty.
The related Prospectus Supplement for each Series will provide
information with respect to the 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 Loans; (b) the range and weighted
average Loan Rate on the 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
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 Loans, as applicable; (f) the percentage (by
outstanding principal balance as of the Cut-off Date) of 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 Loans; (h)
the percentage (by principal balance as of the Cut-off Date) of Loans that are
secured by Mortgaged Properties, Home Improvements or are unsecured; (i) the
geographic distribution of any Mortgaged Properties securing the Loans; (j) the
percentage of Loans (by principal balance as of the Cut-off Date) that are
secured by Single Family Properties, shares relating to Cooperative Dwellings,
Condominium Units, investment property and vacation or second homes; (k) the
lien priority of the Loans; and (l) the delinquency status and year of
origination of the Loans. The related Prospectus Supplement will also specify
any other limitations on the types or characteristics of Loans for a Series.
If information of the nature described above respecting the Loans 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 additional information 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 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
Loans (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 or (b) purchased 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 sale (nor an affiliate thereof at any
time
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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. If so specified in the
Prospectus Supplement, 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. Unless otherwise specified in the related Prospectus Supplement,
the PS Sponsor will not have guaranteed any of the assets conveyed to the
related trust or any of the Private Securities issued under the PS Agreement.
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; (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
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guarantees relating to such 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, unless otherwise specified in the related
Prospectus Supplement, income earned thereon. Certain amounts on deposit in such
Collection Account and certain amounts available pursuant to any Credit
Enhancement, as provided in the related Prospectus Supplement, 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.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will 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.
If specified in the related Prospectus Supplement, a Trust Fund will
include one or more segregated trust accounts (each, a "Pre-Funding Account")
established and maintained with the Trustee for the related Series. If so
specified, 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"). The Primary Assets to be so
purchased will be required to have certain characteristics specified in the
related Prospectus Supplement. 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, 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) if specified in the related Prospectus
Supplement, 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.
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
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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. If so specified in the
related Prospectus Supplement, any of such 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
If specified in the related Prospectus Supplement, 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
If stated in the related Prospectus Supplement, 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. If so specified in the Prospectus Supplement
relating to a Series of Securities, the Depositor will obtain a pool insurance
policy for the Loans 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 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 Property securing a defaulted or foreclosed Loan
(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 Property,
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
Property or (ii) upon transfer of such Property to the special hazard insurer,
the unpaid principal balance of such Loan at the time of acquisition of such
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 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 Property. Any amount
paid as the cost of repair of such Property 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 Property with the proceeds described under (i) above
is expected to satisfy the condition under any pool insurance policy that such
Property be restored before a claim under such pool insurance policy may be
validly presented with respect to the defaulted Loan secured by such Property.
The payment described under (ii) above will render unnecessary presentation of a
claim in respect of such Loan 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 Loan 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.
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BANKRUPTCY BOND. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the Property securing the related
Loan at an amount less than the then-outstanding principal balance of such Loan.
The amount of the secured debt could be reduced to such value, and the holder of
such Loan thus would become an unsecured creditor to the extent the outstanding
principal balance of such Loan exceeds the value so assigned to the Property by
the bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding. See "CERTAIN LEGAL ASPECTS OF
LOANS." 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
Loan or a reduction by such court of the principal amount of a Loan 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 Loans in the Trust Fund
for such Series. Such amount will be reduced by payments made under such
bankruptcy bond in respect of such Loans, unless otherwise specified in the
related Prospectus Supplement, and will not be restored.
RESERVE FUNDS
If so specified in the Prospectus Supplement relating to a Series of
Securities, the Depositor will 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.
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
If specified in a Prospectus Supplement, 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.
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SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans 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 Loans 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 Loan and (ii) to the extent provided in the related
Agreement arrange with an obligor a schedule for the liquidation of
delinquencies by extending the Due Dates for Scheduled Payments on such Loan.
If specified in the related Prospectus Supplement, the Servicer, to the
extent permitted by law, will establish and maintain escrow or impound accounts
("Escrow Accounts") with respect to Loans in which payments by obligors to pay
taxes, assessments, mortgage and hazard insurance premiums, and other comparable
items will be deposited. Loans 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 Loans. 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 property securing the
related Loan 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
Unless otherwise specified in the related Prospectus Supplement, the
Trustee or the Servicer will establish a separate account (the "Collection
Account") in the name of the Trustee. Unless otherwise indicated in the related
Prospectus Supplement, 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 FDIC or which are secured in a manner meeting
requirements established by each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, the
funds held in the Collection Account may be invested, pending remittance to the
Trustee, in Eligible Investments. If so specified in the related Prospectus
Supplement, the Servicer will be entitled to receive as additional compensation
any interest or other income earned on funds in the Collection Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Depositor, the Trustee or the Seller, 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, unless
otherwise provided in the related Prospectus Supplement, 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
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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
Property 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 Seller pursuant to
the related Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is 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
Loans (including, for this purpose, Liquidation Proceeds and amounts
representing proceeds of insurance policies covering the related
Property) 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 Property 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 Loan, together with
accrued and unpaid interest thereon to the Due Date for such 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 Loan;
(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 Loan 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;
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(vi) to pay to the applicable person with respect to each
Primary Asset or REO Property acquired in respect thereof that has been
repurchased or removed from the Trust Fund by the Depositor, the
Servicer or the Seller 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 Loans. If specified in the related Prospectus Supplement, 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 Loans 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 Loan,
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. Except as otherwise
specified in the related Prospectus Supplement, the Servicer will be required to
maintain or to cause the obligor on each Loan 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 Property 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 Loans. In general, the standard form of fire and extended
coverage policy will cover physical damage to or destruction of, the related
Property 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 Loans will be underwritten by different hazard insurers and will
cover Properties 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 Property securing a 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 Property, to the extent
available.
The standard hazard insurance policies covering Properties securing
Loans 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 Property,
including the improvements on any Property, 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 Property,
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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
Property and improvements. Since the amount of hazard insurance to be maintained
on the improvements securing the Loans declines as the principal balances owing
thereon decrease, and since the value of the Properties 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 Property.
Unless otherwise specified in the related Prospectus Supplement,
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 Loan. Unless
otherwise specified in the related Prospectus Supplement, the Servicer will also
maintain on REO Property that secured a defaulted 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 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
Property, 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 Loans, 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 LOANS
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Properties
securing the related 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 such foreclosure 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 towards the restoration of the
Property unless it determines that (i) such restoration or foreclosure will
increase the Liquidation Proceeds in respect of the related Loan 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 Property acquired through foreclosure within two
years after the acquisition of the beneficial ownership of such Property. While
the holder of a 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 Loan a
modification of such Loan (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
Unless otherwise specified in the related Prospectus Supplement for a
Series, when any Property is about to be conveyed by the obligor, the Servicer
will, 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 Loan under the applicable "due-on-sale"
clause, if any, unless it reasonably believes that such clause is not
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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 property has been or is about to be
conveyed, pursuant to which such person becomes liable under the 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 Loan. Any fee
collected in connection with an assumption will be retained by the Servicer as
additional servicing compensation. The terms of a Loan may not be changed in
connection with an assumption.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Except as otherwise provided in the related Prospectus Supplement, 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, unless otherwise specified in
the related Prospectus Supplement, 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 Property in connection with
defaulted Loans.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay certain expenses incurred in connection with the servicing of
the 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 Loan, 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 Loan
(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.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be entitled to reimbursement for certain expenses incurred by it
in connection with the liquidation of defaulted Loans. 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 Loan 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 Loan, 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.
Unless otherwise specified in the related Prospectus Supplement, 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, are not subordinate to the
rights of Holders of such Series.
EVIDENCE AS TO COMPLIANCE
If so specified in the related Prospectus Supplement, 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 Loans 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.
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If so specified in the related Prospectus Supplement, 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 occurs under either a Servicing Agreement or a
Pooling and Servicing Agreement, the Servicer may be replaced by the Trustee or
a successor Servicer. Unless otherwise specified in the related Prospectus
Supplement, 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.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer does not have the right to assign its rights and delegate its duties
and obligations under the related Agreement for each Series unless 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.
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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
Depositor will transfer, convey and assign to the Trust Fund all right, title
and interest of the Depositor 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
Retained Interests). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
ASSIGNMENT OF LOANS. Unless otherwise specified in the related
Prospectus Supplement, the Depositor will, as to each 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, if so specified in the related
Prospectus Supplement, the Custodian, will hold such documents in trust for the
benefit of the Holders.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will as to each Home Improvement Contract deliver or cause to be
delivered to the Trustee (or the Custodian) the original Home Improvement
Contract and copies of documents and instruments related to each Home
Improvement Contract and, other than in the case of unsecured Home Improvement
Contracts, the security interest in the property securing such Home Improvement
Contract. In order to give notice of the right, title and interest of
Securityholders to the Home Improvement Contracts, the Depositor will cause a
UCC-1 financing statement to be executed by the Depositor or the Seller
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Home Improvement Contracts will not be stamped or
otherwise marked to reflect their assignment to the Trust. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Home Improvement Contracts without notice of such
assignment, the interest of Securityholders in the Home Improvement Contracts
could be defeated. See "CERTAIN LEGAL ASPECTS OF THE LOANS--The Home Improvement
Contracts."
With respect to Loans secured by Mortgages, if so specified 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 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 Loans. If specified in the related Prospectus Supplement, 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, as specified in the related Prospectus
Supplement, require the Depositor to repurchase from the Trustee any 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. Unless otherwise provided in the related Prospectus Supplement,
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 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 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 Loan is an adjustable rate Loan, the Lifetime Rate Cap, if
any, and the current index.
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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. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will not 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. Unless
otherwise provided in the related Prospectus Supplement, if any document in the
file relating to the Primary Assets delivered by the Depositor to the Trustee
(or Custodian) is found by the Trustee within 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 Seller does not cure such defect within 90
days, or within such other period specified in the related Prospectus
Supplement, the Depositor or Seller will, not later than 90 days or within such
other period specified in the related Prospectus Supplement, after the Trustee's
notice to the Depositor or the Seller, 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 equal to, unless otherwise specified in the related
Prospectus Supplement, (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.
If provided in the related Prospectus Supplement, the Depositor or
Seller, 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.
Unless otherwise specified in the related Prospectus Supplement, 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 (and not more than 2% greater than) the
interest rate of the Deleted Primary Asset, (iii) a remaining term-to-stated
maturity not greater than (and not more than two years less 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.
Unless otherwise provided in the related Prospectus Supplement, 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
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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 Seller of such Primary Assets. See
"SPECIAL CONSIDERATIONS--Limited Assets."
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;
(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, unless otherwise specified in the related Prospectus
Supplement, 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
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independent public accountants with respect to the Servicer's servicing of the
Loans. See "SERVICING OF LOANS--Evidence as to Compliance" herein.
If so specified in the Prospectus Supplement for a Series of
Securities, such Series or one or more Classes of such Series will 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. Unless otherwise
specified in the related Prospectus Supplement, Events of Default under the
Pooling and Servicing Agreement for each Series of Certificates relating to
Loans 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.
So long as an Event of Default remains unremedied under the applicable
Agreement for a Series of Securities relating to the servicing of Loans, unless
otherwise specified in the related Prospectus Supplement, the Trustee for such
Series or Holders of Securities of such Series evidencing not less than 51% of
the aggregate voting rights of the Securities for such Series may terminate all
of the rights and obligations of the Servicer as servicer under the applicable
Agreement (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
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, unless
otherwise specified in the related Prospectus Supplement, 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.
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INDENTURE. Unless otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default for thirty (30) days or more in the payment of any
principal of or interest on any Note of such Series; (ii) failure to perform any
other covenant of the Depositor or the Trust Fund in the Indenture which
continues for a period of sixty (60) days 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 sixty (60) days 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 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.
Unless otherwise specified in the related Prospectus Supplement, 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
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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.
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
Unless otherwise specified in the Prospectus Supplement, the Agreement
for each Series of Securities may be amended by the Depositor, the Servicer
(with respect to a Series relating to Loans), and the Trustee with respect
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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 Seller, 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. Unless otherwise specified in the
Prospectus Supplement, 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.
BOOK-ENTRY SECURITIES
If specified in the Prospectus Supplement for a Series of Securities,
such Series or one or more Classes of such Series may be issued in book-entry
form. In such event, beneficial owners of such Securities will not be considered
"Holders" under the Agreements and may exercise the rights of Holders only
indirectly through the participants in the applicable book-entry system.
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
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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 or (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. The
Agreement for each Series permits, but does 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, unless
otherwise specified in the related Prospectus Supplement, 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 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. 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. If so provided in
the related Prospectus Supplement for a Series, 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 LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans, home improvement installment sales contracts and home
improvement installment loan agreements 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 Loans are situated.
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MORTGAGES
The Loans for a Series will, and certain Home Improvement Contracts for
a Series may, be secured by either mortgages or deeds of trust or deeds to
secure debt (such Mortgage Loans and Home Improvement Contracts are hereinafter
referred to in this section as "mortgage loans"), depending upon the prevailing
practice in the state in which the 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 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 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 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 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 property and sent to
all parties having an interest of record in the property. The trustor, borrower,
or any person having a junior encumbrance on the real estate, may, 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 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
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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 property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the 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 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 property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the 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 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 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 property and pay the expenses of
ownership until the redemption period has run. In some states, there is no right
to redeem property after a trustee's sale under a deed of trust.
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 property securing the mortgage loan to be sold upon default of the
mortgagor, thereby extinguishing the junior
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mortgagee's lien unless the junior mortgagee asserts its subordinate interest in
the 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 property are damaged or destroyed by fire or other
casualty, or in the event the 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 property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the 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.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. 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.
In certain other states, the lender 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 security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. Finally, other statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure sale to
the excess of the outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
Federal Soldiers' and Sailors' Relief Act and state laws affording relief to
debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Moreover, a court
with federal bankruptcy jurisdiction may permit a debtor through a Chapter 13
Bankruptcy Code rehabilitative plan to cure a monetary default with respect to 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 the lender has taken all steps to realize upon his
security (provided no sale of the property has yet occurred) prior to the filing
of the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular
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facts of the reorganization case, that effected the curing of a loan default by
permitting the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan may be modified if the borrower has filed a
petition under Chapter 13. These courts have suggested that such modifications
may include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule 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. Federal bankruptcy law and limited case law
indicate that the foregoing modifications could not be applied to the terms of a
loan secured by property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of the
security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved financing. The bankruptcy court can, in effect, invalidate
due-on-sale clauses through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted Loan. In addition, substantive requirements are imposed
upon lenders in connection with the origination and the servicing of mortgage
loans by numerous federal and some state consumer protection laws. The laws
include 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 regulations. These federal laws impose specific
statutory liabilities upon lenders who originate loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
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 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 mortgage 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. 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 property or the borrower's
execution of secondary financing affecting the 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 mortgage 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 mortgage loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements of such
mortgage 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 mortgage
loans originated by certain lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage 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 mortgage loans covered by Title V.
THE HOME IMPROVEMENT CONTRACTS
GENERAL. The Home Improvement Contracts, other than those Home
Improvement Contracts that are unsecured or secured by mortgages on real estate
(such Home Improvement Contracts are hereinafter referred to in this section as
"contracts") generally are "chattel paper" or constitute "purchase money
security interests" each as defined in the Uniform Commercial Code (the "UCC").
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 related Agreement,
the Depositor will transfer physical possession of the contracts to the Trustee
or a designated custodian or may retain possession of the
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contracts as custodian for the Trustee. In addition, the Depositor 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 otherwise marked to reflect their assignment from the Depositor 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 the contracts could be defeated.
SECURITY INTERESTS IN HOME IMPROVEMENTS. The contracts that are secured
by the Home Improvements financed thereby grant to the originator of such
contracts a purchase money security interest in such Home Improvements to secure
all or part of the purchase price of such Home Improvements and related
services. 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 Home Improvement must generally be
perfected by a timely fixture filing. In general, under the UCC, a security
interest does not exist under the UCC in ordinary building material incorporated
into an improvement on land. Home Improvement Contracts that finance lumber,
bricks, other types of ordinary building material or other 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 Home Improvement being financed.
ENFORCEMENT OF SECURITY INTEREST IN HOME IMPROVEMENTS. So long as the
Home Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement 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.
APPLICABILITY OF USURY LAWS. Title V provides that, subject to the
following conditions, state usury limitations shall not apply to any contract
which is secured by a first lien on certain kinds of consumer goods. The
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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, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
INSTALLMENT SALES CONTRACTS
The Loans may also consist of installment sales contracts. Under an
installment sales contract ("Installment Sales Contract") the seller
(hereinafter referred to in this section as the "lender") retains legal title to
the property and enters into an agreement with the purchaser (hereinafter
referred to in this section as the "borrower") for the payment of the purchase
price, plus interest, over the term of such contract. Only after full
performance by the borrower of the contract is the lender obligated to convey
title to the property to the purchaser. As with mortgage or deed of trust
financing, during the effective period of the Installment Sales Contract, the
borrower is generally responsible for maintaining the property in good condition
and for paying real estate taxes, assessments and hazard insurance premiums
associated with the property.
The method of enforcing the rights of the lender under an Installment
Sales Contract varies on a state-by-state basis depending upon the extent to
which state courts are willing, or able pursuant to state statute, to enforce
the contract strictly according to the terms. The terms of Installment Sales
Contracts generally provide that upon a default by the borrower, the borrower
loses his or her right to occupy the property, the entire indebtedness is
accelerated, and the buyer's equitable interest in the property is forfeited.
The lender in such a situation does not have to foreclose in order to obtain
title to the property, although in some cases a quiet title action is in order
if the borrower has filed the Installment Sales Contract in local land records
and an ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Sales Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Sales Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the borrower
may be granted some grace period during which the Installment Sales Contract may
be reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Sales Contract for the sale of real estate to share in the proceeds
of sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the lender's
procedures for obtaining possession and clear title under an Installment Sales
Contract in a given state are simpler and less time-consuming and costly than
are the procedures for foreclosing and obtaining clear title to a property
subject to one or more liens.
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 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 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. Unless otherwise specified in the related
Prospectus Supplement, any shortfalls in interest collections on Loans or
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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 to each Class of Securities
of such Series that is entitled to receive interest in respect of such Loans or
Underlying Loans in proportion to the interest that each such Class of
Securities would have otherwise been entitled to receive in respect of such
Loans or Underlying Loans had such interest shortfall not occurred.
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 Depositor will apply all or substantially all of the net proceeds
from the sale of each Series of Securities for one or more of the following
purposes: (i) to purchase 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. If so specified in the related
Prospectus Supplement, the purchase of the Primary Assets for a Series may be
effected by an exchange of Securities with the Seller of such Primary Assets.
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 should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Securities. For purposes of this
discussion, references to a "Securityholder" or a "Holder" are to the beneficial
owner of a Security.
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The following discussion addresses securities of three 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); (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"); and
(iii) securities ("Debt Securities") that are intended to be treated for federal
income tax purposes as indebtedness secured by the underlying Loans. This
Prospectus does not address the tax treatment of partnership interests or
interests in a FASIT. Such a discussion will be set forth in the related
Prospectus Supplement for any Trust issuing Securities characterized as
partnership interests or interests in a FASIT. 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 "ownership
interest" in the FASIT. Pursuant to the Small Business Job Protection Act of
1996, a FASIT election can be made on or after September 1, 1997.
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 (unless otherwise limited in the related Prospectus Supplement)
the related Grantor Trust will be classified as a grantor trust and not as a
partnership or an association taxable as a corporation. Accordingly, each Holder
of a Grantor Trust Security will generally be treated as the owner of an
interest in the Loans 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
Loans 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 Loans constituting the related
Grantor Trust and interest paid to the Holders of Grantor Trust Fractional
Interest Securities issued with respect to such Grantor Trust will be referred
to as a "Grantor Trust Strip Security."
Special Tax Attributes
Unless otherwise disclosed in a related Prospectus Supplement, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that (a) Grantor Trust Fractional Interest Securities will represent
interests in (i) "loans . . . secured by an interest in real property" within
the meaning of section 7701(a)(19)(C)(v) of the Code; and (ii) "obligations
(including any participation or certificate of beneficial ownership therein)
which . . . are principally secured by an interest in real property" within the
meaning of section 860G(a)(3)(A) of the Code; and (b) interest on Grantor Trust
Fractional Interest Securities will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of section 856(c)(3)(B) of the Code. In addition, the Grantor Trust
Strip Securities will be "obligations (including any participation or
certificate of beneficial ownership therein) . . . principally secured by an
interest in real property" within the meaning of section 860G(a)(3)(A) of the
Code.
Taxation of Holders of Grantor Trust Securities
Holders 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 Loans (including amounts used to pay reasonable
servicing fees and other expenses but excluding amounts payable to Holders 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 Holder 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
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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 Holder's miscellaneous itemized deductions exceeds 2%
of such Holder's adjusted gross income. Further, Holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining alternative minimum taxable
income.
Holders 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 Holder 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 Holder's income as
it accrues (regardless of the Holder'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 Loans 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 seller (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 Holder 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 Loans and to interest
thereon at the related Pass-Through 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 Holder during such year such
customary factual information as the Master Servicer deems necessary or
desirable to enable Holders 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 (unless
otherwise limited in the related Prospectus Supplement), 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).
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 Loans in a REMIC Trust will be taxable to the Holders of the Securities
of that series, as described below.
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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 Holders 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. Holders 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 Holders of REMIC Residual Securities
DAILY PORTIONS. Except as indicated below, a Holder 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 Holder 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 Holders (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 Holder by virtue of this paragraph will be treated as ordinary income
or loss.
The requirement that each Holder 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
Holder 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 Holders 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
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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 Holder 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 Holder 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 Holder 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 Holder is not included in gross income to the extent it does not
exceed such Holder'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 Holder 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 Holder'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
Holder 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 Holder. The daily accruals
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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, Holders of REMIC Residual Securities with excess inclusion
income cannot offset such income by losses from other activities. For Holders
that are subject to tax only on unrelated business taxable income (as defined in
section 511 of the Code), an excess inclusion of such Holder 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 Holder 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 Holder 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 Holder only to the extent that such fees, along with
certain of such Holder's other miscellaneous itemized deductions exceed 2% of
such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual
Security may not be able to deduct any portion of such fees in computing such
Holder's alternative minimum tax liability. A Holder'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 Holders 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
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the startup day, (ii) made to a qualified reserve fund by a Holder 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 Holders 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 Holder 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 Holder's income. In addition,
gain recognized on such a sale by a Holder 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 Holder, reduced by any market
discount includible in income under the rules described below under "--Discount
and Premium."
If a Holder 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 Holder 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
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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 Holders 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 Holders 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 Holder 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 Holders 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
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Holder of a REMIC Residual Security or in a fiduciary capacity. Each Holder 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 Holder 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 Holder 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. Unless otherwise specified in the related
Prospectus Supplement, the Trustee does not intend to register any REMIC Trust
as a tax shelter pursuant to section 6111 of the Code.
Termination
In general, no special tax consequences will apply to a Holder 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 Holder 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 Holder in liquidation of its interest, although the matter
is not entirely free from doubt, it would appear that the Holder 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
(unless otherwise limited in the related Prospectus Supplement) the Securities
will be classified as debt of the Company secured by the related Loans.
Consequently, the Debt Securities will not be treated as ownership interests in
the Loans or the Trust. Holders 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, Grantor Trust Securities will possess certain
special tax attributes by virtue of their being ownership interests in the
underlying Mortgage Loans. Similarly, REMIC Securities will possess similar
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 Holder of a Debt Security sells or exchanges such Security, the
Holder will recognize gain or loss equal to the difference, if any, between the
amount received and the Holder'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.
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
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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 Holder's income as it accrues
(regardless of the Holder's regular method of accounting) using a constant yield
method; (ii) market discount is treated as ordinary income and must be included
in a Holder's income as principal payments are made on the Security (or upon a
sale of a Security); and (iii) if a Holder 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.
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 Sponsor anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The Sponsor
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 Securityholder 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 Holder, 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
Securityholders, brokers and middlemen information with respect to the original
issue discount accruing on the Securities. Unless otherwise disclosed in the
related Prospectus Supplement, the Trustee will report original issue discount
based on accrual periods of one month, each beginning
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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.
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. Holders 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 Holder 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 Holder
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 Holders 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
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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 Holder makes such an election, the
amount of any interest payment that must be included in such Holder'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. The legislative history of the Tax Reform Act of 1986 states that such
premium amortization should be made under principles analogous to those
governing the accrual of market discount (as discussed above under "--Market
Discount"). If such election is made by the Holder, the election will also apply
to all bonds the interest on which is not excludible from gross income ("fully
taxable bonds") held by the Holder 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 Holder 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 Holder 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 Holders 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 Holder 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 Holder 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.
FOREIGN INVESTORS
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 Holder 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
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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 Holder 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 Holder signs a statement under penalties
of perjury that certifies that such Holder is not a U.S. Person, and provides
the name and address of such Holder, and (c) the last U.S. Person in the chain
of payment to the Holder receives such statement from such Holder or a financial
institution holding on its behalf and does not have actual knowledge that such
statement is false. Holders should be aware that the IRS might take the position
that this exemption does not apply to a Holder that also owns 10% or more of the
REMIC Residual Securities of any REMIC trust, or to a Holder that is a
"controlled foreign corporation" described in section 881(c)(3)(C) of the Code.
REMIC Residual Securities
Amounts distributed to a Holder 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 to a Holder 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 Trust that issued the REMIC Residual
Security (e.g., Loans or regular interests in another REMIC) were issued after
July 18, 1984. In no case will any portion of REMIC 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
Holders of REMIC Residual Securities--Excess Inclusions."
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 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
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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
(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.
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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 Sponsor, 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 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
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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
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not 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 Corp. ("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
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Securities will be passed upon for
the Depositor by Dewey Ballantine LLP, New York, New York.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in a "supplemental Glossary"
in the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. 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 Loan, and for any other purposes
specified in the related Prospectus Supplement.
"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 Loan, the
lesser of the appraised value determined in an appraisal obtained at origination
of the 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 Loan, the ratio
determined as set forth in the related Prospectus Supplement taking into account
the amounts of any related senior mortgage 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 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 Loan during a specified period over the
amount of interest required to be paid by an obligor on such 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 Home Equity Securitization Corp.
"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 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
Improvement Contract.
"Home Improvement Contract" means any home improvement installment
sales contracts and installment loan agreement which may be unsecured or secured
by purchase money security interest in the Home Improvement financed thereby.
"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 Loans.
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"Insurance Proceeds" means amount paid by the insurer under any of the
Insurance Policies covering any 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.
"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 Loan.
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Loan, net of liquidation expenses.
"Loan Rate" means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rate borne by a Loan.
"Loans" mean Mortgage Loans and/or Home Improvement Contracts,
collectively. A Loan refers to a specific Mortgage Loan or Home Improvement
Contract, as the context requires.
"Loan-to-Value Ratio" means, with respect to a 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 Loan.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgage Loan" means a closed-end home equity loan secured by a
Mortgaged Property.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the 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.
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"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.
"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 Loans) and the Trustee.
"Primary Assets" means the Private Securities and/or 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 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.
"Property" means either a Home Improvement or a Mortgaged Property
securing a Loan, as the context requires.
"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.
71
<PAGE>
"REO Property" means real property which secured a defaulted 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.
"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.
"Seller" means the seller 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 Loans, the
Person if any, designated in the related Prospectus Supplement to service Loans
for that Series, or the successors or assigns of such Person.
"Single Family Property" means property securing a 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.
72
<PAGE>
"UCC" means the Uniform Commercial Code.
"Underlying Loans" means loans of the type eligible to be Loans
underlying or securing Private Securities.
"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.
73
<PAGE>
TABLE OF CONTENTS
Page
<PAGE>
SUMMARY OF PROSPECTUS ..............................5
RISK FACTORS
PROSPECTUS SUPPLEMENT...............................3
REPORTS TO HOLDERS..................................3
AVAILABLE INFORMATION...............................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.....4
SUMMARY OF PROSPECTUS...............................5
RISK FACTORS.......................................15
NO SECONDARY MARKET.............................15
PRIMARY ASSETS ARE ONLY SOURCE OF REPAYMENT.....15
LIMITED PROTECTION AGAINST LOSSES...............15
YIELD MAY VARY..................................16
PROPERTY VALUES MAY BE INSUFFICIENT.............16
PRE-FUNDING MAY ADVERSELY AFFECT INVESTMENT.....16
POTENTIAL LIABILITY FOR ENVIRONMENTAL
CONDITIONS......................................17
CONSUMER PROTECTION LAWS MAY AFFECT LOANS.......17
CONTRACTS WILL NOT BE STAMPED...................18
RATINGS ARE NOT RECOMMENDATIONS.................18
DESCRIPTION OF THE SECURITIES......................18
GENERAL.........................................18
VALUATION OF THE PRIMARY ASSETS.................19
PAYMENTS OF INTEREST............................19
PAYMENTS OF PRINCIPAL...........................20
FINAL SCHEDULED DISTRIBUTION DATE...............20
SPECIAL REDEMPTION..............................20
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION....20
WEIGHTED AVERAGE LIFE OF THE SECURITIES.........21
THE TRUST FUNDS....................................22
GENERAL.........................................22
THE LOANS.......................................22
PRIVATE SECURITIES..............................25
COLLECTION AND DISTRIBUTION ACCOUNTS............27
CREDIT ENHANCEMENT.................................27
SUBORDINATE SECURITIES..........................28
INSURANCE.......................................28
RESERVE FUNDS...................................29
MINIMUM PRINCIPAL PAYMENT AGREEMENT.............29
DEPOSIT AGREEMENT...............................29
SERVICING OF LOANS.................................30
GENERAL.........................................30
COLLECTION PROCEDURES; ESCROW ACCOUNTS..........30
DEPOSITS TO AND WITHDRAWALS FROM THE
COLLECTION ACCOUNT .............................30
ADVANCES AND LIMITATIONS THEREON................32
MAINTENANCE OF INSURANCE POLICIES AND
OTHER SERVICING PROCEDURES .....................32
REALIZATION UPON DEFAULTED LOANS................33
ENFORCEMENT OF DUE-ON-SALE CLAUSES..............33
SERVICING COMPENSATION AND PAYMENT OF EXPENSES..34
EVIDENCE AS TO COMPLIANCE.......................34
CERTAIN MATTERS REGARDING THE SERVICER..........35
THE AGREEMENTS.....................................36
ASSIGNMENT OF PRIMARY ASSETS....................36
REPORTS TO HOLDERS..............................38
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT.39
THE TRUSTEE.....................................41
DUTIES OF THE TRUSTEE...........................41
RESIGNATION OF TRUSTEE..........................41
AMENDMENT OF AGREEMENT..........................41
VOTING RIGHTS...................................42
LIST OF HOLDERS.................................42
BOOK-ENTRY SECURITIES...........................42
REMIC ADMINISTRATOR.............................42
TERMINATION.....................................42
CERTAIN LEGAL ASPECTS OF LOANS.....................43
MORTGAGES.......................................44
FORECLOSURE ON MORTGAGES........................44
RIGHTS OF REDEMPTION............................45
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES....45
ANTI-DEFICIENCY LEGISLATION AND OTHER
LIMITATIONS ON LENDERS .........................46
DUE-ON-SALE CLAUSES IN MORTGAGE LOANS...........47
ENFORCEABILITY OF PREPAYMENT AND LATE
PAYMENT FEES ...................................48
EQUITABLE LIMITATIONS ON REMEDIES...............48
APPLICABILITY OF USURY LAWS.....................48
THE HOME IMPROVEMENT CONTRACTS..................48
INSTALLMENT SALES CONTRACTS.....................50
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF
1940............................................50
THE DEPOSITOR......................................51
GENERAL.........................................51
USE OF PROCEEDS....................................51
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...........51
GENERAL.........................................51
GRANTOR TRUST SECURITIES........................52
REMIC SECURITIES................................53
SPECIAL TAX ATTRIBUTES..........................54
DEBT SECURITIES.................................59
DISCOUNT AND PREMIUM............................59
BACKUP WITHHOLDING..............................62
FOREIGN INVESTORS...............................62
STATE TAX CONSIDERATIONS...........................63
ERISA CONSIDERATIONS...............................63
i
<PAGE>
LEGAL INVESTMENT...................................66
PLAN OF DISTRIBUTION...............................66
LEGAL MATTERS......................................66
GLOSSARY OF TERMS..................................67
ii
<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
=========
All amounts except the Securities and Exchange Commission registration fee are
estimated.
</TABLE>
ITEM 15. INDEMNFICATION 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 Underwiter named therein, relating to the distribution
of the Securities*
3.1 Articles of Incorporation of Home Equity Securitization
Corp.*
3.2 By-laws of Home Equity Securitization Corp.*
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 Certificates being issued*
5.2 Opinion of Dewey Ballantine LLP as to the Legality of Notes being
issued (Contained in Exhibit 5.1).
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters
(Contained in Exhibit 5.1)
23.3 Consent of Dewey Ballantine LLP (Contained in Exhibit 5.1).
24.1 Power of Attorney (included on signature page
of Registration Statement)
99.1 Form of Prospectus Supplement*
99.2 Form of Prospectus Supplement*
* Filed herewith
** To come in a subsequent filing
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
5
<PAGE>
(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 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.
6
<PAGE>
(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
Pre-effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Charlotte,
North Carolina, on the 3rd day of February, 1998.
HOME EQUITY SECURITIZATION CORP.
By: /s/ Wallace Saunders
-------------------------------
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 lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacity indicated on February 3, 1998.
SIGNATURE TITLE
By: /s/ Brian E. Simpson Chairman and President
---------------------------
NAME: Brian E. Simpson
By: /s/ Carolyn Eskridge Senior Vice President
---------------------------
NAME: Carolyn Eskridge
By: /s/ Peter H. Sorensen Independent Director
---------------------------
NAME: Peter H. Sorensen
8
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 Articles of Incorporation of Home Equity Securitization
Corp.*
3.2 By-laws of Home Equity Securitization Corp.*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture*
4.3 Form of Sale and Servicing Agreement*
5.1 Opinion of Dewey Ballantine LLP as to legality
of Certificates being issued*
5.2 Opinion of Dewey Ballantine LLP as to the Legality of Notes being
issued (Contained in Exhibit 5.1).
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters
(Contained in Exhibit 5.1).
23.3 Consent of Dewey Ballantine LLP (Contained in Exhibit 5.1).
24.1 Power of Attorney (included on signature page of this Pre-Effective
Amendment No. 1 to the Registration Statement)
99.1 Form of Prospectus Supplement*
99.2 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:
Home Equity Securitization Corp. (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
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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.
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(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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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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(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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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
19
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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.
24
<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
28
<PAGE>
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
29
<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 % %
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
Home Equity Securitization Corp.
(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 Home Equity Securitization
Corp., 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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<PAGE>
"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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"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 Home Equity Securitization Corp., 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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<PAGE>
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.]
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<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.
HOME EQUITY SECURITIZATION CORP.,
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 Home Equity Securitization Corp., 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
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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 Home Equity Securitization Corp.. 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, Home Equity Securitization Corp.., 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)
HOME EQUITY SECURITIZATION CORP.
(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"), HOME EQUITY SECURITIZATION CORP., 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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<PAGE>
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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<PAGE>
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: Home Equity Securitization Corp., 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: ________________________________
HOME EQUITY SECURITIZATION CORP.,
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
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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
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EXHIBIT A
SCHEDULE OF LOANS
92
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EXHIBIT B
RESERVED
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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: ________________________________
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<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: ________________________________
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EXHIBIT E
FORM OF SUBSEQUENT TRANSFER AGREEMENT
____________, ____
SUBSEQUENT TRANSFER AGREEMENT (the "Agreement") by and among
_____________________________, as owner trustee (the "Owner Trustee"),
__________________ ("____________"), Home Equity Securitization Corp., 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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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.
* * *
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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: ________________________________
HOME EQUITY SECURITIZATION CORP.,
AS DEPOSITOR
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
______________________________________ , AS
INDENTURE TRUSTEE AND CO-OWNER TRUSTEE
BY: ___________________________________
NAME:________________________________
TITLE: ________________________________
102
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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.
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<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: Home Equity Securitization Corp., 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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(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
26
<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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28
<PAGE>
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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<PAGE>
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
32
<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]
33
<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.
HOME EQUITY SECURITIZATION CORP., 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
HOME EQUITY SECURITIZATION CORP.
DEPOSITOR
and
[-------------------------------]
TRANSFEROR
Dated as of [______________]
EXHIBIT 4.5
FORM OF TRUST AGREEMENT
TRUST AGREEMENT
among
HOME EQUITY SECURITIZATION CORP.,
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
ii
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TRUST AGREEMENT, dated as of ____________________, among HOME EQUITY
SECURITIZATION CORP., 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, HOME EQUITY SECURITIZATION CORP.) 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.
31
<PAGE>
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.
32
<PAGE>
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, Home Equity Securitization Corp., 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.
33
<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.
HOME EQUITY SECURITIZATION CORP.
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, HOME EQUITY
SECURITIZATION CORP.) 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
Home Equity Securitization Corp., 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").
36
<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
37
<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
38
<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
February 5, 1998
Home Equity Securitization Corp.
301 South College Street
Charlotte, North Carolina 28202-6001
Ladies and Gentlemen:
We have acted as counsel to Home Equity Securitization Corp., 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. As to
various questions of fact material to such opinion, we have relied, to the
extent we deemed appropriate, upon representations, statements and certificates
of officers and representatives of Company and others.
We are admitted to the Bar of the State of New York and 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 State of New York.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes have
been authorized by all necessary corporate action of the Company in accordance
with the provisions of the related Agreement or Agreements, and when such Notes
have been duly executed and delivered, authenticated by the Trustee and sold as
described in the Registration Statement, assuming that the terms of such Notes
are otherwise in compliance with applicable law at such time, such Notes will
constitute valid and binding obligations of the issuer thereof in accordance
with their terms and the terms of such Agreement or Agreements. 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 issuance, execution and delivery of each Series of Certificates
have been authorized by all necessary corporate action of the Company in
accordance with the provisions of the related Agreement or Agreements, and when
such Certificates have been duly executed and delivered, authenticated by the
Trustee and sold as described in the Registration Statement, assuming that the
terms of such Certificates are otherwise in compliance with applicable law at
such time, such Certificates will be legally issued, fully paid and
non-assessable.
3. The statements set forth in the Prospectus under the heading "Material
Federal Income Tax Consequences", to the extent they constitute matters of law
or legal conclusions with respect thereto, provide a fair and accurate summary
of all material federal income tax consequences of an investment in the
Securities.
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 captions
"Material Federal Income Tax Consequences " and "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,
/s/ Dewey Ballantine LLP.
EXHIBIT 99.1
FORM OF PROSPECTUS SUPPLEMENT
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 1998) $________________
_________________________ Trust _________
- --------------------------------------------------------------------------------
$__________ Class A-1 Certificates
$__________ Class A-2 Certificates
$__________ Class A-3 Certificates
$__________ Class A-4 Certificates
----------------
(Seller)
----------------
(Servicer)
Home Equity Securitization Corp.
(Depositor)
Mortgage Pass-Through Certificates, Series _________
Principal and interest payable monthly, commencing _________
-------------------------
The ________________ Series _________ Mortgage Pass-Through Certificates
(the "Certificates") will consist of four Classes of senior Certificates (the
"Class A-1 Certificates", the "Class A-2 Certificates", the "Class A-3
Certificates", the "Class A-4 Certificates" and, collectively, the "Class A
Certificates"), and one Class of residual Certificates (the "Class R
Certificates"). Only the Class A Certificates are being offered hereby. The
Class A-1 Pass-Through Rate is an adjustable rate which shall be equal to the
lesser of the London interbank offered rate for one-month U.S. dollar deposits
("LIBOR") plus ___% per annum and the Weighted Average Rate Cap (as defined
herein), the Class A-2 Pass-Through Rate is a fixed rate of _____% per annum,
the Class A-3 Pass-Through Rate is a fixed rate of ____% per annum, and the
Class A-4 Pass-Through Rate is a fixed rate of ______% per annum (subject to
certain step-up provisions described herein). Interest on the Class A-1
Certificates is payable on the basis of a _____-day year and the actual number
of days elapsed. Interest on the Class A-2 Certificates, the Class A-3
Certificates and the Class A-4 Certificates is payable monthly at one-twelfth
the related Pass-Through Rate.
The Certificates will evidence in the aggregate all of the beneficial
ownership interests in a specified portion of a trust fund (the "Trust") whose
assets will be divided into two segregated pools of assets ("Group I", "Group
II" and, generically, a "Group"). The assets of the Trust will consist primarily
of (i) a pool of home equity floating rate revolving credit line loans (the
"HELOCs") and (ii) a pool of closed end fixed rate home equity loans (the
"HELs") secured in either case by mortgages on residential one-to-four-family
properties (the "Loans" and together with all other assets of the Trust, the
"Trust Fund"). An election will be made to treat certain assets of the Trust
Fund as a REMIC (the "_________ REMIC"). The HELOCs will be assigned to a
separate group ("Group I") and the HELs will be assigned to a separate group
("Group II"). The interest rate on the HELOCs will be adjustable based on the
highest prime rate published in the "Money Rates" section of The Wall Street
Journal on the last Business Day of the month of the applicable period. The HELs
will each bear interest at fixed rates.
INSURERER'S LOGO
The Depositor has caused _________ (the "Certificate Insurer") to issue two
certificate guaranty insurance policies (the "Certificate Insurance Policies")
for the benefit of the Class A Certificateholders pursuant to which it will
guarantee certain payments to the Class A Certificateholders as described
herein.
(Cover continued on next page)
Prospective Investors should consider the factors set forth under "Risk
Factors" appearing on pages S-__ through S-__
If purchased at a price other than par, a Class A Certificate's yield to
maturity will be sensitive to the rate and timing of principal payments
(including prepayments) on the Loans, the majority of which may be prepaid at
any time without penalty. Investors in the Class A Certificates should consider
the associated risks, including, in the case of Class A Certificates purchased
at a discount (or premium), the risk that a slower (or faster) than anticipated
rate of payments in respect of principal (including prepayments) on the Loans
could result in an actual yield that is lower than anticipated. See "Description
of the Certificates--Flow of Funds" in this Prospectus Supplement and
"Prepayment and Yield Considerations" in the Prospectus.
THESE SECURITIES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
THE ORIGINATOR, THE SERVICER, THE CERTIFICATE INSURER, THE TRUSTEE OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THESE SECURITIES NOR
THE UNDERLYING LOANS WILL BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------------
The Class A Certificates will be purchased by _________ (the "Underwriter")
from the Depositor and will be offered by the Underwriter from time to time to
the public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale.
Proceeds to the Depositor from the sale of the Class A Certificates will be
approximately $________________before deducting expenses payable by the
Depositor estimated to be approximately $___________in the aggregate, and before
adding accrued interest. See "Plan of Distribution" in this Prospectus
Supplement.
The Class A Certificates are offered by the Underwriter when, as and if
issued, subject to delivery by the Depositor and acceptance by the Underwriter,
to prior sale and to withdrawal, cancellation or modification of the offer
without notice. It is expected that the Class A Certificates will be available
for delivery through the facilities of The Depository Trust Company, CEDEL S.A.
and Euroclear on or about _________.
---------
The date of this Prospectus Supplement is ________________
<PAGE>
(Cover continued from previous page)
Additional HELOCs and HELs (the "Subsequent Loans") may be purchased by the
Trust from time to time on or before _____________ from funds on deposit in the
pre-funding account held by the _________ REMIC (the "Pre-Funding Account"), and
any such HELOCs shall be allocated to Group I and any such HELs shall be
allocated to Group II. On the Issue Date an aggregate cash amount of $_____ from
the proceeds of the sale of the Class A-1 Certificates allocated to Group I and
$_____ from the proceeds of the sale of the Class A-2 Certificates, the Class
A-3 Certificates and the Class A-4 Certificates allocated to Group II will be
deposited with the Trustee in the Pre-Funding Account.
Distributions in respect of interest will be made on the ___th day of each
month or, if the ___th day is not a Business Day, on the next succeeding
Business Day, commencing on _________ (each, a "Remittance Date"), to the
holders of Certificates to the extent described herein. On each Remittance Date,
the amount of interest distributed in respect of the Class A-1 Certificates will
equal the interest accrued at the Class A-1 Pass-Through Rate during the period
commencing on the ___th day of the month immediately preceding the month in
which such Remittance Date occurs and ending on the ___th day of the month in
which such Remittance Date occurs, and will be calculated based on actual days
elapsed divided by _____. On each Remittance Date, the amount of interest
distributed in respect of the Class A-2 Certificates, the Class A-3 Certificates
and the Class A-4 Certificates will equal the interest accrued at the Class A-2
Pass-Through Rate, Class A-3 Pass-Through Rate and Class A-4 Pass-Through Rate,
respectively, during the period commencing on the first day and ending on the
last day of the month immediately preceding the month in which such Remittance
Date occurs, and will be calculated based on an assumed year of _____ days
consisting of twelve _____ day months.
There is currently no secondary market for the Class A Certificates and
there can be no assurance that a secondary market will develop or, if it does
develop, that it will provide Certificateholders with liquidity of investment at
any particular time or for the life of the Class A Certificates.
An election will be made to treat the _________ REMIC as a real estate
mortgage investment conduit (a "REMIC") for federal income tax purposes. As
described more fully herein and in the Prospectus, the Class A Certificates will
constitute "regular interests" in the _________ REMIC and the Class R
Certificates will constitute a "residual interest" in the _________ REMIC. See
"Summary Terms of the Certificates-- Federal Income Tax Status" and "Certain
Federal Income Tax Considerations" in this Prospectus Supplement and "Material
Federal Income Tax Consequences--REMIC Securities" in the Prospectus.
The Class A Certificates described herein represent a Class of a separate
series of Certificates being offered by the Depositor from time to time pursuant
to the Prospectus dated __________ accompanying this Prospectus Supplement. The
Prospectus shall not be considered complete without this Prospectus Supplement.
Any prospective investor should not purchase any Class A Certificates described
herein unless it shall have received the Prospectus and this Prospectus
Supplement. The Prospectus contains important information regarding this
offering which is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
---------------------
Until ninety days from the date of this Prospectus Supplement, all dealers
effecting transactions in the Class A Certificates, whether or not participating
in this distribution, may be required to deliver this Prospectus Supplement and
the Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
S-3
<PAGE>
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SUMMARY TERMS OF THE CERTIFICATES
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used herein and not otherwise defined herein have
the meanings assigned in the Prospectus. See "Index of Significant Prospectus
Supplement Definitions" herein and "Index of Significant Definitions" in the
Prospectus.
Title of Securities ..............________________, Series _________ Mortgage
Pass-Through Certificates, Class A-1,
Class A-2, Class A-3, Class A-4 and Class
R (the "Certificates").
Trust ............................_________________________ Trust _________, a
trust to be formed under the laws of the
State of ________
Depositor ........................Home Equity Securitization Corp. (the
"Depositor"). See "The Depositor" in the
Prospectus.
Servicer .........................________________ ("_________", or in its
capacity as servicer, the "Servicer")
will act as Servicer for the Trust Fund
and, in that capacity, will provide
customary servicing functions with
respect to the Loans pursuant to a
Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") among
the Depositor, the Servicer and
_________, a _________ (the "Trustee"),
will provide certain reports to the
Trustee and will make certain advances to
the extent described in this Prospectus
Supplement. See "The Trustee" in this
Prospectus Supplement and "Servicing of
the Loans and Contract--The Servicer" in
the Prospectus.
Seller ...........................The Depositor will acquire the Loans from
________________ (in its capacity as the
seller to the Depositor the "Seller").
The Seller will acquire the Loans from
_________ _________ ("_________
_________").
Certificates Offered .............The Certificates will consist of the Class
A-1 Certificates (the "Class A-1
Certificates"), the Class A-2
Certificates (the "Class A-2
Certificates"), the Class A-3
Certificates (the "Class A-3
Certificates") and the Class A-4
Certificates (the "Class A-4
Certificates" and collectively with the
Class A-1 Certificates, the Class A-2
Certificates and the Class A-3
Certificates, the "Class A Certificates")
and one class of residual Certificates
(the "Class R Certificates"). Only the
Class A Certificates are offered hereby.
Cut-Off Date .....................The close of business on _________.
Issue Date .......................On or about _________ (the "Issue Date").
First Remittance Date ............_________. Distributions on the Certificates
will be made on the ___th day of each
month (or, if such ___th day is not a
Business Day, on the next succeeding
Business Day) (each, a "Remittance
Date"). "Business Day" shall mean any day
other than (i) a Saturday or Sunday, or
(ii) any day on which banking
institutions located in the States of
_________ or _________ are authorized or
obligated by law or executive order to
close.
Record Date ......................All distributions will be made by or on
behalf of the Trustee to the persons in
whose names the Certificates are
registered
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at the close of business on the last day
of the calendar month immediately
preceding the related Remittance Date.
Description of Certificates;
Denominations ..................General. The _________ REMIC and the Trust
Fund will be formed and the Certificates
will be issued pursuant to the Pooling
and Servicing Agreement. The Certificates
will represent the entire beneficial
ownership interest in the _________
REMIC. The assets of the _________ REMIC
will consist primarily of the principal
balances as of the Cut-Off Date (such
principal balances with respect to an
individual Loan, the "Trust Balance") of
(i) the pool of HELOCs evidenced by loan
agreements (each, a "Loan Agreement") and
(ii) the pool of HELs evidenced by
promissory notes, in each case secured by
mortgages or deeds of trust on
residential one-to-four-family properties
(such properties, the "Mortgaged
Properties" and such pools collectively,
the "Mortgage Pool"). Any additional
balances added to the HELOCs ("Additional
Balances") (which will not serve as
collateral for the Certificates) shall be
held by the Trust Fund as a separate
Mortgage Pool (the "Additional Loan
Group"). See "Description of the Loans"
in this Prospectus Supplement. The
Pooling and Servicing Agreement will
designate each Mortgage Pool as a
sub-trust to be held by the Trustee.
In addition, the Depositor has caused
_________ (the "Certificate Insurer") to
issue two certificate guaranty insurance
policies (the "Certificate Insurance
Policies") one relating to the Class A-1
Certificates and one relating to the
Class A-2 Certificates, the Class A-3
Certificates and the Class A-4
Certificates for the benefit of the
related Class A Certificateholders,
pursuant to which it will guarantee
certain payments to the Trustee for the
benefit of the related Class A
Certificateholders, as described herein.
Book-Entry Form. The Class A Certificates
initially will be issued in book-entry
form, in minimum denominations of $_____
initial principal balance with integral
multiples thereof (except for one
Certificate of each Class which may be
issued in a lesser amount). The Class A
Certificates are sometimes referred to in
this Prospectus Supplement as "Book-Entry
Certificates." No person acquiring an
interest in the Book-Entry Certificates
(a "Beneficial Owner") will be entitled
to receive a definitive certificate
representing such person's interest in
the _________ REMIC, except under the
limited circumstances described herein.
Beneficial Owners may elect to hold their
interests through The Depository Trust
Company ("DTC"), in the United States, or
Centrale de Livraison des Valeurs
Mobiliers, S.A. ("CEDEL") or the
Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and
operating procedures of the relevant
system. In general, "Certificateholder"
or "Holder" shall mean each Person in
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
whose name a Certificate is registered in
the Certificate Register and the
Book-Entry Certificates initially will be
represented by a single certificate in
respect of each of the Class A-1
Certificates, the Class A-2 Certificates,
the Class A-3 Certificates and the Class
A-4 Certificates registered in the name
of Cede & Co. ("Cede"), which will be the
"Holder" or "Certificateholder" of such
Certificates, as the nominee of DTC or
CEDEL or Euroclear (collectively, the
"European Depositories").
Cross-market transfers between persons
holding directly or indirectly through
DTC, on the one hand, and counterparties
holding directly or indirectly through
CEDEL or Euroclear, on the other, will be
effected in DTC through _________
("________"), the relevant depositories
of CEDEL or Euroclear, respectively, and
each participating member of DTC. The
rights of Beneficial Owners may only be
exercised through DTC and its
participating organizations, except as
otherwise specified herein.
See "Description of the Certificates --Book-
Entry Registration" and "--Definitive
Certificates" in this Prospectus
Supplement.
The Mortgage Pool ................The statistical information regarding the
Loans and the Mortgaged Properties which
is presented in this Prospectus
Supplement is based upon the
characteristics of the respective Group
within the Mortgage Pool as of the close
of business on the Cut-Off Date. Unless
otherwise indicated, all percentages set
forth in this Prospectus Supplement are
based upon the aggregate Principal
Balances of the Loans in the related
Group as of the Cut-Off Date, which was
$_____ with respect to HELOCs allocated
to Group I and $_____ with respect to
HELs allocated to Group II.
The Trust Balance of the HELOCs to be
included in Group I will be home equity
revolving credit line loans evidenced by
Loan Agreements and secured by mortgages
(of which approximately ____% by Cut-Off
Date principal balance are second
mortgages and the remainder of which are
first mortgages) or deeds of trust on
one-to-four family residential
properties, a substantial portion of
which are located in the northern half of
the State of _________ and in selected
metropolitan markets in the States of
_________, _________, _________ and
_________, which generally have original
terms to stated maturity of approximately
____ years and which have scheduled
payments of interest only for the first
ten years of their respective terms.
Commencing in its eleventh year, each
HELOC has scheduled payments on a
ten-year fully amortizing basis.
The Trust Balance of the HELs to be
included in Group II will be closed end
fixed rate home equity loans evidenced by
promissory notes and secured by mortgages
(of which approximately ____% by Cut-Off
Date principal balance
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
are second mortgages and the remainder of
which are first mortgages) or deeds of
trust on one-to-four family residential
properties, a substantial portion of
which are located in the northern half of
the State of _________ and in selected
metropolitan markets in the States of
_________, _________, _________ and
_________ of which approximately ____%
have original terms to stated maturity of
approximately _____ years or less and
approximately _____% of which have
original terms to stated maturity of
approximately _____ years or less, and
which provide for substantially equal
payments in an amount sufficient to
amortize the HEL over its term.
Unless otherwise provided in an
applicable supplement hereto, the Monthly
Payments for each Loan will be due on the
fifteenth day of each month (each, a "Due
Date"). See "Description of the Loans"
herein.
On the Issue Date, $_____ (the "Original
Group I Pre-Funded Amount") from the
proceeds of the sale of the Class A-1
Certificates will be deposited with the
Trustee, held as an asset of the
_________ REMIC and used to purchase the
Subsequent Loans which are HELOCs. On the
Issue Date, $_____ (the "Original Group
II Pre-Funded Amount") from the proceeds
of the sale of the Class A-2
Certificates, the Class A-3 Certificates
and the Class A-4 Certificates will be
deposited with the Trustee, held as an
asset of the _________ REMIC and used to
purchase the Subsequent Loans which are
HELs. The Subsequent Loans, if available,
will be originated by _________
_________, sold by _________ _________ to
the Seller, sold by the Seller to the
Depositor and then sold by the Depositor
to the Trust. The Subsequent Loans, as
well as all Loans, must conform to
certain specified characteristics.
The Trust Fund will be obligated to
purchase the Subsequent Loans from time
to time on or before _____________
subject to the availability thereof. In
connection with each purchase of
Subsequent Loans, the Trust Fund will be
required to pay to the Depositor a cash
purchase price of _____% of the principal
amount thereof from the Pre-Funding
Account. The Depositor will be obligated
to sell Subsequent Loans to the Trust
Fund and the Trust Fund will be
obligated, subject to the satisfaction of
certain conditions described therein, to
purchase such Subsequent Loans. The
Depositor will designate as a cut-off
date (each a "Subsequent Cut-Off Date")
the last day of the month immediately
preceding the month in which Subsequent
Loans will be conveyed by the Depositor
to the Trust Fund (each a "Subsequent
Transfer Date") occurring during the
Pre-Funding Period (as defined herein).
The Trust Fund may purchase the
Subsequent Loans only from the Depositor
and not from any other person. See
"Description of the Loans."
The Loans were underwritten in accordance
with the underwriting standards of the
Servicer developed at the
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S-7
<PAGE>
- --------------------------------------------------------------------------------
direction of _________ _________. See
"Risk Factors Underwriting Standards and
Potential Delinquencies" in this
Prospectus Supplement. As of the Cut-Off
Date, approximately ____% of the HELOCs
and _____% of the HELs in each case by
aggregate principal balance are secured
by Mortgaged Properties located in
_________, approximately _____% of the
HELOC's and _____% of the HELs in each
case by aggregate principal balance are
secured by Mortgaged Properties located
in selected metropolitan markets in
_________, approximately ____% of the
HELOCs and ____% of the HELs in each case
by aggregate principal balance are
secured by Mortgaged Properties located
in selected metropolitan markets in
_________, approximately _____% of the
HELOCs and _____% of the HELs in each
case by aggregate principal balance are
secured by Mortgaged Properties located
in selected metropolitan markets in
_________ and approximately ____% of the
HELOCs and ____% of the HELs in each case
by aggregate principal balance are
secured by Mortgage Properties located in
selected metropolitan markets in
_________. See "Risk Factors--Geographic
Concentration" in this Prospectus
Supplement.
Pre-Funding Account ..............On the Issue Date the Trustee will deposit
the Original Group I Pre-Funded Amount
and the Original Group II Pre-Funded
Amount in the Pre-Funding Account. Such
amount will be funded from the proceeds
of the sale of the Certificates, and may,
subject to the satisfaction of certain
conditions, be used to acquire Subsequent
Loans during the period (the "Pre-Funding
Period") from the Issue 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 with respect to such
Group is less than $_____, (ii) the date
on which an Event of Default occurs under
the Pooling and Servicing Agreement or
(iii) _____________. Subject to the
satisfaction of certain conditions, the
amount on deposit in the Pre-Funding
Account will be reduced during the
Pre-Funding Period by the amount thereof
used to purchase Subsequent Loans and by
transfers to the Reserve Account. The
Depositor expects that the Original Group
I Pre-Funded Amount will be reduced to
less than $_____ by _____________ and the
Original Group II Pre-Funded Amount will
be reduced to less than $_____ by
_____________. Any amount remaining in
the Pre-Funding Account at the end of the
Pre-Funding Period and allocated to Group
I or Group II will be used to prepay the
related Class of Class A Certificates and
in the case of amounts allocated to Group
II in accordance with the sequential pay
features of the Class A-2 Certificates,
the Class A-3 and the Class A-4
Certificates. Amounts on deposit in the
Pre-Funding Account will be invested in
Permitted Investments.
Capitalized Interest Account .....On the Closing date the Trustee will make a
cash deposit from the proceeds of the
sale of the Certificates into an account
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S-8
<PAGE>
- --------------------------------------------------------------------------------
held by the Trustee (the "Capitalized
Interest Account") unless a letter of
credit in form and substance, and from a
provider, acceptable to the Certificate
Insurer evidencing the availability of
such amount is delivered to the Trustee
on the Closing Date. Amounts on deposit
in the Capitalized Interest Account will
be withdrawn, or drawings under such
letter of credit will be made, on each
Remittance Date, to fund portions of the
Class A-1 Interest Distribution Amount,
the Class A-2 Interest Distribution
Amount, the Class A-3 Interest
Distribution Amount and the Class A-4
Interest Distribution Amount to the
extent set forth in the Pooling and
Servicing Agreement.
Mortgage Interest Rate ...........The "Mortgage Interest Rate" of each Loan is
the per annum interest rate required to
be paid by the mortgagor under the terms
of the related mortgage note (the
"Mortgage Note"). The Mortgage Interest
Rate borne by each Loan is fixed as of
the closing date of such Loan in the case
of a HEL and adjustable on the date (each
such date, an "Interest Adjustment Date")
specified in the related Mortgage Note
with respect to a HELOC to a rate which
is based on the highest prime rate as
published in the "Money Rates" section of
The Wall Street Journal on the last
Business Day of the month. The Mortgage
Interest Rate on each HELOC will be
adjusted on each Interest Adjustment Date
to a rate equal to the sum of the
applicable prime rate and a fixed
percentage (the "Gross Margin") specified
in the related Mortgage Note, and is
generally subject to maximum and minimum
lifetime Mortgage Interest Rates
("Lifetime Rate Caps" and "Lifetime Rate
Floors," respectively) specified in the
related Loan Agreement. As of the Cut-Off
Date, the weighted average Mortgage
Interest Rate for the HELs was
approximately ___% and for the HELOCs was
approximately ______%.
As of the Cut-Off Date, the Gross Margins
for the HELOCs will range from _____% to
______% and the weighted average Gross
Margin will be approximately _____%. As
of the Cut-Off Date, the Lifetime Rate
Caps for the HELOCs will range from
approximately _____% to _____% per annum
and the weighted average Lifetime Rate
Cap will be approximately _____% per
annum. As of the Cut-Off Date, the
Lifetime Rate Floors for the HELOCs will
range from approximately ____% to _____%
per annum and the weighted average
Lifetime Rate Floor will be approximately
_____% per annum.
Original Class A-1 Principal Balance. $__________.
Original Class A-2 Principal Balance. $__________
Original Class A-3 Principal Balance. $__________.
Original Class A-4 Principal Balance. $__________.
Interest; Class A-1 Pass-Through
Rate ...........................The Class A-1 Pass-Through Rate, in the case
of the first Remittance Date, will be
______%, and for each
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S-9
<PAGE>
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Remittance Date thereafter, shall be
equal to a per annum rate equal to the
lesser of (a) the sum of (i) LIBOR on the
second to the last Business Day prior to
the preceding Remittance Date plus (ii)
___%, subject to certain exceptions
described under "Description of the
Certificates--Calculation of LIBOR"
herein, and (b) the Weighted Average Rate
Cap. Such rate will be calculated on the
basis of actual days elapsed divided by
_____. See "Description of the
Certificates--Weighted Average Rate Cap."
Interest on the Class A-1 Certificates
will accrue from and including the
preceding Remittance Date (as defined
below)(except in the case of the first
such period, in which case interest shall
accrue from the Issue Date) to but not
including the related Remittance Date
(each, an "Accrual Period") at the Class
A-1 Pass-Through Rate on the Class A-1
Principal Balance as of the last
Remittance Date (after giving effect to
principal distributed on such last
Remittance Date)(such interest, net of
interest shortfalls not covered by
Compensating Interest and reductions in
respect of the Civil Relief Act, the
"Class A-1 Interest Distribution
Amount"). The amount of the Class A-1
Interest Distribution Amount payable with
respect to the Class A-1 Certificates on
any Remittance Date shall be
distributable, to the extent described
herein, on such Remittance Date. With
respect to the first Remittance Date,
interest shall accrue on the Class A-1
Certificates at the Class A-1
Pass-Through Rate on the Class A-1
Principal Balance as of the close of
business on the Cut-Off Date for the
period commencing on the Issue Date and
ending on _____________. See "Description
of the Certificates" in this Prospectus
Supplement.
In the event that LIBOR exceeds the Prime
Rate, or the Prime Rate increases to a
level that subjects the Mortgage Interest
Rate for the HELOCs to an applicable
statutory maximum interest rate, it is
possible that the weighted average
Mortgage Interest Rate on the Loans in
Group I for the related Due Period, net
of the rates at which the Servicing Fee,
the Trustee Fee and the amount owed to
the Certificate Insurer as premium for
the Certificate Insurance Policy related
to the Class A-1 Certificates (the "Class
A-1 Certificate Insurance Premium
Amount") are calculated (the "Net
Mortgage Interest Rate") will be less
than the amount of interest calculated in
clause (a) under "Interest; Class A-1
Pass-Through Rate" above. Therefore, the
Class A-1 Pass-Through Rate is, on each
Remittance Date, subject to a maximum
annual rate (the "Weighted Average Rate
Cap") equal to the weighted average Net
Mortgage Interest Rate for the HELOCs and
beginning on the ___th Remittance Date,
the weighted average Net Mortgage
Interest Rate for HELOCs minus ______%.
Interest; Class A-2
Pass-Through Rate ............_______%. Interest on the Class A-2
Certificates will accrue from and
including the
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S-10
<PAGE>
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first day through and including the last
day of the month preceding the related
Remittance Date at the Class A-2
Pass-Through Rate on the Class A-2
Principal Balance as of the last
Remittance Date (after giving effect to
principal distributed on such last
Remittance Date)(such interest, net of
interest shortfalls not covered by
Compensating Interest and reductions in
respect of the Civil Relief Act, the
"Class A-2 Interest Distribution
Amount"). For purposes of accrual and
payment of interest on the Class A-2
Certificates all calculations will be
based on an assumed year of _____ days
consisting of twelve _____-day months.
The amount of the Class A-2 Interest
Distribution Amount payable with respect
to the Class A-2 Certificates on any
Remittance Date shall be distributable,
to the extent described herein, on such
Remittance Date.
Interest; Class A-3
Pass-Through Rate ............._____%. Interest on the Class A-3 Certificates
will accrue from and including the first
day through and including the last day of
the month preceding the related
Remittance Date at the Class A-3
Pass-Through Rate on the Class A-3
Principal Balance as of the last
Remittance Date (after giving effect to
principal distributed on such last
Remittance Date)(such interest, net of
interest shortfalls not covered by
Compensating Interest and reductions in
respect of the Civil Relief Act, the
"Class A-3 Interest Distribution
Amount"). For purposes of accrual and
payment of interest on the Class A-3
Certificates all calculations will be
based on an assumed year of _____ days
consisting of twelve _____-day months.
The amount of the Class A-3 Interest
Distribution Amount payable with respect
to the Class A-3 Certificates on any
Remittance Date shall be distributable,
to the extent described herein, on such
Remittance Date.
Interest; Class A-4
Pass-Through Rate .............Prior to the date on which the sum of the
Class A-2 Principal Balance, the Class
A-3 Principal Balance and the Class A-4
Principal Balance is less than ___% of
the sum of the aggregate Trust Balances
of the Loans in Group II as of the
Cut-Off Date plus the Original Group II
Pre-funded Amount (as defined herein),
the Class A-4 Pass-Through Rate shall
equal ____% and for each Accrual Period
after the next succeeding Remittance
Date, the Class A-4 Pass-Through Rate
shall equal _____%. Interest on the Class
A-4 Certificates will accrue from and
including the first day through and
including the last day of the month
preceding the related Remittance Date at
the Class A-4 Pass-Through Rate on the
Class A-4 Principal Balance as of the
last Remittance Date (after giving effect
to principal distributed on such last
Remittance Date)(such interest, net of
interest shortfalls not covered by
Compensating Interest and reductions in
respect of the Civil Relief Act, the
"Class A-4 Interest Distribution
Amount"). For purposes of accrual and
payment of interest on the Class A-4
Certificates all calculations will be
based on an assumed year of _____ days
consisting of twelve _____-day months.
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<PAGE>
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The amount of the Class A-4 Interest
Distribution Amount payable with respect
to the Class A-4 Certificates on any
Remittance Date shall be distributable,
to the extent described herein, on such
Remittance Date.
Principal; Class A
Principal Balance .............The "Principal Balance" of any Loan (or
related REO Property) is the outstanding
principal balance of such Loan as of the
end of the calendar month preceding such
date of determination. The "Class A-1
Principal Balance" represents the maximum
specified dollar amount of principal to
which the Holders of the Class A-1
Certificates are entitled from the future
cash flow on the assets in the _________
REMIC. The "Class A-1 Principal Balance"
at any time is equal to the Class A-1
Principal Balance as of the Cut-Off Date
(the "Original Class A-1 Principal
Balance") minus the aggregate, cumulative
amounts actually distributed as principal
to the Class A-1 Certificateholders. The
"Class A-2 Principal Balance" represents
the maximum specified dollar amount of
principal to which the Holders of the
Class A-2 Certificates are entitled from
the future cash flow on the assets in the
_________ REMIC. The "Class A-2 Principal
Balance" at any time is equal to the
Class A-2 Principal Balance as of the
Cut-Off Date (the "Original Class A-2
Principal Balance") minus the aggregate,
cumulative amounts actually distributed
as principal to the Class A-2
Certificateholders. The "Class A-3
Principal Balance" represents the maximum
specified dollar amount of principal to
which the Holders of the Class A-3
Certificates are entitled from the future
cash flow on the assets in the _________
REMIC. The "Class A-3 Principal Balance"
at any time is equal to the Class A-3
Principal Balance as of the Cut-Off Date
(the "Original Class A-3 Principal
Balance") minus the aggregate, cumulative
amounts actually distributed as principal
to the Class A-3 Certificateholders. The
"Class A-4 Principal Balance" represents
the maximum specified dollar amount of
principal to which the Holders of the
Class A-4 Certificates are entitled from
the future cash flow on the assets in the
_________ REMIC. The "Class A-4 Principal
Balance" at any time is equal to the
Class A-4 Principal Balance as of the
Cut-Off Date (the "Original Class A-4
Principal Balance") minus the aggregate,
cumulative amounts actually distributed
as principal to the Class A-4
Certificateholders. The "Class A
Principal Balance" refers to each of the
Class A-1 Principal Balance, the Class
A-2 Principal Balance, the Class A-3
Principal Balance and the Class A-4
Principal Balance. See "Description of
the Certificates--Flow of Funds" in this
Prospectus Supplement.
The Holders of Class A-1 Certificates are
entitled to receive certain monthly
distributions of principal on each
Remittance Date which generally reflect
collections of principal on the HELOCs
during the prior calendar month
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S-12
<PAGE>
(the "Due Period"). The Holders of Class
A-2 Certificates are entitled to receive
certain monthly distributions of
principal which generally reflect
collections of principal on the HELs
during the related Due Period on each
Remittance Date until the Class A-2
Principal Balance has been reduced to
zero. Following the reduction of the
Class A-2 Principal Balance to zero, the
Holders of Class A-3 Certificates are
entitled to receive certain monthly
distributions of principal which
generally reflect collections of
principal on the HELs during the related
Due Period on each Remittance Date until
the Class A-3 Principal Balance has been
reduced to zero. Following the reduction
of the Class A-3 Principal Balance to
zero, the Holders of Class A-4
Certificates are entitled to receive
certain monthly distributions of
principal which generally reflect
collections of principal on the HELs
during the related Due Period on each
Remittance Date.
The "Class A Principal Distribution
Amount" for any Remittance Date and
either Group will be the lesser of:
(a) the excess of (i) the sum, as of
such Remittance Date, of (A) the
Group I Available Amount or Group II
Available Amount, as applicable,
plus (B) any amounts on deposit in
and available to be withdrawn from
the Reserve Account with respect to
such Group, plus (C) any Insured
Payment with respect to such Group,
over (ii) the Class A-1 Interest
Distribution Amount, Class A-2
Interest Distribution Amount, Class
A-3 Interest Distribution Amount and
Class A-4 Interest Distribution
Amount, as applicable; and
(b) the sum, without duplication, of:
(i) with respect to each Loan in such
Group, and until the Trust Balance
of such Loan is reduced to zero, (A)
all scheduled installments of
principal received or advanced
during the related Due Period, (B)
all prepayments, curtailments and
other unscheduled receipts of
principal other than Liquidation
Proceeds and (C) all Liquidation
Proceeds actually collected by the
Servicer during the prior calendar
month and allocable to the Trust
Balance of such Loan (see
"Allocations of Payments on the
HELOCs Between the Trust Balances
and the Additional Balances"),
(ii) the Trust Balance of each Loan in
such Group that either was
repurchased by the Seller or by the
Depositor or purchased by the
Servicer on the related Remittance
Date, to the extent such Trust
Balance is actually received by the
Trustee,
(iii) any Substitution Adjustments
delivered by the Depositor on the
related Remittance Date in
connection with a substitution of a
Loan in such Group, to the extent
such Substitution Adjustments are
actually received by the Trustee,
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S-13
<PAGE>
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(iv) with respect to each Loan in such
Group that became a Liquidated Loan
during the prior calendar month, the
Trust Balance of such Loan
immediately prior to the time when
such Loan became a Liquidated Loan,
(v) any monies released from the
Pre-Funding Account as a prepayment
of the related Class of Class A
Certificates on or prior to the
Remittance Date in _____________.
(vi) the proceeds received by the Trustee
of any termination of the _________
REMIC (to the extent such proceeds
related to principal).
In no event will the Class A Principal
Distribution Amount for any Class of
Class A Certificates with respect to any
Remittance Date be (x) less than zero or
(y) greater than the related outstanding
Class A Principal Balance as of the end
of the month preceding the applicable
Remittance Date.
With respect to any Remittance Date, the
sum of the Class A-1 Interest
Distribution Amount and the Principal
Distribution Amount for Group I as would
be calculated pursuant to (b) above with
respect to such Remittance Date, is the
"Class A-1 Formula Distribution Amount"
for such Remittance Date. With respect to
any Remittance Date, the Class A-2
Interest Distribution Amount, the Class
A-3 Interest Distribution Amount, the
Class A-4 Interest Distribution Amount
and the Principal Distribution Amount for
Group II as would be calculated pursuant
to (b) above with respect to such
Remittance Date is the "Group II Formula
Distribution Amount" for such Remittance
Date.
The "Group I Available Amount" for any
Remittance Date equals (i) the Servicer
Remittance Amount for Group I on 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 premium payable
with respect to the Certificate Insurance
Policy for the Class A-2 Certificates,
the Class A-3 Certificates and the Class
A-4 Certificates (the "Group II
Certificate Insurance Premium Amount")
minus (iii) the Trustee Fee for Group I
and the Class A-1 Certificate Insurance
Premium Amount.
The "Group II Available Amount" for any
Remittance Date equals (i) the Servicer
Remittance Amount for Group II on 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.
- --------------------------------------------------------------------------------
S-14
<PAGE>
- --------------------------------------------------------------------------------
With respect to any Remittance Date, the
excess of the Class A-1 Formula
Distribution Amount over the Group I
Available Amount with respect to such
Remittance Date is the "Class A-1 Credit
Enhancement Distribution Amount" for such
Remittance Date. With respect to any
Remittance Date, the excess of the Group
II Formula Distribution Amount over the
Group II Available Amount with respect to
such Remittance Date is the "Group II
Credit Enhancement Distribution Amount"
for such Remittance Date.
The actual amount distributed with
respect to the Class A-1 Certificates on
any Remittance Date is the "Class A-1
Distribution Amount" for such Remittance
Date. The actual amount distributed with
respect to the Class A-2 Certificates on
any Remittance Date is the "Class A-2
Distribution Amount" for such Remittance
Date. The actual amount distributed with
respect to the Class A-3 Certificates on
any Remittance Date is the "Class A-3
Distribution Amount" for such Remittance
Date. The actual amount distributed with
respect to the Class A-4 Certificates on
any Remittance Date is the "Class A-4
Distribution Amount" for such Remittance
Date. The sum of the Class A-2
Distribution Amount, the Class A-3
Distribution Amount and the Class A-4
Distribution Amount for any Remittance
Date is the Group II Distribution Amount
for such Remittance Date.
A "Liquidated Loan" is, in general, a
defaulted Loan as to which the Servicer
has determined that all amounts that it
expects to recover on such Loan have been
recovered (exclusive of any possibility
of a deficiency judgment). Losses will be
allocated to the Trust Balance of any
Liquidated Loan that is a HELOC as
provided in "Allocation of Payments on
the HELOCs between the Trust Balance and
the Additional Balance." A loss on a
Liquidated Loan (a "Liquidated Loan
Loss") will be recovered by the Holders
of the related Class of Class A
Certificates on the Remittance Date which
immediately follows the event of loss.
Such distribution will be in the form of
an Insured Payment if not covered by
withdrawals from the Reserve Account or
otherwise available from the Group I
Available Amount or Group II Available
Amount, as applicable. _____________ will
insure the timely payment of interest and
the ultimate payment of principal on the
Class A Certificates. See "The
Certificate Insurance Policies and the
Certificate Insurer" in this Prospectus
Supplement.
The "Trust Balance" of any Loan as of any
date of determination is the portion of
the principal balance of such Loan sold
to the Trust as of the Cut-Off Date,
after giving effect to prepayments
received on or prior to the latest Due
Date, Deficient Valuations incurred prior
to such Due Date and the payment of
principal due on such Due Date (all
allocated in the case of a Loan that is a
HELOC, as provided in "Allocation of
Payments on
- --------------------------------------------------------------------------------
S-15
<PAGE>
HELOCs between the Trust Balance and the
Additional Balance") and irrespective of
any delinquency in payment by the related
Mortgagor. The Trust Balance of a Loan
which becomes a Liquidated Loan on or
prior to such Due Date shall be zero.
Credit Enhancement ...............The credit enhancement provided for the
benefit of the Class A Certificateholders
consists of (a) drawings on the Reserve
Account and, if adequate funds do not
exist therein, (b) the Certificate
Insurance Policy. See "Description of the
Certificates--Reserve Account."
The Reserve Account
On the Issue Date, an amount required by
the Certificate Insurer from the proceeds
of the sale of the Class A Certificates,
or a letter of credit in form and
substance, and from a provider,
acceptable to the Certificate Insurer
evidencing the availability of such
amount (or any combination of cash and a
letter of credit aggregating such
amount), will be deposited into the
Reserve Account. On each Subsequent
Transfer Date, the Seller will transfer
an additional amount as required by the
Certificate Insurer to the Reserve
Account from the Pre-Funding Account (or
provide a letter of credit in form and
substance, and from a provider,
acceptable to the Certificate Insurer
evidencing the availability of an amount
which when aggregated with such
transferred amount will meet the
requirements of the Certificate Insurer).
With respect to the Certificates, the
Pooling and Servicing Agreement generally
provides separately with respect to Group
I and Group II that, subject to certain
floors and triggers, the Required Reserve
Account Level may be reduced. In
addition, certain triggers or conditions
may cause the Required Reserve Account
Level to be increased. Funds on deposit
in the Reserve Account may be withdrawn
(or drawings on a letter of credit may be
made) to make payments of the Class A-1
Credit Enhancement Distribution Amount or
Group II Credit Enhancement Distribution
Amount. Withdrawals from the Reserve
Account (or drawings on a letter of
credit) will be replenished (or
reimbursed) from the flow of funds. See
"Description of the Certificates - Flow
of Funds." Subject to certain limitations
and requirements described in the Pooling
and Servicing Agreement, distributions
may be made to the owner of the Residual
Certificate only from amounts on deposit
in the Reserve Account in excess of the
Required Reserve Account Level or from
funds remaining on deposit in the
Certificate Account after the making of
any Reserve Account Deposits. Amounts on
deposit in the Reserve Account will be
invested in Permitted Investments. See
"Description of the Certificates --
Reserve Account."
The Certificate Insurance Policies
The Class A Certificateholders will have
the benefit of the Certificate Insurance
Policies, discussed more fully
- --------------------------------------------------------------------------------
S-16
<PAGE>
- --------------------------------------------------------------------------------
below. See "The Certificate Insurance
Policies and the Certificate Insurer"
herein and "Credit Enhancement
--Insurance" in the Prospectus.
Mandatory Prepayment of
Class A Certificates ..........The Original Group I Pre-Funded Amount of
$_____ funded from the proceeds of the
sale of the Class A-1 Certificates may be
used to acquire Subsequent Loans which
are HELOCs. The Original Group II
Pre-Funded Amount of $_____ funded from
the proceeds of the sale of the Class A-2
Certificates, the Class A-3 Certificates
and the Class A-4 Certificates may be
used to acquire Subsequent Loans which
are HELs. In the event that, at the end
of the Pre-Funding Period, not all of the
Original Group I Pre-Funded Amount or the
Original Group II Pre-Funded Amount has
been used to acquire Subsequent Loans,
then the related Class of Class A
Certificates will be prepaid in part on
the ______, ____ Remittance Date, to the
extent of such remaining funds. Such
amount will be allocated as between the
Class A-2 Certificates, the Class A-3
Certificates and the Class A-4
Certificates, if applicable, in
accordance with the sequential pay
feature of such Certificates.
The Certificate Insurer .........._________ (the "Certificate Insurer"). See
"The Certificate Insurer and the
Certificate Insurance Policy" in this
Prospectus Supplement.
Certificate Insurance Policies ...The Certificate Insurer will issue two
Certificate Guaranty Insurance Policies
(the "Certificate Insurance Policies")
one with respect to the Class A-1
Certificates and one with respect to the
Class A-2 Certificates, the Class A-3
Certificates and the Class A-4
Certificates, pursuant to which it will
irrevocably and unconditionally guaranty
payment on each Remittance Date of
Insured Payments to the Trustee for the
benefit of the Holders of the related
classes of Class A Certificates. On any
Remittance Date, the Certificate Insurer
will generally be required to make
available to the Trustee the amount, if
any, by which the Class A-1 Credit
Enhancement Distribution Amount or Group
II Credit Enhancement Distribution Amount
exceeds amounts on deposit in and
available to be withdrawn from the
Reserve Fund (including any amounts
available to be drawn on a letter of
credit). See "Description of the
Certificates-- Reserve Account." The
Certificate Insurance Policy does not
guarantee the Class A Certificates any
specified rate of prepayments. A payment
by the Certificate Insurer under either
of the Certificate Insurance Policies is
referred to herein as an "Insured
Payment." The Certificate Insurer will be
entitled to reimbursement for all Insured
Payments together with interest thereon.
See "The Certificate Insurance Policies
and the Certificate Insurer" in this
Prospectus Supplement.
[Servicing of the Loans ..........The Servicer has agreed to service the Loans
on a "scheduled/scheduled" basis (i.e.,
the Servicer is responsible for advancing
scheduled payments of interest and
scheduled payments of principal to the
extent
- --------------------------------------------------------------------------------
S-17
<PAGE>
- --------------------------------------------------------------------------------
described in "Summary Terms of the
Certificates--Periodic Advances" below)
in accordance with the Pooling and
Servicing Agreement and to cause the
Loans to be serviced with the same care
as it customarily employs in servicing
and administering Loans for its own
account in accordance with accepted
mortgage servicing practices of prudent
lending institutions and giving due
consideration to the Certificate
Insurer's and the Certificateholders'
reliance on the Servicer.]
Periodic Advances ................Subject to the Servicer's determination that
such action would not constitute a
Nonrecoverable Advance (as defined
herein), the Servicer is required to
deposit into the Trustee Collection
Account no later than the close of
business on the third Business Day prior
to the related Remittance Date (such day,
the "Determination Date") an amount equal
to the sum of (a) Monthly Payments on
each Loan due by the related Due Date but
not received by the Servicer as of the
close of business on the related
Determination Date, net of the Servicing
Fee and (b) 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 interest
on the Principal Balance of the Loan
related to such REO Property at the
related Mortgage Interest Rate, net of
the Servicing Fee, for the related Due
Period for the related Loan over the net
income from the REO Property to be
transferred to the Certificate Account
for such Remittance Date pursuant to the
Pooling and Servicing Agreement (the
"Periodic Advance"). Such Periodic
Advances by the Servicer are reimbursable
to the Servicer subject to certain
conditions and restrictions and are
intended to provide both sufficient funds
for the payment of interest to the
Holders of the Class A Certificates and
to pay the premium due the Certificate
Insurer. In the event that,
notwithstanding the Servicer's good faith
determination at the time such Periodic
Advance was made that it would not be a
Nonrecoverable Advance, such Periodic
Advance becomes a Nonrecoverable Advance,
the Servicer will be entitled to
reimbursement therefor from the _________
REMIC. See "Description of the
Certificates-Payments on the Loans" in
this Prospectus Supplement.
Prepayment Interest Shortfalls ...Not later than the close of business on the
Business Day immediately following each
Determination Date, the Servicer is
required to remit to the Trustee
Collection 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 and shall not have the right
to reimbursement therefor (the
"Compensating Interest"). With respect to
any Remittance Date and any Loan, the
"Prepayment Interest Shortfall" will be
an amount equal to the excess,
- --------------------------------------------------------------------------------
S-18
<PAGE>
- --------------------------------------------------------------------------------
if any, of (a) _____ days' interest on
the outstanding Principal Balance of such
Loan at a per annum rate equal to the
related Mortgage Interest Rate (or at
such lower rate as may be in effect for
such Loan because of application of the
Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Civil Relief
Act"), any reduction as a result of a
bankruptcy proceeding (a "Deficient
Valuation") and/or any reduction by a
court of the monthly payment due on such
Loan (a "Debt Service Reduction")), minus
the rate at which the Servicing Fee is
calculated, over (b) the amount of
interest actually remitted by the
Mortgagor in connection with such
principal prepayment in full less the
Servicing Fee for such Loan in such
month.
Servicing Advances ...............Subject to the Servicer's determination that
such action would not constitute a
Nonrecoverable Advance and that a prudent
mortgage lender would make a like advance
if it or an affiliate owned the related
Loan, the Servicer is required to advance
amounts with respect to the Loans
("Servicing Advances") constituting
"out-of-pocket" costs and expenses
relating to (a) the preservation and
restoration of the Mortgaged Property,
(b) enforcement proceedings, including
foreclosures, (c) expenditures relating
to the purchase or maintenance of a first
lien not included in the _________ REMIC
on the Mortgaged Property, and (d)
certain other customary amounts described
in the Pooling and Servicing Agreement.
Such Servicing Advances by the Servicer
are reimbursable to the Servicer subject
to certain conditions and restrictions.
In the event that, notwithstanding the
Servicer's good faith determination at
the time such Servicing Advance was made,
that it would not be a Nonrecoverable
Advance, in the event such Servicing
Advance becomes a Nonrecoverable Advance,
the Servicer will be entitled to
reimbursement therefor from the _________
REMIC.
Servicing Fee ....................The Servicer is entitled to a servicing fee
of _____% per annum of the Principal
Balance of each Loan (the "Servicing
Fee"), calculated and payable monthly
from the interest portion of Monthly
Payments, Net Liquidation Proceeds and
certain other proceeds. In the case that
_________ is no longer acting as
Servicer, the Successor Servicer will be
entitled to a Servicing Fee of ____% per
annum of the Principal Balance of each
Loan.
Optional Termination by the
Servicer or Seller ............The Servicer or Seller may, at its option
(and if such option is not exercised by
the Servicer or the Seller, the
Certificate Insurer may, at its option)
repurchase all but not less than all of
the Loans in the related Group on any
date on which the Class A-1 Principal
Balance, with respect to Group I or the
sum of the Class A-2 Principal Balance,
the Class A-3 Principal Balance and the
Class A-4 Principal Balance, with respect
to Group II, is less than ____% of the
sum of (x) the aggregate Trust Balances
of the Loans in the related Group as of
the Cut-Off Date, and (y) the Original
Group I Pre-Funded Amount or the Original
- --------------------------------------------------------------------------------
S-19
<PAGE>
- --------------------------------------------------------------------------------
Group II Pre-Funded Amount, as
applicable, by purchasing from the
_________ REMIC on the next succeeding
Remittance Date, all of the property in
such Group at a price equal to the sum of
(a) the greater of (i) _____% of the
aggregate Trust Balances of each
outstanding Loan in such Group and each
REO Property acquired in respect of a
Loan in such Group and (ii) the fair
market value (disregarding accrued
interest) of the Trust Balances of such
Loans and such REO Properties, determined
as the average of three written bids
(copies of which are to 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 Loans and REO
properties, (b) the greater of (i) the
aggregate amount of accrued and unpaid
interest on the Trust Balances of the
Loans in such Group through the related
Due Period and (ii) _____ days' accrued
interest thereon computed at a rate equal
to the related Mortgage Interest Rate, in
each case net of the Servicing Fee, and
(c) any unreimbursed amounts due to the
Certificate Insurer under the Pooling and
Servicing Agreement and any accrued and
unpaid Insured Payments.
See "Servicing of the Loans--Termination;
purchase of Loans" herein.
Trustee .........................._________, a _________, with offices located
at _________. See "The Trustee" in this
Prospectus Supplement.
ERISA Considerations .............A fiduciary of any employee benefit plan or
other retirement arrangement subject to
the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or the
Code should carefully review with its
legal advisors whether the purchase or
holding of Class A Certificates could
give rise to a transaction prohibited or
not otherwise permissible under ERISA or
the Code. The U.S. Department of Labor
has issued an individual exemption,
Prohibited Transaction Exemption 90-32,
to the Underwriter (the "Exemption"),
which generally exempts from the
application of certain of the prohibited
transaction provisions of ERISA, and the
excise taxes imposed on such prohibited
transactions by Section 4975(a) and (b)
of the Code and Section 502(i) of ERISA,
transactions relating to the purchase,
sale and holding of pass-through
certificates such as the Class A
Certificates and the servicing and
operation of asset pools such as the
_________ REMIC, provided that certain
conditions are satisfied. Prior to the
reduction of the Pre-Funded Amount for
the related Group to zero, the purchase
or holding of Class A Certificates by a
fiduciary of any employee benefit plan or
other retirement arrangement subject to
the ERISA, or the Code could give rise to
a transaction prohibited or not otherwise
permissible under ERISA or the Code.
- --------------------------------------------------------------------------------
S-20
<PAGE>
- --------------------------------------------------------------------------------
Accordingly, prior to such reduction, the
assets of such plans or arrangements may
not be used to purchase the Class A
Certificates. See "ERISA Considerations"
in this Prospectus Supplement.
Legal Investment .................The Class A Certificates will not constitute
"mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984.
Federal Income Tax Status ........An election will be made to treat Group I
and Group II as a single real estate
mortgage investment conduit (a "REMIC")
for federal income tax purposes. The
Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates
and the Class A-4 Certificates will be
designated as the regular interests in
the _________ REMIC and the Class R
Certificates will be designated as the
residual interest in the _________ REMIC.
The Class A Certificates generally will
be treated as newly originated debt
instruments for federal income tax
purposes. Beneficial Owners of the Class
A Certificates will be required to report
income thereon in accordance with the
accrual method of accounting.
In addition, if the Class A Certificates
are issued with original issue discount
for federal income tax purposes, such
event generally will result in
recognition of some taxable income in
advance of the receipt of the cash
attributable to such income.
See "Certain Federal Income Tax
Considerations" in this Prospectus
Supplement and "Certain Federal Income
Tax Consequences --REMIC Securities" in
the Prospectus.
Certificate Ratings ..............It is a condition to the issuance of the
Class A Certificates that the Class A
Certificates shall have been rated not
lower than [AAA] by [Standard & Poor's
Ratings Group] ("Standard & Poor's") and
[Aaa] by [Moody's Investors Service]
("Moody's") based on the presence of the
Certificate Insurance Policies. A
security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating
organization. The ratings do not address
the possibility that Class A
Certificateholders may suffer a lower
than anticipated yield. See "Ratings" in
this Prospectus Supplement and
"Prepayment and Yield Considerations" in
this Prospectus Supplement.
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S-21
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Class A Certificates.
Underwriting Standards and Potential Delinquencies
_________ was incorporated as an _______corporation in ______of _____and
has been in the home equity lending business since _____. The underwriting
standards for the Loans have been developed by _________ ("_________ _________")
and have been audited to confirm compliance with those standards.
[ ]
Geographic Concentration
[ ]
Decline in Real Estate Values
No assurance can be given that the values of the Mortgaged Properties have
remained or will remain at their levels as of the dates of origination of the
related Loans. If the residential real estate market should experience an
overall decline in property values such that the outstanding balances of the
Loans become equal to or greater than the value of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses on the Mortgaged
Properties could be higher than losses now generally experienced in the mortgage
lending industry.
Risk of Loan Yield Reducing Class A-1 Pass-Through Rate
The Class A-1 Pass-Through Rate is based upon the value of an index
(one-month LIBOR) which is different from the value of the prime rate applicable
to the Loans, as described under "The Loans" herein. The Loans adjust monthly
based upon the highest prime rate as published in the "Money Rates" section of
The Wall Street Journal on the last Business Day in the month whereas the
Pass-Through Rate on the Class A-1 Certificates adjusts monthly based upon a
one-month LIBOR index, limited by the Weighted Average Rate Cap. Consequently,
the actual Class A-1 Pass-Through Rate for any Remittance Date may not equal
what the Class A-1 Pass-Through Rate for such Remittance Date would have been
without regard to the Weighted Average Rate Cap. In addition, one-month LIBOR
and the prime rate may respond to different economic and market factors. Also,
the Loans indexed to the prime rate are generally subject to specified Lifetime
Rate Caps and Lifetime Rate Floors. Thus, it is possible, for example, that
one-month LIBOR may rise during periods in which the prime rate applicable to
the Loan is stable or is falling or that, even if both one-month LIBOR and the
prime rate rise during the same period, one-month LIBOR may rise much more
rapidly than the applicable prime rate. See "Interest; Class A-1 Pass-Through
Rate" in the Summary to this Prospectus Supplement and "Description of the
Certificates--Calculation of LIBOR" and "--Weighted Average Rate Cap."
The Subsequent Loans and the Pre-Funding Account
If the principal amount of eligible HELOCs or HELs available during the
Pre-Funding Period and sold to the Trust is less than _____% of the Original
Pre-Funded Amount allocated to Group I or Group II, respectively, the Depositor
will have insufficient Loans to sell to the Trust on the Subsequent Transfer
Dates, thereby resulting in prepayments of principal to Holders of the related
class of Class A Certificates as described herein. See "Social, Economic and
Other Factors" below. In addition, any conveyance of Subsequent Loans is subject
to the following conditions, among others: (i) each such Subsequent Loan must
satisfy certain specified representations and warranties; (ii) the Depositor
will not select such Subsequent Loans in a manner that it believes is adverse to
the interests of the Holders of the Class A Certificates or the Certificate
Insurer; (iii) the Depositor will deliver certain opinions of counsel with
respect to the validity of the conveyance of such Subsequent Loans and tax and
corporate enforceability matters; and (iv) as of the Subsequent Cut-Off Date,
the Loans at that time, including the Subsequent Loans to be conveyed by the
Depositor as of such Subsequent Cut-Off Date, will satisfy the criteria set
forth in the Pooling and Servicing Agreement, as described herein under
"Description of the Loans -- Conveyance of Subsequent Loans."
Amounts on deposit in the Pre-Funding Account will be invested in Permitted
Investments. To the extent that amounts on deposit in the Pre-Funding Account
and allocated to Group I or Group II have not been fully applied to the purchase
of Subsequent Loans by the end of the Pre-Funding Period, such remaining amount
will be applied as a prepayment of principal paid to the Holders of the related
Class A Certificates on the Remittance Date
S-22
<PAGE>
following the end of the Pre-Funding Period (in no event later than the
___________ Remittance Date). The amount of any such prepayment will be applied
to the Class A Certificates in accordance with the "sequential pay" feature, if
any, of such Certificates. Although no assurances can be given, it is
anticipated by the Depositor that the principal amount of Subsequent Loans sold
to the Trust will require the application of substantially all amounts on
deposit in the Pre-Funding Account and that there will be no material principal
prepayment to the Holders of the Class A Certificates.
Each Subsequent Loan must satisfy the eligibility criteria referred to
above at the time of its addition. However, Subsequent Loans may have been
originated by _________ or purchased by the Depositor using credit criteria
different from those which were applied to other Loans and may be of a different
credit quality. Therefore, following the transfer of Subsequent Loans to the
Trust, the aggregate characteristics of the Loans then held in the Trust Fund
may vary from those of the Loans initially included in the Trust. See
"Description of the Loans -- Conveyance of Subsequent Loans."
Social, Economic and Other Factors
The ability of the Trust Fund to invest in Subsequent Loans is largely
dependent upon whether the mortgagors thereunder perform their payment and other
obligations required by such Subsequent Loans in order that such Subsequent
Loans meet the specified requirements for transfer on a Subsequent Transfer
Date. The performance by such mortgagors may be affected as a result of a
variety of social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. However, the Depositor is unable to determine and has no
basis to predict whether or to what extent economic or social factors will
affect the performance by such mortgagors and the availability of Subsequent
Loans.
DESCRIPTION OF THE LOANS
General
[The statistical information regarding the Loans which is presented in this
Prospectus Supplement is based upon the characteristics of the HELOCs to be
included in Group I and the HELs to be included in Group II as of the close of
business on _________ (the "Cut-Off Date"). Unless otherwise indicated, all
percentages set forth in this Prospectus Supplement are based upon the aggregate
Principal Balances of the Loans in the respective Group as of the Cut-Off Date,
which was $_____ with respect to Group I and $_____ with respect to Group II.]
[The HELOCs to be included in Group I of the _________ REMIC are evidenced
by loan agreements (each, a "Loan Agreement") secured by mortgages or deeds of
trust (of which approximately ____% by Cut-Off Date principal balance are second
liens and the remainder are first liens) (the "Mortgages") on [ ] properties
(the "Mortgaged Properties") and have the additional characteristics described
below.]
[The HELOCs have original terms to stated maturity of approximately _____
years. Each HELOC was selected for inclusion in the REMIC _________ from among
those that met the following criteria as of the Cut-Off Date: (i) a current
Principal Balance of no less than $____________, (ii) not more than __days past
due and no more than _____% of the Loans more than _____ days past due and (iii)
not less than ___months to contractual maturity. The HELOCs were selected by
_________ from the Loans in _________ _________'s portfolio that met the above
criteria using a selection process believed by _________ not to be adverse to
the Certificateholders, the Certificate Insurer or _________ _________. As of
the Cut-Off Date, the average unpaid principal balance of the HELOCs was
approximately $_____. As of the Cut-Off Date, the weighted average Gross Margin
of the HELOCs was approximately __% and the weighted average Mortgage Interest
Rate of the HELOCs was ______%. The weighted average "Combined Loan-to-Value
Ratio" (calculated by dividing the sum of (x) any outstanding first mortgage
balance as of the date the HELOC was originated plus (y) the maximum available
credit under the HELOC as of the Cut-Off Date, by the appraised value of such
Mortgaged Property at origination) of the HELOCs was approximately ____%. As of
the Cut-Off Date, the weighted average maximum credit limit utilization rate
(computed by dividing the aggregate Principal Balance for the HELOCs by the
aggregate credit limit of the HELOCs) was approximately ______%. The weighted
average remaining term to maturity was _____ months and the latest scheduled
maturity of any HELOC is ________; however the actual date on which any Loan is
paid in full may be earlier than the stated maturity date due to unscheduled
payments of principal.]
S-23
<PAGE>
[Each of the Loans is subject to a due-on-sale clause. See "Certain Legal
Aspects of the Loans and Contracts--Due on Sale Clauses in Mortgage Loans" in
the Prospectus.]
[The Mortgage Interest Rate on each HELOC will adjust monthly on each
applicable Interest Adjustment Date to a rate equal to the sum, which rate will,
in the principal repayment period beginning after the first ten years of the
HELOC, be rounded up to the nearest one-eighth of one percentage point (_____
basis points), of (i) the highest prime rate as published in the "Money Rates"
section of The Wall Street Journal on the last Business Day of the month
immediately preceding the related Interest Adjustment Date Bank plus (ii) a
fixed percentage (the "Gross Margin"), which total is generally subject to a
specified maximum and minimum lifetime Mortgage Interest Rates ("Lifetime Rate
Caps" and "Lifetime Rate Floors ," respectively) as specified in the related
Mortgage Note. Due to the application of the Lifetime Rate Caps and Lifetime
Rate Floors, the Mortgage Interest Rate on any HELOC, as adjusted on any related
Interest Adjustment Date, may not equal the sum of the related prime rate and
the Gross Margin. The Due Date is the ___th day of the month for all of the
HELOCs. Each HELOC requires the related Mortgagor to make current interest
payments during the life of the HELOCs.]
[Effective with the first payment due on a HELOC after the tenth
anniversary date of the date of origination thereof in the case of substantially
all HELOCs, on each related Interest Adjustment Date, the Monthly Payment will
be adjusted to an amount that will amortize the outstanding principal balance of
the HELOC over its remaining term. The weighted average number of months from
the Cut-Off Date to the first adjustment of the monthly payment such that the
resulting amount will amortize the outstanding principal balance of the HELOCs
over the remaining term is ____months.]
[Based on information supplied by the Mortgagors in connection with their
loan applications at origination, ___of the Mortgaged Properties securing the
HELOCs, which secure approximately ____% of the outstanding principal balance of
the HELOCs, will be owner occupied primary residences and ______ of the
Mortgaged Properties securing the HELOCs, which secure approximately ______% of
the outstanding principal balance of the HELOCs, will be non-owner occupied or
second homes.]
[The HELs to be included in Group II of the _________ REMIC are evidenced
by promissory notes secured by mortgages or deeds of trust (of which
approximately _____% by Cut-Off Date principal balance are second liens and the
remainder are first liens) (the "Mortgages") on one- to four-family residential
properties (the "Mortgaged Properties") and to have the additional
characteristics described below.]
[Approximately ______% of the HELs have original terms to stated maturity
of approximately _____ years or less and approximately _____% of the HELs have
original terms to stated maturity of approximately _____ years or less. Each HEL
was selected for inclusion in the REMIC _________ from among those that met the
following criteria of the applicable Cut-Off Date: (i) a current Principal
Balance of no less than $_____, (ii) not more than _____ days past due and no
more than _____% of the Loans more than _____ days past due and (iii) not less
than _____ months to contractual maturity. The HELs were selected by _________
from the Loans in the _________'s portfolio that met the above criteria using a
selection process believed by _________ not to be adverse to the
Certificateholders, the Certificate Insurer or _________ _________. As of the
Cut-Off Date, the average unpaid principal balance of the HELs was approximately
$_____. As of the Cut-Off Date, the weighted average Mortgage Interest Rate of
the HELs was _____%. The weighted average "Combined Loan-to-Value Ratio"
(calculated by dividing the sum of (x) any outstanding first mortgage balance as
of the date of origination of the related Loan plus (y) the Trust Balance under
the HEL as of the Cut-Off Date, by the appraised value of such Mortgaged
Property at origination) of the HELs was approximately _____%. The weighted
average remaining term to stated maturity was approximately _____ months and the
latest scheduled maturity of any HEL is __________; however the actual date on
which any Loan is paid in full may be earlier than the stated maturity date due
to unscheduled payments of principal.]
[Each of the Loans is subject to a due-on-sale clause. See "Certain Legal
Aspects of the Loans and Contracts-Enforceability of Certain Provisions" in the
Prospectus.]
[Based on information supplied by the Mortgagor in connection with their
loan applications at origination, _____ of the Mortgaged Properties securing the
HELs, which secure approximately _____% of the outstanding principal balance of
the HELs, will be owner occupied primary residences and _____ of the Mortgaged
Properties securing the HELs, which secure approximately _____% of the
outstanding principal balance of the HELs, will be non-owner occupied or second
homes.]
S-24
<PAGE>
Solicitation Process
[ ]
Underwriting Criteria
[ ]
Origination Process
The Loans were underwritten by _________ in accordance with underwriting
standards developed in conjunction with _________ _________ which approves any
variance from such standards and makes the extension of credit.
Loan Closing Procedures
[ ]
Set forth below is a description of certain additional characteristics of
the Loans as of the Cut-Off Date (except as otherwise indicated). Dollar amounts
and percentages may not add up to totals due to rounding.
Mortgage Interest Rates of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Gross Mortgage Interest Rates Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average Mortgage Interest Rate of the HELOCs will be
approximately _____% per annum.
S-25
<PAGE>
Gross Margin of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Gross Margin Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average Gross Margin of the HELOCs will be approximately
_____% per annum.
S-26
<PAGE>
Lifetime Rate Cap of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Lifetime Rate Floor Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average Lifetime Rate Cap of the HELOCs will be approximately
_____% per annum.
S-27
<PAGE>
Lifetime Rate Floor of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Lifetime Rate Floor Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average Lifetime Rate Floor of the HELOCs will be
approximately _____% per annum.
S-28
<PAGE>
Remaining Term to Maturity of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Remaining Months to Mortgage Trust Balance Trust Balance of
Maturity Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The calculated weighted average remaining term of the HELOCs will be
approximately _____ months.
S-29
<PAGE>
Year of Origination of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Year of Origination Loans of all HELOCs HELOCs
- -------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____ _____% $
================================================================================
The earliest month and year of origination of any HELOC is _____ and the
latest month and year of origination will be ______.
Combined Loan-to-Value Ratios of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Combined Loan-to-Value Range Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____ _____% $
================================================================================
S-30
<PAGE>
The minimum and maximum Combined Loan-to-Value Ratios of the HELOCs as of
the Cut-Off Date are approximately _____% and _____%, respectively, and the
weighted average Combined Loan-to-Value Ratio as of the Cut-Off Date of the
HELOCs is approximately _____%. The "Combined Loan-to-Value Ratio" of a HELOC as
of the Cut-Off Date is the ratio, expressed as a percentage, equal to the sum of
any outstanding first mortgage balance as of the date of origination plus the
maximum available amount of credit under the HELOC as of the Cut-Off Date
divided by the appraised value of the Mortgaged Property. See "The Trust Funds--
The Loans" in the Prospectus.
Maximum Credit Limit Utilization Rates of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Range of Maximum Credit Mortgage Trust Balance Trust Balance of
Limit Utilization Rate Loans of all HELOCs HELOCs
- --------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
As of the Cut-Off Date, the weighted average maximum credit limit
utilization rate of the HELOCs was _____%.
S-31
<PAGE>
Second Mortgage Ratios of HELOCs(1)(2)
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Range of Cut-Off Date Mortgage Trust Balance Trust Balance of
Second Mortgage Ratios Loans of all HELOCs HELOCs
- -------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
- ------------
(1) The Second Mortgage Ratio of a HELOC is the ratio (expressed as a
percentage) of the Credit Limit of the HELOC to the sum of such Credit Limit and
the outstanding balance of any senior mortgage computed as of the date of the
origination of the Loan.
(2) As of the Cut-Off Date, the weighted average Second Mortgage Ratio of the
HELOCs was _____%.
S-32
<PAGE>
Current Loan Principal Balances of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Current Loan Principal Balance Loans of all HELOCs HELOCs
- ------------------------------ --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
As of the Cut-Off Date, the average unpaid principal balance of the HELOCs
will be approximately $_____.
S-33
<PAGE>
Mortgaged Properties Securing HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Property Type Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
S-34
<PAGE>
Geographic Distribution of Mortgaged Properties Securing HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
State Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
No more than approximately _____% of the HELOCs will be secured by
Mortgaged Properties located in any one zip code.
S-35
<PAGE>
FICO Scores of HELOCs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Score Loans of all HELOCs HELOCs
- ---------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average FICO score of HELOCs is _____.
S-36
<PAGE>
Mortgage Interest Rates of HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Mortgage Interest Rates Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average Mortgage Interest Rate of the HELs will be
approximately _____% per annum.
S-37
<PAGE>
Remaining Term to Maturity of HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Remaining Months to Mortgage Trust Balance Trust Balance of
Maturity Loans of all HELOCs HELOCs
- ---------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The calculated weighted average remaining term of the HELs will be _____
months.
S-38
<PAGE>
Year of Origination of HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Year of Origination Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The earliest month and year of origination of any HEL is _____ and the
latest month and year of origination will be ________.
S-39
<PAGE>
Combined Loan-to-Value Ratios of HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Combined Loan-to-Value Ratios Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The minimum and maximum Combined Loan-to-Value Ratios of the HELs as of the
Cut-Off Date are approximately _____% and _____%, respectively, and the weighted
average Combined Loan-to-Value Ratio as of the Cut-Off Date of the HELs is
approximately _____%. The "Combined Loan-to-Value Ratio" of a HEL as of the
Cut-Off Date is the ratio, expressed as a percentage, equal to the sum of any
outstanding first mortgage balance as of the date of origination plus the
Principal Balance of the HEL as of the Cut-Off Date divided by the appraised
value of the Mortgaged Property. See "The Trust Funds -- The Loans" in the
Prospectus.
S-40
<PAGE>
Original Loan Principal Balances of HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Original Loan Mortgage Trust Balance Trust Balance of
Principal Balance Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
As of the Cut-Off Date, the average unpaid principal balance of the HELs
will be approximately $_____.
S-41
<PAGE>
Mortgaged Properties Securing HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Property Type Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
S-42
<PAGE>
Geographic Distribution of Mortgaged Properties Securing HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
State Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
No more than approximately _____% of the HELs will be secured by Mortgaged
Properties located in any one zip code.
S-43
<PAGE>
FICO Scores of HELs
Percentage of
Cut-Off Date
Number of Aggregate Aggregate Unpaid
Mortgage Trust Balance Trust Balance of
Score Loans of all HELOCs HELOCs
- ----------------------------- --------- ------------- ----------------
- --------------------------------------------------------------------------------
Total _____% $
================================================================================
The weighted average FICO score of HELs is _____.
The information set forth in the preceding section "Description of the
Loans" has been based upon information provided by ________________ and
tabulated by the Depositor. None of the Depositor, the Trustee or the
Certificate Insurer make any representation as to the accuracy or completeness
of such information.
Conveyance of Subsequent Loans
The Pooling and Servicing Agreement permits the Trust Fund to acquire up to
$_____ aggregate principal balance of Subsequent Loans which are HELOCs and up
to $_____ aggregate principal balance of Subsequent Loans which are HELs.
Accordingly, the statistical characteristics of the Loans will vary as of any
Subsequent Cut-Off Date upon the acquisition of Subsequent Loans.
The obligation of the Trust to purchase the Subsequent Loans on a
Subsequent Transfer Date is subject to certain requirements designed to ensure
that following such purchase, the characteristics of the Loans in the aggregate
will not differ materially from the characteristics of those Loans which are
sold to the Trust on the Closing Date. The Pooling and Servicing Agreement will
provide that any of such requirements may be waived or modified in any respect
upon prior written consent of the Certificate Insurer. The Pooling and Servicing
Agreement will permit the Certificate Insurer in its sole discretion, to require
an increase in the Required Reserve Account Level as a condition to any such
consent.
S-44
<PAGE>
Mandatory Repurchase or Substitution of Loans
The Seller is required, with respect to Loans that are found by the Trustee
to have defective documentation, or in respect of which the Seller has breached
a representation or warranty, to repurchase such Loans or substitute such Loan
with a Qualified Substitute Loan. See "Prepayment and Yield Considerations" and
"Description of the Certificates--Assignment of Loans; Representations and
Warranties of the Seller" herein.
Delinquency and Foreclosure Experience
The following tables set forth information relating to the delinquency and
loan loss experience on the Loans in the Servicer's servicing portfolio for the
periods shown.
Delinquency and Foreclosure Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
At ______________ At ________________
------------------------------------------- -------------------------------------------
% of % of
% of Principal Principal % of Principal Principal
Delinquency Number Number Balance Balance Number Number Balance Balance
Status of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
- ----------- -------- -------- --------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
__ to __ days
__ to __ days
___ days
Foreclosure
Bankruptcy
Losses for Period
- ------------------------------------------------------------------------------------------------------------
TOTAL
</TABLE>
<TABLE>
<CAPTION>
At _______________
-------------------------------------------
% of
% of Principal Principal
Delinquency Number Number Balance Balance
Status of Loans of Loans of Loans of Loans
- ----------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
__ to __ days
__ to __ days
___ days
Foreclosure
Bankruptcy
Losses for Period
- --------------------------------------------------------------
TOTAL
</TABLE>
_________ commenced receiving applications for Loans under its lending
programs only in ____and _________ _________ funded its first loan in ______.
Accordingly, the Servicer has insufficient historical delinquency, bankruptcy,
foreclosure or default experience that may be referred to for purposes of
estimating the future delinquency and loss experience of Loans similar to the
Loans being sold to the Trust.
[DETAILS OF SELLER]
[DETAILS OF SERVICER]
General
________________ ("_________") is a ___________corporation.
[Description of Servicer]
The following table sets forth certain information regarding the principal
balance of one-to four-family residential Loans included in the Servicer's
servicing portfolio. The Servicer's servicing portfolio includes Loans held for
sale and Loans held for investment (including Loans held for ________________)
which were originated or acquired by the Servicer's mortgage banking operations.
S-45
<PAGE>
The Servicer's Servicing Portfolio
______ Months
Year Ended Year Ended Ending
---------- ---------- -------------
Beginning servicing portfolio
Add:
Loans originated or acquired
Deduct: Prepayments (net of
subsequent draws)
Sale of servicing rights
Loans sold, servicing released
Ending servicing portfolio
Number of loans serviced
Average loan size
The information set forth in this section concerning the Servicer has been
provided by ________________. None of the Depositor, the Trustee or the
Certificate Insurer make any representation as to the accuracy or completeness
of such information.
ALLOCATIONS OF PAYMENTS ON THE HELOCS
BETWEEN THE TRUST BALANCES AND THE ADDITIONAL BALANCES
The Loans have been sold and assigned to the Trust. The _________ REMIC is
designated to include the right to receive payments calculated in an amount
equal to the aggregate outstanding principal balance of the Loans as of the
close of business on the Cut-Off Date, and the right to receive all payments of
interest thereon after the Cut-Off Date (net of Servicing Fees). Although each
Loan Agreement could evidence more than the Trust Balance, whether arising
subsequent to the Cut-Off Date or prior thereto, the balance allocated to the
_________ REMIC and allocated to the Class A-1 Certificates will be established
as of the Cut-Off Date. Future payments on each Loan will be allocated between
the Class A-1 Certificates representing the Trust Balances and the Additional
Balances in the following manner:
(a) Payments of interest by the Mortgagor on a Loan with respect to
which an Additional Balance has been drawn will be allocated on a pro rata
basis between the Trust Balance thereof and such Additional Balance in
proportion to the interest owed on each balance.
(b) Any prepayments of principal received in respect of a Loan and any
remaining portion of any Loan payment which represents the principal
portion of the Monthly Payment (including any Insurance Proceeds which are
not Liquidation Proceeds and are applied in reduction of a principal
balance of the Loan) will be applied first to the Trust Balance of such
Loan until such Trust Balance is reduced to zero, and then to any
Additional Balance of such Loan arising from advances to the Mortgagor
subsequent to the Cut-Off Date. When the Trust Balance of a particular Loan
has been reduced to zero in this manner the Loan will be released by the
Trustee to the holder of the certificate issued by the Trustee (the
"Additional Certificate") representing the interest in any Additional
Balances.
(c) Net Liquidation Proceeds received on a Defaulted Loan will be
allocated first to unpaid interest in the manner described above. Any
remaining proceeds will be allocated on a pro rata basis to the Trust
Balances and the Additional Balances according to the ratio of the Trust
Balance to such Additional Balance of such Defaulted Loan immediately prior
to such time as it became a Defaulted Loan.
S-46
<PAGE>
The Servicer will have the right to repurchase any HELOC on and after the
date upon which the Trust Balance of such HELOC equals zero.
On or prior to the Issue Date, the Trustee and the Certificate Insurer will
have received an opinion of the general counsel to _________ Financial
Corporation with respect to the enforceability of provisions in the Pooling and
Servicing Agreement regarding the application and administration of payments
under the Loan agreements requiring principal payments made on the Loans to be
allocated first to the earliest draws made thereon.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will be directly related to the rate
of payment of principal of the Loans in the related Group, including for this
purpose voluntary payment in full of Loans in the related Group prior to stated
maturity, liquidations due to defaults, casualties and condemnations, and
repurchases of or substitutions for Loans in the related Group by the Servicer
as required or permitted under the Pooling and Servicing Agreement or the
purchase and Sale Agreement.
The actual rate of principal prepayments on pools of Loans is influenced by
a variety of economic, tax, geographic, demographic, social, legal and other
factors and has fluctuated considerably in recent years. In addition, the rate
of principal prepayments may differ among pools of Loans at any time because of
specific factors relating to the Loans in the particular pool, including, among
other things, the age of the Loans, the geographic locations of the properties
securing the loans and the extent of the mortgagors' equity in such properties,
and changes in the mortgagors' housing needs, job transfers and employment.
Substantially, all of the Loans are prepayable by the related Mortgagors on
the Mortgage Notes without penalty.
The rate of prepayments with respect to conventional Loans has fluctuated
significantly in recent years. In general, if prevailing interest rates fall
significantly below the interest rates at the time of origination, Loans may be
subject to higher prepayment rates than if prevailing rates remain at or above
those at the time such Loans were originated. Conversely, if prevailing interest
rates rise appreciably above the interest rates at the time of origination,
Loans may experience a lower prepayment rate than if prevailing rates remain at
or below those at the time such Loans were originated. However, there can be no
assurance that the Loans will conform to the prepayment experience of
conventional Loans or to any past prepayment experience or any published
prepayment forecast. No assurance can be given as to the level of prepayments on
Loans that the _________ REMIC will experience.
As indicated above, if purchased at other than par, the yield to maturity
on a Class A Certificate will be affected by the rate of the payment of
principal of the Loans in the related Group. If the actual rate of payments on
the Loans in the related Group is slower than the rate anticipated by an
investor who purchases a Class A Certificate at a discount, the actual yield to
such investor will be lower than such investor's anticipated yield. If the
actual rate of payments on the Loans in the related Group is faster than the
rate anticipated by an investor who purchases a Class A Certificate at a
premium, the actual yield to such investor will be lower than such investor's
anticipated yield.
In addition, the rate of prepayments may vary as between HELOCs and HELs
and as between HELOCs with Additional Balances and without Additional Balances.
To the extent that HELOCs without Additional Balances prepay all or a portion of
the outstanding Principal Balance of such HELOCs, Class A-1 Certificateholders
may realize a significantly different yield on their investment than is
otherwise experienced by the holder of the Additional Certificate.
The following discussion assumes the characteristics set forth in the
tables below. For the purpose of this table, the Final Scheduled Maturity Date
for the Class A-1 Certificates is expected to be __________, which is -----
months after the final stated maturity date of the HELOC having the latest
maturity date, the Final Scheduled Maturity Date for the Class A-2 Certificates
is expected to be _________, which is the date _____ months after the date upon
which the Class A-2 Principal Balance would be reduced to zero assuming no
defaults and no prepayments on the HELs, the Final Scheduled Maturity Date for
the Class A-3 Certificates is expected to be _______, which is the date _____
months after the date upon which the Class A-3 Principal Balance would be
reduced to zero assuming no defaults and no prepayments on the HELs and the
Final Scheduled Maturity Date for the Class A-4 Certificates is expected to be
__________, which is _____ months after the final stated maturity date
S-47
<PAGE>
of the HEL having the latest maturity date. The weighted average life of the
Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class
A-4 Certificates is likely to be shorter than would be the case if payments
actually made on the HELOCs or HELs, respectively, conformed to the foregoing
assumption, and the final Remittance Date with respect to any of the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates or Class A-4
Certificates could occur significantly earlier than the Final Scheduled Maturity
Date, because (i) prepayments (including, for this purpose, prepayments
attributable to foreclosure, liquidation, repurchase and the like) on the HELOCs
or HELs are likely to occur, (ii) three and fifteen months have been added to
obtain the Final Scheduled Maturity Dates for the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, as
applicable, and (iii) the Servicer, the Seller or the Certificate Insurer may
cause a liquidation of Group I when the aggregate outstanding Class A-1
Principal Balance is less than _____% of the sum of the aggregate Trust Balances
of the HELOCs as of the Cut-Off Date and the Original Group I Pre-Funded Amount
or a liquidation of Group II when the sum of the aggregate outstanding Class A-2
Principal Balance, Class A-3 Principal Balance and Class A-4 Principal Balance
is less than _____% of the sum of the aggregate Trust Balances of the HELs as of
the Cut-Off Date and the Original Group II Pre-Funded Amount.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security is scheduled to be repaid to an investor. The weighted average
life of the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates, and the Class A-4 Certificates will be influenced by the rate at
which principal of the HELOCs and HELs, respectively, is paid, which may be in
the form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes liquidations due to default). Prepayments on Loans are
commonly measured relative to a prepayment standard or model. The model used in
this Prospectus Supplement is a prepayment assumption (the "Prepayment
Assumption") which represents an assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of Loans for the life of
such Loans. The tables relating to the Class A-1 Certificates are priced using
constant prepayment rate ("CPR") assumption. With respect to the Class A-1
Certificates, the "_____% Prepayment Assumption" assumes a CPR of _____% per
annum of the then outstanding principal balance of the HELOCs. The tables
relating to the Class A-2 Certificates, the Class A-3 Certificates and the Class
A-4 Certificates are priced using Home Equity Prepayment ("HEP") assumption. HEP
assumes that a pool of loans prepays in the first month at a CPR that
corresponds in CPR to one-tenth the given HEP percentage and increases by an
additional one-tenth each month thereafter until the tenth month, where it
remains at a CPR equal to the given HEP percentage. With respect to the Class
A-2 Certificates, the Class A-3 Certificates and the Class A-4 Certificates, the
"_____% Prepayment Assumption" assumes a CPR of _____% per annum of the then
outstanding principal balance of the HELs in the first month of the life of such
HELs and an additional _____% per annum in each month thereafter until the tenth
month. Beginning in the tenth month and in each month thereafter during the life
of the respective HELs, the _____% Prepayment Assumption assumes CPR of _____%
per annum each month.
Neither the Prepayment Assumption nor any other prepayment model or
assumption purports to be an historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of Loans,
including the Loans included in the Trust. Variations in the actual prepayment
experience and the balance of the Loans that prepay may increase or decrease
each weighted average life shown in the following tables. Such variations may
occur even if the average prepayment experience of all such Loans equals any of
the specified percentages of the Prepayment Assumption.
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<PAGE>
The following table regarding the Class A-1 Certificates has been prepared
assuming that (i) the information with respect to the HELOCs is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Weighted Mortgage Original Remaining
Average Interest Rate Term to Term to Interest Only
Aggregate Mortgage (Net of Servicing Maturity Maturity Period
Trust Balance Interest Rate Fee) (in months) (in months) (in months)
- ------------- ------------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
</TABLE>
and regarding the Class A-2 Certificates, the Class A-3 Certificates and Class
A-4 Certificates have been prepared assuming (ii) that the information with
respect to the HELs is as follows:
Weighted
Average
Weighted Mortgage Original Remaining
Average Interest Rate Term to Term to
Aggregate Mortgage (Net of Servicing Maturity Maturity
Trust Balance Interest Rate Fee) (in months) (in months)
- ------------- ------------- ----------------- ----------- -----------
(iii) payment dates on each HELOC and HEL are the ___th day of the month; (iv)
all scheduled monthly payments on the HELOCs and on the HELs are made in a
timely fashion; (v) all prepayments represent prepayments in full and there are
no Prepayment Interest Shortfalls; (vi) distributions on the Class A-1
Certificates, the Class A-2 Certificates, the Class A-3 Certificates and the
Class A-4 Certificates are made on the ___th day of each month, commencing on
_________; (vii) the Issue Date is _________; (viii) the HELOCs and HELs will
prepay at the indicated percentages of the Prepayment Assumption set forth below
and (ix) with regard to the weighted average lives none of the Servicer, the
Seller or the Certificate Insurer exercises its option to terminate Group I when
the aggregate outstanding Class A-1 Principal Balance is reduced to less than
_____% of the sum of (A) the aggregate Trust Balances of the HELOCs as of the
Cut-Off Date and (B) the Original Group I Pre-Funded Amount or its option to
terminate Group II when the sum of the aggregate outstanding Class A-2 Principal
Balance, Class A-3 Principal Balance and Class A-4 Principal Balance is reduced
to less than _____% of the sum of (A) the aggregate Trust Balances of the HELs
as of the Cut-Off Date and (B) the Original Group II Pre-Funded Amount.
Based upon the foregoing assumptions, certain of which may not reflect
actual experience, the following tables indicate the projected weighted average
life of the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates and the Class A-4 Certificates at various percentages of the
Prepayment Assumption. As used in the table below, _____% Prepayment Assumption
assumes prepayment rates equal to _____% of the Prepayment Assumption, i.e., no
prepayments on the Loans having the characteristics described below.
Correspondingly, _____% Prepayment Assumption assumes a CPR equal to _____% of
the related Prepayment Assumption, _____% Prepayment Assumption assumes a _____%
increase in each of the rates described above; and so forth. The Prepayment
Assumption does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool,
including the related Loans.
S-49
<PAGE>
Class A-1 Certificates
Weighted Average
Percentage of Life To Expected Maturity(2) Earliest Retirement
Prepayment Assumption Maturity (1) Date (2)(3)
- --------------------- ---------------- -------------------- ----------------
- ------------------
(1) The weighted average life of the Class A-1 Certificates is determined by
(a) multiplying the amount of each principal payment by the number of years
from the Issue Date to the related Remittance Date; (b) adding the results;
and (c) dividing the sum by the original Class A-1 Principal Balance.
(2) Calculated at the applicable percentage of the Prepayment Assumption.
(3) Determined assuming early retirement of the Class A-1 Certificates upon
termination of Group I on the Remittance Date following the first day of
the month in which the Class A-1 Principal Balance declines to a level less
than _____% of the aggregate initial principal balance of the HELOCs plus
the Original Group I Pre-Funded Amount.
(4) Pricing speed.
S-50
<PAGE>
Class A-2 Certificates
Weighted Average
Percentage of Life To
Prepayment Assumption Maturity (1) Expected Maturity(2)
- --------------------- ---------------- --------------------
Class A-3 Certificates
Weighted Average
Percentage of Life To
Prepayment Assumption Maturity (1) Expected Maturity(2)
- --------------------- ---------------- --------------------
Class A-4 Certificates
Weighted Average
Percentage of Life To
Prepayment Assumption Maturity (1) Expected Maturity(2)
- --------------------- ---------------- --------------------
- ---------------
(1) The weighted average lives of the Class A-2 Certificates, the Class A-3
Certificates and the Class A-4 Certificates are determined by (a) multiplying
the amount of each principal payment by the number of years from the Issue Date
to the related Remittance Date; (b) adding the results; and (c) dividing the sum
by the Original Class A-2 Principal Balance, the Original Class A-3 Principal
Balance or the Original Class A-4 Principal Balance, as applicable.
(2) Calculated at the applicable percentage of the Prepayment Assumption.
(3) Pricing speed.
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<PAGE>
(4) Determined assuming early retirement of the Class A-4 Certificates upon
termination of Group II on the Remittance Date following the first day of the
month in which the Class A-4 Principal Balance declines to a level less than
_____% of the aggregate initial principal balance of the HELs plus the Original
Group II Pre-Funded Amount.
There is no assurance that prepayments will occur or, if they do occur,
that they will occur at any percentage of the Prepayment Assumption.
The Pooling and Servicing Agreement provides that none of the Certificate
Insurer, the Trust Fund, _________ REMIC, the Trustee, the Depositor or the
Servicer will be liable to any Certificateholder or Holder for any loss or
damage incurred by such Certificateholder or Holder as a result of any
difference in the rate of return received by such Certificateholder or Holder as
compared to the applicable Pass-Through Rate, with respect to any Holder of
Class A Certificates upon reinvestment of the funds received in connection with
any premature repayment of principal on the Certificates, including without
limitation any such repayment resulting from any prepayment by the Mortgagor,
any liquidation of such Loan, or any repurchase of or substitution for any Loan
by the Servicer.
Mandatory Prepayment
The Original Pre-Funded Amount, funded from the proceeds of the sale of the
Class A Certificates may be used to acquire Subsequent Loans. The Original
Pre-Funded Amount will be allocated to Group I in an amount equal to $_____
which may be used only to purchase HELOCs or prepay Class A-1 Certificates and
to Group II in an amount equal to $_____ which may be used only to purchase
HELs, prepay Class A-2 Certificates, Class A-3 Certificates or prepay Class A-4
Certificates. In the event that, at the end of the Pre-Funding Period, not all
of either such amount has been used to acquire Subsequent Loans, then the
related Class A Certificates will be prepaid in part on the ____________
Remittance Date. Such amount will be allocated between the Class A-2
Certificates, the Class A-3 Certificates and the Class A-4 Certificates, if
applicable, in accordance with the "sequential pay" feature applicable to such
Certificates.
Prior to the investment of the Original Group I Pre-Funded Amount and the
Original Group II Pre-Funded Amount in Subsequent Loans, such amount will be
invested in one or more Permitted Investments. A "Permitted Investment" is any
of 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 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 _____ 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. Any Permitted Investment must mature no later than the Business Day
prior to the next Remittance Date.
Although no assurances can be given, it is anticipated by the Depositor
that the principal amount of Subsequent Loans sold to the Trust Fund will
require the application of substantially all the amount on deposit in the
Pre-Funding Account and that there should be no material principal prepaid to
the Holders of the Class A Certificates from amounts on deposit in the
Pre-Funding Account.
S-52
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Class A Certificates and Class R Certificates will represent interests
in certain segregated assets of the Trust Fund designated as the _________
REMIC. In addition to the Class A Certificates and Class R Certificates, the
Trust Fund will also issue the Additional Certificate. The Class R Certificates
have been designated as the single "residual interest" for purposes of the Code.
The Class R Certificates and the Additional Certificate are not being offered
hereby. Pursuant to the purchase and Sale Agreement, the Class R Certificates
and the Additional Certificate will be transferred to the Seller on the Issue
Date as part of the consideration for the transfer of the Loans to the Depositor
and the transfer of the Additional Balances on the Loans to the Trust Fund,
respectively.
Each Class A Certificate represents a certain fractional undivided
ownership interest in the _________ REMIC created and held pursuant to the
Pooling and Servicing Agreement described below, subject to the limits and the
priority of distribution described therein. The _________ REMIC consists of,
with respect to any Loan as to which a Trust Balance is still owing to such
REMIC, (a) the Trust Balances of the Loans, together with (i) all collections
thereon and proceeds thereof collected after the Cut-Off Date (other than
Monthly Payments due on each Loan up to and including any Due Date occurring on
or prior to the Cut-Off Date), and (ii) all mortgage files relating thereto, (b)
such assets as from time to time are identified as REO Property and collections
thereon and proceeds thereof, (c) assets that are deposited in the Certificate
Account, including amounts on deposit in the Certificate Account and invested in
Permitted Investments, (d) assets that are deposited in the Reserve Account,
including any letter of credit, (e) the Trustee's rights with respect to the
Loans under all insurance policies required to be maintained pursuant to the
Pooling and Servicing Agreement and any insurance proceeds, (f) Liquidation
Proceeds (excluding any amounts allocated to the Additional Balances) and (g)
released mortgaged property proceeds (excluding any amounts allocated to the
Additional Balances). The Trust Fund owns all the assets contained in the
_________ REMIC and, in addition, the Capitalized Interest Account, the
Additional Balances, and all collections with respect thereto. In addition, the
Depositor has caused the Certificate Insurer to issue the Certificate Insurance
Policies under which it will guarantee payments to the Class A
Certificateholders as described herein.
Book-Entry Registration
The Class A Certificates will be issued only in book-entry form, in
denominations of $_____ initial principal balance with integral multiples
thereof, except that one Class A-1 Certificate, one Class A-2 Certificate, one
Class A-3 Certificate and one Class A-4 Certificate may be issued in a different
amount.
The Class A-1 Certificates initially will be represented by a single
physical certificate, the Class A-2 Certificates will initially be represented
by a single physical certificate, the Class A-3 Certificates will initially be
represented by a single physical certificate and the Class A-4 Certificates will
initially be represented by a single physical certificate in each case
registered in the name of Cede, as nominee of DTC, which will be the "Holder" or
"Certificateholder" of the Class A Certificates as such terms are used in the
Pooling and Servicing Agreement. No Beneficial Owner will be entitled to receive
a certificate representing such person's interest in the Class A Certificates,
except as set forth below under "--Definitive Certificates" below. Unless and
until Definitive Class A Certificates are issued under the limited circumstances
described herein, all references to actions taken by Certificateholders or
holders shall, in the case of Class A Certificates, refer to actions taken by
DTC upon instructions from its Participants (as defined below), and all
references herein to distributions, notices, reports and statements to
Certificateholders or holders shall, in the case of Class A Certificates, refer
to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Class A Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with DTC procedures.
The Beneficial Owners may elect to hold their Class A Certificates through
DTC in the United States, or CEDEL or Euroclear (in Europe) if they are
participants of such systems ("Participants"), or indirectly through
organizations which are Participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates per class of Class A
Certificates which in the aggregate equal the principal balance of such Class A
Certificates and will initially be registered in the name of Cede, the nominee
of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their
Participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC. ________ will act as depositary for CEDEL and Morgan Guaranty
Trust Company of New York will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing principal amounts
of $_____. Except as described below, no Beneficial Owner will be entitled to
receive a physical certificate representing such
S-53
<PAGE>
Certificate (a "Definitive Certificate"). Unless and until Definitive
Certificates are issued, it is anticipated that the only "Owner" of such Class A
Certificates will be Cede, as nominee of DTC. Beneficial Owners will not be
Owners as that term is used in the Pooling and Servicing Agreement. Beneficial
Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of CEDEL or Euroclear, as appropriate).
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 New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participating organizations
("Participants") and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Underwriter), banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates, such as the Class A Certificates, among Participants on
whose behalf it acts with respect to the Book-Entry Certificates and to receive
and transmit distributions of principal of and interest on the Book-Entry
Certificates. Participants and Indirect Participants with which Beneficial
Owners have accounts with respect to the Book-Entry Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Beneficial Owners.
Beneficial Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, Beneficial Owners will receive all distributions of
principal and interest from the Trustee, or a paying agent on behalf of the
Trustee, through DTC Participants. DTC will forward such distributions to its
Participants, which thereafter will forward them to Indirect Participants or
Beneficial Owners. Beneficial Owners will not be recognized by the Trustee, the
Servicer or any paying agent as Certificateholders, as such term is used in the
Pooling and Servicing Agreement and Beneficial Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and its
Participants.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlements in DTC. For information with respect to tax documentation procedures
relating to the Certificates, see "Material Federal Income Tax Consequences --
REMIC Securities" in the Prospectus.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
S-54
<PAGE>
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of _____
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of _____ currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear Securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a _________ which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to Cede, as nominee of DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable DTC Participants in accordance with DTC's normal procedures. Each DTC
Participant will be responsible for disbursing such payment to the Beneficial
Owners of the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Beneficial Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede, as nominee of DTC. Distributions with
respect to Class A Certificates held through CEDEL or Euroclear will be credited
to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance of
the
S-55
<PAGE>
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust provided by the Trustee to Cede, as
nominee of DTC, may be made available to Beneficial Owners upon request, in
accordance with the rules, regulations and procedures creating and affecting the
Depository, and to the Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates of such Beneficial Owners are credited.
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 Beneficial
Owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Trustee, to Cede, as nominee for DTC.
DTC has advised the Depositor and the Servicer that it will take any action
permitted to be taken by a Certificateholder under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose accounts
with DTC the Book-Entry Certificates are credited. Additionally. DTC has advised
the Depositor that it will take such actions with respect to specified
percentages of voting rights only at the direction of and on behalf of
Participants whose holdings of Book-Entry Certificates evidence such specified
percentages of voting rights. DTC may take conflicting actions with respect to
percentages of voting rights to the extent that Participants whose holdings of
Book-Entry Certificates evidence such percentages of voting rights authorize
divergent action.
None of the Depositor, the Servicer, the Certificate Insurer or the Trustee
will have any responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Book-Entry
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Class A Certificates among Participants of
DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Definitive Certificates
The Class A Certificates, which will be issued initially as Book-Entry
Certificates, will be converted to Definitive Certificates and reissued to
Beneficial Owners or their nominees, rather than to DTC or its nominee, only if
(a) the Depository or the Servicer advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Book-Entry Certificates and the Depository or the Servicer
is unable to locate a qualified successor or (b) the Trustee, at its option,
elects to terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all Participants of the availability
through DTC of Definitive Certificates. Upon delivery of Definitive
Certificates, the Trustee will reissue the Book-Entry Certificates as Definitive
Certificates to Beneficial Owners. Distributions of principal of, and interest
on, the Book-Entry Certificates will thereafter be made by the Trustee, or a
paying agent on behalf of the Trustee, directly to holders of Definitive
Certificates in accordance with the procedures set forth in the Pooling and
Servicing Agreement.
The Additional Certificate will be issued in definitive form on the Issue
Date in consideration of the sale of the Additional Balances that may, from time
to time, be added to the Loans and to the Trust Fund.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the certificate registrar. No service charge will be
imposed for any registration of transfer or exchange, but the Trustee may
require payment by the Beneficial Owner of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
Other Certificates
In addition to the Certificates, the Trust Fund will also issue the
Additional Certificate which will represent the Seller's fluctuating interest in
the Additional Balances. The Additional Balances serving as collateral for the
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Additional Certificate will not serve as collateral for the Certificates.
Although principal payments on each Loan with an Additional Balance are
allocated to the Trust Balance of such Loan until such Trust Balance is reduced
to zero, interest payments on the Loan and Net Liquidation Proceeds in respect
thereof will only be available to Certificateholders according to the proportion
the Additional Balance of such Loan stands in relation to the sum of the Trust
Balance and the Additional Balance of such Loan. For the purposes of this
Prospectus Supplement, the Additional Certificate will not be treated as a
Certificate.
Assignment of Loans
Pursuant to the purchase and Sale Agreement between the Seller and the
Depositor, the Seller will sell, transfer, assign, set over and otherwise convey
the Loans without recourse to the Depositor on the Issue Date. Pursuant to the
Pooling and Servicing Agreement, the Depositor will sell, transfer, assign, set
over and otherwise convey without recourse to the Trust in trust for the benefit
of the Certificateholders and the Certificate Insurer all right, title and
interest in and to each Loan. Each such transfer will convey all right, title
and interest in and to (a) principal due to the extent of the Trust Balance and
(b) interest accruing thereon after the Cut-Off Date; provided, however, that
the Seller will not convey, and the Seller reserves and retains all its right,
title and interest in and to, (i) principal (including principal prepayments in
full and curtailments (i.e., partial prepayments)) received on each such Loan on
or prior to the Cut-Off Date and (ii) interest accrued on each Loan on or prior
to the Due Date immediately preceding the Cut-Off Date.
In connection with such transfer and assignment, the Depositor will cause
to be delivered to the Trustee on the Issue Date the following documents
(collectively, with respect to each Loan, the "Trustee's Mortgage File") with
respect to each Loan:
(a) 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 the holder of record, and if by the
Seller, by an authorized officer;
(b) 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;
(c) 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 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 within _____ days of the Issue Date); provided, however,
that assignments of mortgages shall not be required to be submitted for
recording with respect to any 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 shall not have a materially
adverse effect on the security interest of the Trustee in the Mortgage;
provided, further, that any assignment not submitted for recordation within
_____ days of the Issue Date shall be recorded upon the earlier to occur of (i)
receipt by the Trustee of the Certificate Insurer's written direction to record
such assignment, (ii) the occurrence of any Event of Default, as such term is
defined in the 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 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
such Mortgage shall be delivered on the Issue Date)
(d) Any intervening assignments of the Mortgage with evidence of recording
thereon;
(e) Any assumption, modification, consolidation or extension agreements;
and
(f) (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 Loan with a credit limit or Principal Balance in
excess of $_____ and any Loan which is in a first lien position.
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(2) The limited liability title assurance with respect to any Loan in a
second lien position with a credit limit or Principal Balance between $_____ and
$_____ and a second lien ratio greater than _____% and any Mortgage with a
credit limit or Principal Balance between $_____ and $_____.
Pursuant to the Pooling and Servicing Agreement, the Trustee agrees to
execute and deliver on or prior to the Issue Date an acknowledgment of receipt
of the Certificate Insurance Policies and, for each Loan, the original Mortgage
Note, item (a) above, with respect to the Loans (with any exceptions noted). 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
_____ Business Days after the Issue Date (or, with respect to any Qualified
Substitute Loan, within _____ Business Days after the receipt by the Trustee
thereof) and to deliver a certification generally to the effect that, as to each
Loan listed in the Loan Schedule, (a) all documents required to be delivered to
it pursuant to the purchase and Sale Agreement are in its possession, (b) each
such document has been reviewed by it and has not been mutilated, damaged, torn
or otherwise physically altered, appears regular on its face and relates to such
Loan, and (c) based on its examination and only as to the foregoing documents,
certain information set forth on the Loan Schedule accurately reflects the
information set forth in the Trustee's Mortgage File delivered on such date.
If the Trustee or the Certificate Insurer 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 or is
unrelated to the Loans, or that any Loan does not conform to the requirements
above or to the description thereof as set forth in the Loan Schedule, the
Trustee or the Certificate Insurer, as applicable, shall promptly so notify the
Trustee, the Servicer, the Seller and the Certificate Insurer. The Seller agrees
to use reasonable efforts to cause to be remedied a material defect in a
document constituting part of a Trustee's Mortgage File of which it is so
notified by the Trustee. If, however, within _____ 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
Holders in the Trust Balance of the Loan or the interests of the Certificate
Insurer, the Seller will either (i) substitute in lieu of such Loan a Qualified
Substitute Loan and, if the then outstanding principal balance of such Qualified
Substitute Loan is less than the applicable Trust Balance of such Loan as of the
date of such substitution plus accrued and unpaid interest thereon, deliver to
the Servicer as part of the related monthly remittance remitted by the Servicer
the amount of any such shortfall (the "Substitution Adjustment") or (ii)
purchase such Loan at a price equal to the outstanding Principal Balance of such
Loan as of the date of purchase, plus the greater of (x) all accrued and unpaid
interest thereon or (y) _____ days' interest thereon, computed at the related
Mortgage Interest Rate, plus the amount of any unreimbursed Servicing Advances
made by the Servicer, which purchase price shall be deposited in the Collection
Account or Trustee Collection Account on the next succeeding Determination Date
after deducting therefrom any amounts received in respect of such repurchased
Loan or Loans and being held in the Collection Account or Trustee Collection
Account for future distribution to the extent such amounts have not yet been
applied to principal or interest on such Loan (see "--Flow of Funds" below);
provided, however, that the Seller may not purchase the Principal Balance of any
Loan that is not in default or as to which no default is imminent pursuant to
clause (ii) preceding unless the Seller has theretofore caused to be delivered
to the Trustee 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.
A "Qualified Substitute Loan" is defined in the Pooling and Servicing
Agreement as any Loan or Loans which will be assigned to the same Group as the
deleted Loan which (i) has or have the same interest rate index and a margin
over such index and maximum interest rate at least equal to those applicable to
the deleted Loan if a HELOC and has or have an interest rate at least equal to
the applicable deleted Loan if a HEL, (ii) relates or relate to a detached
one-family residence or to the same type of residential dwelling as the deleted
Loan and in each case has or have the same or a better lien priority as the
deleted Loan with a Borrower having the same or better traditionally ranked
credit status and is an owner-occupied Mortgaged Property, (iii) matures or
mature no later than (and not more than one year earlier than) the deleted Loan,
(iv) has or have a Loan-to-Value Ratio or Loan-to-Value Ratios at the time of
such substitution no higher than the Loan-to-Value Ratio of the deleted Loan,
(v) has or have a principal balance or principal balances (after application of
all payments received on or prior to the date of substitution)(which shall be
the Trust Balance or Trust Balances thereof) not substantially less and not more
than the Trust Balance of the deleted Loan as of such date, (vi) 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) and (vii) complies or comply as of the date of substitution
with each representation and warranty set forth in the purchase and Sale
Agreement.
Representations and Warranties of the Seller
The Seller will represent, among other things, with respect to each Loan,
as of the Issue Date, the following:
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(a) The information set forth in the Loan Schedule with respect to each
Loan is true and correct;
(b) All of the original or certified documentation constituting the
Trustee's Mortgage Files (including all material documents related thereto) has
been or will be delivered to the Trustee on the Issue Date or as otherwise
provided in the purchase and Sale Agreement;
(c) Each Mortgaged Property is improved by a one- to four-family
residential dwelling, which does not include cooperatives or mobile homes other
than permanently affixed, double-wide manufactured housing units, as defined in
the FNMA Selling Guide, and does not constitute other than real property under
state law;
(d) Each Mortgage Note will provide for a schedule of Monthly Payments
which are, if timely paid, sufficient to fully amortize the principal balance of
such Mortgage Note on or before its maturity date and to pay interest at the
applicable Mortgage Interest Rate;
(e) Each Mortgage is a valid, subsisting, enforceable and perfected first
or second lien on the Mortgaged Property, including all buildings on the
Mortgaged Property and all installations and mechanical, electrical, plumbing,
heating and air conditioning systems located in or annexed to such buildings,
and all additions, alterations and replacements made at any time with respect to
the foregoing. The lien of the Mortgage is subject only to:
(i) the lien of current real property taxes and assessments not yet
due and payable;
(ii) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording
acceptable to prudent mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy delivered
to the originator of the Loan and referred to or otherwise considered in
the appraisal made for the originator of the Loan; and
(iii) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security
intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property.
Any security interest created in property in addition to the Mortgaged
Property is valid and perfected to the extent that such security interest is
created by the related mortgage or deed of trust and may be perfected by filing
or recording solely in the office where the mortgage or deed of trust is filed
or recorded. The Mortgaged Property was not, as of the date of origination of
the Loan, subject to a mortgage, deed of trust, deed to secure debt or other
security instrument creating a lien subordinate to the lien of the Mortgage;
(f) Immediately prior to the sale of the Loan to the Depositor under the
applicable purchase and Sale Agreement, (i) the Seller was the sole owner and
holder of each Loan, (ii) each Loan was not otherwise assigned or pledged, (iii)
the Seller had good, indefeasible and marketable title thereto, (iv) the Seller
had full right to transfer and sell the Loan therein to the Depositor under such
purchase and Sale Agreement free and clear of any encumbrance, equity interest,
participation interest, lien, pledge, charge, claim or security interest, and
(v) the Seller 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 under such purchase and Sale Agreement, and following the
sale of each Loan, the Depositor will own such Loan free and clear of any
encumbrance, equity interest, participation interest lien, pledge, charge, claim
or security interest.
(g) Each Mortgage Note is payable on the ___th day of each month. No HEL
has a Mortgage Interest Rate of less than _____%. With respect to the HELOCs:
(i) the Mortgage Interest Rate and Monthly Payment are adjusted in accordance
with the terms of the Mortgage Note; (ii) 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; and (iii)
installments of interest are subject to change due to the adjustments to the
Mortgage Interest Rate on each Interest Adjustment Date, with interest
calculated and payable in arrears, sufficient to amortize, beginning, in the
case of substantially all HELOCs, after the tenth anniversary, the Loan fully by
the stated maturity date. Complete amortization of each HEL will occur over a
term of ten or fifteen years from the date of origination and of each HELOC will
generally occur over an original term of twenty years from the date of
origination and ten years from the commencement of amortization. Such
amortization with respect to each HELOC shall commence in the eleventh year of
the original stated term to maturity; the first ten years of payments on the
HELOC are not required to include payments of principal. All Mortgage Interest
Rate adjustments with respect to each HELOC have been made in strict compliance
with state and federal law and the terms of the related Mortgage Note. Any
interest required to be paid pursuant to state and local law has been properly
paid and credited;
(h) Each Loan conforms, and all such Loans in the aggregate conform, to the
description thereof set forth in this Prospectus Supplement; and
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(i) All of the Loans were originated in accordance with the related
underwriting criteria set forth in this Prospectus Supplement.
Pursuant to the Pooling and Servicing Agreement, upon the discovery by any
of the Certificateholders, the Servicer, the Seller, the Certificate Insurer or
the Trustee that any of the representations and warranties contained in the
purchase and Sale Agreement have been breached in any material respect as of the
Issue Date, with the result that the interests of the Certificateholders in the
related Loan or the interests of the Certificate Insurer were materially and
adversely affected (notwithstanding that such representation and warranty was
made to the Seller's best knowledge), the party discovering such breach is
required to give prompt written notice to the others of such persons. Subject to
certain provisions of the purchase and Sale Agreement, within _____ days of the
earlier to occur of the Seller's discovery or its receipt of written notice of
any such breach, the Seller will (a) promptly cure such breach in all material
respects, (b) remove each Loan which has given rise to the requirement for
action by the Seller substitute one or more Qualified Substitute Loans and, if
the outstanding principal amount of such Qualified Substitute Loans as of the
date of such substitution is less than the outstanding Trust Balance, plus
accrued and unpaid interest thereon of the replaced Loans as of the date of
substitution, deliver to the _________ REMIC as part of the amounts remitted by
the Servicer on such Remittance Date the amount of such shortfall, or (c)
purchase such Loan at a price equal to the Trust Balance of such Loan as of the
date of purchase plus the greater of (i) all accrued and unpaid interest thereon
and (ii) _____ days' interest thereon computed at the Mortgage Interest Rate,
plus the amount of any unreimbursed Servicing Advances made by the Servicer, and
deposit such purchase price into the Trustee Collection Account on the next
succeeding Determination Date after deducting therefrom any amounts received in
respect of such repurchased Loan or Loans and being held in the Trustee
Collection Account or the Certificate Account for future distribution to the
extent such amounts have not yet been applied to principal or interest on such
Loan; provided however, that any substitution of one or more Qualified
Substitute Loans pursuant to clause (b) preceding must be effected not later
than two years after the Issue Date unless the Trustee and the Certificate
Insurer receive an opinion of counsel that such substitution would not
constitute a prohibited transaction for purposes of the REMIC provisions of the
Code and, provided, further, that the Seller may not purchase such Loan that is
not in default or as to which no default is imminent pursuant to clause (c)
preceding unless the Seller has theretofore caused to be delivered to the
Trustee and the Certificate Insurer an opinion of counsel knowledgeable in
Federal income tax matters in form and substance satisfactory to the Trustee to
the effect that such a purchase would not constitute a prohibited transaction
for 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. The
obligation of the Seller to cure such breach or to substitute or purchase any
Loan constitutes the sole remedy respecting a material breach of any such
representation or warranty to the Certificateholders, the Trustee and the
Certificate Insurer.
Payments on the Loans
The Pooling and Servicing Agreement provides that the Servicer, for the
benefit of the Certificateholders, shall establish and maintain one or more
Collection Accounts (each, a "Collection Account") and shall maintain a
Collection Account with the Trustee (the "Trustee Collection Account"), and that
each Collection Account will generally be a trust account maintained with a
depository institution acceptable to each Rating Agency and the Certificate
Insurer (any such account, an "Eligible Account"). The Servicer shall have the
right to choose and relocate the Collection Account at any time, provided each
Collection Account shall otherwise comply with the requirements of the preceding
sentence and that there shall be a Trustee Collection Account. The Pooling and
Servicing Agreement permits the Servicer to direct any depository institution
maintaining a Collection Account to invest the funds in such Collection Account
in one or more Permitted Investments, as defined above, that mature, unless
payable on demand, no later than the Business Day preceding the date on which
the Servicer is required to transfer any amounts included in such funds from
such Collection Account to the Trustee Collection Account or to the Certificate
Account, or, in the case of funds held in the Trustee Collection Account
invested in any such Permitted Investments, from the Trustee Collection Account
to the Certificate Account described below.
The Servicer is obligated to deposit or cause to be deposited in the Collection
Account on a daily basis, amounts representing the following payments received
and collections made by it after the Cut-Off Date (other than in respect of
Monthly Payments on the Loans due on each Loan up to and including any Due Date
occurring on or prior to the Cut-Off Date): (i) all payments on account of
principal, including Principal Prepayments; (ii) all payments on account of
interest on the Loans, (iii) all Liquidation Proceeds and all Insurance Proceeds
to the extent such proceeds are not to be applied to the restoration of the
related Mortgaged Property or released to the related borrower in accordance
with the express requirements of law or in accordance with prudent and customary
servicing practices; (iv) all net revenues with respect to a Mortgaged Property
held by the _________ REMIC; (v) all other amounts required to be deposited in
the Collection Account pursuant to the Pooling and Servicing Agreement; and (vi)
any amounts required to be deposited in connection with net losses realized on
investments of funds in the Collection Account. The Pooling and Servicing
Agreement further provides that all funds deposited in any
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Collection Account that are to be included in the Servicer Remittance Amount
related to a particular Remittance Date be transferred to the Trustee Collection
Account not later than the close of business on the third Business Day prior to
such Remittance Date.
The Trustee will be obligated to set up an account (the "Certificate
Account"), which is required to be an Eligible Account, into which the Servicer
will deposit or cause to be deposited the Servicer Remittance Amount on the
___th day of each month (the "Servicer Remittance Date").
The "Servicer Remittance Amount" for a Servicer Remittance Date and the
indicated Group is equal to the sum of (i) all unscheduled collections of
principal and interest on the related HELOCS in the case of Group I and the HELs
in the case of Group II (including Principal Prepayments, Net REO Proceeds and
Liquidation Proceeds, if any) collected by the Servicer during the related Due
Period and all scheduled Monthly Payments on the HELOCs in the case of Group I
and HELs in the case of Group II due on the related Due Date and received on or
prior to the Business Day preceding such Servicer Remittance Date, (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 the HELs in the case of Group
II on the related Due Date and (iii) any other amounts required to be placed in
a Collection Account by the Servicer in respect of the HELOCs in the case of
Group I and the HELs in the case of Group II pursuant to the Pooling and
Servicing Agreement but excluding 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 made with respect to HELOCs in the case of Group I and HELs in
the case of Group II by the Servicer;
(c) those portions of each payment of interest on a particular HELOC in the
case of Group I and HEL in the case of Group II which represent the Servicing
Fee;
(d) that portion of Liquidation Proceeds and REO Proceeds relating to
HELOCs in the case of Group I and HELs in the case of Group II which represents
any unpaid Servicing Fee or amounts included in Liquidation Proceeds and REO
Proceeds allocated to the Additional Balances, see "Allocation of Payments of
the Loans Between the Trust Balances and the Additional Balances;"
(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) certain other amounts which are reimbursable to the Servicer, as
provided in the Pooling and Servicing Agreement;
(h) that portion of Net Foreclosure Profits with respect to HELOCs in the
case of Group I and HELs in the case of Group II otherwise due to the Servicer
as provided in the Pooling and Servicing Agreement; and
(i) any amounts allocable to the Additional Balances not otherwise included
in (a)-(h) above.
See "Allocation of Payments of the Loans Between the Trust Balances and the
Additional Balances."
On each Remittance Date, any amount remaining on deposit in the Certificate
Account following the deposit of the Servicer Remittance Amounts in excess of
(i) the amount of any Insured Payment, the Class A-1 Certificate Insurance
Premium Amount, the Group II Certificate Insurance Premium Amount and any
Trustee Fees then due the Trustee; (ii) the Class A-1 Formula Distribution
Amount and the Group II Formula Distribution Amount (calculated for this purpose
without regard to any required withdrawal from the Reserve Account or portion
thereof included therein), (iii) any Reimbursement Amount (as defined herein) or
other amount owed to the Certificate Insurer and (iv) the Reserve Account
Deposit (as defined herein) for such Remittance Date shall, in accordance with
the Pooling and Servicing Agreement, be distributed to the holder of the Class R
Certificate. All principal payments not constituting Liquidation Proceeds
collected with respect to an Additional Balance shall be made available to make
payments on the Certificates to the extent that any unpaid Trust Balance related
to such Loan remains outstanding, as described in the Pooling and Servicing
Agreement.
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Servicing Fees and Other Compensation and Payment of Expenses
As compensation for its activities as Servicer under the Pooling and
Servicing Agreement, the Servicer shall be entitled with respect to each Loan to
the Servicing Fee, which shall be payable monthly from amounts on deposit in the
Collection Account. The "Servicing Fee" shall be an amount equal to interest at
one-twelfth of the Servicing Fee Rate for such Loan on the scheduled Principal
Balance of such Loan at the end of the applicable Due Period. The "Servicing Fee
Rate" with respect to each Loan will be _____% per annum. In the case that
________________ is no longer acting as Servicer, the Successor Servicer will be
entitled to a Servicing Fee calculated at a Servicing Fee Rate of _____% per
annum. In addition, the Servicer shall be entitled to receive, as additional
servicing compensation, to the extent permitted by applicable law and the
related Mortgage Notes, any late payment charges, assumption fees or similar
items. The Servicer shall also be entitled to withdraw from the Collection
Account any interest or other income earned on deposits therein. The Servicer
shall pay all expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement and shall not be entitled
to reimbursement therefor except as specifically provided in the Pooling and
Servicing Agreement.
The Servicer may recover Periodic Advances and Servicing Advances from the
Collection Account or the Trustee Collection Account to the extent permitted by
the Pooling and Servicing Agreement and by the terms of the Loans or, if not
recovered from the Mortgagor on whose behalf such Periodic Advance or Servicing
Advance was made, from late collections on the related Loan, including
Liquidation Proceeds, released mortgaged property proceeds, insurance proceeds
and such other amounts as may be collected by the Servicer from the Mortgagor or
otherwise relating to the Loan, or, in the case of Periodic Advances, from late
collections of interest on any Loan. In the event a Periodic Advance or a
Servicing Advance becomes a Nonrecoverable Advance, the Servicer may be
reimbursed for such advance from the Certificate Account.
The Servicer shall not be required to make any Periodic Advance or
Servicing Advance which it determines would be a nonrecoverable Periodic Advance
or nonrecoverable Servicing Advance (a "Nonrecoverable Advance"). A Periodic
Advance or Servicing Advance is "nonrecoverable" if in the good faith judgment
of the Servicer, such Periodic Advance or Servicing Advance is not ultimately
recoverable.
Reserve Account
The Reserve Account. On the Issue Date, an amount required by the
Certificate Insurer, or a letter of credit evidencing the availability of such
amount, will be deposited into the Reserve Account. On each Subsequent Transfer
Date, the Seller will transfer an additional amount as required by the
Certificate Insurer to the Reserve Account from the Pre-Funding Account (or
provide a letter of credit in form and substance, and from a provider,
acceptable to the Certificate Insurer evidencing the availability of an amount
which, when aggregated with such transferred amount, will meet the requirements
of the Certificate Insurer). With respect to the Certificates, the Pooling and
Servicing Agreement generally provides separately with respect to each Group
that, subject to certain floors and triggers, the Required Reserve Account Level
may be reduced. In addition, certain triggers or conditions may cause the
Required Reserve Account Level to be increased. The Pooling and Servicing
Agreement requires that, on each Remittance Date, amounts on deposit in the
Reserve Account will be withdrawn (or drawings under a letter of credit will be
made) to make any necessary payments of the Class A-1 Credit Enhancement
Distribution Amount and Group II Credit Enhancement Distribution Amount.
Withdrawals from the Reserve Account (or drawings on a letter of credit) will be
replenished (or reimbursed) from Reserve Account Deposits. Subject to certain
limitations and requirements described in the Pooling and Servicing Agreement,
distributions may be made to the owner of the Residual Certificate only from
amounts on deposit in the Reserve Account in excess of the Required Reserve
Account Level or from funds remaining on deposit in the Certificate Account
after the making of any Reserve Account Deposits. Amounts on deposit in the
Reserve Account will be invested in Permitted Investments. See "--Flow of Funds"
below.
The Pooling and Servicing Agreement provides that on any Remittance Date,
all amounts collected on account of principal (other than any such amount
allocable to the Holders of the Class R Certificates in respect of a reduction
of the Required Reserve Account Level) during the related Due Period will be
distributed to the Holders of the Class A Certificates on such Remittance Date.
If any Loan became a Liquidated Loan during such Due Period, the Liquidation
Proceeds net of certain liquidation expenses and any unreimbursed Periodic
Advances made by the Servicer with respect to such Loan (such proceeds, the "Net
Liquidation Proceeds") related to such Loan and allocated to principal may be
less than the Trust Balance of the related Loan; the amount of any such
insufficiency is a "Liquidated Loan Loss." In addition, the Pooling and
Servicing Agreement provides that the Trust Balance of any Loan after it becomes
a Liquidated Loan shall equal zero. However, recoveries of any amounts
attributable to a Liquidated Loan will be considered an unscheduled collection
of principal on the Remittance Date immediately following such recovery.
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The Certificate Insurance Policies. The Pooling and Servicing Agreement
requires the Trustee to make a claim for an Insured Payment under the related
Certificate Insurance Policy not later than the third Business Day prior to any
Remittance Date as to which the Trustee has determined that an Insured Payment
with respect to either the Class A-1 Certificates, the Class A-2 Certificates,
the Class A-3 Certificates, or the Class A-4 Certificates will be necessary.
Investors in the Class A Certificates should realize that, under extreme loss or
delinquency scenarios, they may temporarily receive no distributions of
principal.
Flow of Funds
On each Remittance Date, the Trustee shall distribute, to the extent of
funds on deposit in the Certificate Account and Insured Payments on deposit in
the Certificate Account as follows:
(a) to the Certificate Insurer, the Certificate Insurance Policy
Premium Amount;
(b) to the Trustee, an amount equal to the Trustee Fees then due to
it:
(c) from amounts then on deposit in the Certificate Account
constituted by the Group I Available Amount (plus any Insured Payments an
amounts withdrawn from the Reserve Fund relating to the Class A-1
Certificates), to the Class A-1 Certificateholders an amount equal to the
Class A-1 Interest Distribution Amount and from amounts then on deposit in
the Certificate Account constituted by the Group II Available Amount (plus
any Insured Payments and amounts withdrawn from the Reserve Fund relating
to the Class A-2 Certificates, the Class A-3 Certificates or the Class A-4
Certificates) to the Class A-2 Certificateholders an amount equal to the
Class A-2 Interest Distribution Amount, to the Class A-3 Certificateholders
an amount equal to the Class A-3 Interest Distribution Amount and to the
Class A-4 Certificateholders an amount equal to the Class A-4 Interest
Distribution Amount;
(d) from amounts then on deposit in the Certificate Account
constituted by the Group I Available Amount (plus any Insured Payments and
amounts withdrawn from the Reserve Fund relating to the Class A-1
Certificates), to the Class A-1 Certificateholders an amount equal to the
Principal Distribution Amount for Group I until the Class A-1 Principal
Balance has been reduced to zero and from amounts then on deposit in the
Certificate Account constituted by the Group II Available Amount (plus any
Insured Payments and amounts withdrawn from the Reserve Fund relating to
the Class A-2 Certificates, the Class A-3 Certificates or the Class A-4
Certificates), to the Class A-2 Certificateholders an amount equal to the
Principal Distribution Amount for Group II until the Class A-2 Principal
Balance has been reduced to zero, to the Class A-3 Certificateholders an
amount equal to the Principal Distribution Amount for Group II until the
Class A-3 Principal Balance has been reduced to zero and thereafter to the
Class A-4 Certificateholders an amount equal to the Principal Distribution
Amount for Group II until the Class A-4 Principal Balance has been reduced
to zero;
(e) from amounts then on deposit in the Certificate Account (excluding
any Insured Payments) to the Certificate Insurer the lesser of (x) the
excess of (i) such amount over (ii) the amount of any Insured Payment for
such Remittance Date and (y) the amount of all Insured Payments and other
payments made by the Certificate Insurer pursuant to the Certificate
Insurance Policies which have not been previously repaid together with
interest thereon at the rate set forth in the Certificate Insurance
Agreement (the "Reimbursement Amount") as of such Remittance Date;
(f) an amount equal to the lesser of (i) any amount then remaining in
the Certificate Account after the applications described in clauses (a)
through (e) above and (ii) the amount necessary to bring the amount on
deposit in the Reserve Account to the Required Reserve Account Level (such
lesser amount, the "Reserve Account Deposit") shall be deposited in the
Reserve Account; and
(g) following the making by the Trustee of all allocations, transfers
and disbursements described above, from amounts then on deposit in the
Certificate Account, the Trustee shall distribute to the Holders of the
Class R Certificates, the amount remaining on such Remittance Date, if any.
Notwithstanding the foregoing, the aggregate amount on all Remittance Dates to
the Holders of the Class A Certificates on account of principal shall not exceed
the Original Class A Principal Balance. Any amounts payable to the Additional
Certificates shall be determined by the applicable Supplement to the Pooling and
Servicing Agreement
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Calculation of LIBOR
The Class A-1 Certificates will bear a pass-through rate, in the case of
the first Remittance Date, equal to _____%, and for each Remittance Date
thereafter, equal to a per annum rate equal to the lesser of (a) the sum of (i)
LIBOR on the second to the last Business Day prior to the preceding Remittance
Date plus (ii) _____% and (b) the Weighted Average Rate Cap. For each Remittance
Date after the first Remittance Date, on the second to the last business day
preceding the prior Remittance Date (each such date, an "Interest Determination
Date"), the Trustee will determine LIBOR for the succeeding Accrual Period for
the Class A-1 Certificates (such "Accrual Period" to begin on the ___th day of
the month preceding the month in which the Remittance Date occurs and ends on
the day before such Remittance 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
Reuter Screen LIBO Page, as of _____ a.m. (London time) on such Interest
Determination Date. As used in this section, "business day" means a day on which
banks are open for dealing in foreign currency and exchange in London and New
York City; "Reuter Screen LIBO Page" means the display designated as page "LIBO"
on the Reuter Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank offered
rates of major banks); and "Reference Banks" means leading banks selected by the
Trustee and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Reuter Screen LIBO Page on the Interest
Determination Date in question, (iii) which have been designated as such by the
Trustee and (iv) not controlling, controlled by, or under common control with,
the Depositor or any Seller.
On each Interest Determination Date, LIBOR for the related Accrual Period
for the Class A-1 Certificates will be established by the Trustee as follows:
(a) 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 _____%).
(b) If on such Interest Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR for the related Due Period shall be the
higher of (x) LIBOR as determined on the previous Interest Determination Date
and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be 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 New York City banks selected by the
Trustee are quoting on the relevant Interest Determination Date to the principal
London offices of leading banks in the London interbank market or, in the event
that the Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks selected by the
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1 Certificates for the related Accrual Period shall (in the absence of
manifest error) be final and binding.
Weighted Average Rate Cap
In the event that LIBOR exceeds the Prime Rate or the Prime Rate increases
to a level that subjects the Mortgage Interest Rate for a Loan to a statutory
maximum interest rate applicable to such Loan, it is possible that the Weighted
Average Net Mortgage Interest Rate on the Loans for a related Due Period will be
less than the amount of interest described in clause (a) of the section of the
Summary of the Terms of the Certificates entitled "Interest, Class A-1
Pass-Through Rate." Therefore, the Class A-1 Pass-Through Rate is, on each
Remittance Date, subject to the Weighted Average Rate Cap which is an annual
rate equal to the weighted average Net Mortgage Interest Rate and, beginning on
the ___th Remittance Date, the weighted average Net Mortgage Interest Rate for
HELOCs minus _____%.
Report to Certificateholders
Pursuant to the Pooling and Servicing Agreement, on each Remittance Date
the Trustee will deliver to the Certificate Insurer, each Certificateholder and
the Depositor a written report containing information including, without
limitation, the amount of the distribution on such Remittance Date, the amount
of such distribution allocable to principal and allocable to interest, the
aggregate outstanding principal balance of each Class of the Class A
Certificates as of such Remittance Date, the amount of any Insured Payment
included in such distributions on such Remittance Date and such other
information as required by the Pooling and Servicing Agreement.
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SERVICING OF THE LOANS
The Servicer
________________ will act as the Servicer of the _________ REMIC and the
Trust Fund. See "________________."
Collection and Other Servicing Procedures; Loan Modifications
The Servicer will be obligated under the Pooling and Servicing Agreement to
service and administer the Loans, on behalf of the _________ REMIC, solely in
the best interests of and for the benefit of the Certificateholders and the
Certificate Insurer in accordance with the terms of the Pooling and Servicing
Agreement, and will have full power and authority to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable. The Servicer may perform any of its obligations under the Pooling and
Servicing Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Servicer will remain liable for its servicing
duties and obligations under the Pooling and Servicing Agreement as if the
Servicer alone were servicing the Loans. The Servicer will be obligated under
the Pooling and Servicing Agreement to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Notes and
will be obligated, consistent with the other terms of the Pooling and Servicing
Agreement, to follow such collection procedures as it would normally follow with
respect to Loans comparable to the Loans and which are required to generally
conform to the mortgage servicing practices of prudent mortgage lending
institutions which service Loans of the same type as the Loans for their own
account in the jurisdictions in which the related Mortgaged Properties are
located. Consistent with the above, the Servicer will be permitted, in its
discretion, to (i) waive any late payment charge or other charge in connection
with any Loan, and (ii) arrange a schedule, running for no more than _____ days
after the due date of any installment due under the related Mortgage Note, for
the liquidation of delinquent items.
Realization Upon or Sale of Defaulted Loans
Except as described below, the Servicer will be required to 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 such foreclosure or other conversion, the Servicer will be required to
follow such procedures as it follows with respect to similar Loans held in its
own portfolio. However, 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 Loan to Certificateholders after
reimbursement to itself for such expenses and (ii) such expenses shall 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 will be permitted to foreclose against the Mortgaged Property
securing a defaulted 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, the deed or certificate of sale
will be required to be issued to the Trustee, or to the Servicer on behalf of
the Trustee, the Certificate Insurer and the Certificateholders. Notwithstanding
any such acquisition of title and cancellation of the related Loan, such Loan is
required to be considered to be a Loan held in the _________ REMIC until such
time as the related Mortgaged Property is sold and such Loan becomes a
Liquidated Loan. Consistent with the foregoing, for purposes of all calculations
under the Pooling and Servicing Agreement, so long as such Loan is an
outstanding Loan:
(i) It will be assumed that, notwithstanding that the indebtedness
evidenced by the related Mortgage Note shall have been 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
partial prepayments and before any adjustment thereto by reason of any
bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period) remain in effect, except that such schedule shall be adjusted
to reflect the application of proceeds received in any month pursuant to
the succeeding clause.
(ii) Net proceeds (after payment of Servicer's expenses related to
disposition) from such property 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 title to the related Mortgaged Property was
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acquired by the _________ REMIC, 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 proceeds
from such property received in any month shall be applied to the payment of
installments of principal and accrued interest on such Loan deemed to be
due and payable in accordance with the terms of such Mortgage Note and such
amortization schedule. If such net proceeds exceed the then unpaid REO
amortization, the excess shall be treated as a partial principal prepayment
received in respect of such Loan.
(iii) Only that portion of such net proceeds on such a Loan allocable
to interest that bears the same relationship to the total amount of net
proceeds allocable to interest as the rate at which the Servicing Fee is
determined bears to the Mortgage Interest Rate borne by such Loan shall be
allocated to the Servicing Fee with respect thereto.
In the event that the _________ REMIC acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Loan, such Mortgaged Property will be required to be disposed of by or on behalf
of the _________ REMIC within two years after its acquisition by the _________
REMIC unless (a) the Trustee and the Certificate Insurer shall have received an
opinion of counsel to the effect that the holding by the _________ REMIC 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 the _________ REMIC to be subject to the tax on prohibited
transactions imposed by Code Section 860F(a)(1), otherwise subject the Trust
Fund or the _________ REMIC to tax or cause the _________ REMIC to fail to
qualify as a REMIC at any time that any Certificates are outstanding, or (b) the
Trustee (at the Servicer's expense) or the Servicer shall have applied for,
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 will
also be required to 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 _________ REMIC of any income from non-permitted assets as
described in Code Section 860F(a)(2)(B), and that the _________ 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 Loan, the Servicer may, in its
discretion, permit the assumption of such 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 Loans owned by the Servicer.
In connection with any such assumption, the Mortgage Interest Rate of the
related Mortgage Note and the payment terms will not be permitted to 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 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 accepted servicing procedures, and, with
respect to environmental hazards, substantially comparable to such procedures as
are required by the provisions of the Federal National Mortgage Association'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 any Mortgaged Property where such
inspection reveals potential contamination by hazardous waste without obtaining
the consent of the Certificate Insurer.
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Servicing and Other Compensation and Payment of Expenses
In addition to the Servicing Fee, the Servicer is entitled under the
Pooling and Servicing Agreement to retain additional servicing compensation in
the form of assumption and other administrative fees, release fees, bad check
charges, any other servicing-related fees, Net Liquidation Proceeds not
otherwise required to be deposited in the Certificate Account pursuant to the
Pooling and Servicing Agreement, earnings paid on Permitted Investments and
amounts held on deposit as investment earnings on a Collection Account shall be
retained by or remitted to the Servicer to the extent not required to be
remitted to the Trustee for deposit in the Certificate Account. The Servicer
shall be required to pay all expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement and shall not be
entitled to reimbursement therefor except as specifically provided for therein.
Enforcement of Due-on-Sale Clauses
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Loan under any "due-on-sale" clause contained in the related Mortgage or
Mortgage Note; provided, however, that the Servicer shall not exercise any such
right if the "due-on-sale" clause, in the reasonable belief of the Servicer, is
not enforceable under applicable law. In such event, the Servicer may enter into
an assumption and modification agreement with the person to whom such property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable law or the
Mortgage or Mortgage Note, the Mortgagor remains liable thereon. The Servicer is
also authorized, with the prior approval of the Certificate Insurer except as
provided in the Pooling and Servicing Agreement, 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 Mortgagor and
becomes liable under the Mortgage Note.
Maintenance of Insurance Policies and Errors and Omissions and Fidelity Coverage
The Servicer is required to cause to be maintained for each Loan a fire and
hazard insurance policy with extended coverage on the related Mortgaged Property
in an amount which is not less than the full insurable value of the Mortgaged
Property securing such Loan or the unpaid principal balance of such Loan,
whichever is less. The Servicer will also be required to maintain or cause to be
maintained fire and hazard insurance with extended coverage on each property
acquired by the _________ REMIC by foreclosure or by deed in lieu of foreclosure
in an amount which is at least equal to the lesser of (i) the full insurable
value of the improvements which are a part of such property and (ii) the
principal balance owing on such Loan at the time of such foreclosure or grant in
lieu of foreclosure plus accrued interest and related liquidation expenses;
provided, however, that such insurance may not be less than the minimum amount
required to fully compensate for any loss or damage on a replacement cost basis.
Any cost incurred by the Servicer in maintaining any such insurance shall not,
for the purpose of calculating distributions to Certificateholders, be added to
the unpaid principal balance of the related Loan, notwithstanding that the terms
of such Loan so permit. No earthquake or other additional insurance other than
flood insurance is, under the Pooling and Servicing Agreement, to be required of
any Mortgagor or to be maintained by the Servicer other than pursuant to the
terms of the related Mortgage Note or Mortgage and 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 was located at the time of origination in a
federally designated special flood hazard area, the Servicer will be obligated
to cause to be maintained flood insurance in respect thereof to the extent
available. Such flood insurance shall be in an amount equal to the lesser of (i)
the unpaid principal balance of the related Loan, (ii) the full insurable value,
and (iii) the maximum amount of such insurance required by the terms of the
related Mortgage Note or Mortgage and as is available for the related property
under the national flood insurance program (assuming that the area in which such
property is located is participating in such program). If a Mortgaged Property
was, at origination of the related Loan, in a federally designated special flood
hazard area, the Servicer will obtain flood insurance in respect thereof
providing substantially the same coverage as described in the preceding
sentence.
Alternatively, the Servicer may obtain, at its own expense, a blanket
insurance policy with an insurer insuring against fire and hazard losses on all
of the Loans, which policy may contain a deductible clause, in which case the
Servicer shall, in the event that (i) there shall not have been maintained on
the related Mortgaged Property a policy otherwise complying with the provisions
described above, and (ii) there shall have been one or more losses which would
have been covered by such a policy had it been maintained, deposit into the
Certificate Account from its own funds the amount not otherwise payable under
the blanket policy because of such deductible clause.
The Servicer will also be required under the Pooling and Servicing
Agreement to maintain in force (i) a policy or policies of insurance covering
errors and omissions in the performance of its obligations as Servicer and
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(ii) a fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond will, together, be substantially comparable to a
policy or policies and bond otherwise complying with the requirements of FNMA
for persons performing servicing for Loans purchased by FNMA.
No pool insurance policy, special hazard insurance policy, bankruptcy bond
or repurchase bond will be maintained with respect to the Loans, nor will any
Loan be insured by any government or government agency.
Servicer Reports
The Servicer is required to deliver to the Certificate Insurer, the
Trustee, Standard & Poor's and Moody's, not later than the last day of the fifth
month following the end of the Servicer's fiscal year an Officers' Certificate
stating that (i) the Servicer has fully complied with the servicing provisions
of the Pooling and Servicing Agreement, (ii) a review of the activities of the
Servicer during the preceding fiscal year and of performance under the Pooling
and Servicing Agreement has been made under such officers' supervision, and
(iii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all its obligations under the Pooling and Servicing
Agreement for 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 including the steps being taken by the Servicer to
remedy such default. The first such Officers' Certificate shall be delivered by
the Servicer in _____.
Not later than the last day of the fifth month following the end of the
Servicer's fiscal year, the Servicer, at its expense, is required to cause to be
delivered to the Certificate Insurer, the Trustee, Standard & Poor's and Moody's
from a firm of independent certified public accountants (who may also render
other services to the Servicer) a statement to the effect that such firm has
examined certain documents and records relating to the servicing of the Loans
during the preceding calendar year (or such longer period from the Issue Date to
the end of the following calendar year) and that, on the basis of such
examination 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 that, in the opinion of such firm, are material, except for
such exceptions as shall be set forth in such statement.
Removal and Resignation of Servicer
The Trustee, only at the direction of the Certificate Insurer or the
majority Certificateholders, with the consent of the Certificate Insurer (in the
case of any direction of the majority Certificateholders), may remove the
Servicer upon the occurrence and continuation beyond the applicable cure period
of an event described below:
(a) any failure by the Servicer to remit to the Trustee any payment
required to be made by the Servicer under the terms of the Pooling and
Servicing Agreement which continues unremedied beyond any grace period
permitted by the Certificate Insurer;
(b) the failure by the Servicer to make any required Servicing Advance
which failure continues unremedied for a period of _____ days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee or to the
Servicer and the Trustee by any Certificateholder or the Certificate
Insurer;
(c) 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 the Pooling and Servicing Agreement, or
the breach of any representation and warranty set forth in the Pooling and
Servicing Agreement, which continues unremedied for a period of _____ 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 by the
Depositor or the Trustee, or to the Servicer and the Trustee by any
Certificateholder or the Certificate Insurer
(d) 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 ______ days;
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(e) 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;
(f) 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; or
(g) the delinquency or loss experience of the Loan pool exceeds
certain levels specified in the Pooling and Servicing Agreement.
The Servicer may not assign its obligations under the Pooling and Servicing
Agreement nor resign from the obligations and duties thereby imposed on it
except by mutual consent of the Servicer, _________ (if _________ is not the
Servicer), the Certificate Insurer and the Trustee, or upon the determination
that the Servicer's duties thereunder are no longer permissible under applicable
law and such incapacity cannot be cured by the Servicer without the incurrence,
in the reasonable judgment of the Certificate Insurer, of unreasonable expense.
No such resignation shall become effective until a successor has assumed the
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
Upon removal or resignation of the Servicer, the Trustee has agreed to be
the Successor Servicer (the "Successor Servicer"). The Trustee, as Successor
Servicer, will be obligated to make Periodic Advances and Servicing Advances and
certain other advances unless it determines reasonably and in good faith that
such advances would not be recoverable. If, however, the Trustee is unwilling or
unable to act as Successor Servicer, or if the majority Certificateholders (with
the consent of the Certificate Insurer) or the Certificate Insurer so requests,
the Trustee shall appoint, or petition a court of competent jurisdiction to
appoint, in accordance with the provisions of the Pooling and Servicing
Agreement and subject to the approval of the Certificate Insurer any established
Loan servicing institution acceptable to the Certificate Insurer having a net
worth of not less than $__________ as the Successor Servicer in the assumption
of all or any part of the responsibilities, duties or liabilities of the
Servicer.
The Trustee and any other Successor Servicer in such capacity is entitled
to the same reimbursement for advances and no more than the same servicing
compensation as the Servicer. See "--Servicing and Other Compensation and
Payment of Expenses" above.
Termination; Purchase of Loans
The _________ REMIC will terminate upon notice to the Trustee of either:
(a) the later of the distribution to Certificateholders of the final payment or
collection with respect to the last Loan (or Periodic Advances of same by the
Servicer), or the disposition of all funds with respect to the last Loan and the
remittance of all funds due under the Pooling and Servicing Agreement and the
payment of all amounts due and payable to the Certificate Insurer and the
Trustee or (b) mutual consent of the Servicer, the Certificate Insurer and all
Certificateholders in writing.
The Servicer or Seller may, at its option and at its sole cost and expense
(and if such option is not exercised by the Servicer or the Seller, the
Certificate Insurer may, in accordance with the provisions of the Pooling and
Servicing Agreement, at its option and at its sole cost and expense), terminate
the related Group on any date on which the aggregate Class A-1 Principal Balance
or the sum of the Class A-2 Principal Balance, the Class A-3 Principal Balance
and the Class A-4 Principal Balance, respectively, is less than _____% of the
aggregate initial Trust Balances of the Loans in the related Group plus the
amount of the Original Group I Pre-Funded Amount or the Original Group II
Pre-Funded Amount, as applicable by purchasing, on the next succeeding
Remittance Date, all of the property of the REMIC relating to such Group at a
price equal to the sum of (a) the greater of (i) _____% of the Trust Balance of
each related outstanding Loan and each related REO Property and (ii) the fair
market value (disregarding accrued interest) of the Loans and REO Properties,
determined as the average of three written bids (copies of which are to 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 Loans and REO property, (b) the greater of (i)
aggregate amount of accrued and unpaid interest on the Trust Balances of the
related Loans through the related Due Period and (ii) _____ days' accrued
interest thereon at a rate equal to the Mortgage Interest Rate, in each case net
of the Servicing Fee, and (c) any unreimbursed amounts due to the Certificate
Insurer under the Pooling and Servicing Agreement or the Certificate Insurance
Agreement. No such termination is permitted without the prior written consent of
the Certificate Insurer if it would result in a draw on either Certificate
Insurance Policy.
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<PAGE>
Amendment
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer 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 unless such consent would 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 the Pooling and
Servicing Agreement which shall not be inconsistent with the provisions of the
Pooling and Servicing Agreement, provided that such action shall not, as
evidenced by an opinion of counsel delivered to, but not obtained at the expense
of, the Trustee, adversely affect in any material respect the interests of any
Certificateholder of any outstanding Class (or _____% of the Class of
Certificateholders so affected shall have consented); and provided, further,
that no such amendment shall reduce in any manner the amount of, or delay the
timing of, payments received on 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 to the Pooling and Servicing
Agreement without the consent of such party.
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer 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 unless such consent
would adversely affect the interests of the Certificate Insurer), and the
Holders of the majority of the Percentage Interest in the Class A Certificates
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or any
Supplement 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 receives an opinion of counsel, at the expense of the party
requesting the change, that such change will not adversely affect the status of
the _________ REMIC as a REMIC or cause a tax to be imposed on the Trust Fund or
the _________ REMIC, and provided further, that no such amendment shall reduce
in any manner the amount of, or delay the timing of, payments received on Loans
which are required to be distributed on any Certificate without the consent of
the Holder of such Certificate or reduce the percentage for each Class the
Holders of which are required to consent to any such amendment without the
consent of the Holders of _____% of each Class of Certificates affected thereby.
The purchase and Sale Agreement contains substantially similar restrictions
regarding amendment.
THE TRUSTEE
_________, a _________, has been named Trustee pursuant to the Pooling and
Servicing Agreement. The Trustee will serve initially as the custodian of the
Trustee's Mortgage Files. The Pooling and Servicing Agreement provides that the
Trustee shall be entitled to a fee (the "Trustee Fee") in respect of its
services as Trustee.
Trustee shall at all times be a banking association organized and doing
business under the laws of any State or the United States of America subject to
suspension or examination by federal or state authority, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $[ ], whose long-term deposits, if any, are rated at least "[BBB]"
by [Standard & Poor's] and [Baa2] by [Moody's], or such lower rating as may be
approved in writing by the Certificate Insurer and reasonably acceptable to the
Certificate Insurer as evidenced in writing. If at any time the Trustee shall
cease to be eligible in accordance with the provisions described in this
paragraph, it shall resign immediately in the manner and with the effect
specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by a successor
trustee acceptable to the Certificate Insurer.
The Trustee, or any trustee or trustees hereafter appointed, may resign at
any time in the manner set forth in the Pooling and Servicing Agreement. Upon
receiving notice of resignation, the Servicer shall promptly appoint a successor
trustee or trustees meeting the eligibility requirements set forth above in the
manner set forth in the Pooling and Servicing Agreement. The Servicer will
deliver a copy of the instrument used to appoint a successor trustee to the
Certificateholders, the Certificate Insurer and the Depositor, and upon
acceptance of appointment by a successor trustee in the manner provided in the
Pooling and Servicing Agreement, the Servicer will give notice thereof to the
Certificateholders. If no successor trustee shall have been appointed and have
accepted appointment within _____ days after the giving of such notice of
resignation, the resigning trustee may petition any court of
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<PAGE>
competent jurisdiction for the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
If the Trustee fails to perform in accordance with the terms of the Pooling
and Servicing Agreement, the Certificate Insurer or the majority
Certificateholders with the consent of the Certificate Insurer, may remove the
Trustee under the conditions set forth in the Pooling and Servicing Agreement
and appoint a successor trustee in the manner set forth therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or the _________ REMIC 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, including the _________
REMIC, and to vest in such person or persons, in such capacity, such title to
the Trust Fund or the _________ REMIC, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable.
THE CERTIFICATE INSURANCE POLICIES
AND THE CERTIFICATE INSURER
The following information has been supplied by the Certificate Insurer for
inclusion in this Prospectus Supplement.
[DETAILS OF THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER]
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
An election will be made to treat the _________ REMIC as a REMIC for
federal income tax purposes. Dewey Ballantine L.L.P, special tax counsel to the
Depositor, will deliver its opinion that, assuming compliance with the Pooling
and Servicing Agreement, the _________ REMIC will be treated as a REMIC for
Federal income tax purposes. The Class A Certificates will be designated as the
regular interests in the _________ REMIC, and the Class R Certificates will be
designated as the residual interest in the _________ REMIC. The Class R
Certificates are "Residual Interests" for purposes of the Prospectus.
The Certificates will be treated as "qualifying real property loans" for
mutual savings banks and domestic building and loan associations, "regular or
residual interests in a REMIC" for domestic building and loan associations, and
"real estate assets" for real estate investment trusts, to the extent described
in the Prospectus.
The Class A-1 Certificates will qualify as regular interests under the
REMIC rules because they will receive interest at a variable rate subject to a
"funds-available cap." The funds-available cap will limit the amount of interest
to be paid on the Class A-1 Certificates to the aggregate payments of interest
and principal concurrently made on the underlying Loans (net of certain fees and
other amounts). The Class A-1 Certificates will be issued with original issue
discount because under certain circumstances all or a portion of the interest
that has accrued at the variable rate may not be paid currently.
The Class A Certificates generally will be treated as debt instruments for
federal income tax purposes. Beneficial owners (or registered holders, in the
case of Definitive Certificates) of the Class A Certificates will be required to
report income on such Certificates in accordance with the accrual method of
accounting.
The Class A Certificates (other than the Class A-1 Certificates) will not
be issued with original issue discount for Federal income tax purposes. The
prepayment assumption that is to be used in determining the rate of accrual of
original issue discount and whether the original issue discount is considered de
minimis, and that may be used by a holder of a Class A Certificate to amortize
premium, will be calculated, with respect to the Class A-1 Certificates, using
_____% CPR and with respect to the Class A-2 Certificates, the Class A-3
Certificates and the Class A-4 Certificates, using _____% CPR in the first month
and an additional _____% per annum in each month after the first month until the
tenth month, and in each month thereafter, using _____% CPR. See "Material
S-71
<PAGE>
Federal Income Tax Consequences--REMIC Securities " in the Prospectus. No
representation is made as to the actual rate at which the Loans will prepay
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and
Sav. Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract), and the insurance company might be
treated as a Party-in-Interest or Disqualified Person with respect to a Plan by
virtue of such investment. ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions between
a Plan and Parties-in-Interest or Disqualified Persons with respect to such
Plans.
On _____________, the DOL issued to the Underwriter an individual
administrative exemption, Prohibited Transaction Exemption 90-32, 55 Fed. Reg.
23147 (the "Exemption"), from certain of the prohibited transaction rules of
ERISA with respect to the initial purchase, the holding and the subsequent
resale by an ERISA Plan of certificates in pass-through trusts that meet the
conditions and requirements of the Exemption. Among the conditions that must be
satisfied for the Exemption to apply are the following:
a. The acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party;
b. The rights and interests evidenced by the Class A Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
c. The Class A Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's, Moody's, Duff &
Phelps Inc. ("D&P") or Fitch Investor Service, Inc. ("Fitch");
d. The sum of all payments made to the Underwriter in connection with
the distribution of the Class A Certificates represents not more than
reasonable compensation for underwriting the Class A Certificates. The sum
of all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith;
e. The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below); and
f. The Plan investing in the Class A Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
The Trust Fund also must meet the following requirements:
a. The corpus of the Trust Fund must consist solely of assets of the
type which have been included in other investment pools;
b. certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, D&P or Fitch
for at least one year prior to the Plan's acquisition of certificates; and
c. certificates evidencing interests in such other investment pools
must have been purchased by investors other than plans for at least one
year prior to any Plan's acquisition of Class A Certificates.
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<PAGE>
In order for the Exemption to apply to certain self-dealing/conflict of
interest prohibited transactions that may occur when a Plan fiduciary causes the
Plan to acquire Class A Certificates. the Exemption requires, among other
matters, that: (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 Fund is acquired by persons independent of the Restricted Group (as
defined below); (ii) such fiduciary (or its affiliate) is an obligor with
respect to _____ percent or less of the fair market value of the obligations
contained in the Trust; (iii) the Plan's investment in Class A Certificates does
not exceed twenty-five percent (_____%) of all of the certificates 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 are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity.
The Exemption does not apply to certain prohibited transactions in the case
of Plans sponsored by the Underwriter, the Trustee, the Servicer, any obligor
with respect to the Loans constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, any entity deemed to
be a "sponsor" of the Trust Fund as such term is defined in the exemption, or
any affiliate of any such party (the "Restricted Group").
Subject to the foregoing, the Depositor believes that following the
reduction of the Pre-Funded Amount for the related Group to zero the Exemption
will apply to the acquisition and holding of the Class A Certificates by Plans
and that all conditions of such exemption other than those within the control of
the investors have been met. Prior to the reduction of the Pre-Funded Amount for
the related Group to zero, the purchase or holding of Class A Certificates by a
fiduciary of any employee benefit plan or other retirement arrangement subject
to the ERISA, or the Code could give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code. Accordingly, prior to such
reduction, the assets of such plans or arrangements may not be used to purchase
the Class A Certificates.
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan
should make its own determination as to the availability of the exemptive relief
provided in the Exemption, and whether the conditions of the Exemption will be
applicable to the Class A Certificates. Any fiduciary of an ERISA Plan
considering whether to purchase a Class A Certificate should also carefully
review with its own legal advisors the applicability of the fiduciary duty and
prohibited transaction provisions of ERISA and the Code to such investment. See
"ERISA Considerations" in the Prospectus.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject to
a federal, state, or local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The sale of Certificates to an ERISA Plan is in no respect a representation
by the Depositor or the Underwriter that this investment meets all relevant
legal requirements with respect to investments by ERISA Plans generally or any
particular ERISA Plan, or that this investment is appropriate for ERISA Plans
generally or any particular ERISA Plan.
LEGAL INVESTMENT
The Class A Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
The Other Certificates representing interests in other Loans transferred to the
Trust Fund after the Cut-Off Date may or may not constitute such "mortgage
related securities." Prospective purchasers of the Other Certificates should
consult their own legal, tax and accounting advisors in determining the
suitability of and consequence to them of the purchase, ownership and
disposition of any Other Certificates determined to be "mortgage related
securities."
Additionally, institutions subject to the jurisdiction of the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration or state banking or
insurance authorities should review applicable rules, supervisory policies and
guidelines of these agencies before purchasing any of the Class A Certificates
or Other Certificates, since such Class A Certificates or Other Certificates may
be deemed to be unsuitable investments under one or more of these rules,
policies and guidelines and certain restrictions may apply to such investments.
It should also be noted that certain states have enacted legislation limiting to
varying extents the ability of certain entities (in particular, insurance
companies) to invest in mortgage related securities. Investors
S-73
<PAGE>
should consult with their own legal advisors in determining whether and to what
extent the Class A Certificates and Other Certificates constitute legal
investments for such investors. See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement dated as
of _________ (the "Underwriting Agreement") between the Depositor and _________
(the "Underwriter"), the Depositor has agreed to sell to the Underwriter and the
Underwriter has agreed to purchase from the Depositor the Class A Certificates.
The Depositor is obligated to sell, and the Underwriter is obligated to
purchase, all of the Class A Certificates offered hereby if any are purchased.
The Underwriter has advised the Depositor that it proposes to offer the
Class A Certificates purchased by the Underwriter for sale from time to time in
one or more negotiated transactions or otherwise, at market prices prevailing at
the time of sale. at prices related to such market prices or at negotiated
prices. The Underwriter may effect such transactions by selling such
Certificates to or through dealers, and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter or purchasers of the Class A Certificates for whom they may act as
agent. Any dealers that participate with the Underwriter in the distribution of
the Class A Certificates purchased by the Underwriter may be deemed to be
underwriters, and any discounts or commissions received by them or the
Underwriter and any profit on the resale of Class A Certificates by them or the
Underwriter may be deemed to be underwriting discounts or commissions under the
Securities Act.
For further information regarding any offer or sale of the Class A
Certificates pursuant to this Prospectus Supplement and the Prospectus, see
"Plan of Distribution" in the Prospectus.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter or contribute to losses arising out of certain liabilities,
including liabilities under the Act.
[_________ is an affiliate of the Depositor.]
RATINGS
It is a condition to the original issuance of the Class A Certificates that
they will receive ratings of "[AAA]" by [Standard & Poor's] and "[Aaa]" by
[Moody's]. The ratings assigned to the Class A Certificates will be based on the
claims-paying ability of the Certificate Insurer. Explanations of the
significance of such ratings may be obtained from Moody's Investors Services,
Inc., 99 Church Street, New York, New York 10007 and Standard & Poor's Rating
Group, 25 Broadway, New York, New York 10004. Such ratings will be the views
only of such rating agencies. There is no assurance that any such ratings will
continue for any period of time or that such ratings will not be revised or
withdrawn. Any such revision or withdrawal of such ratings may have an adverse
effect on the market price of the Class A Certificates.
REPORT OF EXPERTS
The consolidated financial statements of _________ and subsidiaries as of
_________ and ____and for each of the three years in the period ended _______,
incorporated by reference into this Prospectus Supplement have been audited by
______________. , independent accountants, as set forth in their report thereon
incorporated by reference herein in reliance upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Class A Certificates will be
passed upon for ________________ by ___________ Counsel to _____ and for the
Depositor and the Underwriter by __________. Certain legal matters relating to
the Certificate Insurer and the Certificate Insurance Policies will be passed
upon for the Certificate Insurer by ____________.
S-74
<PAGE>
INDEX OF SIGNIFICANT PROSPECTUS
SUPPLEMENT DEFINITIONS
Term Page
- ---- ----
_________ 45
_________ _________ 21
_________ REMIC 1
Accrual Period 66
Additional Certificate 46
Business Day 66
Capitalized Interest Account 7
CEDEL Participants 56
Certificate Account 62
Certificate Insurance Policies 1
Certificate Insurer 1
Certificates 1
Class A Certificates 1
Class A-1 Certificates 1
Class A-2 Certificates 1
Class A-3 Certificates 1
Class R Certificates 1
Collection Account 62
Cooperative 56
CPR 48
Cut-Off Date 22
D&P 75
Definitive Certificate 55
Disqualified Persons 74
Eligible Account 62
ERISA 74
Euroclear Operator 56
Euroclear Participants 56
European Depositaries 55
Exemption 75
Financial Intermediary 55
Fitch 75
Gross Margin 23
Group 1
Group I 1
Group II 1
HELOCs 1
HELs 1
HEP 48
Indirect Participants 55
Interest Determination Date 66
Lifetime Rate Caps 23
Lifetime Rate Floors 23
Liquidated Loan Loss 64
Loan Agreement 22
Loans 1
Money Rates 1
Mortgaged Properties 22
Mortgages 22
Net Liquidation Proceeds 64
Nonrecoverable Advance 64
Participants 54
Parties-in-Interest 74
Permitted Investment 52
Plan 74
Plan of Distribution 1
S-75
<PAGE>
Pre-Funding Account 2
Prepayment Assumption 48
Qualified Substitute Loan 60
Reference Banks 66
Reimbursement Amount 65
Relevant Depositary 55
REMIC 2
Remittance Date 2
Reserve Account Deposit 65
Restricted Group 76
Reuter Screen LIBO Page 66
Risk Factors 1
Rules 55
Servicer Remittance Date 62
Similar Law 76
SMMEA 76
Sponsor 76
Subsequent Loans 2
Substitution Adjustment 59
Successor Servicer 71
Terms and Conditions 56
Trust 1
Trust Fund 1
Trustee Collection Account 62
Trustee Fee 73
Trustee's Mortgage File 58
Underwriter 1
Underwriting Agreement 77
S-76
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Depositor or by the Underwriter. This Prospectus Supplement
and the Prospectus do not constitute an offer to sell, or a solicitation of an
offer to buy, the securities offered hereby by anyone in any jurisdiction in
which such an offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
SUMMARY TERMS OF THE CERTIFICATES ......................................... 3
RISK FACTORS .............................................................. 21
DESCRIPTION OF THE LOANS .................................................. 22
[DETAILS OF SELLER] ....................................................... 44
[DETAILS OF SERVICER] ..................................................... 44
ALLOCATIONS OF PAYMENTS ON THE HELOCS BETWEEN THE
TRUST BALANCES AND THE ADDITIONAL BALANCES ................................ 45
PREPAYMENT AND YIELD CONSIDERATIONS ....................................... 46
DESCRIPTION OF THE CERTIFICATES ........................................... 52
SERVICING OF THE LOANS .................................................... 64
THE TRUSTEE ............................................................... 69
THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE
INSURER ................................................................... 70
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ................................. 70
ERISA CONSIDERATIONS ...................................................... 71
LEGAL INVESTMENT .......................................................... 74
PLAN OF DISTRIBUTION ...................................................... 75
RATINGS ................................................................... 75
REPORT OF EXPERTS ......................................................... 75
LEGAL MATTERS ............................................................. 75
INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT DEFINITIONS .................... 76
PROSPECTUS
Summary of Prospectus ..................................................... 5
Risk Factors ..............................................................
Prospectus Supplement ..................................................... 3
Reports to Holders ........................................................ 3
Available Information ..................................................... 3
Incorporation of Certain Documents by Reference ........................... 4
Summary of Prospectus ..................................................... 5
Risk Factors .............................................................. 15
Description of the Securities ............................................. 18
The Trust Funds ........................................................... 22
Credit Enhancement ........................................................ 27
Servicing of Loans ........................................................ 30
The Agreements ............................................................ 36
Certain Legal Aspects of the Loans ........................................ 43
The Depositor ............................................................. 51
Use of Proceeds ........................................................... 51
Material Federal Income Tax Consequences .................................. 51
State Tax Considerations .................................................. 63
ERISA Considerations ...................................................... 63
Legal Investment .......................................................... 66
Plan of Distribution ...................................................... 66
Legal Matters ............................................................. 66
Glossary of Terms ......................................................... 67
================================================================================
================================================================================
----------------
Trust _________
----------------
(Seller)
----------------
(Servicer)
&
Home Equity Securitization Corp.
(Depositor)
$----------
Class A-1 Certificates
$----------
Class A-2 Certificates
$----------
Class A-3 Certificates
$----------
Class A-4 Certificates
Mortgage Pass-Through Certificates,
Series _________
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
---------
---------------
================================================================================
S-77
EXHIBIT 99.2
FORM OF PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________)
_______________ TRUST ______
$__________ Class A-1 ____% Home Loan Asset Backed Notes
$__________ Class A-2 ____% Home Loan Asset Backed Notes
$__________ Class A-3 ____% Home Loan Asset Backed Notes
$__________ Class A-4 ____% Home Loan Asset Backed Notes
$__________ Class M-1 ____% Home Loan Asset Backed Notes
$__________ Class M-2 ____% Home Loan Asset Backed Notes
$__________ Class B ____% Home Loan Asset Backed Notes
Home Loan Asset Backed Notes
Distributions payable on the 25th day of each month, commencing in ___________
HOME EQUITY SECURITIZATION CORP.
as Depositor
[_______________]
as Servicer
The _______________ Trust _______ (the "Trust") will be formed pursuant to
a trust agreement to be dated as of _____________ (the "Trust Agreement") and
entered into by Home Equity Securitization Corp., as depositor (the
"Depositor"), __________________, as owner trustee (the "Owner Trustee"), and
__________________, as co-owner trustee (in such capacity, the "Co-Owner
Trustee"). The Trust will issue $____________ aggregate principal amount of Loan
Asset Backed Notes (the "Notes") pursuant to an indenture to be dated as of
______________ (the "Indenture"), between the Trust and ___________________, as
indenture trustee (in such capacity, the "Indenture Trustee"). The Trust will
also issue instruments evidencing in the aggregate the entire residual interest
in the Trust (each a "Residual Interest"). Only the Notes are offered hereby.
<TABLE>
<CAPTION>
=====================================================================================================
Price to Public Underwriting Discount Proceeds to Depositor (2)
<S> <C> <C> <C>
Class A-1 Notes (1) ...... % % %
Class A-2 Notes (1) ...... % % %
Class A-3 Notes (1) ...... % % %
Class A-4 Notes (1) ...... % % %
Class M-1 Notes (1) ...... % % %
Class M-2 Notes (1) ...... % % %
Class B Notes (1) ........ % % %
Total .................... $ $ $
=====================================================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from _______________
(2) Before deducting expenses, estimated to be $
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
NOTES, SEE THE INFORMATION HEREIN UNDER "RISK FACTORS" BEGINNING ON PAGE [___]
AND IN THE PROSPECTUS BEGINNING ON PAGE [__].
THE NOTES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, SERVICER, OWNER
TRUSTEE, INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE LOANS NOR THE NOTES ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
THE 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 SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
HAS NOT PASSED ON
<PAGE>
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The yield to maturity of any Notes may vary from the anticipated yields to
the extent such Notes are purchased at a discount or premium and to the extent
the rate and timing of payments thereof are sensitive to the rate and timing of
0principal payments (including prepayments) of the Loans. Noteholders should
consider, in the case of any Notes purchased at a discount, the risk that a
lower than anticipated rate of principal payments could result in an actual
yield that is lower than the anticipated yield and, in the case of any Notes
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield that is lower than the
anticipated yield.
The Trust will primarily consist of a pool (the "Pool") of home loans (the
"Loans") secured by either mortgages, deeds of trust or other similar security
instruments (the "Mortgages") as described herein under "The Loans." Loans
expected to have an aggregate unpaid principal balance as of the close of
business on _______________ (the "Initial Cut-Off Date") of approximately
$_____________ (the "Initial Loans") will be designated for inclusion in the
Pool. On or prior to______________, the Trust may purchase additional loans (the
"Subsequent Loans") having an aggregate unpaid principal balance of up to
$______________ (as adjusted pursuant to the immediately following sentence, the
"Original Pre-Funded Amount") with amounts on deposit in an account (the
"Pre-Funding Account") established for such purpose on the Closing Date. To the
extent that the aggregate unpaid principal balance (as of the Initial Cut-Off
Date) of the Initial Loans actually delivered on the Closing Date 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
$_______________.
Distributions on the Notes will be made to the holders of the Notes (the
"Noteholders") on the 25th day of each month or, if such day is not a Business
Day (as defined herein), the next succeeding Business Day (each, a "Distribution
Date"), beginning in _____________. The Notes are secured by the assets of the
Trust pursuant to the Indenture. On each Distribution Date, the Noteholders will
be entitled to receive, from and to the extent that funds are available therefor
in the Note Distribution Account, distributions with respect to interest and
principal calculated as described herein under "Description of the
Notes--Distributions on the Notes." Distributions of interest on the Class B
Notes will be subordinated in priority to distributions of interest on the Class
M-1 and Class M-2 Notes (together, the "Mezzanine Notes") which, in turn, will
be subordinated in priority to distributions of interest on the Class A-1, Class
A-2, Class A-3 and Class A-4 Notes (the "Senior Notes") as described herein.
Distributions of principal on the Class B Notes will be subordinated in priority
to distributions of principal on the Mezzanine Notes which, in turn, will be
subordinated in priority to distributions of principal of the Senior Notes as
described herein.
________________ (the "Underwriter") intends to make a secondary market in
the Notes but has no obligation to do so. There is currently no secondary market
for the Notes and there can be no assurance that such a market will develop or,
if it does develop, that it will continue.
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel. It is expected that delivery of the Notes will
be made in book-entry form only through the facilities of The Depository Trust
Company (the "Depository") on or about _________________.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Notes. Such
transactions may include stabilizing and the purchase of Notes to cover
syndicate short positions. For a description of these activities, see "Method of
Distribution" herein.
This Prospectus Supplement does not contain complete information about the
offering of the Notes. Additional information is contained in the Prospectus
dated _____________ (the "Prospectus") which accompanies this Prospectus
Supplement and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Notes may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
Upon written request, [ ]. will make available its most recent
audited financial statements. Requests should be directed to [ ].,
_____________________, Attention:
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Notes, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and the
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
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To the extent statements contained herein do not relate to historical or
current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Notes,
which risks and uncertainties are discussed under "Risk Factors" and "Prepayment
and Yield Considerations." As a consequence, no assurance can be given as to the
actual distributions on, or the yield of, any Class of Notes.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all documents filed by the
Depositor with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, on or subsequent to the date of
this Prospectus Supplement and prior to the termination of the offering of the
Notes. The Depositor will provide without charge to each person to whom this
Prospectus Supplement and Prospectus are delivered, on request of such person, a
copy of any or all of the documents incorporated herein by reference other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests should be made in writing
to ______________, _________________ of Home Equity Securitization Corp., at
.301 South College Street, Charlotte, North Carolina 28202-6001
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus. Certain capitalized
terms used herein are defined elsewhere in the Prospectus Supplement or in the
Prospectus.
Trust ......................... _______________ Trust ________ (the "Trust"
or the "Issuer"), a Delaware business trust,
will be established pursuant to a trust
agreement to be dated as of ______________
(the "Trust Agreement"), among the
Depositor, the Owner Trustee, and the
Co-Owner Trustee.
Depositor ..................... Home Equity Securitization Corp.. (the
"Depositor"), a North Carolina corporation.
The Depositor is a wholly owned, special
purpose subsidiary of First Union National
Bank, a national banking association with
its headquarters in Charlotte, North
Carolina. See "The Company" in the
Prospectus and "Method of Distribution"
herein. None of the Depositor, the Servicer,
the Indenture Trustee, or any of their
respective affiliates has guaranteed or is
otherwise obligated with respect to the
Notes.
Servicer ...................... _______________________, ("_____" or as
servicer, the "Servicer"), in its capacity
as servicer of the Loans.
Owner Trustee and Co-Owner
Trustee ....................... __________________, a _____________ banking
corporation, as owner trustee under the
Trust Agreement (the "Owner Trustee") and
_________________________, as co-owner
trustee under the Trust Agreement (in such
capacity, the "Co-Owner Trustee").
Indenture Trustee ............ ________________________, a national banking
association, as the indenture trustee (in
such capacity, the "Indenture Trustee")
under an indenture to be dated as of
__________________ (the "Indenture") between
the Trust and the Indenture Trustee.
Custodian ..................... ________________________, as the custodian
(the "Custodian") under the Custodial
Agreement to be dated as of _____________,
______ by and among the Trust, the
Depositor, the Servicer, the Indenture
Trustee and the Custodian.
Closing Date .................. On or about __________________.
Cut-Off Date .................. With respect to the Initial Loans, the close
of business on __________________ (the
"Initial Cut-Off Date"). With respect to the
Subsequent Loans, the close of business on
the date specified as such in the related
Subsequent Transfer Agreement (as defined
herein).
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<PAGE>
Distribution Date ............. The 25th day of each month or, if such day
is not a Business Day, the next succeeding
Business Day, commencing in
_________________ (each, a "Distribution
Date").
Due Period .................... With respect to a Distribution Date the
calendar month immediately preceding such
Distribution Date (each, a "Due Period").
Determination Date ............ The fourteenth calendar day of each month
or, if such day is not a Business Day, the
immediately preceding Business Day (each, a
"Determination Date").
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 each Distribution Date occurs
and, with respect to the first Distribution
Date, the Cut-off Date (each, a "Record
Date").
The Notes ..................... The Trust will issue the Classes of Notes
pursuant to the Indenture in the respective
aggregate initial principal amounts
specified on the cover hereof (each such
aggregate principal amount being the
"Original Class Principal Balance" for the
related Class). The Notes will be secured by
the assets of the Trust pursuant to the
Indenture and will be senior in right of
payment to the Residual Interests. In
addition, as described herein, the Class
A-1, Class A-2, Class A-3 and Class A-4
Notes (the "Senior Notes") will also be
senior in the right to receive certain
payments relative to the Class M-1 and Class
M-2 Notes (together, the "Mezzanine Notes"),
which will be senior in the right to receive
certain payments relative to the Class B
Notes. Payments in respect of interest on
the Notes will be made prior to payments of
principal of the Notes. Interest will accrue
on each Class of Notes at the following
applicable per annum rate (as to each such
Class, the "Note Interest Rate"):
Class A-1 Notes _____
Class A-2 Notes _____
Class A-3 Notes _____
Class A-4 Notes _____
Class M-1 Notes _____
Class M-2 Notes _____
Class B Notes _____
Interest on the Notes will accrue on the
basis of a 360-day year consisting of twelve
30-day months. See "Description of the
Notes/Distributions on the Notes" herein.
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<PAGE>
Priority of Distributions
Regular Distribution
Amount ........................ The Regular Distribution Amount (as defined
herein) will be distributed on each
Distribution Date in the following order of
priority: (i) to pay accrued and unpaid
interest on the Senior Notes, pro rata,
based on the amount of interest
distributable in respect of each such Class
calculated at the related Note Interest
Rate; (ii) to pay accrued and unpaid
interest, first, on the Class M-1 Notes and,
second, on the Class M-2 Notes; (iii) to pay
accrued and unpaid interest on the Class B
Notes; (iv) to pay as principal of the Class
A-1, Class A-2, Class A-3 and 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 (as defined herein); (v) to pay as
principal 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 and Class M-2
Optimal Principal Balances, respectively;
(vi) to pay as principal of the Class B
Notes, the amount necessary to reduce the
Class Principal Balance thereof to zero;
(vii) to pay to the Class M-1, Class M-2 and
Class B Notes, in that order, their
respective Loss Reimbursement Deficiencies
(as defined herein), if any; and (viii) to
pay any remaining amount to the holders of
the Residual Interests.
Excess Spread ................ The Excess Spread (as defined herein) will
be distributed on each Distribution Date in
the following order of priority (after
giving effect to all distributions specified
above under "--Regular Distribution
Amount"): (i) prior to the termination of
the Spread Deferral Period (as defined
herein), to be deposited in the Certificate
Distribution Account for distribution to the
holders of the Residual Interests; (ii) upon
the termination of the Spread Deferral
Period, (A) in an amount equal to the
Overcollateralization Deficiency Amount (as
defined herein), if any, as follows: (1) to
pay as principal of the Class A-1, Class
A-2, Class A-3 and 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; (2)
to pay as principal 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 and Class
M-2 Optimal Principal Balances,
respectively; and (3) to pay as principal of
the Class B Notes, the amount necessary to
reduce the Class Principal Balance thereof
to zero; (B) to pay to the Class M-1, Class
M-2 and Class B Notes, in that order, their
respective Loss Reimbursement Deficiencies,
if any; and (C) to pay any remaining amount
to the holders of the Residual Interests.
Final Maturity Dates The Class Principal Balance of each Class of
Notes, to the extent not previously paid,
will be payable in full on the Final
Maturity Dates set forth below (each a
"Final Maturity Date"), although it is
anticipated that the actual final
Distribution Date for each Class of Notes
will occur significantly earlier than its
respective Final Maturity Date.
Final
Maturity Date
Class A-1 Notes _____________
Class A-2 Notes _____________
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<PAGE>
Class A-3 Notes _____________
Class A-4 Notes _____________
Class M-1 Notes _____________
Class M-2 Notes _____________
Class B Notes _____________
Form and Registration of
the Notes ..................... The Notes will be available in book-entry
form. Persons acquiring beneficial ownership
interests in the Notes ("Note Owners") will
hold such Notes through the book-entry
facilities of The Depository Trust Company
("DTC"). Transfers within DTC will be in
accordance with the usual rules and
operating procedures of DTC. So long as each
Class of Notes is in book-entry form, each
such Class will be evidenced by one or more
certificates registered in the name of the
nominee of DTC. The interests of the Note
Owners will be represented by book-entries
on the records of DTC and participating
members thereof. No Note Owner will be
entitled to receive a definitive certificate
representing such person's interest, except
in the event that Definitive Securities are
issued under the limited circumstances
described herein. All references in this
Prospectus Supplement to any Class of Notes
reflect the rights of the Note Owners of
such Class only as such rights may be
exercised through DTC and its participating
members so long as such Class of Notes is
held by DTC.
Assets of the Trust ........... On the Closing Date, the Trust will purchase
from the Depositor a pool of home loans (the
"Initial Loans") expected to have an
aggregate unpaid principal balance of
approximately $_____________ as of the
Initial Cut-Off Date (the actual aggregate
unpaid principal balance (as of the Initial
Cut-off Date) of the Initial Loans, the
"Original Pool Principal Balance") pursuant
to a Sale and Servicing Agreement to be
dated as of _________________ (the "Sale and
Servicing Agreement") among the Trust, the
Depositor, the Servicer, the Indenture
Trustee and the Co-Owner Trustee. On or
prior to ______________, the Trust may
purchase additional loans (the "Subsequent
Loans," and together with the Initial Loans,
the "Loans") having an aggregate unpaid
principal balance of up to approximately
$_____________ (as adjusted pursuant to the
immediately following sentence, the
"Original Pre-Funded Amount"). 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 $_____________. The Loans will be
secured by mortgages, deeds of trust or
other similar security instruments (the
"Mortgages").
The Initial Loans are expected to consist of
approximately _______ loans, having an
Original Pool Principal Balance of
approximately $_________. See "The Loans"
herein. The statistical information
presented in this Prospectus Supplement
regarding the Loans is based only on the
Initial Loans identified as of the date of
this Prospectus Supplement, and does not
take into account any additional Initial
Mortgage Loans identified after the date of
this Prospectus Supplement or any Subsequent
Loans that may be sold to the Trust during
the Pre-Funding Period through application
of amounts in the Pre-Funding Account. In
addition, prior to the Closing Date, ______
may remove any of the home loans intended to
be sold to
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<PAGE>
the Trust, substitute comparable loans
therefor, or add comparable loans thereto;
however, the aggregate principal balance of
such loans so replaced, added or removed may
not exceed ______% of the Original Pool
Principal Balance. If, prior to the Closing
Date, loans are removed (or added) as
described herein, an amount equal to the
aggregate principal balances of such loans
will be added to (or deducted from) the
Original Pre-Funded Amount on the Closing
Date. As a result of the foregoing, the
statistical information presented herein
regarding the Loans expected to be sold to
the Trust as of the date of this Prospectus
Supplement (1) does not take into account
any (a) additional Initial Mortgage Loans
not identified as of the date of this
Prospectus Supplement and (b) Subsequent
Loans that may be sold to the Trust during
the Pre-Funding Period through the
application of amounts in the Pre-Funding
Account and (2) may vary in certain respects
from comparable information based on the
actual composition of Loans at the Closing
Date or any Subsequent Transfer Date. See
"Risk Factors--Acquisition of Subsequent
Loans" and "The Loans" herein.
The assets of the Trust will consist
primarily of the Loans. The assets of the
Trust will also include (i) payments of
interest and principal received in respect
of the Loans after the related Cut-Off Date;
(ii) amounts on deposit in the Collection
Account, Note Distribution Account,
Pre-Funding Account, Capitalized Interest
Account and Certificate Distribution
Account; and (iii) certain other ancillary
or incidental funds, rights and properties
related to the foregoing. See "The
Trust--General" herein. The Trust will
include the unpaid principal balance of each
Loan as of its applicable Cut-Off Date (the
"Cut-Off Date Principal Balance"). With
respect to any date, the "Pool Principal
Balance" will be equal to the aggregate of
the Principal Balances of all Loans as of
the last day of the immediately preceding
Due Period (as defined herein). The
Principal Balance of any Loan will be
calculated as described herein under "The
Trust--General."
The Trust will also issue instruments
evidencing in the aggregate the entire
residual interest in the assets of the Trust
(each a "Residual Interest"), which is not
being offered hereby. The Residual Interests
are subordinate in right of payment to the
Notes.
The Loans ..................... All of the Loans will be home loans that are
not insured or guaranteed by a governmental
agency the related proceeds of which were
used to finance (i) property improvements,
(ii) the acquisition of personal property
such as home appliances or furnishings,
(iii) debt consolidation, (iv) the partial
refinancing of one- to two-family
residential properties (which may include
cash-out to the borrower), (v) a combination
of property improvements, debt consolidation
and other consumer purposes or (vi) to
purchase the related mortgaged property.
Substantially all of the Mortgages for the
Loans will be junior (i.e., second) in
priority to a senior lien on the related
mortgaged properties (each a "Mortgaged
Property"), which will consist primarily of
owner-occupied single-family residences.
Substantially all of the Loans will be
secured by liens on Mortgaged Properties in
which the borrowers have little or no equity
(i.e., the related Combined Loan-to-Value
Ratios exceed 100%) at the time of
origination. See "Risk Factors--Adequacy of
the Mortgaged Properties as Security for the
Loans" and "The Loans" herein and "The Trust
Funds--The Loans" in the Prospectus.
"Combined Loan-to-Value Ratio" means, with
respect to any Loan, the fraction, expressed
as a percentage, the numerator of which is
the principal balance of such Loan at
origination plus, in the case of a junior
lien Loan, the aggregate outstanding
principal balance of the related senior
liens on the date of origination of such
Loan, and the denominator of which is the
appraised value of the related Mortgaged
Property at the time of
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<PAGE>
origination of such Loan (determined as
described herein under
"_______________--Underwriting Guidelines").
The Initial Loans are expected to consist of
approximately _______ loans having an
Original Pool Principal Balance expected to
be approximately $_____________. More or
fewer Initial Loans having an Original Pool
Principal Balance of greater or less than
such amount may actually constitute the
Initial Loans provided that the amount of
any such variance in the Original Pool
Principal Balance shall not exceed
$__________. See "The Loans" herein.
_______ and the Depositor will be obligated
either to repurchase any Loan as to which
(i) a representation or warranty has been
breached or (ii) a document deficiency
exists, which breach or deficiency remains
uncured for a period of 60 days and has a
materially adverse effect on the interests
of the Noteholders in such Loan (each, a
"Defective Loan") or to remove such
Defective Loan and substitute a Qualified
Substitute Loan. In addition, ______ may at
its option purchase or remove from the Trust
and, if not purchased, substitute for such
Loan a qualified Substitute Loan, any Loan
that is 90 days or more delinquent and which
_____ determines in good faith would
otherwise become subject to foreclosure
proceedings so long as the aggregate of such
purchases does not exceed 10% of the Maximum
Collateral Amount. As used herein, a
"Qualified Substitute Loan" will have
characteristics that are substantially
similar to the characteristics of the Loan
which it replaces. The repurchase of any
Loan (rather than the replacement thereof
through substitution) will result in
accelerated payments of principal
distributions on the Notes. See
"_________________--Repurchase or
Substitution of Loans" herein.
With respect to any date, the "Maximum
Collateral Amount" shall equal the sum of
the (i) the Original Pool Principal Balance
and (ii) the aggregate Cut-Off Date
Principal Balances of all Subsequent Loans
transferred to the Trust on or prior to such
date.
Credit Enhancement ............ Credit enhancement with respect to the Notes
will be provided by (i) the subordination of
distributions in respect of the Residual
Interests (as well as the subordination of
certain Classes of Notes to other Classes of
Notes, as described herein), and (ii) the
Overcollateralization Amount which results
from (a) the excess of the sum of the
Original Pool Principal Balance and the
Original Pre-Funding Amount over the
aggregate of the Class Principal Balances of
all Classes of Notes and (b) following the
Spread Deferral Period, the limited
acceleration of the principal amortization
of the Notes relative to the amortization of
the Loans by the application of Excess
Spread, as described herein.
Subordination ............... The rights of the holders of the Class M-1
Notes to receive distributions of interest
on each Distribution Date will be
subordinated to such rights of the holders
of the Senior Notes, the rights of the
holders of the Class M-2 Notes to receive
distributions of interest on each
Distribution Date will be subordinated to
such rights of the holders of the Class M-1
Notes and the Senior Notes, and the rights
of the holders of the Class B Notes to
receive distributions of interest on each
Distribution Date will be subordinated to
such rights of the holders of all other
Classes of Notes. In addition, the rights of
the holders of the Class M-1 Notes to
receive distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of the Senior Notes, and the rights of the
holders of the Class M-2 Notes to receive
distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of the Senior Notes and the Class M-1 Notes.
The rights of the
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<PAGE>
holders of the Class B Notes to receive
distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of all other Classes of Notes. In addition,
the rights of the holders of the Residual
Interests to receive any distributions from
amounts available on each Distribution Date
will be subordinated to such rights of the
holders of all Classes of Notes. The
subordination described above is intended to
enhance the likelihood of regular receipt by
the holders of the Notes of the full amount
of interest and principal distributions due
to such holders and to afford such holders
protection against losses on the Loans. See
"Description of Credit
Enhancement--Subordination and Allocation of
Losses" herein.
Overcollateralization ......... As of any date of determination, the
"Overcollateralization Amount" will equal
the excess of (A) the sum of (i) the Pool
Principal Balance as of the end of the
immediately preceding Due Period and (ii)
the Pre-Funded Amount as of the end of the
immediately preceding Due Period over (B)
the aggregate of the Class Principal
Balances of the Notes. On the Closing Date,
the Overcollateralization Amount will be
$___________, which is equal to ______% of
the sum of the Original Pool Principal
Balance and the Original Pre-Funded Amount.
As a result of the application of Excess
Spread in reduction of the Class Principal
Balances of the Notes following the end of
the Spread Deferral Period, the
Overcollateralization Amount is expected to
increase over time until such amount is
equal to the Overcollateralization Target
Amount.
The "Spread Deferral Period" will begin on
the Closing Date and end as soon as Excess
Spread in an amount equal to $____________
has been deposited in the Certificate
Distribution Account for distribution to the
holders of the Residual Interests. The
"Overcollateralization Target Amount" will
equal (A) with respect to any Distribution
Date occurring prior to the Stepdown Date
(as defined herein), the greater of (x)
____% of the Maximum Collateral Amount and
(y) the Net Delinquency Calculation Amount
(as defined herein), and (B) with respect to
any other Distribution Date, the greater of
(x) ____% of the Pool Principal Balance as
of the end of the preceding Due Period and
(y) the Net Delinquency Calculation Amount;
provided, however, that the
Overcollateralization Target Amount will in
no event be less than ____% of the Maximum
Collateral Amount.
While the distribution of Excess Spread
following the Spread Deferral Period to
holders of the Notes in reduction of their
respective Class Principal Balances has been
designed to produce and maintain a given
level of overcollateralization with respect
to the Notes, there can be no assurance that
Excess Spread will be generated in
sufficient amounts to ensure that such
overcollateralization level will be achieved
or maintained at all times. See "Description
of Credit Enhancement--Subordination and
Allocation of Losses" and "Risk
Factors--Adequacy of Credit Enhancement"
herein.
Application of Allocable Loss
Amounts ....................... In the event that (a) the aggregate of the
Class Principal Balances of all Classes of
Notes on any Distribution Date (after giving
effect to all distributions on such date)
exceeds (b) the sum of the Pool Principal
Balance and the Pre-Funded Amount, each as
of the end of the immediately preceding Due
Period (such excess, an "Allocable Loss
Amount"), such Allocable Loss Amount will be
applied, sequentially, in reduction of the
Class Principal Balances of the Class B,
Class M-2 and Class M-1 Notes, in that
order, until the respective Class Principal
Balances thereof have been reduced to zero.
Allocable Loss Amounts will not be applied
to the reduction of the Class Principal
Balance of any Class of Senior Notes.
Allocable Loss Amounts applied to any
applicable Class of Notes will
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<PAGE>
entitle such Class to reimbursement (such
entitlement, a "Loss Reimbursement
Deficiency") under the circumstances and to
the extent provided herein. See "Description
of the Notes--Application of Allocable Loss
Amounts" herein.
Fees and Expenses of
the Trust ..................... As compensation for its services pursuant to
the Sale and Servicing Agreement, the
Servicer will be entitled to the Servicing
Fee and the additional compensation
described under "Description of Transfer and
Servicing Agreements--Servicing" (together,
the "Servicing Compensation"). As
compensation for their services pursuant to
the applicable Transfer and Servicing
Agreements, the Indenture Trustee will be
entitled to its accrued and unpaid fee (the
"Indenture Trustee Fee") and the Owner
Trustee will be entitled to its accrued and
unpaid fee (the "Owner Trustee Fee"). The
Servicing Compensation, the Indenture
Trustee Fee and the Owner Trustee Fee are
collectively referred to as the "Trust Fees
and Expenses."
Pre-Funding Account ........... On the Closing Date, the Original Pre-Funded
Amount will be deposited in the Pre-Funding
Account, which account will be in the name
of the Indenture Trustee, will form part of
the Trust and will be used to acquire
Subsequent Loans. The Original Pre-Funded
Amount is expected to equal $____________ on
the Closing Date but such account may be
increased or decreased to by an amount equal
to the amount by which the Original Pool
Principal Balance falls short of or exceeds
$___________; provided that the amount of
any such increase or decrease shall not
exceed $___________. During the Pre-Funding
Period (as defined below), the amount on
deposit in the Pre-Funding Account (net of
investment earnings thereon) (the
"Pre-Funded Amount") will be reduced by the
amount thereof used to purchase Subsequent
Loans in accordance with the Sale and
Servicing Agreement. The "Pre-Funding
Period" is the period commencing on the
Closing Date and ending generally on the
earlier to occur of (i) the date on which
the amount on deposit in the Pre-Funding
Account (net of any investment earnings
thereon) is less than $_________ and (ii)
______________. On the Distribution Date
following the Due Period in which the
termination of the Pre-Funding Period
occurs, if the Pre-Funded Amount at the end
of the Pre-Funding Period is less than
$___________, any such Pre-Funded Amount
will be distributed to holders of the
Classes of Notes then entitled to receive
principal on such Distribution Date in
reduction of the related Class Principal
Balances, thus resulting in a partial
redemption of the related Notes on such
date. On the Distribution Date following the
Due Period in which the termination of the
Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period
is greater than or equal to $__________
(such event, a "Pre-Funding Pro Rata
Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of
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 in relation to
the sum of the Original Pool Principal
Balance and the Original Pre-Funded Amount.
Capitalized Interest Account .. On the Closing Date, a portion of the sales
proceeds of the Notes will be deposited in
an account (the "Capitalized Interest
Account") for application by the Indenture
Trustee on the Distribution Dates in
______________, _____________ and
_______________ to cover shortfalls in
interest on the Notes that may arise due to
the utilization of the Pre-Funding Account
as described herein. Any amounts remaining
in the Capitalized Interest Account at the
end of the Pre-Funding Period will be paid
to ______.
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Optional Termination .......... The holders of Residual Interests exceeding
in the aggregate a 50% percentage interest
(the "Majority Residual Interestholders")
may, at their option, effect an early
termination of the Trust on or after any
Distribution Date on which the Pool
Principal Balance declines to ____% or less
of the Maximum Collateral Amount, by
purchasing all of the Loans at a price equal
to or greater than the Termination Price (as
defined herein). The proceeds from any such
sale will be distributed in the amounts and
subject to the priorities described herein
under "Description of the
Notes--Distributions on the Notes." See
"Description of the Notes--Optional
Termination of the Trust" herein.
Tax Status .................... In the opinion of Tax Counsel (as defined
herein) for Federal income tax purposes, the
Notes will be characterized as debt and the
Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as
indebtedness for Federal income tax
purposes. Alternative characterizations of
the Trust are possible, but would not result
in materially adverse tax consequences to
Noteholders. See "Certain Federal Income Tax
Consequences" herein and "Certain Federal
Income Tax Consequences" in the Prospectus
for additional information concerning the
application of Federal income tax laws to
the Trust and the Notes.
ERISA ......................... Subject to the considerations discussed
under "ERISA Considerations" herein and in
the Prospectus, plans that are subject to
the requirements of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), may purchase
the Notes. Any fiduciary considering whether
to purchase the Notes on behalf of such a
plan must determine that the purchase of a
Note is consistent with its fiduciary duties
under ERISA and does not result in a
nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of
the Code.
See "ERISA Considerations" herein and in the
Prospectus.
Servicing of the Loans ........ The Servicer will perform the loan servicing
functions with respect to the Loans pursuant
to the Sale and Servicing Agreement and will
be entitled to receive a fee (the "Servicing
Fee") and other servicing compensation
(collectively, the "Servicing
Compensation"), payable monthly, as
described herein (See "Description of the
Transfer and Servicing
Agreements--Servicing" herein). The Servicer
may subcontract its servicing obligations
and duties with respect to certain Loans to
certain qualified servicers pursuant to one
or more subservicing agreements (each such
servicer, in this capacity, a
"Subservicer"). However, the Servicer will
not be relieved of its servicing obligations
and duties with respect to any subserviced
Loans. In addition, the Servicer will be
responsible for paying the fees of any such
Subservicer.
Legal Investment .............. The Notes will not constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 "SMMEA"), because some of the Mortgages
securing the Loans are not first mortgages.
Accordingly, many institutions with legal
authority to invest in comparably rated
securities based solely on first mortgages
may not be legally authorized to invest in
the Notes. See "Legal Investment Matters"
herein and "Legal Investment" in the
Prospectus.
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Ratings of the Notes .......... It is a condition to the issuance of the
Notes that each of the Senior Notes be rated
"[AAA]" by [Fitch Investors Service, L.P.
("Fitch")] and "[Aaa]" by [Moody's Investor
Service] ["Moody's" and together with
Fitch,] the "Rating Agencies"), and that the
Class M-1 Notes be rated "[AA]" by [Fitch]
and "[A2]" by [Moody's], the Class M-2 Notes
be rated "[A]" by Fitch] and "[A2]" by
[Moody's] and the Class [B] Notes be rated
"[BBB]" by [Fitch] and "[Baa3]" by
[Moody's]. A security rating does not
address the frequency of principal
prepayments or the corresponding effect on
yield to holders of the Notes. The security
rating does not address the ability of the
Trust to acquire Subsequent Loans, any
potential redemption with respect thereto or
the effect on yield resulting therefrom.
None of the Depositor, Servicer, Indenture
Trustee, Owner Trustee, Co-Owner Trustee or
any other person is obligated to maintain
the rating on any Class of Notes.
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<PAGE>
RISK FACTORS
Prospective investors in the Notes should consider the following risk
factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with the purchase of the Notes. These factors are
intended to identify the significant sources of risk affecting an investment in
the Notes. Unless the context indicates otherwise, any numerical or statistical
information presented in this Prospectus Supplement is based upon the
characteristics of the Initial Loans identified as of ______________ (such date,
the "Statistic Calculation Date").
Difference Between Pool as of the Statistic Calculation Date and the Initial
Cut-Off Date
The statistical information presented in this Prospectus Supplement
concerning the Initial Loans is based on the characteristics of a portion of
such Initial Loans as of Statistic Calculation Date. Such portion aggregated $
_______________ as of the Statistic Calculation Date. _____ expects that the
actual aggregate principal balance of the Initial Loans as of the Initial
Cut-Off Date will be approximately $_____________. The additional Initial Loans
will represent Loans originated by or on behalf of ______ or purchased and
re-underwritten by ______ in accordance with ______'s program on or prior to the
Initial Cut-Off Date. Moreover, certain Initial Loans included as of the
Statistic Calculation Date may prepay in full, or may be determined not to meet
the eligibility requirements for the Loans, and thus not be included as Initial
Loans. As a result of the foregoing, the statistical distribution of
characteristics as of the Initial Cut-Off Date for the Initial Loans will vary
somewhat from the statistical distribution of such characteristics as of the
Statistic Calculation Date as presented in this Prospectus Supplement, although
such variance will not be material.
Variation in Credit Quality and Subsequent Loans
The ability of ______ to acquire or originate loans subsequent to the
Closing Date and on or prior to ___________________ that meet the requirements
for transfer during the Pre-Funding Period under the Sale and Servicing
Agreement is and will be affected by a variety of factors, including interest
rates, employment levels, the rate of inflation and consumer perception of
economic conditions generally. On the Distribution Date following the Due Period
in which the termination of the Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period is less than $_________, any such
Pre-Funded Amount will be distributed to holders of the Classes of Notes then
entitled to receive principal on such Distribution Date in reduction of the
related Class Principal Balances, thus resulting in a partial redemption of the
related Notes on such date. On the Distribution Date following the Due Period in
which the termination of the Pre-Funding Period occurs, if the Pre-Funded Amount
at the end of the Pre-Funding Period is greater than or equal to $___________
(such event, a "Pre-Funding Pro Rata Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of all Classes of Notes and the
Residual Interests (which initially represent the Overcollateralization Amount
on the Closing Date), pro rata, based on the Original Class Principal Balances
of the Notes and original balance of the Residual Interests in relation to the
sum of the Original Pool Principal Balance and the Original Pre-Funded Amount.
Any conveyance of Subsequent Loans is subject to the conditions set forth
in the Sale and Servicing Agreement, which conditions include among others: (i)
each Subsequent Loan must satisfy the representations and warranties specified
in the Sale and Servicing Agreement; (ii) ______ will not select Subsequent
Loans in a manner that it believes is adverse to the interests of the
Noteholders; and (iii) as of the related Cut-Off Date, all of the Loans,
including the Subsequent Loans to the conveyed to the Trust by the Depositor as
of such Cut-Off Date, must satisfy certain statistical criteria set forth in the
Sale and Servicing Agreement. Although each Subsequent Loan must satisfy the
eligibility criteria referred to above at the time of its transfer to the Trust,
the Subsequent Loans may have been originated or purchased by ______ using
credit criteria different from those which were applied to the Initial Loans and
may be of a different credit quality and have different loan characteristics
from the Initial Loans. After the transfer of the Subsequent Loans to the Trust,
the aggregate statistical characteristics of the Loan Pool may vary from those
of the Initial Loans that have been identified as of the Statistic Calculation
Date as described herein. See "The Loans Initial Loan Statistics", and
"Conveyance of Subsequent Loans" herein.
Prepayment and Yield Considerations
All of the Loans may be prepaid in whole or in part at any time; however,
with respect to certain Loans, a prepayment charge, as permitted by applicable
law, may apply to full and partial prepayments during the first three years
after origination as described below under "Prepayment and Yield
Considerations." Home loans, such as the Loans, have been originated in
significant volume only during the past few years and neither the Depositor nor
the Servicer is aware of any publicly available studies or statistics on the
rate of prepayment of such loans. The Trust's prepayment experience may be
affected by a wide variety of factors, including general economic conditions,
interest rates, the availability of alternative financing, homeowner mobility
and the Combined Loan-to-Value Ratios of the
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Loans. In addition, substantially all of the Loans contain due-on-sale
provisions and the Servicer intends to enforce such provisions unless (i) the
Servicer, in a manner consistent with accepted servicing practices, permits the
purchaser of the related Mortgaged Property to assume the Loan or (ii) such
enforcement is not permitted by applicable law. To the extent permitted by
applicable law, such assumption will not release the original borrower from its
obligation under any such Loan. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses in Mortgage Loans" in the Prospectus.
In certain cases, the Servicer may, in a manner consistent with its
servicing practices, permit a borrower who is selling his principal residence
and purchasing a new one to substitute the new Mortgaged Property as collateral
for the related Loan. In such event, the Servicer will generally require the
borrower to make a partial prepayment in reduction of the principal balance of
the Loan to the extent that the borrower has received proceeds from the sale of
the prior residence that will not be applied to the purchase of the new
residence.
The extent to which the yield to maturity of a Note may vary from the
anticipated yield will depend upon (i) the degree to which it is purchased at a
premium or discount, (ii) the degree to which the timing of distributions to
holders thereof is sensitive to scheduled payments, prepayments, liquidations,
defaults, delinquencies, substitutions, modifications and repurchases of Loans
and to the distribution of Excess Spread and (iii) the application of Allocable
Loss Amounts to certain Classes of Notes as specified herein. In the case of any
Note purchased at a discount, an investor should consider the risk that a slower
than anticipated rate of principal distributions to the holder of such Note
(including without limitation principal prepayments on the Loans) could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Note purchased at a premium, the risk that a faster than
anticipated rate of principal distributions to the holder of such Note
(including without limitation principal prepayments on the Loans) could result
in an actual yield to such investor that is lower than the anticipated yield. On
each Distribution Date following the Spread Deferral Period and until the
Overcollateralization Amount is at least equal to the Overcollateralization
Target Amount, the allocation of the Excess Spread for such Distribution Date as
an additional distribution of principal of the Notes will accelerate the
amortization of the Notes relative to the amortization of the Loans. Further, in
the event that significant distributions of principal are made to holders of the
Notes as a result of prepayments, liquidations, repurchases and purchases of the
Loans or distributions of Excess Spread, there can be no assurance that holders
of the Notes will be able to reinvest such distributions in a comparable
alternative investment having a comparable yield. See "Risk Factors--Prepayment
and Yield Considerations" herein.
Adequacy of Credit Enhancement
Credit enhancement with respect to the Notes will be provided by (i) the
subordination of distributions in respect of the Residual Interests (as well as
the subordination of certain Classes of Notes to other Classes of Notes, as
described herein), and (ii) the Overcollateralization Amount which results from
(a) the excess of the sum of the Original Pool Principal Balance and the
Original Pre-Funded Amount over the aggregate of the Class Principal Balances
for all Classes as of Notes and (b) following the Spread Deferral Period, the
limited acceleration of the principal amortization of the Notes relative to the
amortization of the Loans by the application of Excess Spread, as described
herein. If the Loans experience higher rates of delinquencies, defaults and
losses than initially anticipated in connection with the ratings of the Notes,
or if the Loan Rates on those Initial Loans which have adjustable interest rates
("Adjustable Rate Loans") decrease, the amounts available from the credit
enhancement may not be adequate to cover the delays or shortfalls in
distributions to the holders of the Notes that result from such higher
delinquencies, defaults and losses. If the amounts available from the credit
enhancement are inadequate, the holders of the Notes will bear the risk of any
delays and losses resulting from the delinquencies, defaults and losses on the
Loans.
The rights of the holders of the Class M-1 Notes to receive distributions
of interest on each Distribution Date generally will be subordinated to such
rights of the holders of the Senior Notes, the rights of the holders of the
Class M-2 Notes to receive distributions of interest on each Distribution Date
generally will be subordinated to such rights of the holders of the Class M-1
Notes and the Senior Notes, and the rights of the holders of the Class B Notes
to receive distributions of interest on each Distribution Date generally will be
subordinated to such rights of the holders of all other Classes of Notes. In
addition, the rights of the holders of the Class M-1 Notes to receive
distributions of principal on each Distribution Date generally will be
subordinated to such rights of the holders of the Senior Notes, and the rights
of the holders of the Class M-2 Notes to receive distributions of principal on
each Distribution Date generally will be subordinated to such rights of the
holders of the Senior Notes and the Class M-1 Notes. Further, distributions of
principal of the Class B Notes generally will be subordinated in priority of
payment to all other Classes of Notes. See "Description of Credit
Enhancement--Subordination and Allocation of Losses" herein.
While the distribution of Excess Spread to the holders of the Notes in the
manner specified herein has been designed to produce and maintain a given level
of overcollateralization with respect to the Notes, there can be no assurance
that Excess Spread will be generated in sufficient amounts to ensure that such
overcollateralization level will be achieved or maintained at all times. In
particular, as a result of delinquencies on the Loans during any Due Period,
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<PAGE>
the amount of interest received on the Loans during such Due Period may be less
than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Classes of Notes to decrease at a slower rate relative to the Pool Principal
Balance, resulting in a reduction of the Overcollateralization Amount and, in
some circumstances, an Allocable Loss Amount.
The holders of the Residual Interests will not be required to refund any
amounts previously distributed to them pursuant to the Transfer and Servicing
Agreements, including any distributions of Excess Spread, regardless of whether
there are sufficient funds on a subsequent Distribution Date to make a full
distribution to holders of the Notes.
Adequacy of the Mortgaged Properties as Security for the Loans
As of the Statistic Calculation Date, the Combined Loan-to-Value Ratios for
the Initial Loans ranged from approximately ______% to _______%, with
approximately ______% of the Statistic Principal Balance consisting of Loans
having Combined-Loan-to-Value Ratios in excess of _______%. As of the Statistic
Calculation Date the weighted average Combined Loan-to-Value Ratio of the
Initial Loans was ________%. As a result of the foregoing, the Mortgaged
Properties may not provide adequate security for the Loans. Even assuming that a
Mortgaged Property provides adequate security for the related Loan, substantial
delays could be encountered in connection with the liquidation of a Loan that
would result in current shortfalls in distributions to the Noteholders to the
extent such shortfalls are not covered by the credit enhancement described
herein. In addition, liquidation expenses relating to any Liquidated Loan (such
as legal fees, real estate taxes, and maintenance and preservation expenses)
would reduce the liquidation proceeds otherwise payable to the Noteholders. In
the event that any Mortgaged Property fails to provide adequate security for the
related Loan, any losses in connection with such Loan will be borne by
Noteholders as described herein to the extent that the credit enhancement
described herein is insufficient to absorb all such losses.
Adjustable Rate Loans
While all of the Notes are fixed rate obligations, as of the Statistic
Calculation Date, Initial Loans representing approximately ______% of the
Statistic Principal Balance, are Adjustable Rate Loans. Should the Loan Rates on
the Adjustable Rate Loans decrease, the amount of Excess Spread available for
deposit to the Certificate Distribution Account to cause the termination of the
Spread Deferral Period and then to make payments to achieve the required
Overcollateralization Amount will be lessened. See "Prepayment and Yield
Considerations--Excess Spread and Reduction of Overcollateralization Amount."
Recent Origination of Loans
None of the Initial Loans was 30 days or more delinquent in its scheduled
monthly payments of principal and interest as of the Initial Cut-Off Date;
however, Initial Loans representing approximately _______% of the Statistic
Principal Balance consists of Initial Loans that have a first scheduled monthly
payment due date occurring after ___________ and, therefore, it was not possible
for such Initial Loans to have had a scheduled monthly payment that was 30 days
or more delinquent as of the Initial Cut-Off Date.
Book-Entry Registration of Notes
Issuance of the Notes in book-entry form may reduce the liquidity of such
Notes in the secondary trading market because investors may be unwilling to
purchase Notes for which they cannot obtain physical certificates. Moreover,
because transactions in the Notes can be effected only through DTC,
participating organizations, indirect participants and certain banks, the
ability of a beneficial owner of a Note to pledge its interest in a Note to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect of such Note, may be limited due to lack of a physical
certificate representing such Note.
Additional Factors Affecting Delinquencies, Defaults and Losses on Loans
Underwriting Guidelines
The evaluation of the adequacy of the value of the related Mortgaged
Property in relation to the Loan, together with the amount of all liens senior
to the Loan, is given less and in some cases no consideration in underwriting
the Loans. Although the creditworthiness of the related borrowers is the primary
consideration in the underwriting of the Loans, no assurance can be given that
such creditworthiness of the borrowers will not deteriorate as
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a result of future economic and social factors, which deterioration may result
in a delinquency or default by such borrowers on the related Loans. In general,
the credit quality of the borrowers on the Loans as well as the Loans is lower
than that of borrowers and mortgage loans conforming to the FNMA or FHLMC
underwriting guidelines for first-lien, single-family mortgage loans.
Accordingly, the Loans are likely to experience higher rates of delinquencies,
defaults and losses (which rates could be substantially higher) than those rates
that would be experienced by similar types of loans underwritten in a manner
which is more similar to the FNMA or FHLMC underwriting guidelines.
In response to changes and developments in the consumer finance area as
well as the refinement of ______'s credit evaluation methodology, ______'s
underwriting requirements for certain types of home loans may change from time
to time, which in certain instances may result in more stringent and, in other
instances, less stringent underwriting requirements. Depending upon the date on
which the Loans were originated or purchased by ______, such Loans may have been
originated or purchased by ______ under different underwriting requirements, and
accordingly, certain Loans may be of a different credit quality and have
different characteristics than other Loans. Furthermore, to the extent that
certain Loans were originated or purchased by ______ under less stringent
underwriting requirements, such Loans may be more likely to experience higher
rates of delinquencies, defaults and losses than those Loans originated or
purchased under more stringent underwriting requirements.
Geographic Concentration
Approximately ______%, ______%, ______%, ______%, ______%,
______%,______% and ____% of the Statistic Principal Balance consisted of
Initial Loans that are secured by Mortgaged Properties located in the States of
__________, ____________, ___________, __________, ___________, ____________ and
__________, respectively. Because of the relative geographic concentration of
the Loans within these States, delinquencies and losses on the Loans may be
higher than would be the case if the Loans were more geographically diversified.
Adverse economic conditions in these States or geographic regions (which may or
may not affect real property values) may affect the ability of the related
borrowers to make timely payments of their scheduled monthly payments of
principal and interest and, accordingly, the actual rates of delinquencies,
defaults and losses on such Loans could be higher than those currently
experienced in the home lending industry for similar types of loans. In
addition, with respect to the Loans in these States, certain of the Mortgaged
Properties may be more susceptible to certain types of special hazards that are
not covered by any casualty insurance, such as earthquakes, floods and other
natural disasters and major civil disturbances, than residential properties
located in other parts of the country. In general, declines in one or more of
the related residential real estate markets may adversely affect the values of
the Mortgaged Properties securing such Loans such that the outstanding principal
balances of such Loans, together with the outstanding principal amount of any
senior lien mortgage loans on such Mortgaged Properties, will exceed the value
of such Mortgaged Properties to an increasing degree. Accordingly, the actual
rates of delinquencies, foreclosures and losses on such Loans could be higher
than those currently experienced in the home lending industry in general.
Reloading of Debt
With respect to Loans which in combination with superior liens have
loan-to-value ratios in excess of 100%, there is a risk that if the related
borrowers relocate, such borrowers will be unable to discharge the Loans in full
from the sale proceeds of the related Mortgaged Properties and any other funds
available to these borrowers, in which case the pool of Loans sold to the Trust
could experience higher rates of delinquencies, defaults and losses. With
respect to Loans, the proceeds of which were used in whole or in part for debt
consolidation, there can be no assurance that, following the debt consolidation,
the related borrower will not incur further consumer debt to third party
lenders. This reloading of debt could impair the ability of such borrowers to
service their debts, which in turn could result in higher rates of
delinquencies, defaults and losses on the Loans.
Acquisitions from Third Parties
Substantially all of the Loans will have been either originated by or on
behalf of ______ or purchased and re-underwritten by ______ in accordance with
_________________________. A significant portion of the Loans will have been
acquired by ______ through purchases from a network of correspondent lenders or
through a portfolio acquisition program. See "The Loans General" herein. All of
such Loans will have been re-underwritten and reviewed for compliance with
______'s underwriting guidelines. ______ may have acquired certain Loans which
were originated by originators that, at the time of origination thereof, were
not approved FHA lenders or approved FNMA or FHLMC seller/servicers, and
therefore did not have an internal quality control program substantially similar
to the FNMA or FHLMC required quality control programs with respect to the
underwriting and origination of such Loans. Such Loans may be subject to a
higher incidence of delinquency or default. As described herein, ______ will
make certain representations and warranties regarding each Loan and, in the
event of a breach of any such representation or
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warranty that materially and adversely affects the Noteholders, ______ will be
required either to cure such breach, repurchase the related Loan or Loans or
substitute one or more Qualified Substitute Loans therefor.
No Servicer Delinquency Advances
In the event of a delinquency or a default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. As a result of the foregoing,
the amount of interest received on the Loans during any Due Period may be less
than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Classes of Notes to decrease at a slower rate relative to the Pool Principal
Balance, resulting in a reduction of the Overcollateralization Amount and, in
some circumstances, an Allocable Loss Amount. However, the Servicer will make
such reasonable and customary expense advances with respect to the Loans as
generally would be required in accordance with its servicing practices. See
"Description of the Transfer and Servicing Agreements--Servicing" herein.
Dependence on Servicer for Servicing Loans
Pursuant to the Sale and Servicing Agreement, the Servicer will perform the
daily loan servicing functions for the Loans that include, without limitation,
the collection of payments from the Loans, the remittance of funds from such
collections for distribution to the holders of the Notes, the bookkeeping and
accounting for such collections, all other servicing activities relating to the
Loans, the preparation of the monthly servicing and remittance reports pursuant
to the Sale and Servicing Agreement and the maintenance of all records and files
pertaining to such servicing activities. Upon the Servicer's failure to remedy
an Event of Default under the Sale and Servicing Agreement, a majority of the
holders of the Notes or the Indenture Trustee or the Owner Trustee on behalf of
the Trust may remove the Servicer and appoint a successor servicer pursuant to
the terms of the Sale and Servicing Agreement. Absent such a replacement, the
holders of the Notes will be dependent upon the Servicer to adequately and
timely perform its servicing obligations and remit to the Indenture Trustee the
funds from the payments of principal and interest received on the Loans. The
manner in which the Servicer, and each Subservicer, as applicable, performs its
servicing obligations will affect the amount and timing of the principal and
interest payments received on the Loans. The principal and interest payments
received on the Loans are the sole source of funds for the distributions due to
the holders of the Notes under the Sale and Servicing Agreement. Accordingly,
the holders of the Notes will be dependent upon the Servicer to adequately and
timely perform its servicing obligations and such performance will affect the
amount and timing of distributions to the holders of the Notes. See "______
_____________, _____________________ The Servicer" and "_____________________
____________________ Delinquency and Loan Loss Experience" herein.
Realization upon Defaulted Loans
Substantially all of the Loans are secured by junior liens, and the related
loans secured by senior liens are not included in the Pool. The primary risk
with respect to any Loan secured by a junior lien is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related Mortgaged Property to satisfy fully both any loan(s) secured by senior
lien(s) and the Loan. In accordance with the loan servicing practices of the
Servicer for home loans secured by junior liens, the Servicer may, in connection
with any Defaulted Loan, (i) pursue the foreclosure of a Defaulted Loan, (ii)
satisfy the senior mortgage(s) at or prior to the foreclosure sale of the
Mortgaged Property, or (iii) advance funds to keep the senior mortgage(s)
current. The Trust will have no source of funds to satisfy the senior
mortgage(s) or make payments due to the senior mortgagee(s), and, therefore,
holders of the Notes should not expect that any senior mortgage(s) will be
satisfied or kept current by the Trust for the purpose of protecting any junior
lien Loan. See "Certain Legal Aspects of the Loans--Junior Mortgages; Rights of
Senior Mortgages" in the Prospectus. Furthermore, it is unlikely that any of the
foregoing methods of realizing upon a defaulted junior lien Loan will be an
economically viable alternative with respect to any Loans having a Combined
Loan-to-Value Ratio that exceeds 100% at the time of default. As a result, the
Servicer may, in accordance with accepted servicing procedures, pursue
alternative methods of servicing Defaulted Loans to maximize proceeds therefrom,
including without limitation, the modification of Defaulted Loans, which, among
other things, may include the abatement of accrued interest or the reduction of
a portion of the outstanding Principal Balance of such Defaulted Loans. The
costs incurred in the collection and liquidation of Defaulted Loans in relation
to the smaller Principal Balances thereof are proportionately higher than with
respect to first-lien single-family mortgage loans, and because substantially
all of the Loans will have Combined Loan-to-Value Ratios at the time of
origination that exceed 100%, losses sustained from Defaulted Loans are likely
to be more severe (and could be total losses) in relation to the outstanding
Principal Balance of such Defaulted Loans. In fact, no assurance can be given
that any proceeds, or a significant amount of proceeds will be recovered from
the liquidation of Defaulted Loans.
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<PAGE>
Limited Historical Delinquency, Loss and Prepayment Information
Since ___________, the Servicer has substantially increased the volume of
conventional home loans that it has originated, purchased, sold and/or serviced,
and thus, it has limited historical experience with respect to the performance,
including the delinquency and loss experience and the rate of prepayments, of
these conventional home loans, with respect to its entire portfolio of loans and
in particular with respect to such increased volume. Accordingly, it is possible
that neither the delinquency experience and loan loss and liquidation experience
set forth under " _________________ Delinquency and Loss Experience" herein nor
the prepayment scenarios set forth under "Prepayment and Yield Considerations
Weighted Average Lives of the Notes" herein will be indicative of the
performance of the Loans. Prospective investors should make their investment
determination based on the Loan underwriting criteria, the availability of the
credit enhancement described herein, the characteristics of the initial Loans
and other information provided here, and not based on any prior delinquency
experience and loan loss and liquidation experience information set forth herein
or any rate of prepayment assumed herein.
Economic Conditions
For the limited period of time during which loans in the nature of the
Loans have been originated, economic conditions nationally and in most regions
of the country have been generally favorable. A deterioration in economic
conditions could be expected to adversely affect the ability and willingness of
borrowers to repay their Loans; however, because of lenders' limited experience
with loans similar to the Loans, no prediction can be made as to the severity of
the effect of a general economic downturn on the rate of delinquencies and
defaults on the Loans. Because borrowers under the Loans generally have little
or no equity in the related Mortgaged Properties, any significant increase in
the rate of delinquencies and defaults could result in substantial losses to
holders of Notes, in particular the Class B Notes, the Class M-2 Notes and the
Class M-1 Notes. See "Adequacy of the Mortgaged Properties as Security for the
Loans" and "Additional Factors Affecting Delinquencies, Defaults and Losses on
Loans" and "Prepayment and Yield Considerations" above.
Legal Considerations
The Initial Loans have been transferred from ______ to the Depositor, an
affiliate of ______. Each such transfer will be treated by ______ as a sale of
the Initial Loans. ______ has warranted that its transfer to the Depositor is a
sale of ______'s interest in the Loans. The Depositor has warranted that its
transfer to the Trust is a sale of the Depositor interest in the Initial Loans.
In the event of an insolvency of ______ or the Depositor, the receiver or
bankruptcy trustee of such entity may attempt to recharacterize the related sale
of the Initial Loans as a borrowing by such entity secured by a pledge of the
Initial Loans and possible reductions could occur in the amounts thereof
available for distribution on the Notes.
Certain Other Legal Considerations
The underwriting, origination, servicing and collection of the Loans are
subject to a variety of State and Federal laws, public policies and principles
of equity. For example, the Federal District Court for the Eastern District of
Virginia recently announced a decision indicating that Federal law prohibited
lenders from paying independent mortgage brokers a premium for loans with
above-market interest rates. Depending on the provisions of applicable law and
the specific facts and circumstances involved, violations of these laws,
policies or principles may limit the ability of the Servicer to collect all or
part of the principal or interest on the Loans, may entitle the borrower to a
refund of amounts previously paid, and, in addition, could subject the Servicer
to damages and administrative sanctions. If the Servicer is unable to collect
all or part of the principal or interest on any Loans because of a violation of
the aforementioned laws, public policies or general principles of equity, then
the Trust may be delayed or unable to make all distributions owed to the holders
of the Notes to the extent any related losses are not otherwise covered by
amounts available from the credit enhancement provided for the Notes.
Furthermore, depending upon whether damages and sanctions are assessed against
the Servicer or the Depositor, such violations may materially impact (i) the
financial ability of the Servicer to continue to act in such capacity or (ii)
the ability of the Depositor or ______ to repurchase or replace Defective Loans.
See "Risk Factors Consumer Protection Laws" in the Prospectus. ______ will be
required to repurchase or replace any Loan which did not comply with applicable
State and Federal laws and regulations as of the Closing Date. See "Limitations
on Repurchase or Replacement of Defective Loans" below.
The National Bankruptcy Review Commission (the "Bankruptcy Commission"), an
independent commission established under the Bankruptcy Reform Act of 1994 to
study issues and make recommendations relating to the United States Bankruptcy
Code (the "Bankruptcy Code"), recently indicated that it may recommend that
debtors in proceedings under Chapter 13 of the Bankruptcy Code be permitted to
treat the portion of any mortgage debt that exceeds the value of the real
property securing such debt as an unsecured claim if such mortgage is not a
first lien
19
<PAGE>
mortgage. If such a change in the Bankruptcy Code were to be enacted, and if
such change were to apply to loans originated prior to enactment, a substantial
majority of the Loans would likely be treated as unsecured debt in a case under
Chapter 13 of the Bankruptcy Code. As a consequence, borrowers who become
Chapter 13 debtors would have substantially less incentive to make arrangements
for repayment of their Loans, and the likelihood that the Trust Fund would
recover any amounts in respect of the related Loans would be remote.
The Bankruptcy Commission is required to submit a report on its findings,
including recommendations for legislation to effect changes to the Bankruptcy
Code, to the President and Congress no later than October 20, 1997. The
Bankruptcy Commission's recommendations will be advisory only; any change in the
Bankruptcy Code must be effected through Congressional action.
Non-recordation of Assignments
Subject to confirmation by the Rating Agencies, with respect to the Loans
secured by Mortgaged Properties located in certain states where ______ has been
advised by counsel that recordation of an assignment of mortgage is not
necessary in order to perfect an interest in a Loan, ______ will not be required
to record assignments to the Indenture Trustee of the Mortgages in the real
property records of these states for such Loans, but rather ______, in its
capacity as the Servicer, will retain record title to such Mortgages on behalf
of the Indenture Trustee, then the Noteholders could lose the right to future
payments of principal and interest from such Loans and could suffer a loss of
principal and interest to the extent that such loss is not otherwise covered by
amounts available from the credit enhancement provided for such Notes.
Limitations on Repurchase or Replacement of Defective Loans
Pursuant to the Sale and Servicing Agreement, each of the Depositor and
______ has agreed to cure in all material respects any breach of its respective
representations and warranties set forth in the Sale and Servicing Agreement
with respect to Defective Loans. If the Depositor or ______ cannot cure such
breach within a specified period of time, it will be required to repurchase such
Defective Loans from the Trust or substitute other loans for such Defective
Loans. Although a significant portion of the Loans will have been acquired from
unaffiliated correspondent lenders, the Depositor and ______ will make the
representations and warranties with respect to each Loan. For a summary
description of the Depositor's or ______'s representations and warranties, See
"The Agreements Assignment of Primary Assets" in the Prospectus.
No assurance can be given that, at any particular time, the Depositor or
______ will be capable, financially or otherwise, of repurchasing or replacing
any Defective Loan(s) in the manner described above. If ______ repurchases, or
is obligated to repurchase, any defective home loan(s) from any other series of
asset backed securities, its financial ability to repurchase any Defective
Loan(s) from the Trust may be adversely affected. In addition, other events
relating to the Depositor or ______ and its home lending can occur that would
adversely affect its financial ability to repurchase Defective Loans from the
Trust, including, without limitation, the sale or other disposition of all or
any significant portion of its assets. If the Depositor or ______ is unable to
repurchase or replace a Defective Loan, then the Servicer, on behalf of the
Trust, will utilize customary servicing practices to recover the maximum amount
possible with respect to such Defective Loan, and any resulting loss will be
borne by the holders of the Notes to the extent that such loss is not otherwise
covered by amounts available from the credit enhancement provided for the Notes.
______, in its capacity as seller of the Loans to the Depositor, has agreed to
be bound by the same requirements as the Depositor with respect to Defective
Loans. See "______ Savings Bank, Federal Savings Bank" herein.
Dissolution of Trust Due to Certain Events of Insolvency
On the Closing Date, a special purpose affiliate of ______ will purchase
instruments representing approximately ____% of the Residual Interest. Unless
and until legislation is passed that clarifies the status of the Trust under
California tax law, the Trust Agreement will provide that if any of certain
events of insolvency with respect to such special purpose affiliate occurs,
subject to certain conditions, the Trust will dissolve.
20
<PAGE>
______ has taken certain steps in structuring the transactions contemplated
hereby that are intended to help ensure that no such event of insolvency will
occur. These steps include the formation of the affiliate as a separate
limited-purpose entity pursuant to formation documents that certain limitations
(including restrictions on the nature of the affiliate's business and
restriction on the affiliate's ability to commence a voluntary case or
proceeding under the United States Bankruptcy Code or similar applicable state
laws). Nevertheless, ______ cannot assure that the activities of the affiliate
will not result in such events of insolvency. If any such event of insolvency
with respect to the affiliate occurs, and certain other conditions set forth in
the Trust Agreement are satisfied, the Indenture Trustee will promptly sell,
dispose of or otherwise liquidate the Loans in a commercially reasonable manner
on commercially reasonable terms. The proceeds from any such sale, disposition
or liquidation of the Loans will be treated as collections on the Loans,
deposited in the Collection Account and paid to the Noteholders in accordance
with the terms and priority of payment described herein.
THE TRUST
General
The Trust, _______________ Trust ________, will be a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Loans and the other assets of the Trust and proceeds therefrom,
(ii) issuing the Notes and any Residual Interest, (iii) making payments on the
Notes and any Residual Interest and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or in connection therewith.
The Residual Interests in the aggregate represent the entire residual
interest in the assets of the Trust. The Residual Interests, together with the
Notes, will be delivered by the Trust to the Depositor as consideration for the
delivery of the Initial Loans and the deposit of the Original Pre-Funded Amount
pursuant to the Sale and Servicing Agreement.
On the Closing Date, the Trust will purchase Initial Loans expected to have
an aggregate principal balance of approximately $___________ as of the Initial
Cut-Off Date (the actual aggregate unpaid principal balance (as of the Initial
Cut-Off Date) of the Initial Loans, the "Original Pool Principal Balance") from
the Depositor pursuant to a sale and servicing agreement dated as of
______________ (the "Sale and Servicing Agreement"), among the Trust, the
Depositor, the Servicer, the Indenture Trustee and the Co-Owner Trustee. On or
prior to _______________, the Trust may purchase additional loans (the
"Subsequent Loans" and together with the Initial Loans, the "Loans") having an
aggregate unpaid principal balance of up to $_______________ (as adjusted
pursuant to the immediately following sentence, the "Original Pre-Funded
Amount"). 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 $____________.
The assets of the Trust will consist primarily of the Loans secured by
Mortgages. See "The Loans" herein. The assets of the Trust will also include (i)
payments of interest and principal received after the applicable Cut-Off Date in
respect of the Loans; (ii) amounts on deposit in the Collection Account
(excluding investment earnings thereon), Note Distribution Account, Pre-Funding
Account, Capitalized Interest Account and Certificate Distribution Account; and
(iii) certain other ancillary or incidental funds, rights and properties related
to the foregoing.
The Trust will include the unpaid Principal Balance of each Loan as of its
applicable Cut-Off Date (the "Cut-Off Date Principal Balance"). With respect to
any date, the "Pool Principal Balance" will be equal to the aggregate of the
Principal Balances of all Loans as of the last day of the preceding Due Period.
The "Principal Balance" of a Loan on any day is equal to the outstanding unpaid
principal balance of the Loan as of the close of business on the last day of the
preceding Due Period (after giving effect to all payments received thereon and
the allocation of any Net Loan Losses thereto pursuant to clause (B) of the
definition thereof); 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 of
such Distribution Date prior to the related Determination Date in such month
shall be deemed (i) to have been repurchased during the related Due Period and
(ii) to have a Principal Balance of zero as of the end of such related Due
Period.
The Servicer will service the Loans pursuant to the Sale and Servicing
Agreement (collectively with the Indenture, the Administration Agreement and the
Trust Agreement, the "Transfer and Servicing Agreements") and will be
compensated for such services as described under "Description of the Transfer
and Servicing Agreements--Servicing" herein.
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<PAGE>
The Trust's principal offices are located in ___________, Delaware, in care
of ____________________, as Owner Trustee, at the address set forth below under
"--The Owner Trustee and Co-Owner Trustee."
The Owner Trustee and Co-Owner Trustee
______________________will act as the Owner Trustee under the Trust
Agreement. __________________ is a _______________ banking corporation and its
principal offices are located at _____________________.
Certain functions of the Owner Trustee under the Trust Agreement and the
Sale and Servicing Agreement will be performed by _________________________
___________, in its capacity as Co-Owner Trustee under the Trust Agreement and
the Sale and Servicing Agreement, including maintaining the Certificate
Distribution Account and making distributions therefrom. However, upon the
occurrence and continuation of an event of default under the Indenture, the
Co-Owner Trustee will resign and the Owner Trustee will assume the duties of the
Co-Owner Trustee under the Trust Agreement and the Sale and Servicing Agreement.
THE LOANS
General
All of the Loans will be home loans (i.e., not insured or guaranteed by a
governmental agency) for which the related proceeds were used to finance (i)
property improvements, (ii) the acquisition of personal property such as home
appliances or furnishings, (iii) debt consolidation, (iv) the refinancing of
one- to four-family residential properties (which may include cash-out to the
borrower) or (v) a combination of property improvements, debt consolidation and
other consumer purposes. Substantially all of the Mortgages for the Loans will
be junior (i.e., second, third, etc.) in priority to one or more senior liens on
the related Mortgaged Properties, which will consist primarily of owner-occupied
single-family residences. As of the Statistic Calculation Date, approximately
_______% of the Loans will be secured by liens on Mortgaged Properties in which
the borrowers have little or no equity therein (i.e., the related Combined
Loan-to-Value Ratios equal or exceed ____%) at the time of origination of such
Loans. The characteristics of the Initial Loans actually delivered on the
Closing Date are not expected to vary materially from the characteristics of
those of such Loans that have been identified on the Statistic Calculation Date
and the characteristics of the Subsequent Loans are not expected to vary
materially from those of the Initial Loans.
______ originates and purchases loans principally through its nationwide
network of correspondents, other third party originators and independent
mortgage brokers.
For a description of the underwriting criteria applicable to the Loans, See
"_________________, ______________________ Underwriting Guidelines" herein. All
of the Initial Loans will be sold by ______ to the Depositor, whereupon the
Depositor will sell the Loans to the Trust pursuant to the Sale and Servicing
Agreement. All of the Subsequent Loans will be sold by ______ to the Depositor
for and by the Depositor to the Trust pursuant to a Subsequent Transfer
Agreement. Pursuant to the Indenture, the Trust will pledge and assign the Loans
to the Indenture Trustee for the benefit of the holders of the Notes. The Trust
will be entitled to all payments of interest and principal received in respect
of the Loans after the applicable Cut-Off Dates.
Payments on the Loans
The Loans generally provide for a schedule of payments which, if timely
paid, will be sufficient to amortize fully the principal balance of the related
Loan on or before its maturity date. The Loans have scheduled monthly payment
dates which occur throughout a month. Interest with respect to the Loans will
accrue on an "actuarial interest" method. No Loan provides for deferred interest
or negative amortization.
The actuarial interest method provides that interest is charged and
payments are due as of a scheduled day of each month which is fixed at the time
of origination, and payments received after a grace period following such
scheduled day are subject to late charges. For example, a scheduled payment on a
Loan received either earlier or later (other than delinquent) than the scheduled
due date thereof will not affect the amortization schedule or the relative
application of such payment to principal and interest in respect of such Loan.
Characteristics of Loans
The following is a brief description of certain terms of those of the
Initial Loans that have been identified as of the Statistic Calculation Date.
Neither the characteristics of the Initial Loans as of the Closing Date nor the
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<PAGE>
characteristics of the Subsequent Loans are expected to vary materially from the
characteristics of those of the Initial Loans that have been identified as of
the Statistic Calculation Date.
The Initial Loans will have the characteristics set forth below and in the
tables that follow.
This description does not take into account any (a) Initial Loans not
identified as of the date of this Prospectus Supplement and (b) Subsequent Loans
that may be sold to the Trust during the Pre-Funding Period through the
application of amounts on deposit in the Pre-Funding Account. In addition, prior
to the Closing Date, ______ may remove any of the Initial Loans intended to be
transferred to the Trust, substitute comparable loans therefor, or add
comparable loans thereto; provided, however, that the aggregate principal
balance of Initial Loans so replaced, added or removed will not exceed ____% of
the Original Pool Principal Balance. To the extent that, prior to the Closing
Date, Loans are removed from or sold to the Trust, an amount equal to the
aggregate principal balances of such Loans will be added to or deducted from,
respectively, the Original Pre-Funding Amount on the Closing Date; provided that
the amount of any such adjustment may not exceed $____________. As a result, the
statistical information presented below regarding the characteristics of the
Initial Loans expected to be sold to the Trust as of the date of this Prospectus
Supplement may vary in certain respects from comparable information based on the
actual Initial Loans sold to the Trust on the Closing Date. In addition, after
the _____________ Cut-Off Date, the characteristics of the actual Loans may vary
from the information below due to a number of factors, including prepayments
after the ____________ Cut-Off Date or the purchase of any Subsequent Loans
after the Closing Date. See "Conveyance of Subsequent Loans" below. A schedule
of the Initial Loans sold to the Trust as of the Closing Date will be attached
to the Sale and Servicing Agreement. A current report on Form 8-K containing a
description of the Loans as of the end of the Pre-Funding Period will be filed
with the Commission.
Initial Loan Statistics
As of the Statistic Calculation Date, the Initial Loans consisted of
_______ Loans secured by mortgages or deeds of trust on Mortgaged Properties
located in ___ States and the District of Columbia. As of the Statistic
Calculation Date, the aggregate of the Principal Balances of the Initial Loans
was approximately $_______________ (the "Statistic Principal Balance"). As of
the Statistic Calculation Date, Initial Loans representing ________% of the
Statistic Principal Balance were secured by first liens, Initial Loans
representing approximately _______% of the Statistic Principal Balance were
secured by second liens. As of the Statistic Calculation Date, Adjustable Rate
Loans represented ______% of the Statistic Principal Balance and the remainder
of the Initial Loans have fixed Loan Rates ("Fixed Rate Loans"). The lowest
Statistic Calculation Date principal balance of any Initial Loan was $__________
and the highest was $___________. The average Statistic Calculation Date
principal balance of the Initial Loans was approximately $___________. The
weighted average remaining term to stated maturity of the Initial Loans as of
the Statistic Calculation Date was approximately ______ months. As of the
Statistic Calculation Date, the weighted average number of months that have
elapsed since origination of the Initial Loans was approximately 1 month. The
lowest and highest Combined Loan-to-Value Ratios of the Initial Loans at
origination were ______% and ____%, respectively. As of the Statistic
Calculation Date approximately ____ Loans representing approximately ______% of
the Statistic Principal Balance had a combined Loan-to-Value Ratio of less than
_____%. The weighted average Combined Loan-to-Value Ratio of the Initial Loans
as of the Statistic Calculation Date was approximately _______%.
Each Adjustable Rate Loan bears interest at an adjustable rate. The
interest rate borne by each Adjustable Rate Loan first adjusts on the date set
forth in the related Note for the Adjustable Rate Loans and then every six
months thereafter (each such date thereafter, a "Change Date"). The Loan Rate
with respect to each Adjustable Rate Loan will adjust on each applicable Change
Date to equal the sum of (i) the London Interbank Offered Rate for six-month
U.S. dollar deposits (the "LIBOR Index") either as announced by FNMA, and
available as of the date 45 days before each Change Date, or as published in The
Wall Street Journal generally on a day of the month preceding the month of the
Change Date and (ii) the gross margin (the "Gross Margin") set forth in the
related Note subject to rounding and to the effects of the Periodic Rate Cap (as
defined below), the applicable ______time Cap (as defined below) and the
applicable ______time Floor (as defined below).
The Initial Loans that are Fixed Rate Loans bear interest at fixed Loan
Rates that ranged from approximately ____% to approximately _______% per annum
as of the Statistic Calculation Date. The weighted average Loan Rate for the
Initial Loans that are Fixed Rate Loans was approximately _______% per annum as
of the Statistic Calculation Date.
As of the Statistic Calculation Date, the Loan Rates for the Adjustable
Rate Loans ranged from _______% to ______% and the Gross Margins for the
Adjustable Rate Loans ranged from ______% to ______%. As of the Statistic
Calculation Date, the weighted average Loan Rate of the Adjustable Rate Loans
was _______% and the weighted average Gross Margin of the Adjustable Rate Loans
was approximately _______%. The "Periodic Rate Cap" limits
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changes in the Rate for each Adjustable Rate Loan on each Change Date to 100 to
150 basis points in the case of Adjustable Rate Loans based on a LIBOR Index.
The "______time Cap" for each Adjustable Rate Loan is the rate which is
generally 600 to 700 basis points greater than the initial Loan Rate for such
Adjustable Rate Loan, and the ______time Floor is the lowest rate to which the
Loan Rate can adjust for such Adjustable Rate Loan. As of the Statistic
Calculation Date the ______time Caps of the Adjustable Rate Loans ranged from
______% to ______% and the ______time Floors of the Adjustable Rate Loans ranged
from ______% to _______%. As of the Statistic Calculation Date, the weighted
average ______time Cap of the Adjustable Rate Loans was approximately ______%
and the weighted average ______time Floor was approximately ______%. As of the
Statistic Calculation Date, the number of months to the next Change Date of the
Adjustable Rate Loans ranged from two months to six months. As of the Statistic
Calculation Date, the weighted average months to next Change Date was
approximately _____ months. The Adjustable Rate Loans do not provide for
negative amortization.
As of the Statistic Calculation Date, approximately _____% by principal
balance of the Initial Loans (each of which was a Fixed Rate Loan) had final
payments substantially in excess of the other monthly payments (the "Balloon
Loans") and the remainder of the Initial Loans were fully amortizing loans
having original stated maturities of not more than 30 years. As of the Statistic
Calculation Date, no Initial Loan was scheduled to mature later than September
_____.
As of the Closing Date, no Initial Loan will be 30 or more days past due.
As of the Statistic Calculation Date, _______% of the Mortgaged Properties
by principal balance of the related Loan were owner-occupied (based on
representations of the related borrowers at origination). As of the Statistic
Calculation Date, the obligors on Initial Loans representing approximately
89.08% of the Statistic Principal Balance had "A", "A+", "Ax" or "A-" credit
ratings, under ______'s programs, the obligors on Initial Loans representing
approximately 10.82% of the Statistic Principal Balance had "B" or "B+" credit
ratings under ______'s programs and the obligors on Initial Loans representing
approximately _______% of the Statistic Principal Balance had "C" or "Cx" credit
ratings under ______'s programs.
The following tables are based on certain statistical characteristics with
respect to those of the Initial Loans that have been identified as of the
Statistic Calculation Date. The sum of the percentages in the following tables
may not equal the total due to rounding.
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<PAGE>
FIXED RATE LOANS
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- ----------------- --------------- ----------------- -----------------
____________ _____ $ _______ ______%
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
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<PAGE>
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- ----------------- -------------- ----------------- -----------------
____________ _____ $ _______ ______%
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
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<PAGE>
Loan Rates
% of Aggregate
Principal Balance
Range of Number of Aggregate of Fixed Rate
Loan Rates Initial Loans Principal Balance Loans
- ------------------------ -------------- ----------------- -----------------
8.000% to 8.999% ...... _____ $_______ ______%
9.000% to 9.999% ...... _____ _______ ______
10.000% to 10.999% ..... _____ _______ ______
11.000% to 11.999% ..... _____ _______ ______
12.000% to 12.999% ..... _____ _______ ______
13.000% to 13.999% ..... _____ _______ ______
14.000% to 14.999% ..... _____ _______ ______
15.000% to 15.999% ..... _____ _______ ______
16.000% to 16.999% ..... _____ _______ ______
17.000% to 17.999% ..... _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
As of the Statistic Calculation Date, the weighted average Loan Rate of the
Initial Loans that are Fixed Rate Loans was approximately _________% per annum.
Mortgaged Property Types
% of Aggregate
Mortgaged Principal Balance
Property Number of Aggregate of Fixed Rate
Types Initial Loans Principal Balance Loans
- ------------------------ -------------- ----------------- -----------------
One Family ............. _____ $_______ ______%
Two- to Four- Family ... _____ _______ ______
Condominium ............ _____ _______ ______
PUD .................... _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
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<PAGE>
Combined Loan-to-Value Ratios***
<TABLE>
<CAPTION>
Range of % of Aggregate
Combined Aggregate Average Principal Balance
Loan-to-Value Number of Principal Principal of Fixed Rate
Ratios Initial Loans Balance Balance Loans
- -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
less than or equal to 49.99% ... ________ $______ _______ _______%
50.00% to 59.99% ............... ________ ______ _______ _______
60.00% to 69.99% ............... ________ ______ _______ _______
70.00% to 79.99% ............... ________ ______ _______ _______
80.00% to 89.99% ............... ________ ______ _______ _______
90.00% to 99.99% ............... ________ ______ _______ _______
100.00% to 109.99% ............. ________ ______ _______ _______
110.00% to 119.99% ............. ________ ______ _______ _______
120.00% to 125.00% ............. ________ ______ _______ _______
-------------- --------- --------- -----------------
Total ................ $______ _______ 100.00%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average combined
loan-to-value ratio of the Initial Loans that are Fixed Rate Loans was ________.
FICO Scores
<TABLE>
<CAPTION>
Weighted % of Aggregate
Aggregate Average Principal Balance
Number of Principal FICO of Fixed Rate
Range of FICO Scores Initial Balance Scores Loans
- -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
600 to 619 ..................... ________ $______ _______ _______%
620 to 639 ..................... ________ ______ _______ _______
640 to 659 ..................... ________ ______ _______ _______
660 to 679 ..................... ________ ______ _______ _______
680 to 699 ..................... ________ ______ _______ _______
700 to 719 ..................... ________ ______ _______ _______
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
720 to 739 ..................... ________ ______ _______ _______
740 to 759 ..................... ________ ______ _______ _______
760 to 779 ..................... ________ ______ _______ _______
780 to 799 ..................... ________ ______ _______ _______
800 to 819 ..................... ________ ______ _______ _______
-------------- --------- --------- -----------------
Total .................... ________ $______ _______ 100.00%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average FICO scores of
the Initial Loans that are Fixed Rate Loans was _______.
29
<PAGE>
Occupancy
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
Initial Loans Principal Balance Loans
- ---------------------- -------------- ----------------- -----------------
Non-Owner-Occupied ... _____ $_______ ______%
Owner-Occupied ....... _____ _______ ______
-------------- ----------------- -----------------
Total _____ $_______ 100.00%
============== ================= =================
Purpose of Loan
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
Purpose of Loan Initial Loans Principal Balance Loans
- ---------------------- -------------- ----------------- -----------------
Cash Out ............. _____ $_______ ______%
Purchase ............. _____ _______ ______
Refinance ............ _____ _______ ______
-------------- ----------------- -----------------
Total ................ _____ $_______ 100.00%
============== ================= =================
30
<PAGE>
FIXED RATE TABLE Principal Balances
% of Aggregate
Number of Aggregate Principal Balance
Range of Initial Principal of Fixed Rate
Principal Balances Loans Balance Loans
- ------------------------------------ --------- --------- -----------------
Less than or equal to $15,000.00 ... _______ $______ __________%
$15,000.01 to $20,000.00 ........... _______ ______ __________
$20,000.01 to $25,000.00 ........... _______ ______ __________
$25,000.01 to $30,000.00 ........... _______ ______ __________
$30,000.01 to $35,000.00 ........... _______ ______ __________
$35,000.01 to $40,000.00 ........... _______ ______ __________
$40,000.01 to $45,000.00 ........... _______ ______ __________
$45,000.01 to $50,000.00 ........... _______ ______ __________
$50,000.01 to $55,000.00 ........... _______ ______ __________
$55,000.01 to $60,000.00 ........... _______ ______ __________
$60,000.01 to $65,000.00 ........... _______ ______ __________
$65,000.01 to $70,000.00 ........... _______ ______ __________
$70,000.01 to $75,000.00 ........... _______ ______ __________
$75,000.01 to $80,000.00 ........... _______ ______ __________
$80,000.01 to $85,000.00 ........... _______ ______ __________
Greater than or equal to $85,000.01 _______ ______ __________
--------- --------- -----------------
Total _______ $______ 100.00%
========= ========= =================
31
<PAGE>
Remaining Terms to Maturity
% of Aggregate
Number of Aggregate Principal Balance
Range of Remaining Initial Principal of Fixed Rate
Terms to Maturity Loans Balance Loans
- ------------------------------------ --------- --------- -----------------
Less than or equal to 149 Months ... _______ $______ __________%
150 to 179 Months .................. _______ ______ __________
180 to 209 Months .................. _______ ______ __________
210 to 239 Months .................. _______ ______ __________
240 to 269 Months .................. _______ ______ __________
270 to 299 Months .................. _______ ______ __________
300 to 329 Months .................. _______ ______ __________
--------- --------- -----------------
Total .................. _______ $______ 100.00%
========= ========= =================
As of the Statistic Calculation Date, the weighted average original term to
maturity of the Initial Loans that are Fixed Rate Loans was _______ months.
As of the Statistic Calculation Date, the weighted average remaining term
to maturity of the Initial Loans that are Fixed Rate Loans was _______ months.
32
<PAGE>
ADJUSTABLE RATE SECTION ADJUSTABLE RATE LOANS
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- ----------------- --------------- ----------------- -----------------
____________ _____ $ _______ ______%
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
33
<PAGE>
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
State Initial Loans Principal Balance Loans
- ----------------- --------------- ----------------- -----------------
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
34
<PAGE>
Loan Rates (as of the Statistic Calculation Date)
% of Aggregate
Principal Balance
Range of Number of Aggregate of Adjustable Rate
Loan Rates Initial Loans Principal Balance Loans
- ------------------------ -------------- ----------------- -----------------
9.000% to 9.999% ...... _____ $_______ ______%
10.000% to 10.999% ..... _____ _______ ______
11.000% to 11.999% ..... _____ _______ ______
12.000% to 12.999% ..... _____ _______ ______
13.000% to 13.999% ..... _____ _______ ______
14.000% to 14.999% ..... _____ _______ ______
-------------- ----------------- -----------------
TOTAL ....... _____ $_______ ______%
============== ================= =================
As of the Statistic Calculation Date, the weighted average Loan Rate of the
Initial Loans that are Adjustable Rate Loans was _______%.
Gross Margins
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
Margin Initial Loans Principal Balance Loans
- --------------------- --------------- ----------------- -----------------
4.000% to 4.999% .... _____ $_______ ______%
5.000% to 5.999% .... _____ _______ ______
6.000% to 6.999% .... _____ _______ ______
7.000% to 7.999% .... _____ _______ ______
8.000% to 8.999% .... _____ _______ ______
--------------- ----------------- -----------------
TOTAL ..... _____ _______ 100.00%
=============== ================= =================
As of the Statistic Calculation Date, the weighted average Gross Margin for
the Initial Loans that are Adjustable Rate Loans was _____%.
35
<PAGE>
______time Caps
% of Aggregate
Aggregate Principal Balance
Number of Principal of Adjustable Rate
Lifetime Cap Initial Loans Balance Loans
- -------------------------- ------------- ---------- ----------------
15.001% to 16.000% ....... _____ $_______ ______%
16.001% to 17.000% ....... _____ _______ ______
17.001% to 18.000% ....... _____ _______ ______
18.001% to 19.000% ....... _____ _______ ______
19.001% to 20.000% ....... _____ _______ ______
Greater than 20.00% ...... _____ _______ ______
------------- ---------- ----------------
TOTAL .................... _____ $_______ 100.00%
============= ========== ================
As of the Statistic Calculation Date, the weighted average Lifetime Cap for
the Initial Loans that are Adjustable Rate Loans was ______%.
Lifetime Floors
% of Aggregate
Aggregate Principal Balance
Number of Principal of Adjustable Rate
Lifetime Floor Initial Loans Balance Loans
- --------------------------------- ------------- ---------- ----------------
less than or equal to 11.000% ... _____ $_______ ______%
11.001% to 12.000% .............. _____ _______ ______
12.001% to 13.000% .............. _____ _______ ______
13.001% to 14.000% .............. _____ _______ ______
Greater than 14.000% ............ _____ _______ ______
------------- ---------- ----------------
TOTAL ........................... _____ _______ ______
============= ========== ================
As of the Statistic Calculation Date, the weighted average Lifetime Floor
for the Initial Loans that are Adjustable Rate Loans was
36
<PAGE>
Mortgaged Property Types
% of Aggregate
Mortgaged Principal Balance
Property Number of Aggregate of Adjustable Rate
Types Initial Loans Principal Balance Loans
- ------------------------ -------------- ----------------- -----------------
One Family ............. _____ $_______ ______%
Two- to Four- Family ... _____ _______ ______
Condominium ............ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
Combined Loan-to-Value Ratios
<TABLE>
<CAPTION>
Range of % of Aggregate
combined Aggregate Average Principal Balance
Loan-to-Value Number of Principal Principal of Adjustable Rate
Ratios Initial Loans Balance Balance Loans
- -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
70.00% to 79.99% ............... ________ $______ $_______ _______%
80.00% to 89.99% ............... ________ ______ _______ _______
90.00% to 99.99% ............... ________ ______ _______ _______
100.00% to 109.99% ............. ________ ______ _______ _______
110.00% to 119.99% ............. ________ ______ _______ _______
120.00% to 125.00% ............. ________ ______ _______ _______
-------------- --------- --------- -----------------
Total ................ $______ $_______ 100.00%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average Combined
Loan-to-Value Ratio of the Initial Loans that are Adjustable Rate Loans was
_______%.
37
<PAGE>
FICO Scores
<TABLE>
<CAPTION>
Weighted % of Aggregate
Aggregate Average Principal Balance
Number of Principal FICO of Adjustable Rate
Range of FICO Scores Initial Loans Balance Scores Loans
- -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
600 to 619 ..................... ________ $______ _______ _______%
620 to 639 ..................... ________ ______ _______ _______
640 to 659 ..................... ________ ______ _______ _______
660 to 679 ..................... ________ ______ _______ _______
680 to 699 ..................... ________ ______ _______ _______
700 to 719 ..................... ________ ______ _______ _______
720 to 739 ..................... ________ ______ _______ _______
740 to 759 ..................... ________ ______ _______ _______
760 to 779 ..................... ________ ______ _______ _______
780 to 799 ..................... ________ ______ _______ _______
800 to 819 ..................... ________ ______ _______ _______
-------------- --------- --------- -----------------
Total .................... ________ $______ _______ 100.00%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average FICO scores of
the Initial Loans that are Adjustable Rate Loans was ________.
38
<PAGE>
Occupancy
The Mortgaged Property relating to each of the Adjustable Rate Loans was,
based on representations made by the borrower at the closing of the Loan, owner
occupied.
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
Purpose of Loan Initial Loans Principal Balance Loans
- ---------------------- -------------- ----------------- -----------------
Cash Out ............. _____ $_______ ______%
Purchase ............. _____ _______ ______
Refinance ............ _____ _______ ______
-------------- ----------------- -----------------
Total ................ _____ $_______ 100.00%
============== ================= =================
Principal Balances
% of Aggregate
Number of Aggregate Principal Balance
Range of Initial Principal of Adjustable Rate
Principal Balances Loans Balance Loans
- ------------------------------------ --------- --------- -----------------
Less than or equal to $20,000.00 ... _______ $______ __________%
$20,000.01 to $25,000.00 ........... _______ ______ __________
$25,000.01 to $30,000.00 ........... _______ ______ __________
$30,000.01 to $35,000.00 ........... _______ ______ __________
$35,000.01 to $40,000.00 ........... _______ ______ __________
$40,000.01 to $45,000.00 ........... _______ ______ __________
greater than $50,000.00 ........... _______ ______ __________
--------- --------- -----------------
Total _______ $______ 100.00%
========= ========= =================
39
<PAGE>
Remaining Terms to Maturity
% of Aggregate
Number of Aggregate Principal Balance
Range of Remaining Initial Principal of Adjustable Rate
Terms to Maturity Loans Balance Loans
- ------------------------------------ --------- --------- -----------------
___________ ........................ _______ $______ __________%
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
--------- --------- -----------------
_______ $______ 100.00%
========= ========= =================
As of the Statistic Calculation Date, the weighted average original term to
maturity for the Initial Loans that are Adjustable Rate Loans was ______ months.
As of the Statistic Calculation Date, the weighted average remaining term
for the Initial Loans that are Adjustable Rate Loans was _______ months.
40
<PAGE>
Conveyance of Subsequent Loans
The Sale and Servicing Agreement permits the Trust to purchase from ______,
subsequent to the Closing Date and prior to _______________, Subsequent Loans in
an amount not to exceed the Original Pre-Funded Amount in aggregate principal
balance for inclusion in the Trust. Accordingly, the statistical characteristics
of the Loans after giving effect to the acquisition of any Subsequent Loans will
likely differ from the information specified above (which is based exclusively
on the Initial Loans as of the Statistic Calculation Date). The date or dates on
which the Trust acquires the Subsequent Loans are referred to herein as
"Subsequent Transfer Dates." Any Subsequent Loans conveyed to the Trust Fund
will be subject to the approval of and must satisfy criteria established by the
Rating Agencies and are not expected to cause the characteristics of the Loans
to vary materially in the aggregate from the characteristics of the Initial
Loans.
[Description of the Servicer]
Delinquency and Loan Loss Experience
The following tables set forth information relating to the delinquency and
loan loss experience on the mortgage loans included in the Servicer's servicing
portfolio for the periods shown. The delinquency and loan loss experience
represents the historical experience of the Servicer, and there can be no
assurance that the future experience on the Loans in the Trust will be the same
as, or more favorable than, that of the total mortgage loans in the Servicer's
servicing portfolio. See "Risk Factors--Additional Factors Affecting
Delinquencies, Defaults and Losses on Loans -- Limited Historical Delinquency,
Loss and Prepayment Information."
Delinquency and Foreclosure Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
At _______________ At ________________ At ________________
---------------------------------------------------------------------------------------------------------------------
Number % of % of Number % of % of Number % of
Delinquency of Loans Loans Amount Amount of Loans Loans Amount Amount of Loans Loans
Status (1) Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 _____ _____% $_____ _____% _____ _____% _____ _____% _____ _____
60 to 89 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
90 + (2) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Bankruptcy _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Foreclosure _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
REO (3) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
====================================================================================================================================
Total _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
</TABLE>
- ----------
(1) The past due period is based on the actual number of days that a
payment is contractually past due. A loan as to which a monthly
payment was due 60-89 days prior to the reporting period is considered
60-89 days past due, etc.
(2) Statistic for 90+ delinquencies does not include loans in bankruptcy
or foreclosure.
41
<PAGE>
(3) An "REO Property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
42
<PAGE>
Total Servicing Portfolio
(Dollars in Thousands)
At Or For The
At Or For The At Or For The Six Months
Year Ended Year Ended Ended
__________ __________ __________
_____________ _____________ _____________
Servicing portfolio at period end $__________ $__________ $__________
Average outstanding (1) $__________ $__________ $__________
Number of loans outstanding __________ __________ __________
Owned Portfolio and
Loan Charge-Off Experience
(Dollars in Thousands)
At Or For The
At Or For The At Or For The Six Months
Year Ended Year Ended Ended
__________ __________ __________
_____________ _____________ _____________
Owned portfolio at period end $__________ $__________ $__________
Average outstanding owned
portfolio $__________ $__________ $__________
Loan charge-offs __________ __________ __________
Loan recoveries __________ __________ __________
Net loan charge-offs __________ __________ __________
Net loan charge-offs as a
percentage of the average
outstanding (2) __________% __________% __________%
Net loan charge-offs as a
percentage of the portfolio
at period end (2) __________% __________% __________%
- ----------
(1) "Average outstanding" presented is the arithmetic average of the end of
month principal balances of the loans in __________'s servicing portfolio
outstanding at the close of business for each period.
(2) Percentages presented are for the Servicer's owned portfolio only. The loss
percentages for loans serviced for others is not available because in many
instances the servicing client handles the disposition of foreclosed
property.
While the above delinquency and foreclosure and loan charge-off experience
reflect the Servicer's historical experiences at the dates and for the periods
indicated, there can be no assurance that the delinquency and foreclosure and
loan charge-off experience of the Loans will be similar. See "Risk
Factors--Additional Factors Affecting Delinquencies, Defaults and Losses on
Loans -- Limited Historical Delinquency, Loss and Prepayment Information."
Accordingly, the information should not be considered to reflect the credit
quality of the Loans included in the Trust or
43
<PAGE>
used as a basis of assessing the likelihood, amount or severity of losses on the
Loans. The statistical data in the tables are based on all of the loans in the
Servicer's servicing portfolio. The Loans are likely to have characteristics
which distinguish them from the majority of the loans in the Servicer's
servicing portfolio.
The Servicer may resign its obligations to service the Loans only in
accordance with the terms of the Sale and Servicing Agreement. No removal or
resignation will become effective until the Indenture Trustee or a successor
servicer has assumed the Servicer's responsibilities and obligations in
accordance therewith.
The Servicer may not assign its obligations under the Sale and Servicing
Agreement unless it first obtains the written consent of the Indenture Trustee;
provided, however, that any assignee must meet the eligibility requirements for
a successor servicer set forth in the Sale and Servicing Agreement.
Notwithstanding anything in the preceding sentence to the contrary, the Servicer
may delegate certain of its obligations to a sub-servicer pursuant to one or
more sub-servicing agreements. A sub-servicer must meet certain eligibility
requirements, as set forth in the Sale and Servicing Agreement, and each
sub-servicing agreement shall require servicing of the Loans consistent with the
terms of the Sale and Servicing Agreement.
Repurchase or Substitution of Loans
Each of __________ and the Depositor is required (i) within 60 days after
discovery or notice thereof to cure in all material respects any breach of the
representations or warranties made with respect to any Loan or any document
deficiency with respect to any Loan (each, a "Defective Loan") or (ii) on or
before the Determination Date next succeeding the end of such 60-day period, to
repurchase such Defective Loan at a price (the "Purchase Price") equal to the
Principal Balance of such Defective Loan as of the date of repurchase, plus all
accrued and unpaid interest on such Defective Loan to but not including the due
date in the Due Period relating to the Distribution Date on which such Purchase
Price is to be distributed, computed at the Loan Rate. In addition, __________
may at its option purchase from the Trust any Loan that is 90 days or more
delinquent and which __________ determines in good faith would otherwise become
subject to foreclosure proceedings so long as the aggregate of such purchases
does not exceed 10% of the Maximum Collateral Amount. In lieu of repurchasing a
Defective Loan, each of __________ and the Depositor may replace such Defective
Loan with one or more Qualified Substitute Loans. If the aggregate outstanding
principal balance of the Qualified Substitute Loan(s) is less than the
outstanding Principal Balance of the Defective Loan(s), either __________ or the
Depositor will also remit for distribution to the holders of the Notes an amount
(a "Substitution Adjustment") equal to such shortfall, which will result in a
prepayment of principal on the Notes for the amount of such shortfall. As used
herein, a "Qualified Substitute Loan" is a home loan that (i) has an interest
rate which differs by no more than two percentage points from the Loan Rate for
the Defective Loan which it replaces (each, a "Deleted Loan"), (ii) has a
principal balance (after application of all payments received on or prior to the
date of such substitution) equal to or less than the Principal Balance of the
Deleted Loan as of such date, (iii) has a lien priority no lower than that of
the Deleted Loan, (iv) complies as of the date of substitution with each
representation and warranty set forth in the Sale and Servicing Agreement with
respect to the Loans, and (v) has a borrower with a credit grade classification
comparable to that of the borrower with respect to the Deleted Loan.
No assurance can be given that, at any particular time, __________ will be
capable, financially or otherwise, of repurchasing Defective Loans or
substituting Qualified Substitute Loans for Defective Loans in the manner
described above. If __________ or the Depositor repurchases, or is obligated to
repurchase, Defective Loans from any additional series of asset backed
securities, its financial ability to repurchase Defective Loans from the Trust
may be adversely affected. In addition, other events relating to the Depositor,
__________ and __________'s mortgage lending and consumer finance operations can
occur that would adversely affect the financial ability of __________ or the
Depositor to repurchase Defective Loans from the Trust, including without
limitation the sale or other disposition of all or any significant portion of
its assets. If __________ or the Depositor is unable to repurchase or replace a
Defective Loan, the Servicer, on behalf of the Trust, will make other customary
and reasonable efforts to recover the maximum amount possible with respect to
such Defective Loan. If the Servicer is unable to collect all amounts due to the
Trust with respect to such Defective Loan, the resulting loss will be borne by
the holders of the Notes to the extent that such loss is not otherwise covered
by amounts available from the credit enhancement provided for the Notes. See
"Risk Factors --Adequacy of Credit Enhancement" and "Risk Factors--Additional
Factors Affecting Delinquencies, Defaults and Losses on Loans "Limitations on
Repurchase or Replacement of Defective Loans" herein.
DESCRIPTION OF CREDIT ENHANCEMENT
Credit enhancement with respect to the Notes will be provided by (i) the
subordination of distributions in respect of the Residual Interests (as well as
the subordination of certain Classes of Notes to other Classes of Notes, as
described herein), and (ii) the Overcollateralization Amount which results from
(a) the excess of the sum of the Original Pool Principal Balance and the
Original Pre-Funded Amount over the aggregate of the Class Principal
44
<PAGE>
Balances for all Classes as of Notes and (b) following the Spread Deferral
Period, the limited acceleration of the principal amortization of the Notes
relative to the amortization of the Loans by the application of Excess Spread,
as described herein.
Subordination and Allocation of Losses
Distributions of interest on the Notes will be made first to the Senior
Notes and then to the Class M-1, Class M-2 and Class B Notes, in that order,
such that no interest will be paid on the Class B Notes until all required
interest payments have been made on the Mezzanine and Senior Notes and no
interest will be paid on the Mezzanine Notes until all required interest
payments have been made on the Senior Notes. In addition, distributions of
principal of the Notes will be made first to the Senior Notes, then to the Class
M-1, Class M-2 Notes and Class B Notes, in that order. Any distributions of
principal to the Classes of Senior Notes will be made sequentially in the order
of increasing numerical Class designations. All Allocable Loss Amounts applied
in reduction of the Class Principal Balances of the Mezzanine Notes will be
applied first to the Class M-2 Notes and then to the Class M-1 Notes, until
their respective Class Principal Balances have been reduced to zero. In
addition, no Allocable Loss Amounts will be applied in reduction of the Class
Principal Balance of any Class of Mezzanine Notes until the Class Principal
Balance of the Class B Notes has been reduced to zero. Further, no Allocable
Loss Amounts will be applied in reduction of the Class Principal Balance of the
Class B Notes until the Overcollateralization Amount has been reduced to zero.
No Allocable Loss Amounts will be applied to the Classes of Senior Notes. The
rights of the holders of the Residual Interests to receive any distributions on
any Distribution Date generally will be subordinated to the rights of the
holders of the Notes. The subordination described above is intended to enhance
the likelihood of the regular receipt of interest and principal due to the
holders of the Classes of Notes and to afford such holders protection against
losses on the Loans, with the greatest amount of such enhancement and protection
being provided to the Classes of Senior Notes, a lesser amount of such
enhancement and protection being provided to the Class M-1 and, in particular,
the Class M-2 Notes, and the least amount of such enhancement and protection
being provided to the Class B Notes. See "Risk Factors--Adequacy of Credit
Enhancement" herein.
On each Distribution Date, the "Allocable Loss Amount" will be equal to 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.
On each Distribution Date, the "Net Loan Losses" will be equal to the sum
of (A) with respect to the Loans that will have 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, 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 post-liquidation proceeds, any payments from the related
Obligor and any payments made in connection with the repurchase of or
substitution for a Defective Loan, less the amount of any expenses incurred in
connection with such recoveries; and (B) any reduction to the Principal Balances
of any Loans resulting from an order issued by a court of appropriate
jurisdiction in an insolvency proceeding.
Overcollateralization
As of any Distribution Date, the "Overcollateralization Amount" will equal
the excess of the sum of the Pool Principal Balance as of the end of the
immediately preceding Due Period and the Pre-Funded Amount as of the end of the
immediately preceeding Due Period over the aggregate of the Class Principal
Balances of all Classes of Notes (after giving effect to all distributions of
the Regular Distribution Amount on such Distribution Date). On the Closing Date,
the Overcollateralization Amount is expected to equal $__________. Following the
termination of the Spread Deferral Period, limited acceleration of the principal
amortization of the Notes relative to the principal amortization of the Loans
has been designed to increase the Overcollateralization Amount over time by
making additional distributions of principal to the holders of the Notes from
the distribution of Excess Spread until the Overcollateralization Amount is at
least equal to the Overcollateralization Target Amount.
The "Spread Deferral Period" will begin on the Closing Date and end as soon
as Excess Spread in an amount equal to $____________ has been deposited in the
Certificate Distribution Account for distribution to the holders of the Residual
Interests. The "Overcollateralization Target Amount" will equal (A) with respect
to any Distribution Date occurring prior to the Stepdown Date, the greater of
(x) ___% of the Maximum Collateral Amount and (y) the Net Delinquency
Calculation Amount, and (B) with respect to any other Distribution Date, the
greater of (x) ______% of
45
<PAGE>
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 will in no event be less than _____% of the
Maximum Collateral Amount.
If on any Distribution Date an Overcollateralization Deficiency (as defined
herein) exists, distributions of Excess Spread, if any, will be made as an
additional distribution of principal to the holders of the Notes, to be
allocated among the Classes of Notes in the order of priority set forth under
"Description of the Notes--Distributions on the Notes" herein. Such
distributions of Excess Spread are intended to accelerate the amortization of
the Class Principal Balances of all Classes of Notes relative to the
amortization of the Loans, thereby increasing the Overcollateralization Amount.
The relative percentage of the aggregate of the Class Principal Balances of the
Classes of Notes to the sum of the Pool Principal Balance and Pre-Funded Amount
will decrease as a result of the application of Excess Spread to reduce such
Class Principal Balances.
On any Distribution Date (i) prior to the termination of the Spread
Deferral Period or (ii) with respect to which the Overcollateralization
Deficiency Amount is equal to zero, all or a portion of the Excess Spread may be
distributed to the holders of the Residual Interests rather than as principal to
the holders of the Notes, thereby ceasing the acceleration of principal
amortization of the Notes in relation to the principal amortization of the
Loans, until such time as the Overcollateralization Deficiency Amount is greater
than zero (i.e., due to a reduction in the Overcollateralization Amount as a
result of Net Loan Losses or delinquencies or due to an increase in the
Overcollateralization Target Amount as a result of the failure to satisfy
certain delinquency criteria).
While the application of Excess Spread in the manner specified above has
been designed to produce and maintain a given level of overcollateralization,
there can be no assurance that Excess Spread will be generated in sufficient
amounts to ensure that such overcollateralization level will be achieved or
maintained at all times. In particular, a high rate of delinquencies on the
Loans during any Due Period could cause the amount of interest received on the
Loans during such Due Period to be less than the amount of interest
distributable on the Notes on the related Distribution Date. In such a case, the
Class Principal Balances of the Classes of Notes would decrease at a slower rate
relative to the Pool Principal Balance, resulting in a reduction of the
Overcollateralization Amount and, in some circumstances, an Allocable Loss
Amount. In addition, Net Loan Losses will reduce the Overcollateralization
Amount to zero before Allocable Loss Amounts are applied in reduction of the
Class Principal Balances of certain Classes of Notes. See "Risk
Factors--Adequacy of Credit Enhancement" herein.
DESCRIPTION OF THE NOTES
General
The _______________ Trust ________ (the "Trust") will issue ________
Classes of Asset Backed Notes (collectively, the "Notes") having the
designations and aggregate initial principal amounts specified on the cover
hereof pursuant to an Indenture to be dated as of _______________ (the
"Indenture"), between the Trust and the Indenture Trustee. The Trust will also
issue instruments representing the residual interest (each a "Residual
Interest") in the Trust pursuant to the terms of a Trust Agreement dated as of
_____________ (the "Trust Agreement"), among the Depositor, the Co-Owner Trustee
and the Owner Trustee. The Notes are secured by the assets of the Trust pursuant
to the Indenture.
The Notes offered hereby will be issued pursuant to the terms of the
Indenture. The following summary describes certain terms of the Notes and the
Indenture. It does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture.
Beneficial ownership interests in each Class of Notes will be held in
minimum denominations of $_________ and integral multiples of $1,000 in excess
thereof in book-entry form only. Persons acquiring beneficial interests in the
Notes will hold their interests through DTC.
Book-Entry Registration
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 New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC accepts securities for deposit
from its participating organizations Participants") and facilitates the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain
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other organizations. Indirect access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Noteholders which are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of Notes may do so only
through Participants or Indirect Participants (unless and until Definitive
Securities (as defined herein) are issued). In addition, Noteholders will
receive all distributions of principal and interest on the Notes through DTC and
its Participants. Under a book-entry format, Noteholders may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Indenture Trustee to Cede & Co. ("Cede"), as nominee for DTC. DTC will forward
such payments to its Participants which thereafter will forward them to Indirect
Participants or Noteholders. Noteholders will not be recognized by the Indenture
Trustee as Noteholders, as such term will be used in the Indenture, and
Noteholders will only be permitted to exercise the rights of Noteholders
indirectly through DTC and its Participants. Noteholders will not receive or be
entitled to receive Definitive Securities representing their respective
interests in the Notes, except under the limited circumstances described below.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC will be required to make book-entry
transfers among Participants on whose behalf it acts with respect to the Notes
and will be required to receive and transmit distributions of principal and
interest on the Notes. Participants and Indirect Participants with which
Noteholders have accounts with respect to the Notes will similarly be required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective Noteholders.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants, the ability of a Noteholder to pledge Notes to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such Notes, may be limited due to the lack of physical
certificates for such Notes.
Unless and until Definitive Securities are issued, Noteholders which are
not Participants may transfer ownership of Notes only through Participants by
instructing such Participants to transfer such Notes, by book-entry transfer,
through DTC for the account of the purchasers of such Notes, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfer of ownership of Notes 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 Noteholders.
DTC has advised the Issuer and the Indenture Trustee that, unless and until
Definitive Securities are issued, DTC will take any action permitted to be taken
by a Noteholder under the Indenture only at the direction of one or more
Participants to whose DTC accounts the Notes are credited. DTC may take
conflicting actions with respect to different undivided interests as a result of
different directions from Participants whose holdings include such undivided
interests.
Neither the Issuer nor the Indenture Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Notes held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Securities
Under certain circumstances set forth in the Indenture, the Notes will be
issued in fully registered, certificated form ("Definitive Securities") to the
Noteholders of a given series or their nominees, rather than to DTC or its
nominee, only if (i) the Servicer, in respect of the Notes, advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Notes, and the
Servicer is unable to locate a qualified successor, (ii) the Servicer, at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default under the Indenture Noteholders representing beneficial interests
aggregating at least a majority of the outstanding amount of the Notes advise
the DTC in writing that the continuation of the book-entry system through DTC
(or a successor thereto) is no longer in the best interests of the Noteholders.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all Noteholders and the Indenture
Trustee of the availability of Definitive Notes. Upon surrender to the Indenture
Trustee of the typewritten Notes representing book-entry Notes and receipt of
instructions for registration, the Issuer shall execute and the Indenture
Trustee shall authenticate the Definitive Notes in accordance with the
instructions of DTC.
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Distributions of principal of, and interest on, such Notes will thereafter
be made by the Indenture Trustee in accordance with the procedures set forth in
the Indenture directly to Noteholders in whose names the Definitive Notes were
registered at the close of business on the applicable Record Date specified for
such Notes.
Distributions on the Notes
For the definitions of certain of the defined terms used in the following
subsections, See "--Related Definitions" below.
On the 25th day of each month or, if such day is not a Business Day, the
first Business Day immediately following, commencing in ______________ (each
such date, a "Distribution Date"), the Indenture Trustee or its designee will
distribute to the persons in whose names the Notes are registered on the related
Record Date the portion of the aggregate distribution to be made to each
Noteholder as described below. The "Record Date" with respect to any
Distribution Date shall be the close of business on the last Business Day of the
month preceding the month in which such Distribution Date occurs. Prior to any
termination of the book-entry provisions, distributions on the book-entry Notes
will be made to beneficial owners of interests therein only through DTC and its
Participants. See "Description of the Notes--Book-Entry Registration" herein.
Available Collection Amount. Distributions on the Notes on each
Distribution Date will be made from the Available Collection Amount. The
Servicer will calculate the Available Collection Amount on the fourteenth
calendar day of each month or, if such day is not a Business Day, then the
immediately preceding Business Day (each such day, a "Determination Date"). With
respect to each Distribution Date, the "Available Collection Amount" is the sum
of (i) all amounts received on the Loans or required to be paid by __________ or
the Depositor during the related Due Period (exclusive of such amounts not
required to be deposited by the Servicer in the Collection Account and amounts
permitted to be withdrawn by the Indenture Trustee from the Collection Account)
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 for the Class B Notes or an
early redemption or termination of the Notes pursuant to the Sale and Servicing
Agreement, the Termination Price; (iii) the Purchase Price paid for any Loans
required to be purchased and the Substitution Adjustment to be deposited to the
Collection Account in connection with any substitution, in each case prior to
the related Determination Date; and (iv) the Capitalized Interest Requirement
(as defined herein), if any, with respect to such Distribution Date.
Distributions of Interest. Interest on the Class Principal Balance of each
Class of Notes will accrue thereon at the applicable Note Interest Rate, and
will be payable to the holders of such Class of Notes monthly on each
Distribution Date, commencing in ___________. Interest on each Class of Notes
will be calculated on the basis of a 360-day year of twelve 30-day months.
With respect to any Distribution Date, interest distributions on the Notes
will be made from the Available Collection Amount (plus, if applicable, the
amount, if any, of Pre-Funding Earnings 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) net of the Trust
Fees and Expenses (the "Available Distribution Amount"). Interest payments will
be made, first, to the Classes of Senior Notes, pro rata, based on the amount of
interest distributable in respect of each such Class calculated at the related
Note Interest Rate, second, to the Classes of Mezzanine Notes, sequentially, in
the order of their numerical Class designation, and then to the Class B Notes.
Under certain circumstances, the amount available for interest payments could be
less than the amount of interest payable on all Classes of Notes on any
Distribution Date. In such event, each affected Class will receive its ratable
share (based upon the aggregate amount of interest due to such Class) of the
remaining amount available to be distributed as interest after the payment of
all interest due on each Class having a higher interest payment priority. In
addition, any such interest deficiency will be carried forward as a Noteholders'
Interest Carry-Forward Amount for such Class and will be distributed to holders
of each such Class of Notes on subsequent Distribution Dates to the extent that
sufficient funds are available. Any such interest deficiency could occur, for
example, if delinquencies or losses realized on the Loans were exceptionally
high or were concentrated in a particular month. No interest will accrue on any
Noteholders' Interest Carry-Forward Amount for any Class.
Distributions of Principal. Principal distributions will be made to the
holders of the Notes on each Distribution Date in an amount generally equal to
the sum of (i) the Regular Principal Distribution Amount (less, in certain
circumstances, the excess of the Overcollateralization Amount over the
Overcollateralization Target Amount) and (ii) to the extent of the
Overcollateralization Deficiency Amount, any Excess Spread for such Distribution
Date.
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A. On each Distribution Date, the Regular Distribution Amount will be
distributed in the following order of priority:
Distribution Priorities.
(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 calculated at the related Note
Interest Rate;
(ii) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, 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 represent the Overcollateralization Amount on the Closing
Date), pro rata, based on the Original Class Principal Balances thereof and
the Residual Interests in relation to the sum of the Original Pool
Principal Balance and the Original Pre-Funded Amount;
(v) to the holders of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes, in that order, until the respective Class Principal Balances
thereof are reduced to zero, in an 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 Class M-2
Notes, in that order, in an 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, in an amount necessary to
reduce the Class Principal Balance thereof to zero;
(viii) sequentially, to the Class M-1, Class M-2 and Class B Notes, in
that order, until their respective Loss Reimbursement Deficiencies have
been paid in full; and
(ix) any remaining amount to the holders of the Residual Interests.
B. On each Distribution Date, the Indenture Trustee shall distribute the
Excess Spread, if any, in the following order of priority (in each case after
giving effect to all payments specified in paragraph A. above):
(i) prior to the termination of the Spread Deferral Period, to the
Certificate Distribution Account for distribution to the holders of the
Residual Interests;
(ii) upon the termination of the Spread Deferred Period, (A) in an
amount equal to the Overcollateralization Deficiency Amount, if any, as
follows:
(1) to the holders of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes, in that order, until the respective Class Principal Balances
thereof are reduced to zero, in an amount necessary to reduce the aggregate
Class Principal Balance of the Senior Notes to the Senior Optimal Principal
Balance for such Distribution Date;
(2) sequentially, to the holders of the Class M-1 and Class M-2 Notes,
in that order, until the respective Class Principal Balances thereof have
been reduced to the Class M-1 Optimal Principal Balance and Class M-2
Optimal Principal Balance, respectively, for such Distribution Date; and
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(3) to the holders of the Class B Notes until the Class Principal
Balance thereof has been reduced to zero; and
C. sequentially, to the Class M-1, Class M-2 and Class B Notes, in that
order, until their respective Loss Reimbursement Deficiencies, if any, have been
paid in full; and
D. any remaining amount to the holders of the Residual Interests.
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 on such Distribution
Date will be applied to such Classes pro rata based on their respective Class
Principal Balances.
Related Definitions
For purposes hereof, the following terms shall have the following meanings:
Business Day: Any day other than (i) a Saturday or a 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.
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 of the Regular
Distribution Amount) 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 B Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class B Notes, 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
each Distribution Date and the Class B Notes, the aggregate amount of interest
accrued during the related Interest Period at the Class B Note Interest Rate on
the sum of (i) the 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 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
interest accrued during the related Interest Period 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
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Distribution Date and (ii) any Class M-1 Noteholders' Interest Carry-Forward
Amount remaining outstanding for such Distribution Date.
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 made 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 (other than the first Distribution Date) and the Class
M-2 Notes, the aggregate amount of interest accrued during the related Interest
Period 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; 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 any distributions made on such Distribution Date in
reduction of the Class Principal Balances of the Classes of Senior Notes made
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 the Class M-2 Optimal Principal
Balance shall never be less than zero or greater than the Original Class
Principal Balance of the Class M-2 Notes.
Excess Spread: With respect to any Distribution Date, the excess of (a) the
Available Distribution Amount over (b) the Regular Distribution Amount.
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 REO Property or any other insurance policy that relates to
a Loan, net of any expenses which are incurred by the Servicer in connection
with the collection of such proceeds and not otherwise reimbursed to the
Servicer, but excluding the proceeds of any insurance policy that are to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with accepted loan servicing procedures.
Interest Period: With respect to any Distribution Date and each Class of
Notes, the calendar month preceding the month of such Distribution Date based on
a 360-day year consisting of twelve 30-day months.
Liquidated Loan: With respect to any date of determination and any Loan as
to which the Servicer has determined that all recoverable liquidation and
insurance proceeds have been received, which will be deemed to occur upon the
earliest of: (a) the liquidation of the related Mortgaged Property acquired
through foreclosure or similar proceedings, (b) the Servicer's determination in
accordance with customary accepted practices that no further amounts are
collectible from the Loan and (c) any portion of a scheduled monthly payment of
principal and interest is past due in excess of 180 days.
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Loss Reimbursement Deficiency: As of any date of determination and as to
the Class M-1 Notes, Class M-2 Notes or Class B Notes, the amount of Allocable
Loss Amounts, together with interest thereon, applied to the reduction of the
Class Principal Balance of such Class and not reimbursed pursuant to the Sale
and Servicing Agreement.
Net Delinquency Calculation Amount: With respect to any 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 related to Defaulted Loans, in each case, net of any
reimbursements made to the Servicer from such amounts for any unreimbursed
Servicing Compensation and Servicing Advances (including nonrecoverable
Servicing Advances) made and any other fees and expenses paid by the Servicer in
connection with the foreclosure, conservation and liquidation of the related
Liquidated Loans or Mortgaged Properties pursuant to the Sale and Servicing
Agreement.
Note Interest Rate: With respect to each Class of Notes, the interest rate
per annum set forth or described below:
Class A-1: ________%
Class A-2: ________%
Class A-3: ________%
Class A-4: ________%
Class M-1: ________%
Class M-2: ________%
Class B: ________%
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, any of the Senior Noteholders' Interest Carry-Forward Amount,
the Class M-1 Interest Carry-Forward Amount, the Class M-2 Interest
Carry-Forward Amount or the Class B Interest Carry-Forward Amount.
Noteholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Senior Noteholders' Interest Distributable
Amount, the Class M-1 Interest Distributable Amount, the Class M-2 Interest
Distributable Amount and the Class B Interest Distributable Amount.
Overcollateralization Amount: With respect to any Distribution Date, the
amount equal to the excess of (a) the sum of the Pool Principal Balance as of
the end of the immediately preceding Due Period and the Pre-Funded Amount as of
such Distribution Date over (b) the aggregate of the Class Principal Balances of
the Classes of Notes (after giving effect to distributions on the Notes and the
Residual Interests 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 payments of the Regular Distribution
Amount on the Notes and the Residual Interests 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)
______% of the Maximum Collateral Amount and (y) the Net Delinquency
Calculation; and (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 _____% of the Maximum Collateral Amount.
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Regular Distribution Amount: With respect to any Distribution Date, the
lesser of (a) the Available Distribution Amount and (b) the sum of (i) the
aggregate of the Noteholders' Interest Distributable Amounts, (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 sum of (i) each payment of principal collected by the Servicer
during 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 of any repurchased Loan which represents
principal, (v) the principal portion of any Substitution Adjustments required to
be deposited in the Collection Account as of the related Determination Date,
(vi) on the Distribution Date in which the Trust is to be terminated pursuant to
the Sale and Servicing Agreement, that portion of the Termination Price to be
applied to the payment of principal of the Notes and (v) 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 date; and
B. the aggregate of the Class Principal Balances of the Classes of Notes
immediately prior to such Distribution Date.
Released Mortgaged Property Proceeds: With respect to any Distribution
Date, the 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 related borrower in accordance with
applicable law, accepted mortgage servicing procedures and the Sale and
Servicing Agreement.
Senior Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the 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 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 Interest Period at the respective Note
Interest Rates on the sum of (i) the Class Principal Balance of the Classes of
Senior Notes immediately preceding such Distribution Date and (ii) any Senior
Noteholders' Interest Carry-Forward Amount remaining outstanding for such
Distribution Date.
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 aggregate Class Principal Balance of the Senior Notes
as of the Closing Date.
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 that are
60 or more days delinquent, in foreclosure or REO 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 $______ has been deposited in the
Certificate Distribution Account for distribution to the holders of the Residual
Interests.
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Stepdown Date: The first Distribution Date occurring after __________ as to
which all of the following conditions exist:
(1) the Pool Principal Balance has been reduced to an amount less than or
equal to ____% of the Maximum Collateral Amount;
(2) the Net Delinquency Calculation Amount is less than ____% of the
Maximum Collateral Amount; and
(3) the aggregate Class Principal Balance of the Senior Notes (after giving
effect to distributions of principal on such Distribution Date) will be able to
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 an amount equal 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 calculated without giving effect to the
proviso in the definition thereof and calculated pursuant only to clause (B) in
the definition thereof) and (b) _____% of the Maximum Collateral Amount.
Application of Allocable Loss Amounts
Following any reduction of the Overcollateralization Amount to zero, any
Allocable Loss Amounts will be applied, sequentially, in reduction of the Class
Principal Balances of the Class B, Class M-2 and Class M-1 Notes, in that order,
until their respective Class Principal Balances have been reduced to zero. The
Class Principal Balances of the Classes of Senior Notes will not be reduced by
any application of Allocable Loss Amounts. The reduction of the Class Principal
Balance of any applicable Class of Notes by the application of Allocable Loss
Amounts entitles such Class to reimbursement in an amount equal to the Loss
Reimbursement Deficiency. Each such Class of Notes will be entitled to receive
its Loss Reimbursement Deficiency, or any portion thereof, in accordance with
the payment priorities specified herein. Payment in respect of Loss
Reimbursement Deficiencies will not reduce the Class Principal Balance of each
related Class. The Loss Reimbursement Deficiency with respect to any Class will
remain outstanding until the earlier of (x) the payment in full of such amount
to the holders of such Class and (y) the occurrence of the applicable Final
Maturity Date (although there is no guarantee that such amounts will be paid on
such date).
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Pre-Funding Account
On the Closing Date, $_________ (as adjusted pursuant to the immediately
following sentence, the "Original Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account"), which account will be in the name of the
Indenture Trustee and shall be part of the Trust and be used to acquire
Subsequent Loans. To the extent that the Original Pool Principal Balance is more
or less than $_________, 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 $_________. During the Pre-Funding Period, the
amount on deposit in the Pre-Funding Account (net of investment earnings
thereon) (the "Pre-Funded Amount") will be reduced by the amount thereof used to
purchase Subsequent Loans in accordance with the Sale and Servicing Agreement.
The "Pre-Funding Period" is the period commencing on the Closing Date and ending
generally on the earlier to occur of (i) the date on which the amount on deposit
in the Pre-Funding Account (net of any investment earnings thereon) is less than
$________ and (ii) _________. On the Distribution Date following the Due Period
in which the termination of the Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period is less than $__________, any such
Pre-Funded Amount will be distributed to holders of the Classes of Notes then
entitled to receive principal on such Distribution Date in reduction of the
related Class Principal Balances, thus resulting in a partial redemption of the
related Notes on such date. On the Distribution Date following the Due Period in
which the termination of the Pre-Funding Period occurs, if the Pre-Funded Amount
at the end of the Pre-Funding Period is greater than or equal to $__________
(such event, a "Pre-Funding Pro Rata Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of all Classes of Notes and the
Residual Interests (which initially represent the Overcollateralization Amount
on the Closing Date), pro rata, based on the Original Class Principal Balances
thereof and the Residual Interests in relation to the sum of the Original Pool
Principal Balance and the Original Pre-Funded Amount.
Amounts on deposit in the Pre-Funding Account will be invested in eligible
investments. All interest and any other investment earnings on amounts on
deposit in the Pre-Funding Account will be deposited in the Note Distribution
Account.
Capitalized Interest Account
On the Closing Date, a portion of the sales proceeds of the Notes will be
deposited in an account (the "Capitalized Interest Account") for application by
the Indenture Trustee on the Distribution Dates in ___________, _____________
and __________________1997 to cover shortfalls in interest on the Notes that may
arise due to the utilization of the Pre-Funding Account as described herein. Any
amounts remaining in the Capitalized Interest Account at the end of the
Pre-Funding Period will be paid to ______.
Optional Termination of the Trust
The holders of an aggregate percentage interest in the Residual Interests
in excess of ___% (the "Majority Residual Interestholders") may, at their
option, effect an early termination of the Trust on or after any Distribution
Date on which the Pool Principal Balance declines to ____% or less of the
Maximum Collateral Amount, by purchasing all of the Loans at a price equal to or
greater than the Termination Price. The "Termination Price" shall be an amount
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
including such Servicing Advances deemed to be nonrecoverable. The proceeds from
such sale will be distributed in the order and priority set forth above under
"Distribution Priorities".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Indenture, the Sale
and Servicing Agreement, the Administration Agreement, the Custodial Agreement
and the Trust Agreement (collectively, the "Transfer and Servicing Agreements").
Forms of certain of the Transfer and Servicing Agreements have been filed as
exhibits to the Registration Statement. Copies of the Transfer and Servicing
Agreements will be filed with the Commission following the issuance of the
Notes. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Transfer
and Servicing Agreements. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth under the headings
"The Agreements" in the Prospectus, to which description reference is hereby
made.
Sale and Assignment of the Loans
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On the Closing Date, the Depositor will sell, convey, transfer and assign
the Initial Loans to the Trust. The Trust, concurrently with the sale,
conveyance, transfer and assignment of the Initial Loans, will deliver (or cause
to be delivered) to the Depositor the Notes in exchange for the Loans. The Trust
will pledge and assign the Loans (including any rights it may acquire from time
to time in the Subsequent Loans) to the Indenture Trustee in exchange for the
Notes. Each Loan will be identified in a schedule appearing as an exhibit to the
Sale and Servicing Agreement delivered to the Indenture Trustee as such Schedule
may from time to time be amended (the "Loan Schedule").
In addition, the Depositor will deliver (or cause to be delivered), as to
each Loan, to the Indenture Trustee or to the Custodian, the related Note
endorsed in blank or to the order of the Indenture Trustee, without recourse,
any assumption and modification agreements and the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned from the
public recording office), an assignment of the Mortgage in blank or in the name
of the Indenture Trustee, in recordable form, and any intervening assignments of
the Mortgage (collectively, as to each Loan, an "Indenture Trustee's Loan
File"). Subject to confirmation by the Rating Agencies, with respect to Loan
secured by Mortgaged Properties located in certain states where ______ has been
advised by counsel that recordation of an assignment of mortgage is not
necessary in order to perfect an interest in a Loan, assignments of Mortgage
will not be filed to reflect the transfer of the Loans to the Trust and the
pledge of the Loans to Indenture Trustee. Rather, ______ in its capacity as the
Servicer will retain record title to such mortgages on behalf of the Indenture
Trustee and the Noteholders. See "Risk Factors--Additional Factors Affecting
Delinquencies, Defaults and Losses on Loans--Non-recordation of Assignments". In
all other cases, assignments to the Indenture Trustee of the Mortgages will be
recorded in order to protect the Trust and the Indenture Trustee's interest in
the Loans against the claims of certain creditors of ______ or subsequent
purchasers. ______ will deliver or cause to be delivered to the Indenture
Trustee after recordation the assignments of the Mortgages and the Mortgages. In
the event that ______ cannot deliver the Mortgage or any assignment with
evidence of recording thereon concurrently with the conveyance thereof under the
Sale and Servicing Agreement because it has or they have not yet been returned
by the public recording office or because such office retains the original
thereof, then ______ will deliver or cause to be delivered to the Indenture
Trustee or the Custodian a certified true photocopy of such Mortgage or
assignment. ______ will deliver or cause to be delivered to the Indenture
Trustee or the Custodian any such Mortgage or assignment with evidence of
recording indicated thereon upon receipt thereof from the public recording
office. The Indenture Trustee or the Custodian will agree, for the benefit of
the holders of the Notes, to review (or cause to be reviewed) each Indenture
Trustee's Loan File within 30 days after the conveyance of the related Loan to
the Trust to ascertain that all required documents have been executed and
received, subject to the applicable cure period in the Transfer and Servicing
Agreements.
Trust Fees and Expenses
As compensation for its services pursuant to the Sale and Servicing
Agreement, the Servicer is entitled to the Servicing Fee and additional
servicing compensation and reimbursement as described under "Servicing" below.
As compensation for their services pursuant to the applicable Transfer and
Servicing Agreements, the Indenture Trustee is entitled to the Indenture Trustee
Fee and the Owner Trustee is entitled to the Owner Trustee Fee.
Servicing
In consideration for the performance of the daily loan servicing functions
for the Loans, the Servicer is entitled to a monthly fee (the "Servicing Fee")
equal to 1.00% (100 basis points) per annum (the "Servicing Fee Rate") of the
Pool Principal Balance as of the first day of the immediately preceding Due
Period. See "Risk Factors-- Additional Factors Affecting Delinquencies, Defaults
and Losses on Loans - Dependence on Servicer for Servicing Loans" herein. The
Servicer will pay the fees of any Subservicer out of the amounts it receives as
the Servicing Fee. In addition to the Servicing Fee, the Servicer is entitled to
retain additional servicing compensation in the form of assumption and other
administrative fees, release fees, insufficient funds charges, late payment
charges and any other servicing-related penalties and fees (such additional
compensation and Servicing Fee, collectively the "Servicing Compensation").
In the event of a delinquency or a default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. However, the Servicer will make
reasonable and customary expense advances with respect to the Loans (each, a
"Servicing Advance") in accordance with their servicing obligations under the
Sale and Servicing Agreement and will be entitled to receive reimbursement for
such Servicing Advances as described herein. For example, with respect to a
Loan, such Servicing Advances may include costs and expenses advanced for the
preservation, restoration and protection of any Mortgaged Property, including
advances to pay delinquent real estate taxes and assessments. Any Servicing
Advances previously made and determined by the Servicer to be nonrecoverable, in
accordance with accepted servicing procedures will be reimbursable from amounts
in the Collection Account prior to distributions to Noteholders.
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Collection Account, Note Distribution Account and Certificate Distribution
Account
The Servicer is required to use its best efforts to deposit in a segregated
account (the "Collection Account"), within two Business Days of receipt, all
payments received after the Cut-Off Date on account of principal and interest,
all Net Liquidation Proceeds, Insurance Proceeds, Released Mortgaged Property
Proceeds, post-liquidation proceeds, any amounts payable in connection with the
repurchase or substitution of any Loan and any amount required to be deposited
in the Collection Account in connection with the termination of the Notes. The
foregoing requirements for deposit in the Collection Account will be exclusive
of payments on account of principal and interest collected on the Loans on or
before the applicable Cut-Off Date. Withdrawals will be made from the Collection
Account only for the purposes specified in the Sale and Servicing Agreement
(including the payment of Servicing Compensation). The Collection Account may be
maintained at any depository institution which satisfies the requirements set
forth in the definition of "Eligible Account" in the Sale and Servicing
Agreement.
The Servicer will establish and maintain with the Indenture Trustee an
account, in the name of the Indenture Trustee on behalf of the Noteholders, into
which amounts released from the Collection Account for distribution to the
Noteholders will be deposited and from which all distributions to the
Noteholders will be made (the "Note Distribution Account").
On the Business Day prior to each Distribution Date, the Indenture Trustee
will deposit the Available Collection Amount into the Note Distribution Account
by making the appropriate withdrawals from the Collection Account. On each
Distribution Date, the Indenture Trustee will make withdrawals from the Note
Distribution Account for application of the amounts specified below in the
following order of priority:
(iii) to provide for the payment of certain fees of the Trust in the
following order: (a) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Due
Periods and (b) to the Servicer on behalf of the Owner Trustee, an amount
equal to the Owner Trustee Fee and all unpaid Owner Trustee Fees from prior
Due Periods; and
(iv) to provide for the payments to the holders of the Notes, the
holders of the Residual Interests and the Servicer of the amounts specified
herein under "Description of the Notes--Distributions on the Notes."
Income from Accounts
So long as no Event of Default shall have occurred and be continuing,
amounts on deposit in the Note Distribution Account (together with the
Collection Account, the "Accounts") will be invested by the Indenture Trustee,
as directed by the Servicer, in one or more Permitted Investments (as defined in
the Sale and Servicing Agreement) bearing interest or sold at a discount. No
such investment in any Account will mature later than the Business Day
immediately preceding the next Distribution Date. All income or other gain from
investments in any Account will be deposited in such Account immediately on
receipt, unless otherwise specified herein. Income from investments of amounts
on deposit in the Note Distribution Account will be for the benefit of and
withheld by the Indenture Trustee.
Withdrawals from the Collection Account
The Indenture Trustee, at the direction of the Servicer, shall 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 Compensation not
otherwise withheld as permitted by the Sale and Servicing Agreement; (iii) on
each Distribution Date, to pay to the Servicer any unreimbursed Servicing
Advances; provided, however, that, except as set forth in clause (iv) below, the
Servicer's right to reimbursement for unreimbursed Servicing Advances shall be
limited to late collections 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 Obligor 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; and (v) make payments as set forth in the Sale and Servicing
Agreement.
The Owner Trustee and the Indenture Trustee
The Owner Trustee, the Indenture Trustee and any of their respective
affiliates may hold Notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of certain jurisdictions, the Servicer, the
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Owner Trustee and the Indenture Trustee acting jointly (or in some instances,
the Owner Trustee or the Indenture Trustee acting alone) will have the power to
appoint co-trustees or separate trustees of all or any part of the Trust. In the
event of such an appointment, all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee by the Trust Agreement and upon the
Indenture Trustee by the Sale and Servicing Agreement and the Indenture will be
conferred or imposed upon the Owner Trustee and the Indenture Trustee,
respectively, and in each such case such separate trustee or co-trustee jointly,
or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee will
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 Owner Trustee or the Indenture
Trustee, respectively.
The Owner Trustee and the Indenture Trustee may resign at any time, in
which event the Servicer will be obligated to appoint a successor thereto. The
Servicer may remove the Owner Trustee or the Indenture Trustee if either ceases
to be eligible to continue as such under the Trust Agreement, the Sale and
Servicing Agreement or the Indenture, as the case may be, or becomes legally
unable to act or becomes insolvent. In such circumstances, the Servicer will be
obligated to appoint a successor Owner Trustee or a successor Indenture Trustee,
as applicable. Any resignation or removal of the Owner Trustee or the Indenture
Trustee and appointment of a successor thereto will not become effective until
acceptance of the appointment by such successor. Upon the occurrence and
continuation of an event of default under the Indenture, the Co-Owner Trustee
will resign and the Owner Trustee will assume the duties of the Co-Owner Trustee
under the Trust Agreement and the Sale and Servicing Agreement.
The Trust Agreement and Indenture will provide that the Owner Trustee and
the Indenture Trustee will be entitled to indemnification by the Depositor or
______, and will be held harmless against, any loss, liability or expense
incurred by the Owner Trustee or the Indenture Trustee not resulting from its
own willful misfeasance, bad faith or negligence (other than by reason of a
breach of any of its representations or warranties to be set forth in the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, as the case may
be).
Duties of the Owner Trustee and the Indenture Trustee
The Owner Trustee will make no representations as to the validity or
sufficiency of the Trust Agreement, the Notes or of any Loans or related
documents, and will not be accountable for the use or application by the
Depositor or the Servicer of any funds paid to the Depositor or the Servicer in
respect of the Notes, the Loans, or the investment of any monies by the Servicer
before such monies are deposited into the Accounts. So long as no Event of
Default has occurred and is continuing, the Owner Trustee will be required to
perform only those duties specifically required of it under the Trust Agreement.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the Owner
Trustee under the Trust Agreement, in which case it will only be required to
examine them to determine whether they conform to the requirements of the Trust
Agreement. The Owner Trustee will not be charged with knowledge of a failure by
the Servicer to perform its duties under the Trust Agreement or the Sale and
Servicing Agreement which failure constitutes an Event of Default unless the
Owner Trustee obtains actual knowledge of such failure as will be specified in
the Trust Agreement or the Sale and Servicing Agreement.
The Indenture Trustee will make no representations as to the validity or
sufficiency of the Indenture, the Sale and Servicing Agreement, the Notes (other
than the execution and authentication thereof) or of any Loans or related
documents, and will not be accountable for the use or application by the
Depositor or the Servicer of any funds paid to the Depositor or the Servicer in
respect of the Notes or the Loans, or the investment of any monies by the
Servicer before such monies are deposited into any of the Accounts. So long as
no Event of Default under the Indenture or the Sale and Servicing Agreement has
occurred and is continuing, the Indenture Trustee will be required to perform
only those duties specifically required of it under the Indenture or the Sale
and Servicing Agreement. Generally, those duties will be limited to the receipt
of the various certificates, reports or other instruments required to be
furnished to the Indenture Trustee under the Indenture, in which case it will
only be required to examine them to determine whether they conform to the
requirements of the Indenture. The Indenture Trustee will not be charged with
knowledge of a failure by the Servicer to perform its duties under the Trust
Agreement, Sale and Servicing Agreement or Administration Agreement which
failure constitutes an Event of Default under the Indenture or the Sale and
Servicing Agreement unless the Indenture Trustee obtains actual knowledge of
such failure as will be specified in the Indenture or the Sale and Servicing
Agreement.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture or the Sale and Servicing
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the Noteholders, unless such
Noteholders have offered to the Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby. No Noteholder will have any right under the
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Indenture or the Sale and Servicing Agreement to institute any proceeding with
respect to the Indenture or the Sale and Servicing Agreement, unless such holder
previously shall have given to the Indenture Trustee written notice of the
occurrence of an Event of Default and (i) the Event of Default arises from the
Servicer's failure to remit payments when due or (ii) Noteholders evidencing not
less than 25% of the voting interests of each Class of Notes, acting together as
a single class, shall have made written request upon the Indenture Trustee to
institute such proceeding in its own name as the Indenture Trustee thereunder
and offered to the Indenture Trustee reasonable indemnity and the Indenture
Trustee for 30 days shall have neglected or refused to institute any such
proceedings.
PREPAYMENT AND YIELD CONSIDERATIONS
Except as otherwise provided herein, no principal distributions will be
made on any Class of Senior Notes until the Class Principal Balance of each
Class of Senior Notes having a lower numerical designation has been reduced to
zero, and no principal distributions will be made on the Mezzanine Notes until
all required principal distributions have been made in respect of the Senior
Notes. In addition, except as otherwise provided, no distributions of principal
with respect to the Class B Notes will be made until the required principal
distributions have been made in respect of all Classes of Senior Notes and
Mezzanine Notes. See "Description of the Notes--Distributions on the Notes"
herein. As the rate of payment of principal of each Class of Notes depends
primarily on the rate of payment (including prepayments) of the Loans, final
payment of any Class of Notes could occur significantly earlier than its Final
Maturity Date. Holders of the Notes will bear the risk of being able to reinvest
principal payments on the Notes at yields at least equal to the yields on their
respective Notes. No prediction can be made as to the rate of prepayments on the
Loans in either stable or changing interest rate environments. Any reinvestment
risk resulting from the rate of prepayment of the Loans and the distribution of
such payments to the holders of the Notes will be borne entirely by the holders
of the Notes.
The subordination of the Class B Notes to the Senior Notes and Mezzanine
Notes will provide limited protection to the holders of the Senior and Mezzanine
Notes against losses on the Loans. Accordingly, the yield on the Class B Notes
(and to a lesser extent, the Mezzanine Notes and Senior Notes) will be extremely
sensitive to the delinquency and loss experience of the Loans, the timing of any
such delinquencies and losses, the weighted average coupon of the Loans
(including the Adjustable Rate Loans) as well as the amount of Excess Spread
from time to time. If the actual rate and amount of delinquencies and losses
experienced by the Loans exceed the rate and amount of such delinquencies and
losses assumed by an investor or the actual weighted average coupon of the Loans
(including the Adjustable Rate Loans) is less than the weighted average coupon
assumed by an investor, the yield to maturity on the Notes may be lower than
anticipated.
The effective yield to the holders of any Class of Notes will be lower than
the yield otherwise produced by the applicable Note Interest Rate, because the
distribution of the interest accrued during each Interest Period (a calendar
month consisting of thirty days) will not be made until the Distribution Date
occurring in the month following such Due Period. See "Description of the
Notes--Distributions on the Notes" herein. This delay will result in funds being
passed through to the holders of the Notes approximately 25 days after the end
of the monthly accrual period, during which 25-day period no interest will
accrue on such funds. As discussed in greater detail below, greater than
anticipated distributions of principal can also affect the yield on Notes
purchased at a price greater or less than par.
The rate of principal payments on the Notes, the aggregate amount of each
interest payment on the Notes and the yield to maturity on the Notes will be
directly related to and affected by the rate and timing of principal reductions
on the Loans, the application of Excess Spread to reduce the Class Principal
Balances of the Notes to the extent described herein under "Description of
Credit Enhancement--Overcollateralization," and, under certain circumstances,
the delinquency rate experienced by and the weighted average coupon of the
Loans. The reductions in principal of such Loans may be in the form of scheduled
amortization payments or unscheduled payments or reductions, which may include
prepayments, repurchases and liquidations or write-offs due to default,
casualty, insurance or other dispositions. 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 may effect an early
termination of the Trust, resulting in a redemption of the Notes. See
"Description of the Notes--Optional Termination of the Trust" herein.
The "weighted average life" of a Note refers to the average amount of time
that will elapse from ______________ (the "Closing Date") to the date on which
each dollar in respect of principal of such Note will have repaid. The weighted
average lives of the Notes will be influenced by, among other factors, the rate
at which principal reductions occur on the Loans, the extent to which high rates
of delinquencies on the Loans during any Due Period result in interest
collections on the Loans in amounts less than the amount of interest
distributable on the Notes, the rate at which Excess Spread is distributed to
holders of the Notes as described herein, and the extent to which any reduction
of the Overcollateralization Amount is paid to the holders of the Residual
Interests as described herein. If substantial principal prepayments on the Loans
are received from unscheduled prepayments, liquidations or repurchases, then the
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distributions to the holders of the Notes resulting from such prepayments may
significantly shorten the actual average lives of the Notes. If the Loans
experience delinquencies and certain defaults in the payment of principal, then
the holders of the Notes will similarly experience a delay in the receipt of
principal distributions attributable to such delinquencies and default, which in
certain instances may result in longer actual average lives of the Notes than
would otherwise be the case. However, to the extent that the Principal Balances
of Liquidated Loans are included in the principal distributions on the Notes,
then the holders of the Notes will experience an acceleration in the receipt of
principal distributions which in certain instances may result in shorter actual
average lives of the Notes than would otherwise be the case. Interest shortfalls
on the Loans due to principal prepayments in full and in part and any resulting
shortfall in amounts distributable on the Notes will be covered to the extent of
amounts available from the credit enhancement provided for the Notes. See "Risk
Factors--Adequacy of Credit Enhancement" herein.
The rate and timing of principal reductions on the Loans will be influenced
by a variety of economic, geographic, social and other factors. These factors
may include changes in borrowers' housing needs, job transfers, unemployment,
borrowers' net equity, if any, in the Mortgaged Properties, servicing decisions,
homeowner mobility, the existence and enforceability of "due-on-sale" clauses,
seasoning of Loans, market interest rates for similar types of loans and the
availability of funds for such loans. Each of the Loans may be assumed, with the
Servicer's consent, upon the sale of the related Mortgaged Property. Certain of
the Loans are subject to prepayment penalties, which may reduce the amount or
the likelihood of prepayments on such Loans. The remaining Loans may be prepaid
in full or in part at any time without penalty. As with fixed rate obligations,
generally, the rate of prepayment on a pool of loans is likely to be affected by
prevailing market interest rates for similar types of loans of a comparable term
and risk level. If prevailing interest rates were to fall significantly below
the respective Loan Rates on the Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing interest rates were to
rise significantly above the respective Loan Rates on the Loans, the rate of
prepayment on the Loans would be expected to decrease. In addition, depending on
prevailing market interest rates, the future outlook for market interest rates
and economic conditions generally, some borrowers may sell or refinance
mortgaged properties in order to realize their equity in the mortgaged
properties, if any, to meet cash flow needs or to make other investments. In
addition, any future limitations on the rights of borrowers to deduct interest
payments on mortgage loans for Federal income tax purposes may result in a
higher rate of prepayment on the Loans. ______ makes no representations as to
the particular factors that will affect the prepayment of the Loans, as to the
relative importance of such factors, or as to the percentage of the Principal
Balances of the Loans that will be paid as of any date.
Distributions of principal to holders of the Notes at a faster rate than
anticipated will increase the yields on Notes purchased at discounts but will
decrease the yields on Notes purchased at premiums, which distributions of
principal may be attributable to scheduled payments and prepayments of principal
as a result of repurchases and liquidations or write-offs due to default,
casualty or insurance on the Loans and to the application of Excess Spread. The
effect on an investor's yield due to distributions of principal to the holders
of the Notes (including, without limitation, prepayments on the Loans) occurring
at a rate that is faster (or slower) than the rate anticipated, by the investor
during any period following the issuance of the Notes will not be offset
entirely by a subsequent like reduction (or increase) in the rate of such
distributions of principal during any subsequent period.
The rate of delinquencies and defaults on the Loans and the recoveries, if
any, on Defaulted Loans and foreclosed properties will also affect the rate and
timing of principal payments on the Loans, and accordingly, the weighted average
lives of the Notes, and could cause a delay in the payment of principal or a
slower rate of principal amortization to the holders of Notes. Certain factors
may influence such delinquencies and defaults, including origination and
underwriting standards, Combined Loan-to-Value Ratios and delinquency history.
In general, defaults on home loans are expected to occur with greater frequency
in their early years, although few data are available with respect to the rate
of default on home loans similar to the Loans. The rate of default on Loans with
high Combined Loan-to-Value Ratios, secured by junior liens may be higher than
that on home loans with lower Combined Loan-to-Value Ratios or secured by first
liens on comparable properties. Furthermore, the rate and timing of prepayments,
defaults and liquidations on the Loans will be affected by the general economic
conditions of the regions of the country in which the related Mortgaged
Properties are located or the related borrower is residing. See "The Loans"
herein. The risk of delinquencies and loss is greater and voluntary principal
prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by, among other factors, increasing unemployment or
falling property values.
Because principal distributions generally are paid to certain Classes of
Notes before other Classes, holders of the Class B Notes and, to a lesser
extent, the Classes of Mezzanine Notes bear a greater risk of losses from
delinquencies and defaults on the Loans than holders of the Classes of Notes
having higher priorities for payment of principal. See "Description of Credit
Enhancement--Subordination and Allocation of Losses" herein.
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<PAGE>
Although some data have been published with respect to the historical
prepayment experience of certain residential mortgage loans, such mortgage loans
may differ in material respects from the Loans and such data may not be
reflective of conditions applicable to the Loans. No prepayment history is
generally available with respect to the types of Loans included in the Pool or
similar types of loans, and there can be no assurance that the Loans will
achieve or fail to achieve any particular rate of principal prepayment. A number
of factors suggest that the prepayment experience of the Pool may be
significantly different from that of a pool of conventional first-lien, single
family mortgage loans with equivalent interest rates and maturities. One such
factor is that the Principal Balance of the average Loan is smaller than that of
the average conventional first-lien mortgage loan. A smaller principal balance
may be easier for a borrower to prepay than a larger balance and, therefore, a
higher prepayment rate may result for the Pool than for a pool of first-lien
mortgage loans, irrespective of the relative average interest rates and the
general interest rate environment. In addition, in order to refinance a
first-lien mortgage loan, the borrower must generally repay any junior liens.
However, a small Principal Balance may make refinancing a Loan at a lower
interest rate less attractive to the borrower as the perceived impact to the
borrower of lower interest rates on the size of the monthly payment may not be
significant. Other factors that might be expected to affect the prepayment rate
of the Pool include general economic conditions, the amounts of and interest
rates on the underlying senior mortgage loans, and the tendency of borrowers to
use real property mortgage loans as long-term financing for home purchase and
junior liens as shorter-term financing for a variety of purposes, which may
include the direct or indirect financing of home improvement, education
expenses, debt consolidation, purchases of consumer durables such as
automobiles, appliances and furnishings and other consumer purposes.
Furthermore, because at origination a substantial majority of the Loans had
combined loan-to-value ratios that exceeded 100%, the related borrowers for
these Loans will generally have significantly less opportunity to refinance the
indebtedness secured by the related Mortgaged Properties and, therefore, a lower
prepayment rate may be experienced by the Pool than for a pool of mortgage
(including first or junior lien) loans that have combined loan-to-value ratios
less than 100%. Given these characteristics, the Loans may experience a higher
or lower rate of prepayment than first-lien mortgage loans.
Excess Spread and Reduction of Overcollateralization Amount
An overcollateralization feature has been designed to accelerate the
principal amortization of the Notes relative to the principal amortization of
the Loans. If on any Distribution Date following the termination of the Spread
Deferral Period, the Overcollateralization Target Amount exceeds the
Overcollateralization Amount, any Excess Spread will be distributed to the
holders of the Classes of Notes in the order and amounts specified herein under
"Description of the Notes--Distributions on the Notes--Distribution Priorities."
Prior to the termination of the Spread Deferral Period or if the
Overcollateralization Amount equals the Overcollateralization Target Amount for
such Distribution Date, Excess Spread otherwise distributable to the holders of
the Notes as described above will instead be distributed in respect of Loss
Reimbursement Deficiencies, if any, and thereafter to the holders of the
Residual Interests. On the Stepdown Date and on each Distribution Date
thereafter as to which the Overcollateralization Amount is or, after taking into
account all other distributions to be made on such Distribution Date, would be
at least equal to the Overcollateralization Target Amount, amounts otherwise
distributable as principal to the holders of the Notes on such Distribution Date
in reduction of their Class Principal Balances may, under certain circumstances,
instead be distributed in respect of the applicable Classes in payment of their
respective Loss Reimbursement Deficiencies and thereafter to the holders of the
Residual Interests, thereby reducing the rate of and under certain circumstances
delaying the principal amortization with respect to the Notes, until the
Overcollateralization Amount is reduced to the Overcollateralization Target
Amount.
While all of the Notes are fixed rate obligations, ______% of the Original
Pool Principal Balance consists of Adjustable Rate Loans. If the Loan Rates on
the Adjustable Rate Loans decrease, the amount of the Excess Spread available
(i) to cause the termination of the Spread Deferral Period and then (ii) to
achieve the required Overcollateralization Amount will be lessened.
In addition, high rates of delinquencies on the Loans during any Due Period
may cause the amount of interest received on the Loans during such Due Period to
be less than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Notes to decrease at a slower rate relative to the Pool Principal Balance,
resulting in a reduction of the Overcollateralization Amount and, in some
circumstances, an Allocable Loss Amount. As described herein, the yield to
maturity on a Note purchased at a premium or a discount will be affected by the
extent to which any amounts are paid to the holders of the Residual Interests in
lieu of payment to the holders of the Classes of Notes in reduction of their
Class Principal Balances. If the actual distributions of any such amounts to the
holders of the Residual Interests occur sooner than anticipated by an investor
who purchases a Note at a discount, the actual yield to such investor may be
lower than such investor's anticipated yield. If the actual distributions of any
such amounts to the holders of the Residual Interests occur later than
anticipated by an investor who purchases a Note at a premium, the actual yield
to such investor may be lower than such investor's anticipated yield. The amount
payable to the holders of the Residual Interests in reduction of the
61
<PAGE>
Overcollateralization Amount, if any, on any Distribution Date will be affected
by the Overcollateralization Target Amount and by the actual default and
delinquency experience of the Pool and the principal amortization of the Pool.
Reinvestment Risk
The reinvestment risk with respect to an investment in the Notes will be
affected by the rate and timing of principal payments (including prepayments) in
relation to the prevailing interest rates at the time of receipt of such
principal payments. For example, during periods of falling interest rates,
holders of the Notes are likely to receive an increased amount of principal
payments from the Loans at a time when such holders may be unable to reinvest
such payments in investments having a yield and rating comparable to those of
the Notes. Conversely, during periods of rising interest rates, holders of the
Notes are likely to receive a decreased amount of principal prepayments from the
Loans at a time when such holders may have an opportunity to reinvest such
payments in investments having a higher yield than, and a comparable rating to,
those of the Notes.
Final Maturity Dates
The "Final Maturity Date" for each Class of Notes as set forth in the
"Summary of Terms" herein has been calculated as the thirteenth Distribution
Date following the Due Period in which the Class Principal Balance of such Class
of Notes would be reduced to zero assuming no losses or prepayments and that no
Excess Spread is applied to reduce the principal balance of such Class of Notes.
The actual maturity of any Class of Notes may be substantially earlier than its
Final Maturity Date set forth herein.
Weighted Average Lives of the Notes
The following information is given solely to illustrate the effect of
prepayments of the Loans on the weighted average lives of the Notes under
certain stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the Loans. Weighted average life refers to the
average amount of time that will elapse from the date of delivery of a security
until each dollar of principal of such security will be repaid to the investor.
The weighted average lives of the Notes will be influenced by the rate at which
principal of the Loans is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
reductions of principal, including without limitation those resulting from
unscheduled full or partial prepayments, refinancings, liquidations and
write-offs due to defaults, casualties, insurance or other dispositions,
substitutions and repurchases by or on behalf of the Depositor or ______), the
rate at which Excess Spread is distributed to holders of the Notes as described
herein, the delinquency rate of the Loans from time to time and the extent to
which any amounts are distributed to the holders of the Residual Interests as
described herein.
Prepayments on loans such as the Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption (the "Prepayment Assumption"), which represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of the pool of loans for the life of such loans. A 100% Prepayment
Assumption assumes a constant prepayment rate ("CPR") of _____% per annum of the
outstanding principal balance of such loans in the first month of the life of
the loans and an additional approximate ______% (expressed as a percentage per
annum) in each month thereafter until the twelfth month; beginning in the
twelfth month and in each month thereafter during the life of the loans, a CPR
of _______% each month is assumed. As used in the table below, 0% Prepayment
Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption
(i.e., no prepayments). Correspondingly, ____% Prepayment Assumption assumes
prepayment rates equal to ____% of the Prepayment Assumption, and so forth. The
Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of loans, including the Loans. None of ______ or the Depositor makes
any representations about the appropriateness of the Prepayment Assumption or
the CPR model.
Modeling Assumptions. For purposes of preparing the tables below, the
following assumptions (the "Modeling Assumptions") have been made:
(i) all scheduled principal and interest payments on the Loans are
timely received on the first day of a Due Period, which will begin on the
first day of each month and end on the last day of the month (with the
first Due Period commencing on __________________), no delinquencies or
losses occur on the Loans and all Loans have a first payment date that
occurs thirty (30) days after the origination thereof; it is assumed that
the scheduled payments of interest include 30 days' accrued interest;
(ii) the scheduled payments on the Loans have been calculated on the
outstanding Principal Balance (prior to giving effect to prepayments), the
Loan Rate and the remaining term to stated maturity such that the
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<PAGE>
Loans (other than the Balloon Loans) will fully amortize by their remaining term
to stated maturity and the Balloon Loans will amortize according to their terms
and the balloon payment will be made on the final payment date;
(iii) all scheduled payments of interest and principal in respect of
the Loans have been made through the applicable Cut-Off Date for purposes
of calculating remaining term to stated maturity;
(iv) all Loans prepay monthly at the specified percentages of the
Prepayment Assumption, no optional or other early termination of the Notes
occurs (except with respect to the calculation of the Weighted Average Life
- To Call (Years) figures in the following tables) and no substitutions or
repurchases of the Loans occur;
(v) all prepayments in respect of the Loans are received on the last
day of each month commencing in the month of the Closing Date and include
30 days of interest thereon;
(vi) the Closing Date for the Notes is ______________ and each year
will consist of 360 days;
(vii) cash distributions are received by the holders of the Notes on
the 25th day of each month, commencing in _____________;
(viii) the Overcollateralization Target Amount will be as defined
herein;
(ix) the Pre-Funding Pro Rata Distribution Trigger does not occur;
(x) the Note Interest Rate for each Class of Notes is as set forth
herein;
(xi) the additional fees deducted from the interest collections in
respect of the Loans include the Indenture Trustee Fee, the Custodian Fee,
the Owner Trustee Fee and the Servicing Fee;
(xii) no reinvestment income from any Account is earned and available
for distribution;
(xiii) Sub-Pools 11, 12 and 13 (specified in the table below) are
transferred to the Trust in ____________ with principal payments on such
Loans being received by the Servicer in ____________ and passed through to
holders of the Notes on the Distribution Date in _________________;
(xiv) sufficient funds will be available in the Capitalized Interest
Account to cover any shortfalls in interest due to the Pre-Funding Account
and the transfer of Loans described in clause (xiii);
(xv) interest will accrue on the Notes for each related Distribution
Date at the related Note Interest Rate and based on the related Interest
Period;
(xvi) all of the Original Pre-Funded Amount is used to acquire
Subsequent Loans as set forth in clause (xiii); and
(xvii) each Adjustable Rate Loan adjusts every six months following
its initial adjustment date and the Pool consists of thirteen Loans having
the following additional characteristics:
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<PAGE>
Assumed Loan Characteristics
<TABLE>
<CAPTION>
Number of
Remaining Months to
Cut-Off Date Original Term to Final
Sub-Pool Principal Term Maturity Balloon Gross Lifetime Lifetime
Loan Rate Balance (Months) (Months) Payment Margin Cap Floor Periodic Ca
- --------- ------------ -------- --------- ---------- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
________% $________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
________ ________ ________ _________ ________ ______ ________ ________ ________
</TABLE>
The tables on the following pages indicate the weighted average lives of
each Class of Notes corresponding to the specified percentages of the Prepayment
Assumption.
These tables have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Loans which may differ from the actual characteristics and performance thereof)
and should be read in conjunction therewith.
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<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-1 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent ... _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
Weighted Average
Life _____ _____ _____ _____ _____ _____
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
65
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-2 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average
Life
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
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<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-3 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average
Life
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
67
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-4 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
68
<PAGE>
Class A-4 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average
Life
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(3) The percentages in this table have been rounded to the nearest whole
number.
(4) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
69
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class M-1 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
70
<PAGE>
Class M-1 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average
Life
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
71
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class M-2 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent ... _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
72
<PAGE>
Class M-2 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average
Life
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
73
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class B Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
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<PAGE>
Class B Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average
Life
To Maturity
(Years) _____ _____ _____ _____ _____ _____
- ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
75
<PAGE>
The amortization scenarios for the Notes set forth in the foregoing tables
are subject to significant uncertainties and contingencies (including those
discussed above under "Prepayment and Yield Considerations"). As a result, there
can be no assurance that any of the foregoing amortization scenarios and the
Modeling Assumptions on which they were made will prove to be accurate or that
the actual weighted average lives of the Notes will not vary from those set
forth in the foregoing tables, which variations may be shorter or longer, and
which variations may be greater with respect to later years. Furthermore, it is
unlikely that the Loans will prepay at a constant rate or that all of the Loans
will prepay at the same rate. Moreover, the Loans actually included in the Pool,
the payment experience of such Loans and certain other factors affecting the
distributions on the Notes will not conform to the Modeling Assumptions made in
preparing the above tables. In fact, the characteristics and payment experience
of the Loans will differ in many respects from such Modeling Assumptions. See
"The Loans" herein. To the extent that the Loans actually included in the Pool
have characteristics and a payment experience that differ from those assumed in
preparing the foregoing tables, the Notes are likely to have weighted average
lives that are shorter or longer than those set forth in the foregoing tables.
See "Risk Factors--Prepayment and Yield Considerations" herein.
In light of the uncertainties inherent in the foregoing paydown scenarios,
the inclusion of the weighted average lives of the Notes in the foregoing tables
should not be regarded as a representation by the Servicer, the Depositor, the
Underwriter, or any other person that such weighted average lives will be
achieved or that any of the foregoing paydown scenarios will be experienced.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material anticipated federal
income tax considerations 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
considerations applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Notes.
Treatment of the Notes as Indebtedness. The Depositor agrees, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for all federal, state and local income tax purposes. There are no regulations,
published rulings or judicial decisions involving the characterization for
federal income tax purposes of securities with terms substantially the same as
the Notes. In general, whether instruments such as the Notes constitute
indebtedness 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
merely upon the form of the transaction or the manner in which the instruments
are labeled. The Internal Revenue Service (the "IRS") and the courts have set
forth various factors to be taken into account in determining, for federal
income tax purposes, whether or not an instrument constitutes indebtedness and
whether a transfer of property is a sale because the transferor has relinquished
substantial incidents of ownership in the property or whether such transfer is a
borrowing secured by the property. On the basis of its analysis of such factors
as applied to the facts and its analysis of the economic substance of the
contemplated transaction, Dewey Ballantine, tax counsel to ______ ("Tax
Counsel") will conclude that, for federal income tax purposes, the Notes will be
treated as indebtedness of the Trust, and not as an ownership interest in the
Loans, or an equity interest in the Trust or in a separate association taxable
as a corporation or other taxable entity.
If the Notes are characterized as indebtedness, interest paid or accrued on
a Note will be treated as ordinary income to the Noteholders and principal
payments on a Note will be treated as a return of capital to the extent of the
Noteholder's basis in the Note allocable thereto. An accrual method taxpayer
will be required to include in income interest on the Notes when earned, even if
not paid, unless it is determined to be uncollectible. The Trust will report to
Noteholders of record and the Internal Revenue Service (the "IRS") in respect of
the interest paid and original issue discount, if any, accrued on the Notes to
the extent required by law.
Although, as described above, it is the opinion of Tax Counsel that, for
federal income tax purposes, the Notes will be characterized as debt, such
opinion is not binding on the IRS and thus no assurance can be given that such a
characterization will prevail. If the IRS successfully asserted that one or more
Classes of the Notes did not represent debt for federal income tax purposes,
holders of the Notes would likely be treated as owning an interest in a
partnership and not an interest in an association (or publicly traded
partnership) taxable as a corporation. If the Noteholders were treated as owning
an equitable interest in a partnership, the partnership itself would not be
subject to federal income tax; rather each partner would be taxed individually
on their respective distributive share of the partnership's income, gain, loss,
deductions and credits. The amount, timing and characterization of items of
income and deductions for a Noteholder would differ if the Notes were held to
constitute partnership interests, rather than indebtedness and would cause a
tax-exempt entity subject to tax on unrelated business taxable income ("UBTI")
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(including an individual retirement account) to recognize UBTI under the Code.
Since the parties will treat the Notes as indebtedness for federal income tax
purposes, none of the Servicer, the Indenture Trustee or the Owner Trustee will
attempt to satisfy the tax reporting requirements that would apply under this
alternative characterization of the Notes. Investors that are foreign persons
are strongly advised to consult their own tax advisors in determining the
federal, state, local and other tax consequences to them of the purchase,
ownership and disposition of the Notes.
Original Issue Discount. It is anticipated that the Notes will not have any
original issue discount ("OID") other than possibly OID within a de minimis
exception and that accordingly the provisions of sections 1271 through 1273 and
1275 of the Internal Revenue Code of 1986, as amended (the "Code"), generally
will not apply to the Notes. OID will be considered de minimis if it is less
than 0.25% of the principal amount of a Note multiplied by its expected weighted
average life. The prepayment assumption that will be used for purpose of
computing original issue discount, if any, for federal income tax purposes is
100% of the Prepayment Assumption.
Market Discount. A subsequent purchaser who buys a Note for less than its
principal amount may be subject to the "market discount" rules of Section 1276
through 1278 of the Code. If a subsequent purchaser of a Note disposes of such
Note (including certain nontaxable dispositions such as a gift), or receives a
principal payment, any gain upon such sale or other disposition will be
recognized, or the amount of such principal payment will be treated, as ordinary
income to the extent of any "market discount" accrued for the period that such
purchaser holds the Note. Such holder may instead elect to include market
discount in income as it accrues with respect to all debt instruments acquired
in the year of acquisition of the Notes and thereafter. Market discount
generally will equal the excess, if any, of the then current unpaid principal
balance of the Note over the purchaser's basis in the Note immediately after
such purchaser acquired the Note. In general, market discount on a Note will be
treated as accruing over the term of such Note in the ratio of interest for the
current period over the sum of such current interest and the expected amount of
all remaining interest payments, or at the election of the holder, under a
constant yield method (taking into account the Prepayment Assumption). At the
request of a holder of a Note, information will be made available that will
allow the holder to compute the accrual of market discount under the first
method described in the preceding sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire a Note at a market discount may 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.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is 0.25% of
the remaining principal balance of the Note multiplied by its expected weighted
average remaining life. If OID or market discount is de minimis, the actual
amount of discount must be allocated to the remaining principal distributions on
the Notes and, when each such distribution is received, capital gain equal to
the discount allocated to such distribution will be recognized.
Market Premium. A subsequent purchaser who buys a Note for more than its
principal amount generally will be considered to have purchased the Note at a
premium. Such holder may amortize such premium, using a constant yield method,
over the remaining term of the Note and, except as future regulations may
otherwise provide, may apply such amortized amounts to reduce the amount of
interest reportable with respect to such Note over the period from the purchase
date to the date of maturity of the Note. Legislative history to the Tax Reform
Act of 1986 indicates that the amortization of such premium on an obligation
that provides for partial principal payments prior to maturity should be
governed by the methods for accrual of market discount on such an obligation
(described above). Proposed regulations implementing the provisions of the Tax
Reform Act of 1986 provide for the use of the constant yield method to determine
the amortization of premiums. Such proposed regulations will apply to bonds
acquired on or after 60 days after the final regulations are published. A holder
that elects to amortize premium must reduce the tax basis in the related
obligation by the amount of the aggregate deductions (or interest offsets)
allowable for amortizable premium. If a debt instrument purchased at a premium
is redeemed in full prior to its maturity, a purchaser who has elected to
amortize premium should be entitled to a deduction for any remaining unamortized
premium in the taxable year of redemption.
Sale or Redemption of Notes. If a Note is sold or retired, the seller will
recognize gain or loss equal to the difference between the amount realized on
the sale and such holder's adjusted basis in the Note. Such adjusted basis
generally will equal the cost of the Note to the seller, increased by any
original issue discount included in the seller's gross income in respect of the
Note (and by any market discount which the taxpayer elected to include in income
or was required to include in income), and reduced by payments other than
payments of qualified stated interest in respect of the Note received by the
seller and by any amortized premium. Similarly, a holder who receives a payment
other than a payment of qualified stated interest in respect of a Note, either
on the date on which such payment is scheduled to be made or as a prepayment,
will recognize gain equal to the excess, if any, of the amount of the payment
over his adjusted
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basis in the Note allocable thereto. A Noteholder who receives a final payment
which is less than his adjusted basis in the Note will generally recognize a
loss in the amount of the shortfall on the last day of his taxable year.
Generally, any such gain or loss realized by an investor who holds a Note as a
"capital asset" within the meaning of Code Section 1221 should be capital gain
or loss, except as described above in respect of market discount and except that
a loss attributable to accrued but unpaid interest may be an ordinary loss.
Taxation of Certain Foreign Investors. Interest payments (including OID) on
the Notes made to a Noteholder who is a nonresident alien individual, foreign
corporation or other non-United States person (a "foreign person") generally
will be "portfolio interest" which is not subject to United States tax if such
payments are not effectively connected with the conduct of a trade or business
in the United States by such foreign person and if the Trust (or other person
who would otherwise be required to withhold tax from such payments) is provided
with an appropriate statement that the beneficial owner of the Note identified
on the statement is a foreign person.
Backup Withholding. Distributions of interest and principal as well as
distributions of proceeds from the sale of the Notes, may be subject to the
"backup withholding tax" under Section 3406 of the Code at 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 does not do so in the proper manner.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws 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 Noteholders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
STATE TAX CONSEQUENCES
In addition to the Federal income tax consequences described in "Certain
Federal Income Tax Consequences" herein, potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Notes. State income tax law may differ substantially from the corresponding
Federal tax law, and this discussion does not purport to describe any aspect of
the income tax laws of any state. Therefore, potential investors should consult
their own tax advisors with respect to the various tax consequences of
investments in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and/or Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans, and entities deemed to hold assets of
such plans (each, a "Benefit Plan") 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. A violation
of these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and the Code for such persons. ERISA also imposes
certain duties on persons who are fiduciaries of plans subject to ERISA Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a plan is considered to be a
fiduciary of such plan (subject to certain exceptions not here relevant).
In addition to the matters described below, purchasers of Notes that are
insurance companies should consult with their counsel with respect to the United
States Supreme Court case interpreting the fiduciary responsibility rules of
ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank
510 U.S. 86 (1993). In John Hancock, the 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. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
Class A Notes.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be "plan assets" of a Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets of
the Issuer would be treated as plan
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assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquired an "equity interest" in the Issuer and none of the
exceptions contained in the Plan Assets Regulation is 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. Although there is little guidance on
the subject, the Issuer believes that the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. This determination is based in part upon the traditional debt
features of the Notes, including the reasonable expectation of purchasers of
Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the Notes for ERISA purposes could change if the Issuer incurred
losses. However, without regard to whether the Notes are treated as an equity
interest for such purposes, the acquisition or holding of Notes by or on behalf
of a Benefit Plan could be considered to give rise to a prohibited transaction
if the Issuer or any affiliate thereof, is or becomes a party in interest or a
disqualified person with respect to such Benefit Plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the Benefit Plan fiduciary making the decision
to acquire a Note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions effected by "in-house asset
managers"; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers" Each investor using the assets of a Benefit Plan
that acquires notes, or to whom the Notes are transferred, will be deemed to
have represented that the acquisition and continued holding of the Notes will be
covered by one of the exemptions listed above or by another Department of Labor
Class Exemption.
Employee plans that are government 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; however, such plans may be subject to comparable restrictions
under applicable law.
Any Benefit Plan fiduciary considering the purchase of a Note should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment, including the need for and availability of
exemptive relief from the prohibited transaction rules. Moreover, each fiduciary
of a Benefit Plan subject to ERISA should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Notes is appropriate for the Benefit Plan, taking into account the overall
investment policy of the Benefit Plan and the composition of the Benefit Plan's
investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and _______________________ (an affiliate of the
Depositor), the Depositor has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Depositor, the principal amount of
the Notes set forth on the cover hereof. Distribution of the Notes will be made
by the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. In connection with the sale
of the Notes, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.
The Depositor has been advised by the Underwriter that it intends to make a
market in the Notes; however, the Underwriter has no obligation to do so.
Accordingly, there can be no assurance that a secondary market for the Notes
will develop or, if it does develop, that it will continue.
The Underwriter proposes to offer the Notes in part directly to purchasers
at the initial public offering prices set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such prices
less concessions not to exceed _______%, ________%, ______%, ______%, ______%,
_____% and _______% of the respective Class Principal Balances of the Class A-1,
Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B Notes. The
Underwriter may allow, and such dealers may reallow, concessions not to exceed
_______%, ______%, _______%, ______%, ______%, ______% and ______% of the
respective Class Principal Balances of the Class A-1, Class A-2, Class A-3,
Class A-4, Class M-1, Class M-2 and Class B Notes to certain brokers and
dealers. After the Notes are released for sale to the public, the offering price
and other selling terms may be varied by the Underwriter.
Until the distribution of the Notes, is completed, rules of the Commission
may limit the ability of the Underwriter and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriter
is permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
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Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Depositor nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
After the initial public offering of the Notes, the public offering price
and such concessions may be changed.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
An affiliate of the Underwriter and the Depositor has significant
contractual relations with ______ and provides periodic funding of its
origination of mortgage loans, including the Loans. Accordingly, a portion of
the proceeds payable to ______ will be paid to such affiliate in connection with
the sale of the Loans.
LEGAL INVESTMENT MATTERS
The Notes will not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because a
substantial number of the Loans are secured by liens on real estate that are not
first liens. Accordingly, many institutions with legal authority to invest in
"mortgage related securities" may not be legally authorized to invest in the
Notes.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the Notes or to purchase Notes
representing more than a specified percentage of the investor's assets.
Investors should consult their own legal advisors in determining whether and to
what extent the Notes constitute legal investments for such investors.
LEGAL MATTERS
Certain legal matters will be passed upon for the Underwriter by
_______________________. Certain legal matters will be passed upon for the
Depositor and for ______ by ____________________________________.
RATINGS
It is a condition to the issuance of the Notes that each of the Class A-1,
Class A-2, Class A-3, and Class A-4 Notes be rated "[AAA]" by [Fitch] and
"[Aaa]" by [Moody's]; and that the Class M-1 Notes be rated "[AA]" by [Fitch]
and "[A2]" by [Moody's], the Class M-2 Notes be rated "[A]" by [Fitch] and
"[A2]" by [Moody's] and the Class B Notes be rated "[BBB]" by [Fitch] and
"[Baa3]" by [Moody's].
The ratings on the Notes address the likelihood of the receipt by the
holders of the Notes of all distributions on the Loans to which they are
entitled. The ratings on the Notes also address the structural, legal and
issuer-related aspects associated with the Notes, including the nature of the
Loans. In general, the ratings on the Notes address credit risk and not
prepayment risk. The ratings on the Notes do not represent any assessment of the
likelihood that principal prepayments of the Loans will be made by borrowers or
the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, the initial ratings assigned to the Notes
do not address the possibility that holders of the Notes might suffer a lower
than anticipated yield in the event of principal payments on the Notes resulting
from rapid prepayments of the Loans or the application of Excess Spread as
described herein, or in the event that the Trust is terminated prior to the
Final Maturity Date of the Classes of Notes. The ratings on the Notes do not
address the ability of the Trust to acquire Subsequent Loans, any potential
redemption with respect thereto or the effect on yield resulting therefrom.
The Depositor has not solicited ratings on the Notes with any rating agency
other than the Rating Agencies. However, there can be no assurance as to whether
any other rating agency will rate the Notes, or, if it does, what rating would
be assigned by any such other rating agency. Any rating on the Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Notes by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to any
of the Notes by the Rating Agencies are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to such Notes.
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No dealer , salesman or other person has been authorized to give any information
or to make any representations other than those contained in or incorporated by
reference in this Prospectus Supplement or the Prospectus and, if given or made,
such information or representations must not be relied upon. This Prospectus
Supplement and the Prospectus do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities in any
state or jurisdiction in which, or to any person to whom, such offer would be
unlawful. The delivery of this Prospectus Supplement or the Prospectus at any
time does not imply that information herein or therein is correct as of any time
subsequent to its date.
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TABLE OF CONTENTS
Page
----
Prospectus Supplement
Incorporation of Certain Documents by Reference ..........................
Summary ..................................................................
Risk Factors .............................................................
The Trust ................................................................
The Pool .................................................................
- -------------------.......................................................
- ---------- ...............................................................
Description of Credit Enhancement ........................................
Description of the Notes .................................................
Description of Transfer and Servicing Agreement ..........................
Prepayment and Yield Considerations ......................................
Certain Federal Income Tax Consequences ..................................
State Tax Consequences ...................................................
ERISA Considerations .....................................................
Method of Distribution ...................................................
Legal Investment Matters .................................................
Legal Investment Matter ..................................................
Legal Matters ............................................................
Ratings ..................................................................
Prospectus
Summary of Prospectus .................................................... 5
Risk Factors .............................................................
Prospectus Supplement .................................................... 3
Reports to Holders ....................................................... 3
Available Information .................................................... 3
Incorporation of Certain Documents by Reference .......................... 4
Summary of Prospectus .................................................... 5
Risk Factors ............................................................. 15
Description of the Securities ............................................ 18
The Trust Funds .......................................................... 22
Credit Enhancement ....................................................... 27
Servicing of Loans ....................................................... 30
The Agreements ........................................................... 36
Certain Legal Aspects of the Loans ....................................... 43
The Depositor ............................................................ 51
Use of Proceeds .......................................................... 51
Material Federal Income Tax Consequences ................................. 51
State Tax Considerations ................................................. 63
ERISA Considerations ..................................................... 63
Legal Investment ......................................................... 66
Plan of Distribution ..................................................... 66
Legal Matters ............................................................ 66
Glossary of Terms ........................................................ 67
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_______________ TRUST ________
$________ Class A-1,
________% Home Loan Asset Backed Notes
$________ Class A-2,
________% Home Loan Asset Backed Notes
$________ Class A-3,
________% Home Loan Asset Backed Notes
$________ Class A-4,
________% Home Loan Asset Backed Notes
$________ Class M-1,
________% Home Loan Asset Backed Notes
$________ Class M-2,
________% Home Loan Asset Backed Notes
$________ Class B,
________% Home Loan Asset Backed Notes
________% Home Loan Asset Backed Notes
HOME EQUITY SECURITIZATION CORP.
(DEPOSITOR)
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PROSPECTUS SUPPLEMENT
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